L4M6- Chapter 2- Processes for working with stakeholders Flashcards
What are the 4 Es of Value of Money?
Economy- minimising costs
Efficiency- relationship between output of the product and resources to produce it
Effectiveness- extent to which objectives are met
Equity- services are freely available
What typical factors define value for money?
Fitness for purpose
Quality
WLC
Risk
ESG
Organisational goals
What are the different types of stakeholder?
Internal e.g. employees, managers
External - Competitors, communities, government
Connected- suppliers, customers, clients
What is value for money?
Most advantageous combination of price and quality that makes a product or service fit for purpose
Lowest possible price does not mean value for money
Often assessed through the 4 Es
How can lack of compliance with process affect the procurement of an organisation?
Known as value leaking
Lack of formal contracts meaning you don’t have the best commercial agreement organisation wide
Maverick buying- Not adhering to business processes like thresholds for tendering/ stakeholder management
No specification means you could end up procuring a product that is not fit for purpose
lack of consistency which could breach corporate rules
What is value mapping?
A process in which value is created by reducing or eliminating waste and operational inefficiencies
How can procurement add value in defining the need in procurement?
Make or buy decisions
Cross functional support
Requirement is met (not over specified)
Review where branded can be replaced by non branded
Standardisation
Specification requirements
Suppliers to involve
Processes
How do you do market analysis?
Porters 5 forces
Review monopoloies, duolpoly etc
Levels of demand (e.g. seasonality)
How can procurement add value in developing the strategy?
Having a strategic approach to procurement is often done via category management
Conduct spend reviews across departments rather than a silo area
Aggregation of demand and consolidate spend
SRM
Improved risk management
Specialist market knowledge
How can procurement add value in contract management?
Effectively deal with issues management
Innovation/collaboration with the supplier
Reduce waste
Risk reduction
Normally these are checked through audits
A stage of the procurement cycle is supplier identification, how is this different across private, public and third sector organisations?
Private and TSO has total flexibility and can use- internal knowledge, supplier lists, internet, trade shows, networking, adverts, vendor managed solutions
Public sector has to be more transparent and follow processes- e.g. advertising to OJEU and follow set processes
What is a PIN?
Prior information notice
In the public sector you may want to gauge the interest/capacity of the market by issuing an intent to tender and let suppliers know of a future tender
What is CPV?
Common procurement vocabulary codes- Numerical classifications for products and services. Aim is to standardise the codes so they are common for what you are purchasing
What is competitive bidding and when should it be used?
Competitive bidding is a common practice for procurement that involves inviting multiple vendors to bid for the same material, product, or service per the business’s requirements
WHEN TO USE:
Sufficient value of item
Clear specification so bids can be fairly compared
Competition amongst good suppliers
Enough time for the process
WHEN NOT TO USE:
Not possible to get firm prices
Specification is fluid/changes
Price is not the main driver
Set up times are prohibitive
Unethical market forces
Why would an RFI be used?
Used for supplier selection in the procurement cycle
Aim to create a shortlist of suppliers that will be invited to the next stage
Could be sent to suppliers who have responded to a PIN
Used when theres a high number of suppliers who can fulfil the requirement but the capability of the supplier is unknown
What info is typically asked for in an RFI?
Information on previous relevant contracts
Financial info e.g. profit and loss account
Insurances
Accreditations
Acceptance to payment terms
H&S requirements
What is different between private and public sector for supplier selection?
In the public sector selection is much more regulated:
- Must be transparency in the process of procurement
- Equal treatment of suppliers
- Non discrimination
- Proportionality
There are advertising requirements in the public sector
Often there will be requirements based on size of tender, e.g. a £10k plus contract needs 3 bids (as 2 bids doesn’t give adequate context to what is too cheap)
In the public sector restricted tender processes are used vs competitive (or total flexibility to do what you want) in private
Rules on when PQQs need to be sent in public sector as part of restricted tender process (usually 30 days)
What is a restricted tender process?
Used in public sector to assess, pre qualify and select suppliers
It is a 2 stage process
1) Initial PQQ creates a shortlist
2) Shortlisted suppliers invited to tender
Used when the number of suppliers in a marketplace who can fulfil a need is known to be high, or totally unknown.
How does award criteria work in the private sector?
Send an RFP/RFQ
Need to have detailed info from the supplier on production, risk and pricing
The buyer will evaluate often using weighted scores
Cross functional teams are usually involved to ensure stakeholders are represented
E-auctions may be used on leverage items to lower prices of qualified suppliers- particularly if a number of suppliers have quoted very similar prices. However, you would need to inform suppliers at the start of the tender process that you are going to use e-auctions.
Can also involve rounds of negotiation with qualified suppliers
What types of tender can be conducted? (5 things/criteria)
After the PQQ there are 5 ways that a public sector can use (EU related)
1) Open tender- one stage process, similar to RFP/ITT- used when there are fewer suppliers so shortlisting is not needed. Normally this has no PQQ
2) Restricted tender- Following from the PQQ you have a short list and send an RFP.
3) Competitive procedure with negotiation- Can include a PQQ, shortlisted bidders submit a tender followed by subsequent rounds of negotiation and tender. Then a final tender is submitted which cannot be negotiated
4) Competitive dialogue- Buyers have complex requirements and several phases of negotiation are required. Likely that through the process the spec and T&Cs will be modified. Suppliers will then submit final tenders. This is the only one where negotiation can occur after submission of the final tender.
5) Innovation partnership- allows for R&D where suppliers submit ideas to develop the required innovative products (where no suitable product is currently available)
You can also procure from pre established framework set up (but in this example the supplier selection has already been completed)
What tool can be used for stakeholder mapping?
Mendelow matrix
Power vs Interest
Example of procuring new uniform:
Minimum effort- the cleaners of the uniform
keep satisfied- HR team who manage staff who will be wearing the uniform
keep informed- Those who will wear the uniform
manage closely (key player)- head of marketing/branding
What are the advantages of stakeholder mapping?
Identifies key stakeholders and how they should be managed/prioritised
Level of communication and type of communication required
When managed correctly positive relationships are likely to be better
What are the limitations of mendelow/stakeholder mapping?
Does not consider if the stakeholder is a supporter or against the project
It is subjective so could underestimate players interest
It only provides a snapshot in time
Could result in bias in selection of strategies to satisfy a certain group
How can you use a matrix to assess whether someone supports a project?
Used in synergy with mendelow you can create a matrix that helps overcome resistance
It has 2 axis:
1) influence on other stakeholders
2) Stance on project
Silent opponents bottom left
Negative leaders top left
Promoters top right
Supporters bottom right
How can procurement influence a stakeholder group with an opposing view?
You cannot change the power of a stakeholder, but you can influence their stance
Persuade them on the merits of the project
addressing the reasons they are resistant
Communicate the proposed benefits
Identify senior promoters and engage them further
Put yourself in the place of the stakeholder and understand the drivers of resistance
What is the Kubler ross model?
Historically used for the stages of grief, it can be used for the stages an individual goes through with change
3 stages:
1) Shock and denial
2) Anger and depression
3) Acceptance and integration
What is a force field analysis?
Identifies driving forces for a project or procurement activity as well as restraining forces. Restrain want to maintain the current situation.
What is the Thomas-Killmann model and when is it used?
Matrix to understand the different conflict management styles to cope with identified or emerging conflict (it links to win-win, win-lose etc)
It assesses:
1) Concern for self (assertiveness)- satisfy a persons own needs
2) Concern for others (cooperation)
Top left = Competing
Top right = Collaborating
Middle = Compromise
Bottom left= avoiding
bottom right = accommodating
What are the 5 methods that can be used to manage conflict?
Competing
Collaborating
Compromising
Avoiding
Accommodating
What is Tuckmans team and group development model?
5 key stages to a team development and are considered inevitable for a team to grow
Forming- uncertainty, meeting the team, learn about each others skills/competency and becoming familiar
Storming- A lot of change and competition for acceptance of their ideas and their status, so you may see some performance decline
Norming- Team improves and work together, ways of working are clear
Performing- Delivering benefits and meeting its objectives
Adjourning- Completion and moving onto new projects
What are the characteristics of a team that are not working together effectively?
Poor comms
lack of clarity on roles
Blame culture
Lack of focus
Not meeting deadlines
Low quality work
Conflict
Low level of motivation
Low level of trust
What is ESI?
Early supplier involvement- Involvement of the supply in product development process from a very early stage in order to use the suppliers experience and expertise
What is cost modelling?
A process that buyers use to understand all of the costs that make up a suppliers price
What are the benefits of accurate cost modelling?
Allows buyers to understand the make up of suppliers costs
Understanding of the suppliers pricing strategy
Increases buyers ability to negotiate
Help identify saving opportunities
Accuracy in costs vs when cost modelling has not been done
What are the 5 key principles to accurate cost models?
1) Capture cost drivers- e.g. not just labour cost but things like minimum wage which drive the cost
2) Build commodity specific models
3) Consider whole life costs
4) Start with a simple model and build complexity if/when required
5) Triangulate around data to improve accuracy (use multiple sources)
What does price inelastic mean?
When demand for a product or service is unaffected by an increase in price
What is forward buying?
Buying a greater quantity than the volume currently required to avoid future price rises
What is an option?
A form of hedging where an organisation takes out an option to buy or sell at a given price on a given day
What is a futures contract?
A form of hedging where the organisation takes out a contract to buy or sell at a given price on a given day
What is ESI and how does it add value?
Early supplier involvement
Used for suppliers on the right hand side of the CIPS relationship spectrum
Often long term and cross organisational
It can result in a superior end product or service with greater value than either party could create alone
Handfields model of ESI is made up of what?
It shows the increase in responsibility as you move from no supplier involvement in product development up to full involvement
None- Supplier makes to print
White box- Informal supplier integration
Grey box- Joint development
Black box- Primarily supplier driven based on buyers spec
What are some benefits of ESI?
Supplier brings knowledge and innovation opportunities
Overall quality can be improved
Performance can be improved
Product development costs can go down
Speed to market
Enhanced supplier relationships
What are some drawbacks of ESI?
Managing the relationship and communications can be difficult
If there is a relationship breakdown it may be hard to get the required products/services in the future
It takes time and resources to select the right supplier
What are the advantages and drawbacks of knowledge transfer between buyer and supplier?
ADV
- can lead to cost savings, profitability, competitive advantages and innovation
- Development of the supplier relationship
- Improvement to current products and services
DISADV
- IPR risks (intellectual property rights)
- Knowledge shared with a supplier who also supplies a competitor has risk
What is IPR? What are the four types
Intellectual property rights- Protection of assets created through human intellect such as inventions, literacy, artistic work etc. They may be protected by trademarks and copyright.
1) Patents
2) Copyrights
3) Trade secrets
4) Trademarks
Why is knowledge transfer to suppliers difficult in the public sector and what can they do about it?
There are greater regulations limiting what a buyer can do.
They could use a dynamic purchasing system.
What is a dynamic purchasing system?
A contract agreement similar to a framework contract. Suppliers are organised by the types of goods they produce and suppliers can be activated at any time during the life of the contract or may not be activated at all.
Can cause lack of interaction, over specification, lack of willingness to embrace tech, poor management
As well as looking at common KPIs (e.g. cost) what are the six qualitative measures for measuring a supplier/buyer relationship?
TPTCCC
They are qualitative making them harder to measure but could be scored 1-5 based on feeling.
1) Trust
2) Power- relates to who is dependent on who
3) Transparency
4) Communication
5) Commitment
6) Cooperation
What is BCP?
Business continuity planning
A plan to recover from disruption in the fastest possible way
What is force majeure?
French for superior force
Normally included in a contract limiting liability if a party cannot fulfil that contract due to genuinely unforeseen circumstances e.g. an earthquake
There are 4 stages to business continuity planning (aka risk management), what are they?
Identify- risk mapping
Assess- probability of occurrence vs impact
Rank- focus on high priority
Manage- depends on risk apetite
How can you do a risk mapping exercise?
It is all about understanding the supply chain so the first step is to map it out:
- Who are critical suppliers
- Are there any single points of failure
- Are there internal dependencies e.g. an IT system procurement need
What is supply base rationalisation?
Normally to cut costs, a buyer will rationalise to using 1 supplier rather than multipl
What is SPOF?
Single point of failure- a weakness in a system where there is no immediate remedy e.g. a sole source agreement
What is an escrow account?
A third party account used to facilitate international transactions, managing the flow of trust and funds through an intermediary often through a letter of credit
Can use escrow agreements to ensure continuity of supply
What is a letter of credit?
An agreement between the buyer and sellers banks to transfer funds in exchanged for goods or services once valid documents have been presented
What are the advantages and disadvantages of risk mitigation/ securing continuity?
ADV
- Ensures survival of the business
- Minimised financial losses from production stops
- Supports good marketplace reputation
- Encourages monitoring and planning which is good business practice
DISADV
- Risk may be unknown until it happens
- Risk management can be costly, time consuming
- Risk may never materialise
Why might a relationship need to be terminated?
Contract comes to an end and there is no further need/ not formally extended
Retendered contract means you have a more competitive offer so want to switch
Supply base rationalisation
No longer commercially viable (supplier puts up prices)
Material breach of contract (e.g. poor performance)
Supplier is insolvent
Supplier is acquired by another
Supplier ends contract
Contract frustration
What is contract frustration?
As a result of an unforeseen incident beyond either party’s control the obligations of the contract cannot be performed.
This is part of UK law and can be avoided by added force majeure clauses
What is mediation?
A neutral third party who encourages buyers/suppliers to not just think about legal rights with regards to contracts but the commercial ones. Aims to reach a compromise
What is arbitration?
Settling of a dispute by a third party. A buyer/supplier may agree the third party as part of the contract and agree on their decision being final
What are service credits?
A contract mechanism for performance management. If a supplier fails to meet the standard set in the service credits the buyer has the right to deduct set amounts of money from the payments owed to the supplier
What is Handy’s 4 organisational cultures?
Power- Small businesses generally where the founder dominates
Role- Roles have clear rules and procedures and the individual knows there position in the hierarchy- for organisations that are medium-large in a stable environment
Task- Focus is on specific tasks and projects e.g. marketing organisations
Person- People act independently where people have high level of expertise
When does selection and award criteria happen?
After a pre selection process (e.g. PQQ/RFI) you will move to the selection stage via an RFP/RFQ
Award criteria are the elements of the RFP used to assess which supplier has provided the best price/quality
How does an RFP help a buyer make their selection?
Detailed info on how the supplier will produce products and include method statements
Risk assessments
Full pricing information
What is a method statement?
describes, in a logical, step-by-step manner, how a specific task should be done. Often used in high risk scenarios
What is an open tender?
One stage process
Fewer suppliers in the marketplace so shortlisting is not required
No required PQQ
What is a restricted tender?
PQQ generates shortlist
RFP sent to those who qualify
What is a competitive tender with negotiation?
Can include a PQQ
Shortlisted suppliers submit a bid to tender
There will then be rounds of tender and negotiation conversations
Once final submission is sent there is no further negotiation
Time consuming
What is a competitive dialogue tender?
Complex requirement so several phases of negotiation are required
Starts with PQQ
Spec and T&Cs may be updated throughout negotiations
Further negotiation is may be required after submission of final bid (ONLY ONE THIS IS ALLOWED)
What is an innovative partnership procedure?
R&D focus
Final purchase must correspond to pre agreed levels of performance and maximum costs
No negotiation is permitted after submission of final bid
What is perfect competition?
the situation prevailing in a market in which buyers and sellers are so numerous and well informed that all elements of monopoly are absent and the market price of a commodity is beyond the control of individual buyers and sellers.
What should be done before ESI begins?
To mitigate risk the buyer should ensure that the relationship is covered by a contract to set out the ground rules
This should include an NDA
Key roles and responsibilities
How payment will work
Clarify ownership of IP rights (Intellectual property rights)
What are porters generic competitive strategies?
Assesses scope vs source of competitive advantage
Cost leadership- Low cost producer
Cost focus/ Differentiation focus- Focus strategy provides the option to use cost leadership or differentiation within a niche market.
Differentiation- unique in the industry
What is the difference between a patent, copyright and trademark?
A patent protects new inventions, processes, or scientific creations, a trademark protects brands, logos, and slogans, and a copyright protects original works of authorship.
What is groupthink?
This is where teams desire agreement and consensus which actually reduces the problem solving ability of the team
What is demand driven inflation and what is supply driven inflation?
DDI = Increase in demand
Dealt with via monetarist economic principles- influence the amount of money in circulation
SDI= Prices rise due to a lack of supply
Dealt with using Keynesian economic principles- government spending to control economy
What are the benefits and drawbacks for the buyer of knowledge transfer with suppliers?
Benefits:
- Cost, profitability
- Communication and relationships can result in greater innovation
- Improvement in current products
- Value of procurement to wider business
- Develop cultural change internally
Drawbacks:
- Management of IPR is a risk
- Could have information passed on opportunistically to suppliers
What are the 4 steps to business continuity planning?
Risk identification
Risk assessment
Risk ranking
Risk management
How would you identify risk?
Review suppliers and see if they or subcontractors are subject to high risk (e.g. geography)
Understand SPOF
Assess your supply base rationalisation
How would you assess risk?
Probability of occurrence vs impact
Kraljic matrix
How can risk be reduced?
Include key stakeholders in supplier qualification
Dual sourcing
Hold stock to reduce risk of force majeure
Enter escrow agreements (3rd party holds funds)
What is litigation?
Settling of a dispute using a legal court or judiciary
What is ADR?
Alternative dispute resolution
Any method of resolving a dispute that does not require court action
It could include arbitration, escalation, mediation
What is the difference between mediation, reconciliation, arbitration and litigation?
Mediation is a third party encouraging compromise to settle a dispute
Reconciliation is a process to bring parties in conflict back together again and resolve issues
Arbitration the settling of a dispute by a third party (agreement to accept the decision is made)
Litigation is the settlement of a dispute by a court of judiciary
