L4M8- LO2- Application of the procurement process Flashcards
What is a requisition?
An internal document raised by a user or a store to communicate to procurement the need to buy the product or service specified
What are the 4 types of raising a requisition? what are the adv and disadv of each?
VERBAL
Quick, personal
Open to interpretation, easily forgotten, no trail, human error
HANDWRITTEN
Has detail, informal, quantity stated, no need for tech
Risk of lost, waste of paper, no ownership, still has error
EMAIL
Quick, full details, permanent
Impersonal, may not be read, risk of human error
AUTOMATED
Fast, efficient, pre authorised, cost effective, low risk of human error
Impersonal, investment in tech
What is an MRP system and what are the 3 main goals?
Materials requirement planning system- Commonly used in the private manufacturing sector and removes the human element of monitoring and ordering stock
- Ensure availability as required
- Keep inventory as low as possible
- Plan manufacturing, procurement and delivery schedules
What does an MRP system use to generate requisitions?
BOM- Bill of materials- list of components that form the end product
MOQs- amount procurement has to order
Current stock levels
Sales demand or planning run
Cycle time- time taken to produce the end product (starts at component delivery and finished when the product is ready for dispatch)
Lead time- amount of time it takes a supplier to deliver goods after receiving the order
What are porters 5 forces?
Competitive rivalry
Threat of new entrants
Threat of substitutions
Power of buyers
Power of suppliers
What is monopolostic competition?
a type of market structure where many companies are present in an industry, and they produce similar but differentiated products e.g. restaurants
What is a monopoly?
One company dominates the market
Pricing is controlled by one company
Competition is almost impossible
Imperfect competition
What is an oligopoly?
A few companies dominate the market
Pricing is controlled by a few companies
Very difficult to compete
Example is the big consultancy firms
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.
In perfect competition ability to negotiate is high and levels of competition are high
Perfect comp > monopolistic comp > oligopoly > monopoly
What is supply and demand and how do they interact?
Supply = amount available
Demand = Desire from buyers for it
If demand increases and supply remains the same there is a shortfall and the price will go up
If demand decreases and supply remains the same a surplus occurs and the price goes down
Ideal market is where they are equal
Example to remember is the potato market- supply went down so the real terms demand went up, meaning the price went up
Other example is the regulators claims of profiteering by supermarkets
What is a push and pull strategy?
Can be used to analyse the market
In a push strategy buyers place orders in response to requisitions that have been raised against forecasted sales. Example would be procuring cold weather clothing in time for a cold winter.
Push = forecasts
In a pull strategy JIT models are usually used. Needs are requested as and when they are required.
Pull = reacts to demand
What are the stages of the product life cycle (and BCG matrix)?
Intro/?
Growth/ star
Maturity/ Cash cow
Decline/ Dog
Think about something like the playstation or technology, start people want it, then demand becomes more wide, then its popular for a while before the new one starts to be planned and demand for the original declines
What is the ansoff matrix?
Used to analyse and test the market. A strategic planning framework to help businesses develop and decide upon strategies for their growth.
New/ existing are the 2 options on both axis and it looks at markets and products
New new- Diversification strategy
New market existing product - Market development strategy
New product existing market- Product development strategy
Existing existing- market penetration strategy
What is ESI and when is it used?
Early Supplier Involvement- discussing the product development process from a very early stage in order to use the suppliers experience and expertise
Do it with collaborative and strategic suppliers in order to benefit from their expertise
Examples could be technical advice, cycle times, lead times, cost of production, quality, potential problems, risks, supply chains, life cycles
What are the ADV and DISADV of ESI?
ADV
Reduces costs for buying organisations
Improves spec
Enhances quality
Access to technology
Promotes innovation
Expert knowledge
Reduces development time
Shares risk
Awareness of supplier costs
DISADV
Supplier could influence the buyer
Reliance on the supplier
Loss of control of the product
IP risk
Market may have knowledge of the plan
What is the outsource matrix?
Strategic importance vs contribution to operational performance
Eliminate
Strategic alliance
Outsource
Retain
When is outsourcing acceptable?
When the product is not core to the organisation
When the workload is a temporary addition
Requirement is beyond the skills of the organisation
When the product/service is currently generating a loss
When the product/service can be provided more effectively through an external provider
What is offshoring and why would you do it?
Relocating of a business or processes to a country where cost of production is lower
Often it is where countries have a weaker economy so can offer a lower price
e.g. Lower cost of living, lower rates of pay, weaker currency, lower overheads,
What are the ADV and DISADV of offshoring?
ADV
Reduced price
increased profit
Help a weak economy
Favourable government policy
Access to raw materials
DISADV
Loss of control
Risk of IP
Ethical concerns
Environmental concerns
Loss of jobs in home country
What does a weak currency mean?
A weak currency refers to a nation’s money that has seen its value decrease in comparison to other currencies. Weak currencies are often thought to be those of nations with poor economic fundamentals or systems of governance.
They can include a high rate of inflation, chronic current account and budget deficits, and sluggish economic growth.
Nations with weak currencies may also have much higher levels of imports compared to exports, resulting in more supply than demand for such currencies on international foreign exchange markets if they’re freely traded.
What is the difference between an ITT and an RFQ?
ITT
Document sent to invite bids
Formal
Suppliers pre evaluated
Used when purchasing complex products or services
High value
RFQ
Invites quotes
Informal
Suppliers not pre evaluated
Purchasing standard or regularly used goods
Low value products
How would you identify the suppliers who can be considered in a supplier selection?
Existing relationships
Internet searches
Prior knowledge
Trade shows
Recommendations
Marketing material
Direct approaches
What are the ADV/ DISADV of using a supplier in the selection process that is an existing relationship?
Think of the Muller agreement with Milk tender
ADV
Existing trading relationship
Awareness of policies and procedures
Due diligence already done
Reduced risk of unknown
Knowledge of systems or technology
Possibility of economies of scale or shared innovation
DISADV
Reduced scope for negotiation
reduced competition
Could be better suppliers available
Over reliance
Reduced innovation focus possibly
What should be researched about the potential suppliers once they have been selected?
Financial performance
Organisational structure
Culture
Ethical policy
CSR
Sustainability
Environmental awareness
Reputation
Quality
Global accreditations
Location
Technology
How can an organisations financial performance be evaluated?
Credit ratings
Statement of financial position
Reviewing liquidity
Reviewing profitability
Requesting references from other suppliers
Gearing analysis
WHy would financial difficulties of a supplier affect the buying organisation?
Over reliance
Low quality
Lack of supply
Delays
Price increases
Failure to supply
What are non current assets?
Non-current assets are a company’s long-term investments that are not easily converted to cash within a year.
What is a statement of financial position?
Financial documents that list all of an organisations assets and liabilities at a set point in time
An organisation in a strong financial position will have assets with a higher value than its liabilities
What ratios can be used to assess a suppliers liquidity?
Current ratio- ability to pay short term financial obligations. Want it to be above 1.
Quick ratio- AKA Acid Test. Can an organisation meet creditors immediate (short term) demands. Also want it to be above 1
What are the types of organisational structure?
Flat- No or very few layers between the employees
Hierarchical- larger organisations and include many layers, from junior up to CEO
Matrix- table like structure reporting into multiple leaders
Virtual- Everyone can communicate with everyone without going through a central point
What are the differences between flat and hierarchical structures?
FLAT:
Good communication
Good relationship between seniors and staff
Fast decision making
Easy for organisation to develop
Employees have high levels of responsibility
Can create confusion if you dont have a specific manager
Lack of specialists
Little chance of promotion
HIERARCHICAL
Comms may be harder
Limited relationship between staff and seniors
slower decision making
Harder for change to happen
Employees have lower levels of responsibility
Clear levels of authority
Employees can specialise
Lots of promotion
What are the 4 cultural dimensions of Handy?
Power- Key decision makers e.g. in a small organisation. Dominance of individuals, active owner involvement
Role- clear roles and procedures, medium organisations, lack innovation
Task- Specific tasks/projects, high pace, team orientated
Personal- Freedom to act independently, entrepreneur driven
What should be included in an ethical document when assessing potential suppliers?
Bribery
Corruption
Fraud
Human Rights
Modern Slavery
Working Conditions
Conflicts of interest
What is ESG and CSR?
ESG= Environment, social, Governance- a measurable sustainability assessment, similar to CSR but more measurable. Overall it is a policy that promotes sustainability and good ethical conduct.
CSR= Corporate Social Responsibility- An organisational sustainability framework to embed into strategy and operations to have a positive global impact
ESG and CSR policies should outline an organisations positive contribution to what?
Customers
Consumers
Investors
Community
What would an ESG policy include?
Legality- respecting the law, following policy, ensure legitimacy, be open
Business ethics- Code of conduct, ILO, respect, anti bribery
Protecting the environment- recycling, disposal, sustainable energy
Protecting people- Does not risk the health and safety of employees, supports ED&I
Charity work- education and community events
What is ED&I?
Equality, diversity and inclusion
Ensuring that every individual has ffair and equal treatment in opportunities, regardless of their background, identity or experiences.
What is TQM?
Total quality management- long term strategic approach to business where the focus is on customer satisfaction. It includes everyone in the organisation and encourages them to work together to improve processes, services, product and culture.
e.g. Processes, customer satisfaction (Ocado would be NPS), total employee commitment (ocado would be Grapevine), strategic thinking, continuous improvement, effective comms
What are some examples of global accreditations?
ISO9001- Quality Management
ISO14001- Effective environmental management
ILO
BRC- British retail consortium- for food, packaging, storage, retail
When is a tender appropriate?
Large or complex project
Law requires it (e.g. in some public sectors)
Company policy states it
Large value
Large selection of bids
There are lots of suppliers
