Learning Objective 05 - Procurement Flashcards
Understand procurement as securing the provision of resources, choosing strategies for obtaining best value from supply chains.
What are the three purposes of a procurement strategy?
To ensure that:
* budgets are not exceeded
* the investment provides the return or benefit that was originally intended
* the investment aligns with the bigger-picture strategy of the organisation
A procurement strategy is essential for managing resources effectively in any organization.
What are the three typical components of a procurement strategy?
A procurement strategy typically includes:
* make or buy decision
* supplier selection
* decision on contractual relationship
These components help in documenting the process for acquiring goods and/or services.
What is a ‘make or buy’ decision?
A decision on whether goods or services should be manufactured or supplied in-house or procured from external sources, considering:
* the specifications required
* the capacity, speed and availability of goods/services
* the required quality aspirations
* internal and external stakeholder engagement
This decision considers specifications, capacity, quality aspirations, and stakeholder engagement.
What are the seven stages of a supplier selection process?
The stages include:
1. Research the market
2. Pre-qualify suppliers
3. Issue an invitation to tender (ITT)
4. Respond to queries from bidders
5. Receive and evaluate the bids
6. Award a contract
7. Enter into contract and contract administration
Each stage ensures that supplier selection is effective and transparent.
What does BATNA stand for?
Best Alternative To a Negotiated Agreement
BATNA refers to the best fallback position if negotiations do not lead to an agreement.
What is ZOPA?
Zone of Possible Agreement, the bargaining range where both parties’ minimum targets for an acceptable outcome overlap
Final agreements can occur anywhere within this zone.
What is a ‘Win-Win’ negotiation approach?
A collaborative approach where both parties reach a mutually beneficial agreement
It involves problem-solving, communication, and trust.
What are the four standard forms of contractual relationship?
Single Contract
Parallel Contracts
Sequential Contracts This is when one activity is dependent upon the completion of the one immediately prior to it. This involves holding multiple contractual relationships.
Prime Contracts This is when a supplier sub-contracts to other suppliers of specific goods and/or services. This involves holding one contractual relationship.**
It involves problem-solving, communication, and trust.
What is a single contract?
The simplest form of contractual relationship where a client buys goods and/or services from one supplier
This involves holding one contractual relationship.
What are the features of parallel contracts?
Multiple suppliers providing the same or similar goods and/or services at the same time
This involves holding multiple contractual relationships.
What are the features of sequential contracts?
This is when one activity is dependent upon the completion of the one immediately prior to it. This involves holding multiple contractual relationships.
This involves holding multiple contractual relationships.
What is a fixed price contract?
The agreed price is based on an agreed scope of work.
The risk of running overtime lies with the supplier.
The price may be higher due to the higher risk for the supplier.
It is suitable where scope is clearly defined, and where a transactional relationship is preferred or tolerated
It is suitable where the scope is well-defined.
What is a contract target cost/price
contract?
This is an incentivised collaboration, where the target cost or price is agreed upfront, and both the client and supplier work together to achieve it.
Risk is shared between parties at an agreed rote.
It is suitable where contractual relationships are collaborative and where there are opportunities to incentivise collaborative ideas.
It is suitable where the scope is well-defined.
What is a cost plus contract?
The client pays the actual cost of work plus an agreed amount for supplier overhead and profit.
The profit could be a percentage (lower risk tor supplier) or o fixed fee (higher risk for supplier).
It is suitable when an earlier start on site is required, and the scope is still being developed. This can be suitable tor emergency or urgent works.
It is suitable where the scope is well-defined.
What are the features of prime contracts?
This is when a supplier sub-contracts to other suppliers of specific goods and/or services. This involves holding one contractual relationship.
This involves holding multiple contractual relationships.
What are the four usual methods of supplier reimbursement?
Methods include:
* Fixed price
* Cost plus
* Time and materials/unit price
* Contract target cost/price
Each method has different risk allocations and suitability based on project specifics.
What is a time and materials/unit price contract?
- The client pays per unit.
- The risk of running overtime lies with the client.
- It is suitable when the specification is vague, because it allows the scope to evolve over time.
It is suitable where the scope is well-defined.
Fill in the blank: The _______ is the overlap between the project maximum and the supplier’s minimum target values.
ZOPA
What are two elements of a project’s procurement strategy?
Elements include:
* Make or buy decision
* Supplier selection process
* Decision on Contractual Relationship
Other elements may include conditions/forms of contract and methods of supplier reimbursement.
True or False: The client pays per unit in a time and materials/unit price reimbursement method.
True
What should be considered in the make or buy decision?
Factors include:
* Skills/resources
* Requirements of the project
* Budget available
These factors help determine the most efficient procurement strategy.
What is a prime contract?
A contract where a supplier sub-contracts to other suppliers for specific goods and/or services
This involves holding one main contractual relationship.
