LO1 Flashcards
What is a straight re-buy?
Something we’ve bought before - from a call of order (framework agreement).
Typically from an approved supplier list
e.g. Raw Materials, Kanban
Typically low value
New Purchase
Include Capital items
Finished products
Requires skilled buyers
Modified Rebuy
Change in spec / regulations
Multiple suppliers available
e.g. Production components or consultancy services
What changes for modified rebuy vs straight rebuy?
For modified rebuys, we’re looking at changing the spec a little. So, if a bolt needs a different coating, we need to talk to supplier, get new prices and possibly samples.
When do we need a business justifcation for modified rebuys?
For small, low value items it is not needed - unless we’re buying in bulk where the outlay cost is high.
Typically we would need to put across a business justification for high risk, high value items such as engines, or capital purchases.
What justifications should we look at for New Purchases?
We need an indepth business case of the modification
Specification of the parts needed (eg. drawing from engineers)
The more information gathered before going to the supplier in terms of spec etc. the better
What 5areas will the business benefit from by getting the spec confirmed at the start of sourcing new product?
- Engaging in Systematic Purchasing Research (eg. what is in the market right now.
This helps because we can gauge what other firms are doing, what is possible and current market value. - Engage in Value Engineering - Talking with engineers to see if we can minimise costs without impacting on quality of goods. E.g. talking to them to see if we can use standard bolts instead of fancy bespoke ones.
- Promote early Buyer Involvement (EBI): Ensures freedom to choose the supplier – Ebi ensures that the procurement officer has the possibility to choose different suppliers to mitigate risks and gain leverage on the supply. This can be done only if the specifications are put together taking into consideration the broader market offer.
- Early Supplier Involvement (ESI): Getting their imput into design or purchase decisions. Remember, they are likely to be experts in their field and can provide helpful insight. But be warned, depending on the supplier, they still want to make money from you so be careful with completely new suppliers.
- Develop specs and begin to put together KPIs for the supplier to work towards. Deliver on time, in full, no errors could be one. but it’s beneficial to outline this BEFORE giving them business to see if they can agree to this method of working.
What type of purchase will definitely need a business justifiation / plan?
CAPITAL PURCHASES
These are normally high value, high risk items. Think of the laser cutting machine. It’s cost a lot of money and if the purchase goes wrong, the risk to the business is massive.
What is the primary business need for capital purchases?
Whole life value for money
- Checks of the benefit, outlay cost, risk of investment
- Comparison of alternatives
- The negotiation with the supplier for the total package (eg. training, servicing, consumables (lubricants)- think LASER CUTTER).
- How much is this going to cost to run? (lifecycle cost)
- Maintenance and management of item.
What is the primary business need for commodities?
Securing supply
Cost/Price management
Forward buying
Commodities can also depend on importance for business case analysis
For routine, low value items periodic reviews will be useful
Stratigically important commodities (high value, high risk) business plans will help reduce risk and ensure value
What are business needs?
- Profit
- Competative advantage
- Cost leadership
- Maintain differentiation
- Attract and maintain quality staff, partnets and allies
Define RAQSCI
R - REGLATORY (legal)
A - AVAILABILITY (continuing supply, minimise risk)
Q - QUALITY (consistency, repeatability)
S - SERVICE REQUIREMENTS (flexibility, support, availability)
C - COST (Target £, total cost of ownership, continuous improvement)
I - INNOVATION (improvements)
What is a business case?
The justification for undertaking an action.
What is the reason for a business case?
To seek approval and finance for recommended action
Define an open ended problem
When something / someone is blocking progress.
e.g. Agreement from Senior Management is needed.
Define a close ended problem
Something has come up out of the blue to stop progress - Raw material has increased for example.
What happens if business needs are not considered at an early stage?
- Unnecessary purchases
- Products can be over spec’d
- Sourcing effort wasted
- Might not need sourcing at all
- Too late to challenge over specs if not involved at beginning
- Too late to provide / discuss alternatives (cost/spec)
What kind of descriptions can be sent to suppliers for new product?
Item specs - drawings, detailed materials, engineering information
Service level agreements
Contract terms
KPIs
What would senior management be interested in seeing?
Return on Investment (does it effect profit?)
Time to Market - How long will it take? Think of new products and how fickle some markets are
Customer Satifaction
Improving productivity - Management want to know how it improves output from workforce.
Managing Risk - Are risks minimised when purchasing this item?
Kraljic Matrix 1:
What is High Risk, Low Value
Bottleneck items - consignment stock
Think of bolts, nuts etc.
Kraljic Matrix 2:
What is High Risk, High Value
Stratigic Items - Needs a partnership approach
Think engines, chassis, etc. The cost a lot, and can only get them from certain suppliers.
CAPITALPURCHASES TOO
Kraljic Matrix 3:
What is Low Risk, Low Value
Routine Items (non-critical)
Suited to e-procurement. Think of basic office supplies, consumables.
Kraljic Matrix 4:
What is Low Risk, High Value
Leverage Items - Nice to have.
Lots of suppliers, require competative bidding, tendering and product substitution. Think of Steel plate.
