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Ethical and Responsible Sourcing (L4M4) > Objective 1.1 > Flashcards

Objective 1.1 Flashcards

1
Q

What does sourcing involve in the procurement cycle?

A

Establishing, evaluating and engaging with suppliers to achieve the best value for money when purchasing goods and services.

Sourcing covers many aspects including supplier analysis, make or buy decisions, the consideration of outsourcing and evaluating associated risks.

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2
Q

What is the definition of sourcing?

A

Location, acquisition and management of all the vital inputs required for an organisation to operate. This includes raw materials, component parts, products, labour in all forms, location and services.

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3
Q

What are the two types of sourcing?

A

Operational/tactical and strategic

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4
Q

What is tactical/operational sourcing?

A

Low-level sourcing for low risk or routine items.

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5
Q

What is strategic sourcing?

A

High-level sourcing for core products and services.

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6
Q

What is the difference between tactical/operation sourcing and strategic sourcing?

A

Strategic
- top level decision making
- high profit, high risk items
- long term projects
- collaborative relationships

Operational/Tactical
- low level decision making
- high profit, low risk items
- short term projects
- transactional relationships

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7
Q

What factors typically represent best value for money to a procurement organisation when sourcing?

A
  1. Price - Although important, price is rarely considered on its own when ensuring value for money.
  2. Delivery - Lead time should be acceptable and freight/transport costs fair.
  3. Quality - Goods should always be fit for purpose and meet the required specification.
  4. Ethics - Suppliers should follow ethical codes of practice and ensure workers are treated fairly.
  5. Sustainability - Suppliers should be sustainable in their existence, as well as promoting environmental sustainability.
  6. Availability - Products sourced need to be available - a competitive price becomes irrelevant if there is no availability.
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8
Q

What does lead time mean?

A

The amount of time from placing the order to the goods/services being delivered.

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9
Q

What does fit for purpose mean?

A

The product or service is capable of doing what it was designed to do.

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10
Q

What does specification mean?

A

A detailed description of the product or service required.

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11
Q

What does ethical codes of practice mean?

A

A document outlining an organisation’s accepted behaviours and principles of working.

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12
Q

What does sustainability mean?

A

Sustainability holistically considers the governance of an organisation’s environmental, social and economic viability to ensure organisations exist for the long term, and the needs of the present are met without compromising the needs of future generations.

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13
Q

What is Novack and Simco’s 11-stage sourcing process?

A
  1. Identify needs
  2. Define user requirements
  3. Decide whether to make or buy
  4. Identify purchase type (new buy, modified buy, straight re-buy)
  5. Carry out market analysis
  6. Identify potential suppliers
  7. Per-screen suppliers and create short-list
  8. Evaluate short-list suppliers
  9. Supplier selection
  10. Final product or service delivered
  11. Evaluate supplier performance
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14
Q

What is a new buy?

A

A brand new requirement - the first time the product/service has been sourced.

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15
Q

What is modified re-buy?

A

A product/service that has been sourced before but requires a slight change prior to being rebought.

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16
Q

What does straight re-buy mean?

A

Straightforward repurchase of an item bought previously, rather than considering an alternative.

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17
Q

What are the 13 steps to the CIPS procurement cycle?

A
  1. Define Business Needs and Develop Specification
  2. Market analysis and make or buy decision
  3. Develop the strategy and plan
  4. Pre-procurement market testing
  5. Develop documentation and detailed specification
  6. Supplier selection to participate in tender
  7. Issue tender documents
  8. Bid and tender evaluation and validation
  9. Contract award and implementation
  10. Warehouse, logistics and receipt
  11. Contract performance and improvement
  12. Supplier relationship management
  13. Asset management
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18
Q

What does outsourcing mean?

A

Contracting an external supplier to manage and run a function that was previously handled in-house.

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19
Q

What does in-house mean?

A

An activity conducted within an organisation by its own workforce.

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20
Q

Why might outsourcing be the preferred option for a procurement organisation?

A
  • Financial: to allow costs (overheads) to be kept as effective as possible and enable the organisation to obtain value for money.
  • Technological - to reduce the need to continually invest in new machinery and work instead with suppliers that already have knowledge and resource in specialist areas.
  • Resource: to avoid the need to recruit additional staff and invest in training.
  • Skillset: to enable an organisation to benefit from an outsourced suppliers skills.
  • Improved Focus: to enable an organisation to focus on its core activities.
  • Reduce Risk: to move the requirement ls for managing services to another organisation.
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21
Q

Which activities or functions should not be outsourced?

A

Core activities.

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22
Q

What does core activities mean?

A

Activities that are key to an organisation’s success.

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23
Q

What factors should be taken into account when deciding whether to make or buy an item?

A
  • The product or service: if the product or service is core to the organisation, the decision should be kept in-house. i.e. to make rather than buy.
  • The organisations current position: if the organisation has the current capacity to make the item or provide the service without negatively effecting other key elements of the business, make is likely to be the right decision. However, if the product or service requires individuals to be trained in order to make or deliver the product or service, or if the organisation needs to invest in additional assets, it may be more cost effective to buy.
  • The current market situation: if buying the product or service would create economies of scale with an existing supplier or in part of the logistics operation within the supply chain, this could result in cost savings. If, however, market prices for raw the materials are favourable and the organisation already buys a quantity of them, this could be an argument for making the product or delivering the service.
  • The amount of competition: This is about the power of the buying organisation compared to the power of the supplying organisation. If there are few or no alternative suppliers, the buying organisation will not be in a strong position to negotiate a favourable price so would benefit from making the item. On the other hand, if there are several suppliers in the marketplace (lots of competition) the buying organisation will have the power and be well placed to negotiate a lower price. In this instance, buying may be the preferred option.
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24
Q

What does assets mean?

A

Items of value owners by an organisation, which can be used to meet debts.

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25
Q

What does economies of scale mean?

A

Cost savings made as a result of increased levels of production, alternatively the financial benefit gained from purchasing more units of an item resulting in lower unit costs.

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26
Q

What does logistics mean?

A

The movement of something from one place to another.

27
Q

Understanding levels of competition may help to inform the make or buy decision, what are porters 5 forces to help understand this?

A
  • Threat of entrants
  • Bargaining power of buyers
  • Threat of subsitutes
  • Bargaining power of suppliers
  • Rivalry among existing competitors
28
Q

What are the factors of make decisions and what factors should be taken into account when deciding the best option for the organisation?

A
  • Strategy of the organisation is to be self-sufficient
  • Enhanced control over processes
  • Improved quality control
  • workforce remains stable
  • continuity of supply
  • no suitable ‘buy’ suppliers
  • economies of scale available
  • reduced risk
  • easier to amend volumes/specifications
29
Q

What are the factors of buy decisions and what factors should be taken into account when deciding the best option for the organisation?

A
  • Specialised knowledge available
  • Technological advancements available
  • Small volumes are not cost effective for ‘make’
  • cheaper to buy in than manufacture/deliver
  • ‘make’ organisation does not have the machinery required
  • economies of scale available
  • no capacity in house
  • less inventory
  • reduced overheads
30
Q

What are the factors which affect the external market?

A

STEEPLE
- Social
- Technological
- Economic
- Ethical
- Political
- Legal
- Environmental
- Demographic

31
Q

What does stakeholders mean?

A

An individual or organisation with either an interest or an influence in (however slight), or who will be affected in any way by, the decisions and/or actions of a project, product, service or venture.

32
Q

Who must procurement professionals consult when analysing the advantages and disadvantages of whether to make or buy and item?

A

Stakeholders

33
Q

What are the costs associated with all forms of sourcing?

A
  • Procurement professionals salary
  • Resources, such as computers and phones
  • Training
  • Development of policies and procedures
  • Time
34
Q

What is a Kraljic matrix?

A

Strategic tool to help managers recognise the weaknesses of their organisation and form strategies to guard against disruption of suppliers.

35
Q

What does the Kraljic matrix show procurement professionals?

A

Procurement professionals can identify where a product or service sits in relation to the impact it has on the organisations profit and the level of supply risk it poses to the organisation.

36
Q

What are the 4 categories of the Kraljic matrix (included in their description, procurement style and relationship)?

A
  1. Routine or Non-critical
    - Low profit impact, supply risk
    - Tactical
    - Arms-length
  2. Leverage
    - High profit impact, low supply risk
    - Tactical
    - Transactional
  3. Strategic
    - High profit impact, high supply risk
    - Strategic
    - Collaboration
  4. Bottleneck
    - Low profit impact, high supply risk
    - Tactical
    - Moderate
37
Q

In practice within the Kraljic matrix will there be scenario’s where relationships will change amongst the items?

A

Yes, there will be circumstances for most organisations where they might also collaborate with top-end leverage and bottleneck suppliers. Certainly relationships with those suppliers (which could be the highest risk and highest value contracts) could be considered to be closer than simply transactional and tactical.

38
Q

What should a organisation take into account after categorising the product/service according to the Kraljic matrix whether the procurement style should be strategic or tactical?

A

It would not make good business sense to allocate high costs to sourcing an item that has been categorised as routine. This is because there are many suppliers in the marketplace and the item only has a low profit impact. So, increasing the costs associated with sourcing such an item would result in poor value for money.

Additional cost input may be required for sourcing strategic items or services. These are products or services with a high profit impact, high supply risk, little or no supplier competition, and for which security of supply is critical.

The importance ot a strategic item to the organisation demands that procurement professionals spend time and resources to ensure that the right supplier is awarded the contract and that supply is continuous. How suppliers are chosen for such categories of products and services will be explained later in the chapter.

39
Q

What are the costs to outsourcing?

A

1 - Procurement involvement to establish whether outsourcing is a practical option.
2 - Procurement involvement in evaluating, selecting and awarding the contract to suppliers.
3 - Management of outsourced contract I.e performance and level of quality.

4 - Some organisations choose to employ outsourced contract managers to oversee the performance and remove the responsibility from procurement. This involves additional cost, so the outsourcing decision has to offer good value for money and clear benefits to the organisation if this strategy is to be successful.

40
Q

What are the key benefits to outsourcing?

A
  1. Increased expertise - outsources functions are often contracted to specialists who provide the buying organisation with knowledge, development or technical abilities
    it does not have.
  2. Core activity focus - outsourding enables the buying organisation to focus on what it is good at, its core
    profit activities and where it can maximise
  3. Potential reduction in risk - the risk and responsibilities are shared between the buying organisation and the outsourced supplier. By using the expertise of the outsources supplier, better decisions can be made. However, it is important to note that the risk of completing the tasks now with the supplier and this loss of control could increase the risk to the buying organisation.
  4. Lower operating costs - because the outsourced suppliers are responsible for supplying some of the organisation’s functions, the operational overheads are reduced, i.e. the amount of labour required could be lower, overtime is not required and less energy is consumed Outsourcing generally moves fixed costs (and some variable costs too) to variable costs, i.e. the buyer will only pay for what they want to use.
41
Q

What are the benefits linked to market development through the growth of outsourcing?

A

By outsourcing non-core activists, markets in low cost counties, which are helping to build their economies.

  • Cost saving to the developed country
  • Ability to further grow organisations due to non core fundionsberg
    outsourced
  • Increased employment in developing countries
  • Ethical and sustainable behaviour promoted in developing countre.
42
Q

What are low cost counties?

A

Countries that have a slow growing economy and where rates of pay are significantly lower than in countries with more affluent economies.

43
Q

What is connectivity?

A

Global connectivity as a result of the development of international telecommunication networks e.g. the FLAG network or TAT14 has helped low-cost counties develop their industrial output.

44
Q

What is an outsourcing matrix?

A

The matrix measures the strategic importance of the function, activity or product against its contribution towards operational performance. The result suggests whether the function should be outsourced or remain in-house.

45
Q

What are the 4 categories of the outsourcing matrix and what do they mean?

A

Strategic alliance - Although some functions are strategically important, they contribute very little to the operational performance. These functions can be trusted to a strategic partner, but the buying organisation must keep an element of control.

Retain in-house - functions are highly strategic and highly important to the operational performance shouldn’t be outsourced. These are core to the organisation and should remain in-house.

Eliminate function or task - These functions contribute little to the organisation’s strategy so their value should be questioned and they may be eliminated.

Outsource - functions that are operationally important but not key to strategy can be outsourced with minimal risk.

46
Q

Outsourcing can be considered for non-core work or services within a business. The following functions are frequently outsourced?

A
  • Cleaning
  • IT support
  • Catering
  • Marketing
  • Social media
  • Accountancy and payroll
  • Human Resources
47
Q

What does insource mean?

A

To bring a function of activity back in-house after previously being outsourced.

48
Q

When should an activity or function be brought back in-house?

A

When an decision to outsource turns out to be ineffective for an organisation or if, after a period of time, the situation or strategy changes.

49
Q

Can insourcing only occur when an activity or function has previously been outsourced?

A

Yes

50
Q

What does offshored mean?

A

The relocation of business or processes, for example, a customer service call centre or the manufacturing of a product, to a country where the costs of production are lower. Usually this country will be located overseas.

51
Q

What does restored mean?

A

To bring a function of activity back within the organisations national boundaries while still leaving the supply with a third party.

52
Q

What does onshore mean?

A

Moving the supply of goods and services back from overseas and closed to the organisations home market, without any import risks.

53
Q

What are the risks of outsourcing?

A

Loss of control - Outsourcing gives control of the function to an external supplier, which removes responsibility from the buying organisation. Although this can be a positive factor, it is also a risk. Lack of control can lead to changes in the supply chain that the buyer is not made aware of.

Supplier reliance - Outsourcing relies on the external supplier to deliver the function. Buying organisations risk becoming too reliant on the supplier and, if any problems occur with the relationship they may find themselves exposed to risk by not having the skills required to complete the function.

Confidentiality - Suppliers that win outsourced contracts may be given a lot of confidential information by the buying organisation. Without a non-disclosure agreement (NDA), the buying organisation risks its information being used or shared within the industry.

Quality - When functions are completed in-house, quality can be tracked throughout the process. outsourcing means that there is less transparency of how the function is carried out and quality could be lower.

Intellectual Property - Outsourced suppliers could use or attempt to steal information that is crucial to the buying organisation, I.e. copy designs or make prototypes against a patented idea. A non-disclosure agreement should ensure this does not happen.

Reputation - a bad choice of outsourced supplier can lead to negativity from stakeholders and contrioute towards an organisation
gaining a poor reputation.

Loss of expertise - When outsourcing, any skillset related to that function is at
risk of being lost. It employees that previously carried out that function are made redundant or relocated within the organisation, their skills will be lost over time and they will not keep up with industry changes. It the function is ever insourced, the organisation may no longer have the expertise.

Inflexibility - Outsourced contracts are usually long-term, with SLAs. volumes, etc., arranged in advance. The risk is inflexibility - it the buying organisation needs to make an urgent change this may not be possible.

Cultural differences - Outsourced suppliers may be from a different organisational culture or from a different country. The differences in culture can pose a risk due to differing working hours, standards, language barriers, etc.

54
Q

What does non-disclosure agreement (NDA) mean?

A

Sometimes known as a confidentiality agreement (CA), this signed document is a legal agreement that information received will not be shared and remains the property of the originator.

55
Q

What does intellectual property mean?

A

An intangible asset, such as a process created through human intellect; such assets may be promoted by trademarks, copyright or patents. For example, inventions, literacy and artistic works, designs, images and symbol.

56
Q

What does prototype mean?

A

A sample or model of an idea or concept.

57
Q

What does patent mean?

A

A way of protecting intellectual property, excluding other parties from using, marketing or making products that relate to it.

58
Q

What is TUPE?

A

TUPE stands for Transfer of Undertakings (Protection of Employment) and part of employment law. TUPE is used during organisational mergers, acquisitions and outsourcing arrangements.

This legislation was created to protect employees and to ensure that any individuals working to provide a service keep their jobs when the suppliers is changed. Ultimately the outsourced supplier has to manage the contract with the staff that are already carrying out the function.

The individuals involved in providing the service are reassured that their terms of employment will remain unchanged, they will not receive a lower rate of pay and working hours will remain the same for an agreed period of time.

59
Q

What is the short definition of TUPE?

A

Transfer of Undertakings (protection of Employment). TUPE regulations protect the rights of the employees where work they were employed to undertake is transferred to a new business.

60
Q

What are two benefits of TUPE?

A
  • continuity of supply for the buying organisation
  • continuity of employment for the workers
61
Q

What is ILO?

A

The International Labour Organization (ILO) is a key organisation in ensuring
that global workers are protected and that regulations relating to acceptable working conditions are maintained. The ILO promotes fair working conditions, acceptable rates of pay and social protection for workers across the word.

62
Q

What is ILO short definition?

A

A UN agency specialising in international labour activities.

63
Q

What does FairTrade Foundation do?

A

Work globally to try to enforce regulations against discrimination and give workers and producers better prices for their goods.

64
Q

What regulatory bodies and legislations exist to protect workers?

A
  • TUPE
  • ILO
  • FairTrade Foundation

Ethical and Responsible Sourcing (L4M4) (8 decks)

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