Objective 1.2

Question 1

What is single sourcing and when is it used?

Answer 1

Single sourcing is where one supplier is contracted by the buying organisation to supply all the needs for an item. The single sourcing approach is used in the following circumstances.

• There is no other practical choice for the buyer
• Economies of scale can be achieved
• Order quantities are very small
• One supplier offers outstanding value for money against the competition.

The buyer may decide to single source even where there are several suppliers.

‘Single source enables logistical cost reductions as a result of scaled-down supplier base’

Question 2

What is sole sourcing?

Answer 2

A non-competitive situation where there is only one supplier of goods or services who can fulfil the requirement of the buyer at a specific time. Sole source could be due to a patent or market regulation.

Question 3

What is dual sourcing?

Answer 3

Dual sourcing is where two suppliers are responsible for supplying all the needs for an item to the buying organisation. Dual sourcing is used in the following circumstances:

• There is a risk of one supplier not being able to supply
• A product or service is critical to an organisation

Question 4

What is multiple sourcing? What circumstances is multiple sourcing used?

Answer 4

Multiple sourcing is where many suppliers are responsible for supplying all the needs for an item to an organisation. Multiple sourcing is used in the following
circumstances:

• supplier competition is vast
• The supplier relationship is not critical
• Constant supply is critical

Question 5

What are the 4 types of souring?

Answer 5

• sole
• single
• dual
• multiple

Question 6

What are the supplier relationship like for single, dual and multiple sourcing?

Answer 6

• Single: must have partnerships or strong collaborative relationships as the buyer organisation is completely reliant on one supplier to fill the need.
• Dual: Relationship still needs to be strong and should be collaborative in the form of a strategic alliance.
• Multiple - the relationship is no critical as there are many options so the style is likely to be more transactional.

Question 7

What are the advantages of single sourcing?

Answer 7

• maximum leverage can be extracted by giving the whole volume to one supplier
• strong relationship
• strong commitment
• good communication
• new product development
• innovation
• confidentiality
• high trust
• economies of scale
• cost effective

Question 8

What are the disadvantages of single sourcing?

Answer 8

• risk of failure of supply
• price may inflate if there is no competition and the supplier is forced to do with a monopoly supplier
• restricted options
• over-reliance on supplier

Question 9

What are the advantages of dual/multiple sourcing?

Answer 9

• easy to drive down cost
• switching between suppliers is easier
• wide knowledge and expertise
• low risk of failure

Question 10

What are the disadvantages of dual/multiple sourcing?

Answer 10

• transactional relationship
• lack of supplier commitment
• lack of economies of scale
• no supplier loyalty

Question 11

What does public sector mean?

Answer 11

A sector of the economy that is owned, financed and run by the government or state owned enterprises.

Question 12

When a procurement professional wants to create a new contract what do they need to decide?

Answer 12

Whether to send an invitation to tender (ITT) or a request for quotation (RFQ) to potential suppliers.

Question 13

What tends to be the more formal process used for a wide range of requirements when creating a new contact?

Answer 13

ITT

Question 14

Which sector handles the vast majority of its high value contracting needs by using invitations to tender?

Answer 14

Public Sector

Question 15

What is the generic tendering process?

Answer 15

• planning (i.e. budgets, project plans, procurement plans, market studies, public hearing info)
• initiation (tender) (i.e. tender notices, specifications, live items, values, enquiries)
• award (I.e details of award, bidder info, bid evaluation, values)
• contract (I.e final details, signed contract, amendments, values)
• implementation (I.e. payments, progress updates, location, extension, amendments, completion or termination info)

Question 16

Tender documentation contains lots of information for potential suppliers which includes:

Answer 16

• company information
• specifications
• contract requirements including terms and conditions
• deadline for submission (if the submission is late then the offer will not be considered)

Question 17

What are the several approaches to tendering?

Answer 17

• open
• restricted
• negotiation
• competitive dialogue
• innovation partnership
• competitive procedure with negotiation

Question 18

Are bids submitted after the deadline considered by the buying organisation?

Answer 18

No

Question 19

What is Open Tendering?

Answer 19

Open tendering is most commonly used globally. It is used when the buyer expects there to be relatively limited interest and so fewer bids to evaluate. The opportunity available to suppliers is advertised widely allowing any supplier that wishes to submit a bid. In some situations, suppliers may first express an interest and then bidders will be able to obtain an ITT.

When the procurement professional has received all the bids by the deadline, they evaluate the bids usually against predetermined evaluation criteria, and the one that offers the best value for money will be offered the contract.

Question 20

What is restricted tendering?

Answer 20

The procurement professional advertises the opportunity for interested suppliers to respond with an expression of interest. Suppliers that have expressed interest are then required to complete a pre-qualification questionnaire (PQQ) to establish if they meet the required criteria of the buying organisations.

The suppliers that successfully meet the criteria set by the procurement professional will then receive the invitation to tender and be invited to submit their bid as an offer to the buying organisation. The difference between this and the open tender is that restricted tendering is a two-stage process. Restricted Tendring is used when the buyer expects there to be high interest from bidders. Restricted tendering enables the buyer to create a shortlist of suitable bidders that will process to a more detailed evaluation.

Question 21

What is negotiated tendering?

Answer 21

A negotiated approach to tendering generally has the same initial process as the restricted style. The procurement professional advertises the opportunity to contract with the buying organisation and invites expressions of interest.

The difference is that negotiated tendering may only involve a single supplier or might include a number of suppliers where the requirement is more complex. This supplier may be chosen due to a previous relationship with the buyer; due to its specialist skill, being a sole supplier or a precise specification; or because it involves amending or expanding on an existing contract.

While negotiated tendering can reduce the cost and duration of tendering and allow the supplier to get involved in the design stages of a product, it can be difficult to reach an agreement that is considered fair by both parties due to the lack of competition. Negotiated tending also risks the buyer becoming complacent and reusing the same supplier, rather than seeking better terms elsewhere.

Question 22

When is negotiated tendering likely to be used?

Answer 22

When there is only one bidder or where the buyers requirement is complex.

Question 23

What is the short definition of open tendering?

Answer 23

The opportunity is widely advertised allowing any supplier to make a bid.

Question 24

What is restricted tendering?

Answer 24

A two stage tendering process.

Question 25

What is negoated tendering?

Answer 25

When only a single or a few suppliers are approached based on a previous relationship or track record.

Question 26

What is competitive tendering?

Answer 26

Competitive tendering is here potential suppliers are invited to submit a bid for a package of work.

Although it is not mandatory to run a competitive tenders in all sections, there are several strong reasons for carrying them out.

However, under certain circumstances, running a competitive tender may be a disadvantage.

Question 27

What are the advantages of competitive tendering?

Answer 27

• Competition should be fair, so suppliers will be treated equally, receiving equal attention and opportunities to clarify queries.
• Inviting suppliers to take part in a competitive tender may reduce the potential for the biased selection of a supplier. This means that the selected supplier may better meet the objective requirements of the tender.
• It gives the stakeholder an opportunity to understand the capabilities of multiple suppliers.
• Time, money and resource could be saved by carrying out one competitive tender, rather than inviting suppliers to tender on separate occasions.
• Tendering encourages suppliers to be competitive to win the contract, which could result in a better deal for the buying organisation.
• There is greater likelihood of finding a suitable supplier if several are invited to tender.

Question 28

What are the disadvantages of competing tendering?

Answer 28

• Truly fair competition may prevent the quick selection of a preferred or current supplier, which could be restrictive when a procurement is required at short notice.
• Competition may drive the wrong behaviours in suppliers, encouraging them to make unachievably low bids to attract the buyer to select them. This results in additional costs later in the contract, or the supplier not being able to supply the goods (due to unsustainably low profit margins).
• It may take more time to carry out the validation and assessment of multiple tenders than it would for just one.
• Costs may outweigh the benefits in some small procurement projects.

Question 29

Which souring involves negotiating with suppliers?

Answer 29

All, regardless of the sourcing arrangement used.

Question 30

What are the 5 possible outcomes of negotiating?

Answer 30

• the buyer wins and the supplier loses.
• the supplier wins and the buyer loses.
• the buyer wins and the supplier wins
• the buyer loses and the supplier loses
• neither the buyer nor the supplier wins (a compromise)

Question 31

What does negotiation involve?

Answer 31

Communication between a procurement professional and a supper to try and get the best value solution for the supply of goods and services.

Question 32

What does win-win mean?

Answer 32

The best solution to a negotiation; where both parties are satisfied.

Question 33

What are the styles of negotiation?

Answer 33

(1) Competitive style - of negotiation is based on being assertive and achieving results, even if this disadvantages the other party and the long-term relationship.
(2) Collaborative style - is an honest and open style where the negotiator is focused on finding a mutually beneficial outcome and fair solutions to any issues that may be presented. This focuses on long-term goals.
(3) Avoiding style - is one full of apprehension and often the negotiator does not pursue their requirements. Relationships do not prosper and the outcomes rarely benefit either party.
(4) Accommodating styles - are when the negotiator does not want to upset or offend the other party and so they often concede their requirements to ensure harmony.
(5) Compromising style - is one where the negotiator is happy to meet in the middle on concession rather than pushing for a win or backing down. Compromising focuses on developing relationships and finding acceptable outcomes for both parties.

Question 34

What are the 4 stages of the negotiating process?

Answer 34

(1) Preparation
- Where should the negotiation take place?
- what is the ideal outcome?
- What is the relationship style?
- What issues may be raised?
- What concessions can be made?
- Is there a backup plan?

(2) Information exchange
- Buyer listens to what the supplier has to say.
- Buyer presents its information and requirement.

(3) Bargaining
- Exchange takes place.
- Concessions are made.
- Alternative are suggested.
- Terms are negotiated.

(4) Closing
- Agreement is reached
- Contractual documentation is created.
- Contract is signed.
- Contract is mobilised.

Question 35

If negotiation takes place with a single sourced supplier what must the outcome be?

Answer 35

Win-win. Both parties value the relationship and need it to be beneficial as it is likely to be long term agreement.

Question 36

If negotiation takes place with a dual/multiple sourced supplier what must the outcome be?

Answer 36

Does not need a win-win as the relationship is less important and other options are available.