Objective 1.4

Question 1

What is the most basic criteria on which a company will base its decisions about which supplier to award a contract to?

Answer 1

Price

Question 2

The skill of a procurement professional is to evaluate the total offer from the supplier not just price, what should it take into account?

Answer 2

• Whole-life asset management and whole-life costs
• Added Value
• Technical Merit
• Systems and Resources
• Ethics
• Environmental, social and governance

Question 3

Should price always be considered compared against competition?

Answer 3

Yes

Question 4

When comparing price from bids and quotations it is important to carry out a fair analysis. This involves checking what following aspects?

Answer 4

• rebates
• settlement discounts for prompt payments
• the exchange rate
• batch quantities quoted for
• is carriage included?
• are taxes included?
• are there any conditions on payment terms, e.g. after 7 days + 10%?
• pricing mechanism used: fixed cost, cost plus

Question 5

What happens if the price isn’t carefully examined?

Answer 5

A supplier that does not offer the best overall value may be awarded the contract.

Question 6

The total cost of acquisition should be assessed when looking at price. What following aspects should this include?

Answer 6

• price of product
• transport and delivery
• packaging
• insurance
• cost of installation

Question 7

What are incoterms?

Answer 7

Series of commercial terms published by the International Chamber of Commerce, covering the allocation of costs and transfer of risks between buyer and seller. The various options are abbreviated to three letter codes.

Question 8

What is EXW?

Answer 8

Ex works - goods are required to be collected by the buying organisation from the suppliers premises.

Question 9

When sourcing overseas, what needs to be considered as part of the criteria for deciding which supplier the contract should be awarded to?

Answer 9

Incoterms

Question 10

Give an example of how incoterms proposed by the supplier can significantly affect the total cost of acquisition?

Answer 10

For example, if one supplier gives a quotation and states that the price is EXW and another supplier states that it’s price is DDP, this would need to be explored. The buyer would need to establish how much extra the buying organisation would have to pay to have the products collected, transported, delivered and insured in order to make a fair compensation.

Question 11

What does DDP stand for?

Answer 11

Delivered duty paid

Question 12

What does DDP mean?

Answer 12

Delivered duty paid - goods are delivered to the buying organisation’s location of choice with all associated costs included and paid for by the supplier.

Question 13

What does whole-life costing mean?

Answer 13

An estimate used TK help buyers determine the end-to-end cost of providing a service, manufacturing, or procuring a product. Also commonly referred to as total cost of ownership (TCO), or total life cycle cost (LCC). The use of the terms vary dependent on industry and sector.

Question 14

What are the costs associated with whole-life costing?

Answer 14

Acquisition - Costs associated with acquiring an asset such as sourcing, transportation, insurances and installation.

Tooling - Costs associated with any specific moulds, cutting accessories or fixings that have to be purchased with the asset.

Insurance - costs associated with insuring the asset against damage, theft and downtime.

Operating - costs associated with running the asset e.g. electricity or water consumption.

Maintenance - costs associated with keeping the asset in good condition- is there a maintenance package included or is this an additional expense.

Training - costs associated with training the operators of the asset, and health and safety requirements.

Storage - costs associated with storing the asset - how much space does it take up and it is a constant requirement of an infrequent need?

Disposal - costs associated with removing the asset from site when it is no longer viable to keep. Is specialist equipment or expertise required to remove the asset? Can it be sold or, does it have to go to landfill or be recycled?

Question 15

What is whole-life costs also known as?

Answer 15

Life cycle costs or risk cost of ownership

Question 16

What is whole-life asset management?

Answer 16

Whole life asset management WLAM) builds on the concept of whole-life costing Worne it the overal management of these costs, and the allocation of associate resources. WLAM is the process of evaluating the total price and all associated costs of a product to make an informed decision as to which option will provide the organisation with the best value for money option.

Question 17

Why is WLAM an intensive process?

Answer 17

It requires continuous process and performance monitoring and management.

Question 18

What is WLAM most commonly used in relation to?

Answer 18

It is most commonly used in relation to fixed assets. Whilst not defined as a physical asset in accounting terms or on a balance sheet, some aspects of asset management can also be applied to the management of a service.

Question 19

What does WLAM monitor?

Answer 19

WLAM monitors the performance of the asset once it is in situ and calculates the optimum time to replace or refurbish the asset.

Question 20

When deciding which supplier to award a contract to, a procurement professional should consider the whole-life costs. Why should they?

Answer 20

To evaluate how much owning the product or asset will cost the organisation throughout its useful life. For example, a product may have a low acquisition price but require regular maintenance and consumables, such as changing wearing parts or deep cleaning. This could result in a higher total cost of ownership than a product that appears to be a higher price for initial purchase yet has low maintenance requirements and no requirement for additional consumables.

Question 21

What are consumables?

Answer 21

An item or commodity that is used up quickly or requires replacing
frequently.

Question 22

What does wearing parts mean?

Answer 22

Parts within
equipment that have a limited life and require replacement regularly

Question 23

What does functional fit mean?

Answer 23

Be able to work with an organisation on the same technical level.

Question 24

Why should a procurement professionals should evaluate the technical merit of suppliers before deciding which one a contract should be awarded to.

Answer 24

Suppliers should be able to demonstrate that they would be a good functional fit with the buying organisation.

A supplier’s systems should be compatible with the buying organisation’s systems, e.g. if the procurement professional wishes to send over - purchase orders
for spares for an asset, the supplying organisation needs be able to accept and process these.

Question 25

Why is it important to establish the technical merit of a supplier?

Answer 25

If a supplier was tarded a contract based on many favourable factors but technical merit was excluded, this could have cost implications during the contract

Question 26

What is added value?

Answer 26

Added value is not related to the price of a product or service but to other aspects of the offer that could generate a favourable solution.

Question 27

What forms can added value can be demodulated by suppliers?

Answer 27

• Innovation: suppliers are forward thinking and generate ideas for continuous improvement.
• On-time and in-full deliveries: suppliers consistently deliver as and when required and do not cause production delays.
• Strong supplier relationships: suppliers ofter support are Flexible and are on Shorter lead times: suppliers hold stock and have impreyed internal proce to reduce the notice they require to fulfil purchase orders
• Improved quality: quality standards have improved but price has remained
• Support and training: suppliers offer support to procurevant phen require, and train buying organisations in new technology or relevant processes this could save time or money
• Good reputation: suppliers with a good reputation add value to the supply chain which reflects positively on buying organisations

ESG (ervironmental, value contributors, and these are examined in detail later, this section.

Question 28

Does suppliers using forms of added value cost the buying organisation additional money?

Answer 28

None of these factors cost the buying organisation any additional money but they do generate value within the contract.

Question 29

Why would suppliers offering added value become more desirable to the buying organisation?

Answer 29

B offering added value, suppliers may become more attractive to a procuremen professional. For example, consider a company that has two suppliers that both charge the same hourly rate to provide telephone support to help resolve IT issues. One supplier offers support from 10:00 until 16:00 hours and the other offers support from 06:00 until 23:00 hours. The buying organisation has employees that work flexible hours so the supplier offering the extended hours for support would be seen to provide added value, compared to the one thatis only available for six hours per day.

Question 30

Give examples of ESG considerations when deciding which supplier to award a contract to include the following.

Answer 30

• Using suppliers who use sustainable supply sources, aiming to replace any natural resources that they use. An example would be suppliers who use FSC (forest stewardship council) packaging to deliver their products.
• Logistical and transportation considerations. Where are the goods coming from? What transportation methods will be required to get them to the buyers site? How does this impact the environment?

social value is an important principle, especially in the public sector. In the UK as part of the Public Services (Social value) Act 2021, public sector buyers are required to consider how they positively contribute to their local areas through procurement activity.
The contribution could be economic, environmental, or social.

• systems compatibility is also important for contract award. Buyers will want to use suppliers whose computers systems can easily integrate with their own. This will save time and resource implementing their own resources.
• organisations should seek to reduce their carbon emissions in the supply chain. Buyers may look to use suppliers who actively measure their emissions and set sustainable targets. Suppliers that use renewable energy sources such as wind or solar power.
• to be sure that supply chain activities are not negatively impacting the environment, buyers may request details of the suppliers waste management strategy. The concept of circular economy in supply chain is very important for sustainable procurement. Circular economy principles aim to ensure waste material are reduced, recycled, reused, repaired, refurbished rather than being sent to landfill. If there are any hazardous waste materials in the supply chain, such as chemicals, or waste electrical or electrical equipment buyers will need to ensure that the supplier adhere to relevant legislations and that they are equipment disposed or responsibly and safely.

Question 31

Buyers will request copies of different supplier policies and output/targets which will provide insight into organisational governance and value. Give a examples of these.

Answer 31

Suppliers’ ESG and CSR (corporate social responsibility) policies which are up to date, and work closely on improving their social impact and presence
• suppliers’ code of conduct which will incorporate the company stance and individual behaviours expected. Factors considered in a code of conduct include bribery and corruption
• Suppliers’ labour policies for their own employees which should be clear and fair. The labour policies may extend to the wider supply chain, and detail how they are actively seeking to identify and eradicate the use of modern slavery and child labour in their supply tiers
• Suppliers’ equality, diversity and inclusion (ED&I) policies which are up to date, and actively promote and encourage equal, inclusive and non-discriminative opportunities for all

Question 32

What does ethics refer to?

Answer 32

An individuals or organisations moral compass and reflect their attitudes and actions towards doing the right thing.

Question 33

What does equality, diversity and inclusion (ED&I) mean?

Answer 33

Equality, diversity and inclusion (ED&I) can be defined as equality ensuring that every individual has fair and equal treatment and opportunities, regardless of their background, identity or experience. Diversity recognises that, although people have things in common with each other, they are also different in many ways, such as the protected characteristics- age, disability, sex, race and religion or beliefs. Inclusion is where those differences are seen as a benefit, and where different perspectives are shared and heard, leading to better decisions. Everyone should have equal opportunity to participate and reach their full potential.

Question 34

What does code of conduct mean?

Answer 34

A series of rules set by an organisation that define suitable behaviours and values that should be used and applied by a member of that organisation, for the purpose of acting in a suitable manner, as well as demonstrating uniformity and upholding the standards of the organisation

Question 35

What does corporate social responsibility mean?

Answer 35

An organisational sustainability framework to embed into strategy and operations and supply chains to have a positive global impact

Question 36

What is environmental, social and governance (ESG)?

Answer 36

ESG stands for
environmental, social and governance
- a measurable sustainability assessment similar to CSR but more measurable. Financial performance remains key and so can
create a sustainable credit rating for the organisation and investors

Question 37

As part of its ethical award criteria, buyers should choose suppliers that have what?

Answer 37

• shared, aligned ethical standards and views.
• good practice to request that ethical policies are included in supplier quotations and bids.
• within its ethical policies, suppliers may mention accreditation or membership of associations that promote good ethical conduct.

Question 38

Give some examples of accreditations that suggest and individual or organisation is aware of and is practising good ethical conduct?

Answer 38

• the carbon trust
• CIPS
• FairTrade international
• IEMA
• ILO
• Red tractor certified standards

Question 39

Should accreditation information be verified by the procurement professionals?

Answer 39

Yes, either by asking the organisation for a certificate to prove membership or accreditation or checking on a professional register.

Question 40

Give the names and details of organisations that suppliers can be linked to which promote good ethical conduct.

Answer 40

• CIPS - global leader in procurement and supply, and associated professional standards.
• ILO - Tripartite UN agency promoting fair labour standards across the globe.
• Ethical trading Initiative (ETI) - An initiative to drive fair and ethical trading across the globe.
• Fairtrade International - Promoting fair deals for growers and good prices for workers in developing counties.
• Ethical Company Organisation - Research company benchmarking organisations on ethical conduct.
• Anti-slavery International - International, non-governmental organisation, registered in the UK, promoting human rights.
• Amnesty International - A global movement with more than 10 million supporters, and the worlds largest grassroots human rights organisation.
• Red Tractor - A food standard agency that regulates the source, origin and movement of food through the supply chain.
• ISO - international organisation for standardisation, independent, non-governmental international organisation with a membership of 165 national standard bodies.
• Carbon Trust - A world leading body for assessing carbon footprints and awarding the standard for companies achieving carbon neutral status.
• IEMA (institute of environmental management and assessment) - A worldwide alliance of professionals aiming to make businesses future-proof through sustainability.

Question 41

What is a professional register?

Answer 41

A list managed by the awarding body detailing all individuals or organisations who are members or hold an accreditation.

Question 42

What is FairTrade?

Answer 42

A scheme designed to ensure that farmers and workers at the top of the supply chain gain a fair percentage of the final selling price of the items.

Question 43

What is code of ethics?

Answer 43

A document detailing acceptable behaviour within an organisation.

Question 44

Why is it useful for suppliers to have ethical codes of conduct?

Answer 44

A code of ethics can help guide suppliers on supply chain challenges, and also provide buyers with reassurance that the suppliers are capable of managing these issues.

Question 45

What are some examples of the supply chain factors included in a code of ethics include?

Answer 45

• Human rights issues, including modern-day slavery, working conditions, child labour, trafficking, fair pay
• Bribery and coercion, including conflicts of interest, and attempts to influence with gifts or blackmail
• Movements such as fairtrade, working with developing countries to enable producers to achieve fairer trading conditions
• Environmental issues, including reducing pollution, promoting sustainability and using renewable resources

Question 46

What is CIPS corporate code of ethics?

Answer 46

CIPS has developed its own Corporate Code of Ethics as part of its commitment to reinforcing ethical values across all procurement and supply practices. This woluntary code can be adopted by organisations of any size and any sector globally and sets out the values, business culture and practices the organisation must demonstrate.

Question 47

What is key to ensure ethical practice through the supply chain?

Answer 47

Supply chain visibility. As a tier one supplier who is committed to ethical practices, treats its staff well, uses renewable materials, and mitigates against bribery and coercion within its own organisation, but if this is not implemented across the subsequent supply tiers, then the overall ethical integrity of the supply chain is compromised. Suppliers should be able to map and provide details of the relevant supply chain links required to provide the end product or service to the buying organisation.

Question 48

Should procurement professionals use supplier who can verify that all procurement activities within the supply chain were conducted ethically and in accordance with procedures?

Answer 48

Yes, this is usually achieved through supplier audits and supplier visits. Compliance is more of a risk in international sourcing, and it is important that ethical considerations are not overlooked when sourcing overseas

Question 49

What is essential to implement ethical policies and embed behaviours into the hearts and minds of the employees within an organisation?

Answer 49

Training

Question 50

What policies and procedures should suppliers provide to ensure ethical behaviour?

Answer 50

Suppliers should also provide details of their whistleblowing policies so that malpractice, unlawful and unethical behaviours can be reported and acted on. In contrast, ethical behaviour should be acknowledged and rewarded to reinforce the need for compliance.

Question 51

Give examples of information that must be protected?

Answer 51

• pricing
• T&C’s
• personnel information of customers
• business and trade secrets
• IP protection

Question 52

Why is it important therefore for procurement professionals to seek details from suppliers detailing how they manage such information to mitigate exposure to unethical conduct?

Answer 52

Many opportunities exist in this space for unethical practice.

Question 53

It is also important to distinguish between what is a practical expectation for suppliers, and what would be nice to have. How should this be reflected in award criteria?

Answer 53

Ethical criteria can become overly ambitious and impractical for suppliers to achieve; therefore it is essential that any ethical award criteria reflect fair, realistic and practical expectations.

Question 54

Is it important to note when appraising supplier bids and quotations for contract award, buying organisations should not demand ethical criteria from suppliers that they would not be prepared to do, or cannot demonstrate themselves?

Answer 54

Yes

Question 55

When awarding a contact what should the award criteria be split into?

Answer 55

Technical and commercial categories

Question 56

What is technical criteria of award criteria concerned with?

Answer 56

With whether the supplying organisation can physically produce and supply what is needed, in accordance with the RFQ or ITT at an acceptable price.

Question 57

What does technical criteria include?

Answer 57

• specification
• delivery
• quality

Question 58

What is commercial criteria concerned with?

Answer 58

The organisational fit - are the buying organisation and the supplying organisation compatible to work together?

Question 59

What does commercial criteria involve?

Answer 59

• cultural fit
• ethical standards
• sustainability

Question 60

Should technical and commercial criteria be balanced?

Answer 60

Yes, to enable procurement professionals to make an informed decision.

Question 61

when evaluating quotations and bids from suppliers, procurement professionals often use tools to help them balance the commercial and
technical award criteria. What does this include?

Answer 61

Weighted scorecards and evaluation matrices can be used to balance the awarding criteria, although an analysis of the quality and reliablity of the evidence is also advisable.

A weighted evaluation matrix is used to give more weight, i.e. importance, to certain elements of a quotation and to allow a fair evaluation for all suppliers.

Question 62

What are ways due diligence can be carried out?

Answer 62

• Asking the supplier to provide information on a template (along with supporting documents)
• Visiting the supplier’s premises to see its facilities, processes and products in person
• Carrying out a desktop assessment to see if there is any information about the supplier available online to support its appraisal

Question 63

Why is due diligence an important consideration for supplier selection and contract award?

Answer 63

In the UK, did diligence is highlighted as one of the key principles of the UK Bribery Act 2010 under principle 4, UK-based companies should have process for carrying this out. In addition to this, the CIPS Code of Conduct specifies that it should be undertaken by procurement professionals worldwide when
conducting business with potential (or current) suppliers in supply chains. By
carrying out effective due diigence, a procurement professional can improve their understanding of the supplier’s quality, performance and ethical makeup revealing any risks that may be present.

Question 64

What are common due diligence factors?

Answer 64

• First impressions of the supplier: how responsive it has been so far, if it appears to have values or standards that complement those of the buying organisation, and how capable it appears to provide the goods or services the buying organisation requires.

Product or service quality: appraising (by inspection or test) the perceived level of quality in the product or service, to be supported by data, if possible.

Qualifications of product or service providers: assessing the individuals who are providing the product or service based on how qualified they are.

Background check: research into any of the following factors
risks s

Adverse media: press reports on negative behaviours of the supplier

• Criminal convictions: convictions served for breach of law, or wanted notices posted by local police organisations or INTERPOL (International Police Organisation).

• Corrupt practice: practices revealed in adverse media or criminal convictions. It is also important to review any cases where suppliers are suspected or known to have a history of bribery, fraud and other corrupt
practices

• Financial performance: whether the supplier is financially stable and if this has affected its ability to deliver on contracts in the past

Question 65

Can due diligence be expensive?

Answer 65

Yes

Question 66

Why is due diligence useful to the buying organisation?

Answer 66

it can give enough information on a potential supplier to either give the buyer confidence or to highlight unacceptable risks, preventing such risks from coming into contact with the buying organisation. This allows the buying organisation to demonstrate its consistently ethical conduct and could prevent a loss of income by avoiding relationships with suppliers that do not align with the buyer’s principles and conduct.

Question 67

What is the key barrier to due diligence of international businesses?

Answer 67

Language - Suppliers may provide documentation in a language that the buyer cannot interpret, making it difficult to truly understand and appraise. This could result in an otherwise suitable supplier being removed from selection.

Question 68

Who is due diligence carried out by?

Answer 68

Due diligence is carried out by procurement professionals, but this can be supported with the use of purpose-made tools, database subscription services, and best practice guidance.

Question 69

What is the risk of using purpose made tools and database subscriptions for due diligence?

Answer 69

These only produce a report taken from a fixed point in time, and the information will only be current at the date it was checked. It is also worth noting that some of these may be costly to purchase or subscribe to, but they may save time and money, as well as reducing risk.

Question 70

How are risks identified with potential and current suppliers?

Answer 70

Through due diligence, audit findings, information shared during contract reviews or other monitoring methods. These risks should be scored in terms of likelihood and potential impact.

Question 71

How should risks be monitored?

Answer 71

Within a risk resister.

Risks should be recorded, regularly reviewed and maintained in a risk register.

This register allows risks to be recorded and displayed in a consistent format and enables the easy ranking of risks from highest to lowest. The risk register can be used to inform decision-making within a business, and this may help to mitigate or eliminate situations that may cause financial, reputational or other risks if risks are left unrecorded and unchallenged.