Objective 2.1 Flashcards
What is Pareto Principal?
The theory that 80% of outcomes result from 20% of inputs, for example, 80% of sales are to the top 20% of customers; 80% of spend on inventory is accounted for by the top 20% of stock items. The Pareto principle is also known as the 80/20 rule
What is most organisations breakdown of supplier spend?
Most organisations have a similar breakdown of supplier spend, where 80% of the total spend is distributed among 20% of the suppliers. This percentage is a recognised theory within business and is known as the Pareto principle.
Pareto 80/20 split puts suppliers in 3 categories A, B and C. What is this type of categortisation know as?
ABC analysis
What does categories A,B and C represent?
- In the figure, ‘A’ suppliers represent 20% of the total spend - these are the suppliers that are responsible for the highest level of spend. The procurement department considers ‘A’ suppliers to be the most important.
- B’ suppliers are collectively responsible for a smaller percentage of spend and there are many more of them.
- The majority of suppliers fall into category ‘C’. They are responsible for the smallest amount of spend.
What is the ABC analysis?
A simplistic segmentation approach based loosely on Pareto analysis. ABC
analysis can be used to break down an organisation’s total external spend based on value so its resources are used to manage these expenditures and prioritised accordingly
What is CIPS relationship spectrum?
A model positioning different relationships from ‘adversarial’ and to ‘collaborative’ and ‘Co-density’
What does the CIPS Relationship Spectrum help determine?
Which style of management to use.
What are the levels of CIPS Relationship Spectrum from low to high?
- Adversarial
- Arm’s - Length
- Transactional
- Moderate
- Bespoke
- Single - sourced
- Outsourced
- Strategic
- Collaborative
- Partnership
- Co-destiny
Match the categorisation if supplier within ABC analysis with the style of relationship.
A - strategic
B - Moderate
C - Transactional
What is the Kraljic matrix?
Strategic tool to help managers recognise the weaknesses of their organisation and form strategies to guard against disruption of supplier
In accordance with the Kraljic matrix which suppliers A, B and C will likely be contracted to supply the strategic products or services within an organisation?
A
