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Ethical and Responsible Sourcing (L4M4) > Objective 2.1.1 > Flashcards

Objective 2.1.1 Flashcards

1
Q

What does tangible mean?

A

An item or product which you are able to touch, feel and, importantly, measure

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2
Q

What does economy mean?

A

The state of a region, country or the world in relation to its production and consumption of goods and services

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3
Q

What does indices mean?

A

An index or indices are recognised factors that are intended to reflect the movement of a broad and hypothetical collection of products. Examples include the US stock market NASDAQ, or the Retail Prices Index or Consumer Prices Index

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4
Q

What does stock markets mean?

A

A place where public limited companies’ stocks and shares are traded (bought and sold)

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5
Q

What does FTSE 100 mean?

A

The United Kingdom’s stock exchange

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6
Q

What does NASDAQ mean?

A

North American National Stock Exchange

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7
Q

What does SENSEX mean?

A

India’s stock exchange

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8
Q

When a procurement professional is reviewing supplier spend and performance they have to have something tangible to measure it against. What will they use to under the market and economy before make decision?

A

Buyers may review indices that measure economic data.

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9
Q

What does the index Stock markets (e.g FTSE 100, NASDAQ, SENSEX) measure?

A

The value of public limited companies stock and shares.

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10
Q

what does Gross Domestic Product (GDP) measure?

A

The monetary value of the goods and services manufactured or supplied in a financial period.

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11
Q

What does the index Price producer index (PPI) mean?

A

Average changes in prices that a producer receives in return for its goods and services.

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12
Q

What does the index Consumer Price Index (CPI) measure?

A

A weighted measurement that evaluates the average cost of a ‘basket’ of goods bought by a consumer.

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13
Q

What do commodity indices measure?

A

The value of a particular commodity at a point in time e.g. steel, oil, wheat

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14
Q

What does small business lending index measure?

A

An indicator of small business lending trends

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15
Q

What does CIPS Procurement Manager’ index measure?

A

A highly accurate set of facts about current industry conditions in manufacturing, construction and services.

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16
Q

Why does reviewing the economy using indices help procurement professionals gain insight?

A

They can gain insight into how profitable a supplier may be and whether supply is plentiful. This helps to highlight any risks that the suppliers - and in turn the buying organisation - may be exposed to.

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17
Q

What happens if indices show that prices of commodities are constantly rising and how would this impact the buying organisation?

A

rindices show that prices of commodities are continually rising, the likelihood is itat demand is exceeding supply. In such situations, the buying organisation faces means o paying infated prices or not being able to source a supplier that has stock readily available.

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18
Q

Why does reviewing indices help procurement professionals when entering a negotiation?

A

Reviewing indices and media reports helps procurement professionals to better understand their position when entering a negotiation and determine who holds the greater bargaining power.

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19
Q

It it high risk entering into a negotiation without having done research?

A

Yes, especially if the relationship is adversarial of arms length. Then the price proposed and agreed may not reflect the market.

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20
Q

What is commodity pricing?

A

The market average price charged for a product.

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21
Q

Commodities traded on the stock exchange can be divided into what 5 categories?

A
  • energy
  • agricultural
  • metals
  • livestock
  • environmental credit
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22
Q

How often are commodities tracked?

A

Commodity prices are tracked individually for comparison on a daily, weekly, monthly and annual basis although prices in the market are updated every few seconds. All five categories of commodities are also monitored to establish any trends.

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23
Q

What is fixed price contract?

A

A contract where the price remains the same fore the agreed period.

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24
Q

How can procurement professionals who understand tends and commodity prices can seem to arrange contracts at time where prices are favourable?

A

When trends show that prices of a certain raw material always drop during April, a buyer could take advantage of this knowledge and lock into a fixed price contract at that point.

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25
Q

What are examples of energy commodities that traded on the stock exchange and their related products.

A

Oil - petrol, plastic
Natural gas - propane, carbonated drinks

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26
Q

What are examples of agricultural commodities that traded on the stock exchange and their related products.

A

Wheat - flour, bread
Cotton - clothing, bedding
Cocoa - chocolate

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27
Q

What are examples of metals commodities that traded on the stock exchange and their related products.

A

Steel - cars, train, machinery
Gold - jewellery

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28
Q

What are examples of livestock commodities that traded on the stock exchange and their related products.

A

Live cattle - beef, steak
Lean pigs - pork, bacon

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29
Q

What is a monopoly?

A

A situation where one supplier has the entire market share and there is no competition.

30
Q

What is market share?

A

The portion or percentage of a market owned or controlled by a supplier or product.

31
Q

What is a hedge?

A

A technique of taking a position either in current stock or future stock to offset potential losses should the price move. A hedge will have a cost of trading and may involve the use of technical financial contracts.

32
Q

What factors can affect commodity prices?

A

• Supply demand and volatly: if supply is greater than demand, prices drop r demand is greater than supply, prices increase.

• Currency fluctuation: when a supplier’s currency is strong against the buyers currency, the price to the buying organisation will be increased

• Political situation if there is political unrest, an election is imminent or a change of government personnel occurs, prices often fluctuate. Prices could go up or down, depending on the situation, the rules the politicians implement or any trade restrictions they apply
•Overarching risk appetite of the organisation or the market
• Conflict: if countries are engaged in conflict, it may become harder to import and export products and so prices will increase

• Force majeure: if an event such as an earthquake or a volcanic eruption occurs, the supply of commodities could be restricted, and this would inflate prices

• Severe or unseasonable weather conditions: these may affect the environment and so agricultural crops may not produce the expected yield or may exceed forecasts. Prices will then be effected. This relates to commodities such as wheat, barley, cotton, cocoa and tea

• Prices of competitors: suppliers react to competition. If there is a lot of competition, prices will reduce. If there is limited or no competition, such as in a monopoly situation, prices will increase

• Prices of substitutes: if the market has substitutes for a product or service, the product that is in competition with that substitute will be priced accordingly to try and gain market share

• Speculation: if there are media reports that suggest, for example, that a product is going to be in short supply or become unavailable, the price will increase. Speculation can be started by suppliers to try and inflate prices

33
Q

Experts attempt to forecast prices based on what factors?

A
  • Historical data
  • supply and demand
  • the state of the economy
  • global events
34
Q

What does future exchange mean?

A

A marketplace where the seller of a commodity agrees to sell or buy a certain amount of the commodity to a buyer at a particular price on a specific date in the future.

35
Q

What are examples of future exchange?

A
  • LME - London metal exchange
  • NASDAQ - National Association of Securities Dealers Automated Quotation
  • CME - Chicago Mercantile Exchange
  • ICE - Intercontinental Exchange
36
Q

What is Primary Data?

A

Data that comes directly from the source and constitutes new data for a specific purpose.

37
Q

Primary data can be collected in what ways?

A

• Direct communication: one-to-one communication with suppliers, i.e. conversations or e-mails

• Networking: meeting professionals at events and exchanging information

• Specifically-commissioned market research: focus groups, interviews, questionnaires, etc.

• Trade fairs and exhibitions: seeing products or services first hand at events

38
Q

What information can be gained from primary research?

A
  • product availability
  • pricing strategies
  • trends and forecasts
  • contact details
  • company strategy
  • organisational pressures
  • personal opinions and views
39
Q

When does researching data on markets and suppliers help procurement professionals?

A

In their pre-qualification work.

40
Q

What is secondary data

A

Data that has been collected previously and will be used for a new specific requirement that is different to the reason it was collected for.

41
Q

The information from published research or indices is secondary data. This is information that has been gathered by another source and then presented or published. Secondary data is usually easily available and can be collected from the following places:

A

• Economic indices
• Supplier websites
• Financial journals
•Professional magazines
•Published surveys
• Professional bodies
•Third party comparison websites
•Published price-lists
• Organisations promoting trade

42
Q

Give examples if secondary data sources.

A
  • Economic indices - CPI, PPI
  • websites - supplier websites, online data bases and business listings
  • financial journals - published documents containing information on market analysis and current trends
  • professional magazines - publications such as Supply Management which give information on current procurement trends and concerns
  • published surveys - information published by governments on demographics and social trends.
  • organisations such as CIPS, which provide regular information to members.
  • Third party comparison websites - online tools that compare prices from similar industries
  • published price lists - brochures, leaflets or online information containing prices for goods and services.
  • organisations promoting trade - embassies, trade associations or unions sharing global information.
43
Q

Can primary and secondary data be distorted?

A

Both primary and secondary data can be distorted. Often primary data is distortes by, for example, researcher bias. Secondary data can be distorted by going through more channels before reaching the procurement professional.

44
Q

What is a pro and con of secondary data?

A

Secondary data is easier and quicker to access (as it is already available) and it is often free to gather. However, it might not be entirely relevant for the purpose.

45
Q

Does primary and secondary data compliment or contradict each other?

A

Both. Primary data gained from a direct conversation with a supplier may not be the same as the data seen in a professional magazine, for example. Itis quite possible that quotations from individuals may have been take. out of context or are short extracts that may reduce the impact or weaken the message.

46
Q

It is essential that primary research source is trustworthy. How can secondary research help with this?

A

Secondary data can be used to validate primary data or challenge it. If the relationship with a supplieris collaborative, there would be no reason to suspect any primary data is incorred, but if the relationship is weak or adversarial, there is a risk the supplier’s data may be manipulated.

Using both types of data together acts as a form of safeguarding to establish data that is both accurate and current.

47
Q

If a supplier is financially stable what does this make procurement professionals more confident in?

A
  • prices are fair and favourable
  • there is guaranteed continuity of supply
  • risk is minimised
48
Q

What is it important to note when reviewing suppliers financial stability?

A

For potential suppliers, these checks should be conducted before awarding any contract. It is important to note, however, that these are only an indication of a supplier’s historical and current performance and cannot be considered a risk-free guarantee for the supplier’s financial situation over the duration of a contract, especially in those which are longer term.

49
Q

If a supplier is mid-way through a contract, there could be signs that indicate financial instability, including the following:

A
  • reduced levels of quality and performance
  • high staff churn
  • High customer churn
  • a change of bank
  • rumours
  • requested payment before the agreed due date
50
Q

Financial reports or statements commonly contain three documents?

A

. Income statement/profit and loss account: this shows a company’s trading. performance in terms of revenue, profit, expenses and losses over a period of time (most typically a twelve month period)
. Balance sheet: this shows a company’s equity, assets and liabilities at a particular point in time (usually at the year end date of the trading period stated in the profit and loss account/income statement)
. Cash flow statement: this shows the generation and utilisation of cash during the accounting period in question

51
Q

What is customer churn?

A

The turnover of customers.

52
Q

What is staff turnover?

A

The turnover of employees in an organisation.

53
Q

What are financial statements?

A

A company’s formal financial statements are their published year end accounts - in most countries it is a legal requirement for companies to publish these statements soon after their year end accounting date.

54
Q

A procurement professional can analyse the current performance of the supplier, such as how much profit is made, the value of any assets owned, its cash flow and its debts using different formulas and ratios. However, analysis can be limited by eBay following factors?

A

The figures are historic, and from previous data, so therefore cannot give an up-to-date and accurate conclusion for future supplier viability

If the economy strengthens or weakens over the duration of the contract then the results from any ratios may be incorrect due to fluctuations in inflation, interest or exchange rates

. The supplier may have undergone recent operational changes. Examples include launching new products, discontinuing popular products, executing new strategies, or implementing a new organisational structure. The results from any significant recent changes would not show in historical data, and therefore any analysis could give an incorrect picture of the current situation

55
Q

What is a weighted score?

A

A score calculated by using a scoring system that emphasises the areas with the highest level of importance.

56
Q

Credit rating agencies assess the financial stability of an organisation. They use data provided by the what following organisations or reports?

A
  • banks and other financial institutions
  • lenders
  • creditors
  • public information
  • financial reports
  • court judgments for debt
57
Q

How to credit rating organisations able to generate a score that reflects the level of risk an organisation poses when dealing with other organisations?

A

From data provided by organisations and reports

58
Q

What are credit score ratings made up of?

A

Percentages created from different elements such as payment history, amounts owed, credit mix, new credit, length of credit history

59
Q

Why do procurement professionals use credit scores to evaluate suppliers by reviewing the feedback from the credit rating agency?

A

If the score is low, it would suggest that there is a high level of risk associated with the supplier and this should be investigated further before engaging with them. If the score is high, it would suggest the risk is lower and that the supplier is financially stable at the current time. This may mean that awarding them with a contract would come with lower levels of risk.

60
Q

How are the credit score elements segmented in order to create a weighted score?

A
  • Payment History - has the organisation paid on time in full in the last?
  • Amounts Owed - what are the organisation debts?
  • Length of credit history - What is the average time taken by the organisation to pay its debts?
  • New Credit - Has the organisation been approved for any new credit recently?
  • Credit Mix - Are there a variety of credit options I.e. various lenders and terms?
61
Q

Where do procurement professionals usually request the credit scores of suppliers from?

A

Through the finance department as there is often a small cost to obtain a business’ credit report.

62
Q

Why do procurement professionals request a credit score? What happens if the credit score is high or low?

A

So they can establish the level of risk associated with the supplier. If the supplier had a high credit score, then the associated risk to the buying organisation is low and the procurement professional may continue with the process. Even if the supplier’s credit score is low, it may be possible to mitigate the risk to the supplying organisation if the buyer still wants to enter into a contract with the supplier, rather than dismissing them from the process.

63
Q

A supplier with a low credit score may be classified as higher risk for reasons that are not linked to poor credit such as:

A
  • they may have recently set up as a new organisation
  • they may have no loans, including credit cards
  • they may have no high value assets (high value assets can suggest good financial stability and may be used to pay debts if needed).
64
Q

A supplier with a low score may be classified as higher risk for reasons that are not linked to poor credit. Such as new organisation, have no loans etc. In such situations the buyer may still wish to engage with the supplier but may add clauses or make changes to the documentation to reduce the level of risk to the buying organisation. Some examples include the following:

A

• The buying organisation may contract to pay the supplier in a shorter period of time than the standard terms and conditions, to help the supplier with set up costs, cash flow and to secure inventory

• The buying organisation may accept products more regularly in smaller quantities, tO help the supplier develop and to ensure that capacity is not exceeded.

Alernatively, a procurement professional may consider dual or multiple sourcing to ensure continuity of supply until a relationship has developed with the higher risk supplier and trust has been gained.

65
Q

What is a cyber attack?

A

A malicious act attempting to disrupt or steal information using computers.

66
Q

What is cybercrime?

A

Crime that involves computers or networks.

67
Q

What is cybersecurity?

A

The protection of computers and networks against cybercrime and cyberattacks.

68
Q

What is increasing the risks of cyber attacks?

A

As industry continues to become more reliant on technology and the risks of cyber attacks increase.

69
Q

How are credit check evolving?

A

New styles of credit checks evaluate the potential risk a supplier and it’s supplier chain has of being a victim of cybercrime.

The new style of credit check aims to generate a credit score associated with the level of protection and skills an organisation can demonstrate in relation to cyber security.

70
Q

Should any information a procurement professional gathers about a suppliers credit score be used in isolation?

A

No. They only show some information, so in order to obtain a full and detailed account of a suppliers financial position, all aspects that are covered in this capture should be considered.

Ethical and Responsible Sourcing (L4M4) (8 decks)

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