D2 - 1.0 Business Needs In Procurement & Supply

Front 1

List all stages of the procurement cycle

Back 1

1. Specifcation 2. Define contract terms 3. Source the market 4. Appraise suppliers 5. invite quotations or tenders 6. Analyse responses and select 7. Negotiate best value 8. Award contract 9. Contract/Supplier Management 10. Identify Need

Hint 1

SDS-AIA-NACI

There are 9 stages

Front 2

Describe all the 'types of purchase' classifications

Back 2

1. Straight re-buy: already sources from supplier

2. Modify buy: requirement has changed

3. New buy: not sourced before

Front 3

Describe the procurement/purchase categories

Back 3

1. Capital procurements

2. Production materials

3. commodities

4. MRO

5. Goods for re-sale

Hint 3

There are 5 including MRO

Front 4

Name the criteria for a business case

Back 4

- Fulfills business ojectives

- Increases revenue

- Reduces costs

- Increases profit

- Competitive advantage

- Improve reputatio

Hint 4

The of the obvious

there are a few but 3 main ones

Front 5

Describe sources of market data for information on market prices?

Back 5

1. Primary: Trade fairs, comms w/suppliers, networking

2. Secondary: Journals, statistics, surverys

Hint 5

2 types

Front 6

Describe the types of cost based pricing methods

Back 6

1. full cost pricing: total costs plus profit
2. cost plus / mark up pricing: direct costs
3. marginal pricing
4. target pricing
5. contribution

Front 7

Explain THREE purposes of preparing a budget for a procurement function.

Back 7

- motivate employees to reach targets
- motivate managers to identify risks
- coordinate operations
- control procurement costs
- express objectives in operational tasks

Hint 7

Motivate and risks

Front 8

Describe ONE cost and ONE risk that could be included in the business case

Back 8

Costs:

* Purchase price
* MRO
* Disposal
* Training
* Operational disruption
* Objectives may not be met

Front 9

Define the term ‘total lifecycle costing’.

Back 9

an economic assessment which considers all projected cost flows over the operating life of an asset, expressed in monetary terms

Hint 9

Cost flows over operating life

Front 10

Describe FIVE costs that should be considered when calculating the lifecycle cost of an item, apart from the purchase price of the item

Back 10

* Transaction costs. e.g. taxes
* Finances costs e.g. loans borrowed
* Cost of delivery
* Operating costs
* Storage
* Inspection
* Disposal
* Draw iceberg diagram

Hint 10

Iceberg

Front 11

Using examples, explain the difference between direct and indirect costs.

Back 11

Direct costs:

* Direct materials: paper, ink, glue
* Direct labour: production employees labour costs
* Direct expenses: payable royalties
* e.g oil used in machinery
* Salaries
* Also known as overheads

Front 12

Outline the differences between production materials and capital items.

Back 12

Production Materials:

* Paid for out of expense account
* Low acquisition costs
* Bought to be consumed. Turned into something else to be incorporated into final product
* e.g. raw materials for a book, paper, ink.
* Frequent buying
* Fixed assets
* Long life, high acquisition costs
* Used to produce goods or generate income
* e.g. Plant equipment or a rental property
* Infrequent buying

Front 13

What are the five rights of Procurement?

Back 13

The right:

1. Quality

2. Quantity

3. Place

4. Time

5. Price

Front 14

Why has there been a shift in procurement to more strategic focus?

Back 14

1. Cost base of manufacturing has changed

2. World class approaches

3. Need for secure supply chains

Front 15

Name the stages of the development of procurement

Back 15

1. Passive: no strategic direction, reactive and clerical

2. Independant: adopts latest techniques, focus on functional efficency

3. Supportive: supports strategy and objectives

4. Integrative: fully integrated into strategy, cross functional.

Hint 15

There are four

Front 16

What will happen if business needs are not considered at an early stage?

Back 16

1. unncessesary procurements

2. over specification

3. later rejection as need not researched correctly in first instance

Hint 16

There are three

Front 17

Name and draw the kraljic matrix

Back 17

1. Leverage: cost/price management, multiple suppliers, supply abundant
2. Non-critical: Functional efficiency, local suppliers, supply abundant
3. Strategic: long term availability, established global suppliers, supply scarce
4. Bottleneck: cost management and secure supply, global suppliers, supply scarce

Front 18

What are the main objectives of a business case?

Back 18

1. stratgic focused

2. improving efficency

3. ability to compare alternatives

4. establishing a yardstick

Front 19

List the sections in a business case structure

Back 19

1. Background/introduction

2. options

3. business benefits

4. costs & risks

5. reccomendation

6. KPIs

Hint 19

BOB - CRK

Front 20

Describe the cost/benefit ratio

Back 20

- Formula = benefit / cost

- If ratio is greater than 1, proceed, if less than 1, reject, if close to one, investigate further

- Benefits and costs may be hard to quantify

Front 21

List options which may be an alternative to purchasing a captial asset

Back 21

1. leasing

2. hire-purchase agreement

3. renting

4. upgrading

Front 22

What is a bill of materials?

Back 22

1. Flagged in an MRP system

2. forecasts needs of manufacturing

3. compares to stock files

4. lists what will need to be procured

Front 23

What steps should a buyer take in relation to a modified re-buy?

Back 23

1. Review specifications

2. Challenge spec

3. Re-open contracts

4. Justify changes

5. Reneg contract

Front 24

What is early buyer involvement

(EBI)

Back 24

- Ensures commerical and supply consideration as given at an early stage when most important

Front 25

What is

early supplier involvement

(ESI)

Back 25

ensure that solutions take into account supply market expertise, technology and innovation

Front 26

List the market-driven pricing approaches

Back 26

1. Price volume

2. Penetration pricing

3. Market skimming

4. Contribution pricing

5. Promo pricing

6. Price discrimination

7. Competition pricing

Front 27

What is open book costing?

Back 27

Supplier shares cost information with buyer, helps to identify cost savings, information is all one way

Front 28

what is cost transparency?

Back 28

- both parties share cost information

- high level of trust

Front 29

What is mark up?

Back 29

= profit/cost

Front 30

What is margin?

Back 30

= profit/selling price

Front 31

What is contribution?

Back 31

= revenue - variable costs

Front 32

What is break even point?

Back 32

= fixed costs / (selling prices - variable costs)

It is the point where the qty covers cost to make neither a profit or a loss

Front 33

List the main items in a cash budget.

Back 33

1. Cash at Start

2. Receipts

3. Payments

4. Cash at end

Front 34

What are the limitations of budgeting?

Back 34

1. time consuming

2. requires managerial time

3. politcal aspects

4. involve estimation

5. outdated easily

6. over reliance

7. short term focus

Front 35

List the types of budgets

Back 35

1. Incremental: previous period and adjusts for known changes

2. zero-based: starts from scratch, estimate costs

3. rolling: updates every month

4. fixed: estimates activity levels

5. flexible: changes with volume of output

Front 36

Causes of budget variences?

Back 36

1. skill of negotiation team

2. flucuations in commodities, exchange rates

3. spot buying

4. late payment

5. using substitutes