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1. O1. Outline FIVE differences be- tween purchas- ing goods and purchasing ser- **vices.
- O2. Explain** THREE circum- stances in which a competitive tendering exer- cise might not be the best ap- proach to making **a purchase.
- O2. Describe** TWO e-sourcing tools and their use in procure- **ment and supply.
- O3. Explain the** role of a shared services unit (SSU). 1. Goods are tangible, services are intangible: 2. Services cannot be separated from their supplier: 3. Heterogeneity: goods are usually uniform in nature while services are unique at each delivery 4. Services 'perish' immediately on delivery whereas goods can be stored until required 5. Products are easier to specify, being tangible 1. Urgency 2. Commercial confidentiality or national security (e.g. mil- itary organisations): 3. Value of the purchase: 4. Production costs cannot be measured accurately: 5. Price is not the only criterion for supplier selection and contract award 6. Intellectual Property Rights and monopoly 1. E-Catalogues 2. E-Tendering 3. E. Auction 4. Reverse Auctions 5. Online suppleir evaluation data SSUs reflect a desire to centralise and share services The shared service provider becomes a dedicated provider of services such as; finance, HR, IT and procure- ment which continue to be provided internally An SSU manages costs and quality SLAs to demonstrate value for money. An SSU's benefits may be summarised as: - cost effective internal service; - liaison with its customers; - anticipating future demand; - employing resources and providing higher levels of ser- vice more cost effectively than if they were provided by a department or an external provider.
5. O3. A manufac- turer of elec- trically powered tools for the engineering in- dustry consists of four separate business units, each of which un- dertakes its own purchasing activ- ities. Discuss THREE benefits of cen- tralising all pur- chasing activi- ties with those of retaining the present decen- tralised struc- **ture. (1 of 2)
- O3. A manufac-** turer of elec- trically powered tools for the engineering in- dustry consists of four separate business units, each of which un- dertakes its own purchasing activ- ities. Discuss THREE benefits of cen- tralising all pur- Centralisation' and 'decentralisation' refer to the degree to which responsibility and authority is delegated. Arguments for centralisation can only be evaluated in the context of specific organisational environment and might include: 1. Policies & procedures 2. Consolidation of requirements 3. Location 4. Supply market structure 5. Expertise required: 6. Customer demands The benefits of retaining the present de-centralised struc- ture include: 1. Local responsibility 2. Knowledge of the local environment, culture and cus- tomer needs 3. Skills development of buyers in each unit 4. Better communication and coordination between pro- curement and operating departments, 5. Customer focus: buyers are 'closer' to internal and ex- ternal customers developing understanding of user needs and problems. 6. Quicker response to operational and user needs, 7. Smaller purchase quantities: 8. Accountability: d 9. Freeing central procurement units to focus on high- er-level, value-adding tasks.
achieve such goals
10. O2. Explain THREE ways in which elec- tronic systems can be used in the sourcing **process.
- O2. Describe** FOUR ways in which added val- ue may be cre- ated for a buy- ing organisation through an ef- fective sourcing **process
- O3. Explain** THREE advan- tages to an or- ganisation when adopting a de- volved procure- **ment structure
- O3. Describe** FOUR bene- fits delivered to an organisation by an out- sourced procure- ment function.
- internet
- e-tendering (RFI/RFP/RFQ/RFX)
- e- catalogues
- e-auctions and reverse auctions
- intranet. explain how each can be used in sourcing process Value might include getting the requirement correct first time and covering all requirements, stakeholder engage- ment and compliance, specifications to avoid rework and pre qualifying only the suppliers capable to meet the busi- ness needs. Motivating and including suppliers in the process can en- courage longer-term investment, cost reductions, innova- tion, improved quality, stock and wastage reduction and sharing market knowledge.
- being close to stakeholders helps build relationships, understand requirements, communication, tap into user expertise.
- Quicker response to environmental and requirements changes is also an advantage. 3. Closeness to local sup- pliers helps market knowledge, reduced transport times, cost and general supplier management.
- Inventories can be reduced CSR use of SME's can be satisfied. Local accountability is improved and if a central procurement team remains, that team can focus on high value activities benefits of expertise, skills, access to aggregated volumes (with other customers) leading to cost reductions, busi- ness can focus on core competencies, quality and service assured through KPIs and flexibility to resource through peaks and troughs in requirements
14. O4. ways in which the objec- tive of profitabil- ity in a private sector organisa- tion might impact on its procure- **ment activities.
- O1. potential** benefits of a sup- ply chain man- agement (SCM) approach to pro- curement and **supply
- O1. Outline** why supply chain manage- ment (SCM) may be unattractive for some organi- **sations.
- O2. Explain the** activities that could be un- dertaken by an organisation to identify and ap- praise potential suppliers as part of a sourcing process. pressure to focus on price and cost reduction, conflict with quality and CSR, adversarial approach to negotiations and transactional relationships, missed opportunities to create value derive from eliminating waste activities, improving respon- siveness in the continuous flow of value and other effi- ciency projects. Other benefits might include access to resources and expertise throughout the chain, collabo- rative quality management, improved communication, in- tegrated systems and data share, co-ordinated demand forecasting, agility in faster lead-times and innovation, transparency reducing stock levels and waste. high investment in finances and resource, a closer sup- plier relationship might not be appropriate if transactional purchases are involved, there are risks associated with closer relationships such as complacency and loss of control over confidential information. market analysis using current databases, the internet, trade shows, catalogues and directories, networking. Pre-qualification/appraisal ensures a supplier is able to perform a contract. Capacity, financial and technical ca- pabilities can be appraised. The activities involved can be in the form of questionnaires, site visits, using set criteria (Caters 10Cs for example). Other activities include data gathering from certifications, references, samples, credit rating companies
- there are a vast range of answers to choose from such as expediting orders, payment, contract management, sup-
23. O2. Outline THREE benefits that may re- sult from the use of elec- tronic systems in the sourcing **process
- O2. Describe** FOUR potential costs of using electronic sys- tems in procure- **ment and supply.
- O3. Explain what** is meant by the involve a wide range of stakeholders. Operational expen- diture is usually less complex and often involves repeat spends Preparation work on capital expenditure is likely to be lengthy and will involve building a business case, invest- ment appraisal and the option to buy or lease. Operational expenditure tends to be more straight forward and budgets are pre-set for regular demand Capital procurement is less frequent than the procure- ment of operational items, which is usually on a regular basis Cost savings, through streamlining and speeding up processes; examples include data input and transfer and calculating Improved communication and transparency of information throughout the internal and external supply chain, to sup- port decision making Greater accuracy of data input, manipulation and transfer Reduced cycle and lead times, through streamlining pro- curement processes and more accurate data for demand forecasting The high capital investment and set-up costs of the elec- tronic systems, including hardware and software items The high initial learning curve costs, where users of the electronic systems will have to be trained to use them efficiently Possible costs arising from the failure of data security; this may be because of malicious access to data or loss of data The cost of compatibility issues, because suppliers will have to invest in the necessary technology to be able to work with their customers Possible redundancy costs, because electronic systems are faster and more efficient, meaning that fewer staff will be required shouldexplain the term 'devolved procurement' in relation to procurement structures. This might have been in terms
term 'devolved procurement' in relation to pro- curement struc- tures.
26. O3. Outline FIVE disadvantages to an organisa- tion of a de- volved procure- **ment function.
- O4. Explain FIVE** factors that im- pact on purchas- ing activities in the retail sector. of procurement responsibilities not being placed in the hands of a single, centralised department. Instead, pro- curement responsibilities are given to procurement offi- cers in different divisions, strategic business units or user departments. In service organisations, it is common for procurement to be carried out by users or budget holders, rather than by procurement specialists. The staff involved may not be procurement specialists and procurement may be only a small part of their work. As a result they will not have specialist skills or knowledge and may not be able to select the best suppliers or monitor their performance It is likely that the consolidation of orders will not be possible, so that bulk discount or economies of scale are not achieved There may be less coordination of procurement activities and there may not be uniform procurement policies and procedures, as there would be in a centralised function. There is likely to be less standardisation of specifications, possibly leading to reduced quality and efficiency Conflict between different divisions or business units might arise, as they compete for scarce raw materials and there may be unequal budgetary allocations of procure- ment expenditure It may be more difficult to control procurement activities. When procurement is centralised it is easier to monitor procurement performance and compare it to defined KPI's Bottom line thinking: Retailers do not add much value to the goods they sell and their margins are small. As a result, buyers must focus on goods that will sell well at the best possible profit margins Broad assortment: One of the functions of retailers is to make available to customers a wide range of goods offered by many different manufacturers. The number of stock lines and suppliers is high and buyers have to at- tempt to monitor prices, quality and supplier terms and conditions
these approach- es Working with supply chain partners to minimise waste, with the technique of lean supply
- O2. Outline Identification of the need, which may be via a requisition THREE pre-con- or Bill of Materials tract award Description of the need through a specification, which stages of might be performance or conformance the sourcing Develop the contract terms, which set out what each of process. the two parties have agreed to do Source the market, identifying suppliers who might have the potential to supply the requirement Appraise suppliers, establishing whether they have the ability to fulfil the requirement Issue an invitation for bids, through a tender or quotation Analyse bids and select the most appropriate supplier Award the contract and issue the relevant contract docu- mentation
- O3. Explain It ensures that all tasks that need to be performed have FOUR advan- been performed and that there are no 'gaps', or things that tages for an or- have been forgotten ganisation of fol- It ensures co-ordination of effort between the parties lowing a struc- collaborating in the process and that there has been no tured sourcing duplication of efforts process. It helps to promote consistency in the process and out- comes, as opposed to the uncertainty of doing things ad-hoc It prevents conflict and sub-optimal behaviour, where participants pursue their own interests and objectives It supports good governance and managerial control by ensuring that adequate checks and controls are in place It supports compliance with relevant laws, regulations and standards
- O3. Explain the Enterprise Resource Planning system consolidates ma- term 'Enterprise terials, manufacturing, logistics, supply chain, sales and Resource Plan- marketing, finance and human resources into a single ning'. integrated management system. It is a single database able to offer real time information for solving a range of
32. O3. Describe FOUR of the main functions of an IT based invento- ry management **system.
- O4. Outline the** impact of TWO private sector ob- jectives on pro- curement and supply chain ac- tivities. 34.34. business problems and it is a computer based system designed to process an organisation's transactions. It also facilitates integrated and real time planning, production and customer response. Examples of ERP systems are SAP and Oracle. Managing demand - ensuring that supplies are available in the right quantities and at the right time to satisfy the needs of internal and external customers Forecasting demand - to avoid overstocking or stock outs Controlling stock levels, in terms of quantity and value and to monitor and maintain minimum and maximum stock levels Ensuring that supplies are replenished in accordance with procurement policies; this includes triggering automatic replenishment requisitions at pre-established order points Capturing goods inwards information accurately and inte- grating this information with stock balance, contract man- agement and payment systems Controlling the receipt, inspection, storage and issuing of supplies to users To maximise profitability. This puts the pressure on pro- curement to minimize costs, which might generate a com- petitive approach with suppliers. Methods of reducing cost might include outsourcing, international sourcing and val- ue adding negotiations with suppliers Increasing market share, which might also involve cost reductions, or working with suppliers who are innovative. It might also involve forming long-term strategic relation- ships with suppliers to ensure that customers get the best possible products or services Corporate Social Responsibility, which will mean that pro- curement should only enter into contracts with suppliers who are ethical and environmentally friendly. It might also mean that contracts with suppliers have clauses covering CSR to ensure supplier compliance
36. O3. Define the term 'Corporate **Governance'.
- O3. xplain FOUR** reasons why it is important to maintain effec- tive governance standards within the procurement function. specifications; in the case of selective tendering, this would be by means of an invitation to bid, while in the case of open tendering, it would be by means of a public advertisement
- The submission of completed tenders or bids by potential suppliers, within the specified deadlines
- Opening of tenders on the appointed date, while tenders received after this date should be returned unopened; the tenders received should be logged, with the main details listed on an analysis sheet
- Analysis of each tender, against the stated criteria, with a view to selecting the best offer; this will Leading global excellence in procurement and supply usually be on the basis of the lowest price or the most economically advantageous tender (MEAT)
- Award of the contract to the successful bidder and adver- tisement or notification of the award
- De-briefing unsuccessful tenderers, to enable them to improve their competitiveness in future bids This might have been the rules, policies, processes and organisational structures by which organisations are oper- ated, controlled and regulated, to ensure that they adhere to accepted ethical standards, good practice, laws and regulations. Procurement professionals potentially control large sums of money and they are in a position of trust within the organisation; they have a duty of care, which may be jeopardised by unethical conduct
- Procurement professionals are faced by the opportunity to commit financial fraud or to misuse systems or informa- tion for personal gain
- The decisions of procurement professionals typically benefit some suppliers over others. This creates an in- centive for suppliers to try to influence decisions, through bribery
- Procurement professionals are in a 'stewardship' role, responsible for finance and assets, which are owned by
38. O4. Explain the impact of THREE objectives of a public sector or- ganisation on its procurement ac- tivities. other people. Unethical conduct may be represented by the theft, loss or damage of assets, belonging to the own- ers of the organisation - The reputation of the profession and the employing or- ganisation may be damaged by fraud or unethical conduct and enhanced by ethical conduct. Ethical standards are therefore an important element in managing reputational risk - Supply chain relationships may be damaged by unethi- cal conduct. Ethical practices are therefore an important element in procurement professionals maintaining a good status with suppliers - To deliver essential public services, such as education, healthcare and housing, which the private sector might not provide. A typical impact of this would be that procurement must ensure an adequate level of service in providing the goods and services needed in the education, healthcare and housing sectors. This might be achieved by compre- hensive specifications, including KPI's and supplier per- formance monitoring - To encourage national and community development; examples might include developing education and skills, stimulating economic development and developing infra- structure, such as road networks and communications. The impact of this on procurement activities would be careful supplier selection and awarding contracts only to those suppliers with the capability to contribute to the appropriate types of development To pursue socio-economic goals, such as support for small and minority-owned businesses, the pursuit of sustainable development and environmental protection. Again, this would impact on the type of supplier chosen; these must be suppliers who can contribute to the above requirements and who's values are the same as the public sector organ- isation - Ensuring value for money and the efficient use of public funds, which mainly come from taxpayers. The impact of this would be rigorous supplier selection and awarding
41. O2. Describe FOUR ways in which added val- ue may be cre- ated for a buy- ing organisation through an ef- fective sourcing **process.
- O3. Describe the** roles typically undertaken with- in an organisa- tion by: (i) The local pro- curement teams (ii) The cen- tral procurement **team.
- O4. Describe** THREE objec- tives of public sector organisa- **tions.
- O4. Explain** FOUR ways in which regula- tion might impact Suppliers are motivated and are prepared to work with the buying organisation to reduce costs and add value. Suppliers are likely to want to share innovative approach- es to add value. Suppliers are more likely to deliver products and services without defects, which reduces the costs of rectification. Suppliers may add value by sharing development costs and providing co-investment. Suppliers are more likely to reduce lost time by providing timely tender bids, documentation and deliveries. Suppliers are more likely to reduce wastage and add value by helping to identify unnecessary processes and overstocking. The roles of a local procurement team might have included sourcing small order items, sourcing emergency items to avoid disruption to production, sourcing from local suppli- ers and sourcing items used only by the local division. The roles of a central procurement team might have been described in terms of determining procurement and supply chain policies, preparing standard specifications, negotiating bulk contracts, procurement research and procuring capital assets. To deliver essential services, not provided by the private sector, to an acceptable level or quality. To encourage national and community development, by developing education and skilling and stimulating econom- ic activity. To pursue socio-economic goals, such as support for small and minority-owned businesses and the pursuit of sustainable development. To ensure that bought in materials, goods and services comply with defined public standards and specifications. To ensure that all procurement exercises are compliant with public policies and statutory procedures. To ensure that all supply chain operations are compliant
on public sector procurement.
45. O2. Explain THREE rea- sons why clear- ly defining needs adds value in the sourcing **process
- O2. Describe** FOUR types of electronic sys- tem that can be used in the sourcing **process.
- O3. Explain** THREE advan- tages to an or- ganisation when with legal requirements, for example health and safety and environmental sustainability. There is a high requirement for accountability, so that audit trails must be maintained. Procurement in the public sector must be based on value for money, because taxpayers' money is being used. The tendering process is more likely to be more bureau- cratic and time consuming, because of regulations such as EU Procurement Directives. It encourages all relevant stakeholders to consider what they really need and whether this is the most cost-effective solution It communicates the requirement clearly to the supplier, so that they can plan to conform It minimises risk and costs associated with ambiguity or misunderstanding It provides a means of evaluating the conformance of the goods or services supplied It supports standardisation and consistency, where items are sourced from more than one supplier. E-catalogues: suppliers exhibit their products in these and they can be viewed online or downloaded Supplier portals and market exchanges: sites where mul- tiple buyers and sellers share information about require- ments and offerings E-tendering: using e-RFQ's and specifications posted online or e-mailed to potential suppliers. Bids can then be received and evaluated electronically E-auctions: these are conducted online using the buyer's or seller's website or a third party auction site Online supplier evaluation data, including third party re- ports and customer feedback There will be better communication and co-ordination be- tween procurement and operations departments, because of their closer proximity Procurement staff are closer to internal and external
curement func- tion. If the organisation has a retail arm, procurement must try to source quality goods that appeal to customers, but which can be sold at a reasonable price Procurement may face logistical challenges if there are overseas activities, such as aid work in disaster areas There will be a need for probity in all financial transactions
