Answered) CIPS L4M1 Scope and Influence of Procurement and Supply 2024

Answered) CIPS L4M1 Scope and Influence of Procurement and Supply 2024 What is Procurement? Procurement is a STRATEGIC function of a business obtains something Tangible as goods or Intangible as services. Include Purchasing Inventory, Logistics, Supply, Waste Management Quality, Cost, Added Value What is Purchasing? Is the ACT of physically ordering and buying something. What is Supply? Is the INFRASTRUCTURE which ensures that products and services get from supplier to the customer. What is inventory? the stock of goods, materials or products What is a stock? Asset available in the warehouse What is asset? Value of everything an organization owns Fixed cost Costs do not change (Salaries, Insurance, Rent) Variable Cost Costs do change as they are linked to the business (Raw Material, Extra hours) Directly Cost (Direct Procurement) Cost associated with the Job or production (Raw material, Man Power) Indirectly Cost (Indirect Procurement) Not associated with the Job (Clean Liquid, Stationary, Mobile phones contracts, MRO - Maintenance repairs and Operations. Primary Sector of the Economy The part of the economy that draws raw materials from the natural environment (Cotton, Oil, Silver, Wheat) Secondary sector of the Economy The part of the economy that transforms raw materials into manufactured goods (Light Bulbs, Nuts and Bolts, Metal housing, Plastic fittings) Finished goods Units of products that have been completed but not yet sold to customers (Shoes, Beds, Clothes, Jewellery) Stock Procurement Includes Can be stored and inventory Raw Material, Components and Finished Goods. Non-Stock Procurement Includes Are not stored and not listed in the Organization inventory (Cleaning Services, Internet Contract, Insurances, Advertising Campaigns) Explain why the procurement department should be consulted before an organization spends money. Procurement can influence the majority of the costs within an organization: 1.- Evaluating potential suppliers 2.- Involved in preparing specifications 3.- Review Quality standards 4.- Assess ethical requirements 5.- Compare buy or lease options 6.- Investigate transport 7.- Review packing options. 8.- Research total life cost 9.- Calculate currency differences 10.- Benchmark prices 11.- Ensure assets are fit for a propose Total life Cost (TLC) The total amount a product will cost an organization. Mentioned some examples of NON-STOCK INTANGIBLE procurements. Insurance, Marketing, Salaries/Pensions, Cleaning, IT and Catering Services, Staff Development, Electricity, Gas, Rent or Mortage. Mentioned some examples of STOCK TANGIBLE procurements. Components, Stationary, Uniforms Mentioned some examples of CAPITAL NON-STOCK TANGIBLE procurements. Machinery, Buildings, Lands, Vehicles CapEx (Capital Expenditure) The cost associated to assets of an Organization (The value of a Capital Purchases reduce overtime, the amount of the asset depreciated) OPEX (Operating Expenditure) Cost Associated with the running of an Organization, such as electricity, labour, transport, rent, the raw material (Day to day running of the business) What is a budget? Financial plan for a set period on how much can spend money. Depreciation The reduction overtime in the value of an asset held by the company. What should a procurement professional consider when sourcing a capital purchase? The TCL - Total Cost of Life, Depreciation. Procurement Process A cross-functional business process that originates when a company needs to acquire goods or services from external sources, and it concludes when the company receives and pays for them. What are the stages of the procurement cycle process? 1.-Understand the need 2.- Market/commodity 3.- Develop a strategy 4.- Pre procure 5.- Develop Documentation 6.- Supplier Selection 7.- ITT/RFQ 8.- BID/TENDER 9.- Contract Award 10.- Warehouse Logistics 11.- Contract Performance 12.- SRM & SC Management 13.- Asset Management List the Pre-award process (Sourcing) in Procurement Cycle From 1 to 8 1.-Understand the need 2.- Market/commodity 3.- Develop a strategy 4.- Pre procure 5.- Develop Documentation 6.- Supplier Selection 7.- ITT/RFQ 8.- BID/TENDER Mention the award process (Contract/ PO) in Procurement Cycle 9.- Contract Award List the Post-award process (Contract Management) in Procurement Cycle 10.- Warehouse Logistics 11.- Contract Performance 12.- SRM & SC Management 13.- Asset Management Product specification Describes the technical criteria Typical Specification Outlines Description, Drawing, Color, Materials, Quantity, Packing, Quality. Performance Specifications Simple to prepare. Open up the supplier market and promote innovation and competition by letting suppliers offer the solution to the required need. Conformance Specifications Usually difficult to prepare. Ensure that the product/service is exactly as required and that there is not variance. (Recipes, Chemical formulas, engineering drawings) Why should a service specification contain as many details as possible? To ensure that the standard of quality demand is met. Rights of Procurement 1.- Right Quantity 2.- Right Quality 3.- Right Time 4.- Right Place 5.- Right Price Define why the Five rights of procurement and supply are important to the procurement professional. 1.- Quantity: if is wrong Warehouse Could be overstocked and Production could be stop. 2.- Quality: Essential of getting value of money. 3.- Time: If products are not received, serious consequences for the production. 4.- Place: Additional cost may be incurred if delivery sent to wrong destination. 5.- Price: Must be fair and reasonable, need to consider Currency, Taxes, Incoterms. What is the other right of procurement and supply? Right Source (Selection of the right source is a very important) TCO (Total Cost of Ownership) The cost incurred by owning a product throughout its useful life, including acquisition, use maintenance and disposal. TCA (Total Cost of Acquisition) The cost incurred in acquiring a product from sourcing to receiving and installed. Elements of TCO TCA Tooling Insurance Operation Maintenance Training Storage Disposal TCO Formula = TCA (Total Cost of Adquisition) + OC (Operational Cost) + MC (Maintenance Cost) + DC (Downtime Cost) + ELC (End Life Cost) What are the TCO & the TCA? The TCO helps to understand how much a product or service cost an organization to obtain. Elements of TCA Purchase Price Quality Lead time Carriage and Insurance A procurement professional receives two quotations in response to her RFQs for 100 items. What should the buyer do before placing and order and why? Supplier 1: Quotes $2 per unit and states that the price is net and EXW. Supplier 2: Quotes $2.50 per unit and states that the price is net and CPT. Net price Exclude Taxes Gross Price Include Taxes KPI (Key Performance Indicator) A measurable value that demonstrates how effectively a company is achieving key business objectives Qualitative KPIs -Reduce the number of factory rejects -Achieve ISO accreditation -Reduce materials wastage during manufacture Quantitative KPIs -Reduce percentage of late deliveries -Increase number of orders received with correct quantities -Increase percentages of deliveries correct location Write one qualitative and one qualitative KPI to help a supplier to achieve the right quality and the right quantity. Qualitative: Reduce the number of receiving rejections Quantitative: Correct quantities Value for money The relationship between a product is worth and the cash amount spent on it. Describe in detail five factors that contribute towards getting value for money when procuring goods or services CURRENCY/EXCHANGE: Avoid rates fluctuation QUALITY: Needs to be good and meet the specifications PAYMENT TERMS: Longer gives the company more time to keep the money in the bank. TIME: Products and services must be delivered on time to avoid additional costs. PLACE: Products and services must be delivered in the right place to avoid additional costs. What is a supply chain? a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer