Tutorial assignments Week 2
1. In what kind of organisation will you generally find purchasing managers in
the higher levels of the organisation: at a commercial bank or a manufacturer
of household equipment?
You will generally find purchasing managers in the higher levels of a
manufacturer of household equipment, because here the purchaser has to get
the required materiel (e.g. raw materials) for production and the importance
of purchasing in a manufactory is way bigger than in a commercial bank.
2. If the importance of procuring products or services in a certain business
department is high, the involvement of this department in procurement is
often also high. The role of the purchaser (procurement department) in the
initial procurement process is often (too) small. What is the reason for this?
Here is the big struggle that a lot of companies face, because often in
those cases the purchaser are just assistants to the purchasing process and
the departments often take over the control
3. Make the connection between production-related and non-production-related
goods and the classification of procurement products. Can services also be
production-related?
production-related goods are to be found in the end product, while the
non-production-related are not found in the end products.
Production-related: raw material, investment goods, semi-manufactured
goods, maintenance and repair, finished product
Non-production-related:
Services can also be production-related, for example when you hire workers
to fix machines for production.
4. Why are supporting (secondary/non-production-related) goods important for
a business?
They are important, because they support the primary activities.
5. A purchaser receives the specification of a number of parts (components)
from the development department. There are (technical) specifications of
what needs to be procured. The specifications even include the supplier of the
product. What does this mean for the purchaser?
, The purchaser has to still check if the department did everything correct
and negotiate (see Question 2).
6. When an electronic auction is used during the supplier selection stage, it is
often possible to negotiate a lower purchase price than with conventional
requests for quotations. What is the cause of this?
A request for quotation is when a job had to be done, we ask several
companies to make offers, so that we can make a selection. The new way is
to do this through an electronic auction, and it could lead to a lower price
because the competition is much bigger (more than just a few companies can
make an offer). Also, there is more transparency so that the bidders can also
see their position and the prices of others (like Ebay).
7. What is the value of electronic auctions for purchasers? When would you use
this method?
The value of electronic auctions for purchasers is lower prices and this method
can be used when handling large quantities, standardized products, when there
is large competition, and of course it’s easily accessible.
8. A procurement department can positively affect the profitability of a company
by reducing certain costs. Where does the influence of a procurement
department lie? Think of the Du Pont analysis.
A centralised purchasing department can add efficiency to the whole
organization and the production process in general by the task being focused in
this one department rather than having several people in different departments
doing the purchasing.
,Preparation for tutorial assignments
1. A real estate company managed to get his hands on an old castle in England
with outbuildings, some originally built in 1478. The buildings are in very poor
condition and need to be renovated thoroughly. The company wants to
convert it into a luxury hotel and conference centre for the prime end of the
tourism and business sectors and preserve or restore the original features as
much as possible (return to the original design). Obviously, everything must
meet the current requirements concerning comfort, safety, etc. The
investment will require millions of euros. A project like this can be performed
by ‘fixed price’ or ‘costs reimbursable’. What is logical in this situation? Which
method would you prefer? Support your answer.
In my opinion, it would be logical to perform the project by ‘costs
reimbursable’, the price is not known at the moment and can be over budget.
That means, the project leaders and financers need to be able to pay a higher
price than eventually first known. It will also take a lot of time, so with a cost
reimbursable contract you also take the amount of time as an aspect into
consideration.
A fixed price contract would be over a very high price, and it’s very hard for
the company to come up with such a fixed price.
2. Describe the most important procurement characteristics (see table 1.1) in
Procurement in Strategic Perspective, press 5 or press 6) of the procurement
of the following service/product:
A return flight to Turkey for a Dutch tour operator that offers all-inclusive
holidays for Dutch tourists and a packaging machine for a biscuit production
plant.
Aspect Packaging machine Return flight
Product assortment Limited Large
Number of suppliers Limited (only a few) Large
Purchasing turnover Price per item is high, High procurement
high procurement turnover
turnover
Number of purchase Small Higher, considerable
orders
Average order size High Small
Control Harder, because special Easier
knowledge is required
Decision-making unit Quite complex decision Small
,3. A purchaser uses so-called knock-out criteria when requesting quotes. These
are criteria the potential supplier MUST meet. He requests a quote from
various suppliers but receives only one quotation that seems rather highly
priced. What could be going on here? What could the purchaser have done
better?
Maybe the purchaser used too many criteria. With too many necessary
criteria, most of the suppliers couldn’t meet all of them, so that he only got
one quotation from a supplier that did meet all of the criteria.
To make it more transparent, the purchaser could have rather used an E-
Auction, because here the price compilation of the quotes from possible
various suppliers are easily accessible.
He also should’ve done additional and better research in order to know about
the market and prices beforehand.
4. A bicycle manufacturer in the upper price segment is considering the
transition from steel to aluminium for the production of bicycle frames. To
proceed to procurement of these materials, which are new to the company,
different departments/people are involved in the procurement process.
Indicate who (which department or departments) should be involved for every
one of the six stages of the procurement process. Avoid inviting too many
departments/persons. The company has the following departments: Sales,
production, shipping, procurement, warehousing, human resources, finance,
IT and development. Use a table/chart to show the results.
Step (Procurement process) Department(s)
1. Defining specifications Development, production,
procurement, (warehousing) (finance,
if a huge amount of money is
involved)
2. Supplier selection Procurement, development
3. Contract agreement Procurement
4. Ordering Procurement
5. Monitoring Procurement
6. Evaluation / Follow-up Development, production,
procurement, (warehousing) (finance,
if a huge amount of money is
involved)
, 5. A company in civil engineering needs 50 cubic meters of standard concrete for
a project. There are quite a few potential suppliers who can deliver. Should
the company enter negotiations with several suppliers or is there a better
solution?
Since there a quite a few potential suppliers who can deliver, and it is a
standard product and not very complex, so there is no need for negotiation. I
think a better solution would be to use an E-Auction with several suppliers,
for example the RFI method. When using an E-Auction, the price compilation
of the quotes from possible various suppliers gets more transparent.
1. In what kind of organisation will you generally find purchasing managers in
the higher levels of the organisation: at a commercial bank or a manufacturer
of household equipment?
You will generally find purchasing managers in the higher levels of a
manufacturer of household equipment, because here the purchaser has to get
the required materiel (e.g. raw materials) for production and the importance
of purchasing in a manufactory is way bigger than in a commercial bank.
2. If the importance of procuring products or services in a certain business
department is high, the involvement of this department in procurement is
often also high. The role of the purchaser (procurement department) in the
initial procurement process is often (too) small. What is the reason for this?
Here is the big struggle that a lot of companies face, because often in
those cases the purchaser are just assistants to the purchasing process and
the departments often take over the control
3. Make the connection between production-related and non-production-related
goods and the classification of procurement products. Can services also be
production-related?
production-related goods are to be found in the end product, while the
non-production-related are not found in the end products.
Production-related: raw material, investment goods, semi-manufactured
goods, maintenance and repair, finished product
Non-production-related:
Services can also be production-related, for example when you hire workers
to fix machines for production.
4. Why are supporting (secondary/non-production-related) goods important for
a business?
They are important, because they support the primary activities.
5. A purchaser receives the specification of a number of parts (components)
from the development department. There are (technical) specifications of
what needs to be procured. The specifications even include the supplier of the
product. What does this mean for the purchaser?
, The purchaser has to still check if the department did everything correct
and negotiate (see Question 2).
6. When an electronic auction is used during the supplier selection stage, it is
often possible to negotiate a lower purchase price than with conventional
requests for quotations. What is the cause of this?
A request for quotation is when a job had to be done, we ask several
companies to make offers, so that we can make a selection. The new way is
to do this through an electronic auction, and it could lead to a lower price
because the competition is much bigger (more than just a few companies can
make an offer). Also, there is more transparency so that the bidders can also
see their position and the prices of others (like Ebay).
7. What is the value of electronic auctions for purchasers? When would you use
this method?
The value of electronic auctions for purchasers is lower prices and this method
can be used when handling large quantities, standardized products, when there
is large competition, and of course it’s easily accessible.
8. A procurement department can positively affect the profitability of a company
by reducing certain costs. Where does the influence of a procurement
department lie? Think of the Du Pont analysis.
A centralised purchasing department can add efficiency to the whole
organization and the production process in general by the task being focused in
this one department rather than having several people in different departments
doing the purchasing.
,Preparation for tutorial assignments
1. A real estate company managed to get his hands on an old castle in England
with outbuildings, some originally built in 1478. The buildings are in very poor
condition and need to be renovated thoroughly. The company wants to
convert it into a luxury hotel and conference centre for the prime end of the
tourism and business sectors and preserve or restore the original features as
much as possible (return to the original design). Obviously, everything must
meet the current requirements concerning comfort, safety, etc. The
investment will require millions of euros. A project like this can be performed
by ‘fixed price’ or ‘costs reimbursable’. What is logical in this situation? Which
method would you prefer? Support your answer.
In my opinion, it would be logical to perform the project by ‘costs
reimbursable’, the price is not known at the moment and can be over budget.
That means, the project leaders and financers need to be able to pay a higher
price than eventually first known. It will also take a lot of time, so with a cost
reimbursable contract you also take the amount of time as an aspect into
consideration.
A fixed price contract would be over a very high price, and it’s very hard for
the company to come up with such a fixed price.
2. Describe the most important procurement characteristics (see table 1.1) in
Procurement in Strategic Perspective, press 5 or press 6) of the procurement
of the following service/product:
A return flight to Turkey for a Dutch tour operator that offers all-inclusive
holidays for Dutch tourists and a packaging machine for a biscuit production
plant.
Aspect Packaging machine Return flight
Product assortment Limited Large
Number of suppliers Limited (only a few) Large
Purchasing turnover Price per item is high, High procurement
high procurement turnover
turnover
Number of purchase Small Higher, considerable
orders
Average order size High Small
Control Harder, because special Easier
knowledge is required
Decision-making unit Quite complex decision Small
,3. A purchaser uses so-called knock-out criteria when requesting quotes. These
are criteria the potential supplier MUST meet. He requests a quote from
various suppliers but receives only one quotation that seems rather highly
priced. What could be going on here? What could the purchaser have done
better?
Maybe the purchaser used too many criteria. With too many necessary
criteria, most of the suppliers couldn’t meet all of them, so that he only got
one quotation from a supplier that did meet all of the criteria.
To make it more transparent, the purchaser could have rather used an E-
Auction, because here the price compilation of the quotes from possible
various suppliers are easily accessible.
He also should’ve done additional and better research in order to know about
the market and prices beforehand.
4. A bicycle manufacturer in the upper price segment is considering the
transition from steel to aluminium for the production of bicycle frames. To
proceed to procurement of these materials, which are new to the company,
different departments/people are involved in the procurement process.
Indicate who (which department or departments) should be involved for every
one of the six stages of the procurement process. Avoid inviting too many
departments/persons. The company has the following departments: Sales,
production, shipping, procurement, warehousing, human resources, finance,
IT and development. Use a table/chart to show the results.
Step (Procurement process) Department(s)
1. Defining specifications Development, production,
procurement, (warehousing) (finance,
if a huge amount of money is
involved)
2. Supplier selection Procurement, development
3. Contract agreement Procurement
4. Ordering Procurement
5. Monitoring Procurement
6. Evaluation / Follow-up Development, production,
procurement, (warehousing) (finance,
if a huge amount of money is
involved)
, 5. A company in civil engineering needs 50 cubic meters of standard concrete for
a project. There are quite a few potential suppliers who can deliver. Should
the company enter negotiations with several suppliers or is there a better
solution?
Since there a quite a few potential suppliers who can deliver, and it is a
standard product and not very complex, so there is no need for negotiation. I
think a better solution would be to use an E-Auction with several suppliers,
for example the RFI method. When using an E-Auction, the price compilation
of the quotes from possible various suppliers gets more transparent.
