Purchasing Theory

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Questions and Answers

What should be detailed in the sustainability and compliance section?

Marketing strategies and outreach efforts

Project timelines and budgets

Financial performance metrics

Sustainability initiatives and compliance with industry regulations (correct)

What is the primary focus of a collaboration proposal as described?

Budget allocations and funding sources

Timeline for project completion

Scope of materials and value-added services (correct)

Customer satisfaction metrics

What type of insurance coverage should be provided under Insurance and Risk Management?

Liability and product liability insurance (correct)

Property insurance

Health and safety insurance

Automobile insurance

What is meant by Total Cost of Ownership?

The comprehensive cost of a good or service over its entire lifecycle Signup and view all the answers

What is emphasized about the response deadline in the RFI process?

Timely submissions are crucial for evaluation Signup and view all the answers

What is the role of the Procurement and Supply Chain Program Manager?

To manage procurement and supply chain processes Signup and view all the answers

Why is it important to provide additional relevant information or documentation in the RFI?

To assist in making an informed decision Signup and view all the answers

Which aspect should NOT be included when confirming compliance?

Adhering to financial regulations Signup and view all the answers

Which of the following criteria is NOT included in the financial data area when searching for suppliers?

Main competitors Signup and view all the answers

What does ISO 9001 relate to in supplier evaluation?

Quality management Signup and view all the answers

Which criterion is associated with a supplier's production capacity?

Max and min volume per site Signup and view all the answers

In the context of RFI, which area focuses on dedicated resources for innovation?

Innovation Signup and view all the answers

What is meant by 'Eco-Design' in relation to CSR & Sustainability criteria?

Designing products with minimal environmental impact Signup and view all the answers

Which of the following is NOT an example of a criterion assessed in human resources?

Share of turnover dedicated to R&D Signup and view all the answers

Which is a criterion that relates to delivery and logistics in the supply chain?

Delivery delay Signup and view all the answers

What does CSR stand for in procurement contexts?

Corporate Social Responsibility Signup and view all the answers

Which of the following IS a criterion for assessing a supplier's innovation capabilities?

Share of engineers dedicated to R&D Signup and view all the answers

What is the primary purpose of conducting an internal upstream analysis in the procurement process?

To evaluate the existing portfolio and needs Signup and view all the answers

What is the primary purpose of developing a tendering document in the procurement process?

To inform suppliers about the procurement process and requirements Signup and view all the answers

Which analysis method is used to understand total costs associated with procurement?

Total Cost of Ownership (TCO) Signup and view all the answers

What does the central part of the procurement process primarily involve?

Evaluating and selecting suppliers Signup and view all the answers

Which aspect is NOT typically included in the requirements specification for purchasing laptops?

Supplier history and past performance evaluations Signup and view all the answers

In the context of a call for bids, which of the following is usually NOT essential information to include?

A detailed analysis of competitors Signup and view all the answers

What is the final phase in the procurement process focused on?

Management of performance and improvement Signup and view all the answers

What is the purpose of market analysis in the procurement process?

To analyze market trends and supplier availability Signup and view all the answers

What type of criteria might be included in the special elements of a tendering document?

Evaluation criteria for assessing bids Signup and view all the answers

Which component is essential in a contract progress report for an IT project?

Management of mission and responsiveness Signup and view all the answers

Which of the following does not occur during the central part of the procurement process?

Performance management Signup and view all the answers

What is the benefit of using ABC analysis in procurement?

Classifying inventory based on importance Signup and view all the answers

Which factor represents a strength when considering expansion into a new market?

Good reputation for quality and reliability Signup and view all the answers

What is the main objective of identifying implementation actions for improvement in a contract progress report?

To enhance the quality of deliverables and project outcomes Signup and view all the answers

What is a primary weakness related to the company's procurement operations?

Procurement processes not fully digitized Signup and view all the answers

Which step directly follows the award phase in the procurement process?

Contractualization Signup and view all the answers

When drafting context for a procurement project, which of the following should be prioritized?

Objectives and specifications that meet project needs Signup and view all the answers

Which opportunity exists in the new market being considered for expansion?

Government incentives for foreign investment Signup and view all the answers

In supplier relationship management, what is a crucial aspect to be monitored?

Quality of deliverables and project management Signup and view all the answers

What is the primary focus of the procurement strategy established through analysis?

To align purchasing decisions by family Signup and view all the answers

In the Kraljic Matrix, which quadrant would Supplier E (unique patented technology) likely fall into?

Strategic Items Signup and view all the answers

How can procurement performance be evaluated effectively?

Through ongoing supplier management Signup and view all the answers

Which supplier is classified as a non-essential supplier in the Kraljic Matrix?

Supplier B (Non-essential office supplies) Signup and view all the answers

What external factor poses a potential threat to the company's expansion plans?

Political instability in the region Signup and view all the answers

Which supplier provides components with high supply risk and high impact on business objectives?

Supplier E (Unique patented technology) Signup and view all the answers

Which of the following best describes the competitive landscape of the new market?

Fierce competition with strong local suppliers Signup and view all the answers

What was the main focus of procurement in the year 1945?

Cost price and margin Signup and view all the answers

By what percentage did procurement contribute to turnover in 1990?

60% Signup and view all the answers

Which mission is associated with procurement's role in risk management?

Managing supply chain disruption risks Signup and view all the answers

What distinguishes the procurement process from the purchasing process?

Identifying needs and formulating strategies Signup and view all the answers

In what phase did procurement shift its focus to sustainability?

2000 Signup and view all the answers

Which activity is NOT part of the procurement function's missions?

Managing production schedules Signup and view all the answers

How does procurement contribute to economic performance?

By optimizing working capital requirements Signup and view all the answers

What does the procurement process include after identifying needs?

Preselecting suppliers Signup and view all the answers

What is a primary role of procurement in relation to suppliers?

Driving performance and managing relations Signup and view all the answers

Which statement about procurement's role in innovation is true?

It promotes innovation culture in the company. Signup and view all the answers

Which of the following is a key distinction between procurement and purchasing?

Procurement involves strategic planning and supplier selection. Signup and view all the answers

What is one of the significant risks procurement must manage?

Supplier failure risk Signup and view all the answers

Which activity is NOT typically conducted by the procurement function?

Managing production alterations Signup and view all the answers

What should procurement focus on when developing a procurement policy?

Analysis of supplier markets Signup and view all the answers

Study Notes

Course Information

Course title: Purchasing and Procurement Management
Instructor: Amr MIR
Amr MIR is a Procurement and Supply Chain Program Manager with a PhD in Supply Chain Management.

Historical Basis of Procurement

1945: Production Economy. Procurement was 20% of turnover.
1974: Market Economy. Procurement was 50% of turnover.
1990: Globalization. Procurement was 60% of turnover.
2000: Regionalization. Sustainability is triple economic, social, and environmental performance. Companies now focus on agility and resilience alongside costs and margins.

Purchasing vs. Procurement

Purchasing: Focuses on the transactional activities of buying goods and services. Activities such as calculating need, processing purchase requests, managing inventory, and tracking supplier payments.
Procurement: Focuses on strategic sourcing and supplier relationship management. Activities such as developing procurement policies, analyzing supplier markets, qualifying suppliers, negotiating contracts, and driving performance improvement.

Procurement Process

Source-to-contract: Starts with identifying needs and ends with contract negotiations.
Purchase-to-pay: Focuses on the process of ordering, receiving, and paying for goods and services.

Main Missions of Procurement

TCO Reduction: Optimizing working capital requirements.
Contribute to economic performance: Driving cost-effectiveness and efficiency.
Contribute to the creation of value: Fostering innovation, social responsibility, and environmental practices in procurement.
Manage risks: Including supply chain disruption, supplier failure, and environmental and social risks.
Other Missions: Defining everyone's role, maintaining contact with suppliers and internal stakeholders, promoting culture innovation, and supporting other company teams.

Procurement Process - Internal Analysis

Internal upstream analysis phases: analyzes existing portfolio and needs to be served, supplemented by external market analysis and supplier analysis. Cost analysis, market analysis and financial analysis provide necessary support to select right supplier.
Procurement Process: Central part of the process that needs rigor and professionalism will lead to better supplier selection. Performance management of suppliers and other actors of procurement is important.
Purchasing Classifications: Defining unique codes to structure purchases in consistent families and sub-families. This creates an organized structure for ERP.

Purchasing Classification - Implementation

Collect all items via information systems, group into macro groups (production, non-production, investment).
Group into families and sub-families respecting a logical structure,
Create an appropriate coding system for groups, families, and sub-families.

Purchasing Classification - Goals

Develop a strategy by purchasing family
Define the scope of purchasing intervention
Define the skills profiles of buyers according to the purchasing segment
Build the supplier panel by selecting the best performers by purchasing family

Spend Analysis by Family

Expenditure analysis collects information on purchases by family (the number of references, the number of items, the number of invoices, and the number of suppliers).
Analysis helps to create a detailed organizational structure for ERP and to identify key information.

Procurement Process - External Analysis

Supplier Market Analysis: Differentiates five types of supplier markets based on competition intensity: competitive, monopoly, oligopolistic, captive, and viscous markets.
Porter's Competitive Forces Analysis: Identifies the six competitive forces that impact the market to create a SWOT analysis to determine the feasibility and potential risks of expansion.

Request for Information (RFI)

RFI is a tool used to preselect suppliers based on objective criteria.
It can be a file, questionnaire, or online form.
Criteria for RFI include supplier assessment, product/service evaluation, general conditions compliance. The information gathered enables technical and feasibility analysis of the project.

Search for Suppliers: RFI Criteria

The criteria for searching for suppliers by RFI includes company structure, financial data, commercial activity, production capacity and technology.
The criteria are based on human resources, experience, quality and supply chain aspects, innovation and CSR & sustainability.

Collaboration Request – Request for Information (RFI)

Process for procurement officers to gather detailed information from potential suppliers in a formal RFI request.
Includes detailed sections covering company overview, financial stability, product catalog, quality assurance, supply chain and logistics, references, sustainability and compliance, collaboration proposal, and insurance and risk management.

Procurement Process: Cost Analysis

Total Cost of Ownership (TCO): The full cost of a good/service includes acquisition, upstream procurement, implementation costs, usage costs, and destruction/recycling costs.
Price Decomposition: Breaks down costs into purchasing, added value, specific costs, overheads, and logistics categories, and associated cost drivers.

Procurement Strategy

Companies are seeking to expand their operations into new markets.
A SWOT analysis needs to be conducted to evaluate feasibility and risks.
The procurement processes must be examined for efficiency.
Competition, industry changes, and political/economic factors are important elements of strategy.
Analysis of critical, bottleneck, leverage, and non-critical suppliers helps to identify risks and optimize relationships.

Supplier Relationship Management

Contract Progress Report: Documents quality of deliverables, resources implemented, overall progress, mission management, and responsiveness.
Implementation Actions: Identifies specific actions needed to improve the contract's performance in each criteria.

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