Mock Q&A (2) PDF - Diploma in Procurement and Supply Operations

L4M2 – LO1 Defining Business Needs Diploma in Procurement and Supply Operations Copyright Chamber Business Training 2024 Overview of public, private and third sector Cross-functional organisations promote the collaboration of individuals from different departments, in order to shar...

L4M2 – LO1 Defining Business Needs Diploma in Procurement and Supply Operations Copyright Chamber Business Training 2024 Overview of public, private and third sector Cross-functional organisations promote the collaboration of individuals from different departments, in order to share knowledge and consider aspects from different perspectives. Successful collaboration across functions can reduce risk, allow the negotiation of better pricing through consolidation, bulk buying and economies of scale, as well as supporting better changes to products, and a positive effect on organisational budgets. Q4 Explain FOUR ways in which regulation might impact on public sector procurement (16 marks) 1. To ensure that bought in materials, goods and services comply with defined public standards and specifications. 2. To ensure that all SC operations are compliant with law, regulation and standards in areas such as health and safety, environmental sustainability, employment rights, data protection and FOI 3. To ensure that all procurement exercises are compliant with public policies, standing orders and statutory procedures - with the general aim of securing comp supply, VFM and ethical procurement 4. There is a high requirement for accountability, so that audit trails must be maintained. 5. Procurement in the public sector must be based on value for money, because taxpayers’ money is being used. 6. The tendering process is more likely to be more bureaucratic and time consuming, because of regulations such as EU Procurement Directives. PCR 2015: Explain the use and need for tendering in public sector  Describe the three concepts of competition, public accountability and value for money in a public sector procurement function. Competition increases value for money by: Encouraging suppliers to compete against each other, lowering prices and offering added value No competition means monopolies – could set prices with no room for negotiation Typically have to advertise to all with no restrictions The levels of competition in the public sector are lower than private sector – strict regulations often discourages new entrants to the public sector Public accountability: Places an obligation on org that provide services on behalf of the public sector to be accountable for the decisions Public sector org must be open, transparent and honest. They must be responsible, efficiently, act with integrity. The four E framework is a concept associated with public sector procurement and is used to evaluate accountability and to achieve value for money. They represent four key elements that Regulations that impact on procurement and supply chain operations. 1. Non discrimination – treating everyone fairly and without prejudice. Providing equal opportunities and access to public service and benefits. Public institutions are obligated to enact and enforce policies that prevent discrimination such as hiring, service provision and access to public facilities 2. Free movement of goods – move freely across borders without barriers, facilitating trade and economic activities. Public authorities must comply with these agreements, ensuring that restrictions on the movement of goods are minimized and aligned with established trade rules 3. Equality of treatment – by public authorities in areas such as law enforcement, taxation and public services. It requires public institutions to treat individuals impartially and avoid discriminatory practices 4. Transparency – openness and accessibility of info. Requires public institutions to provide clear and easily accessible information about their decisions, actions and polices. Regulations related to transparency and data public authorities to disclose info about their activities, decision making processes and use of public resources. Can include publishing financial reports, making meetings and decisions public Q4(b) Explain the impact of regulation on a third sector organization’s procurement function (9 marks In the third sector, procurement functions are more closely regulated than in the private sector. This is because they are spending money which is derived from donations or government grants. This means that procurement is performing a ‘stewardship’ role, with a strong emphasis on accountability Also third sector organisations, such as charities, will need to ensure that procurement complies with the charity’s legal requirements and those of the Charities Commission Regulators may check that a third sector organization is run for the public benefit and not for private advantage. This means that information must be made available to the public and that activities are audited. Regulators may also investigate complaints about possible mismanagement or abuse. This will apply to the third sector organization in general and the procurement function specifically Q2 Describe FIVE possible ‘drivers’ or influencing factors of procurement activities in third sector organisations/ NOT FOR PROFIT (25 marks) Q2 Describe FIVE possible ‘drivers’ or influencing factors of procurement activities in third sector organisations/ NOT FOR PROFIT (25 marks) 1. Cost efficiency and budget constraints: limited funding from donors and public grants makes cost management essential. Procurement teams priorities value for money to ensure sustainable operations within tight budgets 2. Ethical and sustainable sourcing: these orgs emphasize aligning with ethical practices and sustainability, choosing suppliers committed to fair trade and environ responsible methods. This reflects their mission driven focus, prioritizing social impact over cost alone 3. Transparency and accountability: satisfy stakeholders like donors and beneficiaries. Compliance with regulatory bodies such as the charity commission and national audit office, necessitates open procurement processes through documentation for auditability 4. Mission alignment and social impact: procurement choices must support the org broader mission, impacting supplier selection and purchasing decisions, such as involve sourcing from local suppliers or supporting socially responsive initiatives 5. Regulatory compliance and funding conditions: must adhere to strict guidelines set by funding agencies and UK regulators such as HMRC and specific grant conditions. Non compliance can result in funding cuts or legal issues Public sector regulations 1. Public procurement regulations: governed by various regulations to ensure fair competition, transparency and vale for money e.g. the public contracts regulations 2015 2. The freedom of information act: promotes individuals with the right to access info held by public authorities. It promotes transparency and accountability. Public sector org must respond to info questions from the public within set timelines 3. General data protection regulation: govern the processing and protection of personal data to safeguard individuals’ privacy rights. Must handle personal data responsibly, ensuring consent and providing individuals with rights to access and control their data 4. Equality act 2010: eliminate discrimination and promote equal opportunities in employment and service provision 5. Anti bribery and corruption laws: the bribery act 2010 Q5 Outline FIVE roles of a public sector regulator (15 marks) 1. The budgets of public sector bodies are set within frameworks laid down by government and regulators are responsible for ensuring compliance 2. Regulators also scrutinize expenditure to ensure that it is within government guidelines 3. Regulators also protect national interests and public welfare, to ensure that all operations and procurement are carried out in ways that will avoid negative effects on national interests 4. Regulators set and advise on standards of good practice, quality standard and service levels 5. Handle complaints against public sector organisations 6. Monitor and audit organisational activites for compliance to standards 7. Ensure taxpayer money is spent appropriately Q6 Describe FIVE ways in which contract management might add value before the contract award stage of the sourcing process (15 marks) 1. Identifying needs and specifications: procurement starts by collaborating with stakeholders to identify and define needs accurately. This ensures that the sourcing process is aligned with the organisations strategic goals and avoids potential costs associated with misaligned purchases. The added value lies in reducing the risk of incorrect specs = cost savings and enhanced efficiency 2. Market analysis: by conducting thorough market analysis, procurement provides insights into market trends, pricing and supplier capabilities. This step, including the make-or-buy decision, optimizes sourcing strategies to ensure the most cost-effective approach. Added value is evident in well informed decisions that balance cost, risk and capability 3. Developing strategy and plan: procurement develops a tailored souring strategy, factoring in supplier types, competitive dynamics and ethical sourcing standards. The added value is the creation of a structured approach that aligns with broader org objectives, integrates sustainability practices and mitigates risk 4. Pre-procurement market engagement: early markey engagement allows procurement trams to test market readiness and gather feedback, helping to refine the strategy before formal tendering. The value added includes identifying innovative solutions and building r/s with potential suppliers 5. Documentation development: the creation of comprehensive tender documentation ensures that suppliers understand requirements and submit relevant, competitive proposals. This transparency reduces ambiguity, promotes fairness and facilitates better responses = enhancing quality of the couring process Q6 Describe FIVE ways in which contract management might add value before the contract award stage of the sourcing process (15 marks) 6. Supplier selection: through objective evaluation frameworks like Carter’s 10 C’s, procurement ensures that only qualified suppliers advance, reducing risk and improving quality. This step adds value by saving resources and time, ensuring supplier reliability and compliance with strategic standards 7. Issuing ITT/RFQ: Procurement ensures the fair distribution of tender docs, fostering trust and encouraging high-quality bids. Clear timelines and transparent communication enhance process efficiency, adding value through fairness and market competitiveness 8. Bid evaluation and validation: the thorough assessment of supplier proposals based on pre-set criteria results in selecting suppliers that offer the best value for money. Procurements expertise in managing this process enhances decision making quality, reduces risks and promotes long term value through objective evaluations and cost-benefit analyses.  Q6 Describe FIVE ways in which contract management might add value after the contract award stage of the sourcing process (15 marks) 1. Contract award and implementation: procurement secures favourable terms through negotiation, which supports cost-savings and aligns contracts with strategic goals. This step adds value by reducing potential risks and ensuring suppliers meet quality and delivery standards, leading to better outcomes and efficiency 2. Warehouse, logistics and receipt: effective coordination of logistics and inventory management reduces errors and ensures timely delivery. Procurements role adds value by aligning operations with demand forecasting and optimizing storage, reducing carrying costs and enhancing supply chain transparency 3. Contract performance review: ongoing monitoring ensures suppliers meet performance standards and contract terms. Regular reviews provide added value by allowing for corrective actions, continuous improvement and ensuring alignment with evolving needs, which optimizes resource utilization and maintains high quality standards 4. Supplier relationship management (SRM) and supply chain management (SCM): Procurement builds strategic relationships with key suppliers, encouraging innovation and reducing risks. Collaborative approaches and joint development initiatives enhance suppliers capabilities, redice costs and foster long term partnerships. The added value is realized in improved supplier performance, sustainable practices and strategic advantages 5. Asset management, end of life and lessons learned: Procurement overseas the entire life cycle of assets, from acquisition to disposal. By ensuring compliance with sustainability and ethical standards, procurement adds value by promoting responsible disposal and recycling, thus supporting CSR initiatives. Documenting lessons learned and applying them to future processes  Q1 Explain any THREE of the ‘5 rights of procurement’ including how each might be achieved (15 marks) 1. Right Quality Procuring goods/services that go beyond fit for purpose, reducing costs associated with defects or reworks. Quality impacts satisfaction, operational efficiency and long term reliability Quality adheres to specs as well as legislation such as uk sale of goods act = items meet their intended purpose and maintains satisfactory condition Buyers deploy reactive measures like quality control and proactive approaches like quality assurance – legal compliance and underpins customer satisfaction, brand reputation and ethical sourcing policies Achieved by: conducting thorough research to identify these suppliers that will contribute to the org being sustainable and delivering high quality goods and services 2. Right Quantity Ensures the correct amount is purchased to avoid overstock or stockouts. Enough stock to meet customer orders but ordering the amount that is financially viable i.e. can procurement stock more products and take advantage of economies or scale or should stock be kept low to keep storage and handling costs low Achieved by: Demand forecasting, inventory management systems, and regular inventory review – JIT and use of MRP system 3. Right Price Ensures value for money, balancing cost and quality. Do not simply seek the cheapest option. Affordable but doesn’t compromise on quality. Considerations include total cost of ownership, whole life costing Achieved by: Market research, competitive bidding (RFQs/RFPs), and negotiation of favourable terms which allow it to  Q1 Explain any THREE of the ‘5 rights of procurement’ including how each might be achieved (15 marks) Right Time Ensures goods/services are delivered when needed to avoid delays. Business will not face stock outs and risk shorting customers which could impact its reputation Timely procurement helps avoid delays that can disrupt production/service delivery How to use innovation supplier that can help get items to market quicker than competitors Other considerations include changing market forces and customer demand. The use of forecasting is extremely useful, particularly if there are peaks in demand for a product. Need to avoid bottlenecks and production stoppages so lead time and delivery time is important Achieved by: Managing lead times, Just-in-Time (JIT) techniques, and monitoring supplier delivery performance. Right Place Delivering goods or services to the correct location as specified Minimizing environmental impact, reducing risks during transit and optimizing warehouse practices – important for perishable items or items which require specific storage conditions such as chemicals. Good planning in terms of logistics, minizine any impact on the environ during transport and a consideration for safety Achieved by:. Must decide the right supplier based on location, the most appropriate method of  Q1 Explain any THREE of the ‘5 rights of procurement’ including how each might be achieved (15 marks) Conclusion 5 rights of procurement provide a structured framework for orgs to optimize their sourcing practices. All rights are equally as important and is the relationship between the rights is key While price, quality, place, quantity and time form the foundation, evolving models acknowledge elements like the right relationship with the supplier. Embracing these principles ensures operational efficiency and promotes sustainability and ethical conduct throughout the procurement process = long term success in a globalized and dynamic market place Scenario: XYZ is a manufacturer of cakes and needs to order eggs. Discuss how xyz can ensure the 5 rights of procurement when ordering eggs Q2 Explain FIVE potential benefits of a supply chain management (SCM) approach to procurement and supply (20 marks) The term "supply chain" refers to the entire process of making and selling commercial goods, including every stage from the supply of raw materials to the delivery of the finished product to the end consumer. It involves a network of organisations, activities, information, and resources working together to produce and distribute goods or services. Improved supplier relationships and collaboration Key Benefit: Long-term, strategic partnerships with suppliers. Impact:Consistent quality, on-time delivery.Better communication and problem- solving.Shared goals and mutual trust. Example: Collaborative development with suppliers for product quality and delivery. Cost Efficiency and Cost Control 1. Key Benefit: Streamlined procurement and operational processes.Impact:Reduced procurement and operational costs.Bulk purchasing and economies of scale.Optimized inventory management and logistics.Example: Bulk pricing or joint investments in manufacturing technologies to reduce production costs.  Q2 Explain FIVE potential benefits of a supply chain management (SCM) approach to procurement and supply (20 marks) 3. Risk Mitigation and Increased Supply Chain Resilience Key Benefit: Shared risks between suppliers and buyers. Impact:Reduced volatility in supply costs and availability.Better preparation for disruptions (e.g., supply chain crises).Diversified suppliers and contingency planning. Example: Developing alternative suppliers or risk-sharing mechanisms for stability during disruptions. 4. Enhanced Supplier Innovation Key Benefit: Encouragement of innovation and continuous improvement from suppliers. Impact:Improved product development and competitive advantage.Faster product launches and process efficiencies.Sustainable practices and technologies. Example: Co-developing new products or technologies with suppliers to enhance performance or sustainability. 5. Improved Forecasting and Inventory Management Key Benefit: Better data sharing and communication with suppliers. Impact:Optimized inventory levels (avoiding stockouts or overstocking).Reduced lead times and better alignment with demand.Real-time visibility and synchronized production schedules. Example: Using integrated systems for real-time inventory tracking and more accurate demand forecasting. Q3 Outline why supply chain management (SCM) may be unattractive for some organisations (5 marks) High costs – requires significant investment in technology, staff training and process changes. Small businesses or those with limited resources may not have the budget Complexity – involves managing multiple suppliers, logistics and internal suppliers Dependence on suppliers – relying on more suppliers for timely deliveries and product quality – dependance can be risky if suppliers fail to meet expectations  Explain how 5 electronic systems can be used at different stages of the sourcing process 1. E-catalogues - Supplier selection and order placement: Digital versions of product listings that provide detailed information on items suppliers offer. These systems allow buyers to browse products, compare prices and make purchases efficiently through online platforms. Save time by simplifying the search for products, allow for cost comparison = wide view of available options = better decision making 2. E-sourcing – Supplier Engagement and Evaluation: use of digital platforms to gather and evaluate supplier proposals and bids. These platforms facilitate tasks like supplier selection, contract negotiation and request for proposals. Makes suppliers selection process more competitive and transparent, buyers can review multiple bids effectively, reduces time required for manual proposal evaluation 3. IT based inventory management software such as MRP/ERP – Order Management and Fulfilment: Help manage stock levels, track inventory movements and ensures orders are fulfilled in timely manner. Integrating IT based inventory management ensures that inventory levels align with procurement cycles, minimizing stockouts or excess inventory 4. E-tendering – Bid solicitation and contract award: the electronic submission of bids and tenders for procurement contracts. This system allows buyers to post tender docs online and suppliers can submit their bids digitally. This increases the efficiency of tender submissions and provides a secure, accessible platform for buyers/suppliers. It helps ensure compliance with proc regs by maintaining a clear record of all interactions/decisions = enhancing fairness and transparency of the tender process 5. E-payment – payment and financial settlement: enable the electronic transfer of funds between buyers and suppliers. Payments are processed electronically through bank transfers, credit cards  Explain key aspects of corporate governance of a procurement or supply chain function CG is the rules, procedures, structures, chains of command. It is important as it removes ambiguity over roles, ensures org are compliant with legislation. Governance is in place to reduce the risk of conflicts of interest The 4 D’s model – how to manage conflict of interest Disclosing: this is the first important step in maintaining ethical Behaviour and involves disclosing information regarding conflicts of interests with colleagues and the org to ensure recorded Distance: if the individual does not have direct input, they should distance themselves, removing themselves from the situation Delegate: if they cannot distance themselves, they should delegate to someone who has no conflicts Disassociate: if the contract is critical to org, the procurement professional should disassociate themselves from the deal to ensure complete objectivity in the contract process CIPs code of conduct 1. Enhance and protect the standing of the profession. 2. Promote the eradication of unethical business practices. 3. Maintain the highest standard of integrity in all business relationships. 4. Enhance the proficiency and stature of the profession. 5. Ensure full compliance with laws and regulations  Explain key aspects of corporate governance of a procurement or supply chain function The need for documented policies and procedures in procurement Policies are high level statements that outline an org overall stance or position on a particular issue. They help in establishing boudnaries, defining roles and responsibilities and ensuring that org activities align with its mission, visions and values Procedure are detailed step by step instructions that describe how to perform to a particular task of handle a specific situation Purpose of policies: ensurance conformance, continuity of supply, promote ethical behaviour, ensure compliance, protect from coercion, bribery, fraud ILO conventions Freedom of association and protection of the right to organize, collective bargaining, forced labour, abolition of foced labour, minimum wage, worst forms of child labour, discrimination  Explain FOUR reasons why it is important to maintain effective governance standards within the procurement function. Corporate governance: the rules, policies, processes and org structures y which organizations are operated, controlled and regulated to ensure that they adhere to accepted ethical standards, good practice and laws 1. Procurement professionals potentially control large sums of money and they are in a position of trust within the organization; they have a duty of care, which may be jeopardized by unethical conduct 2. Have access to sensitive financial information, supplier databases and purchasing systems, which could potentially be misused for personal gain. A robust governance framework establishes clear guidelines, controls and monitoring systems – safeguards org financial resources and ensures compliance with ethical standards 3. Protection against bribery and supplier influence – strong governance are essential to mitigate the risks of bribery, corruption and conflicts of interest 4. Reputation management and risk mitigation – actions affect public image – ethical conduct help build and maintain trust with stakeholders Organisational and contextual drivers for structured procurement and supply processes 1. Efficiency: optimizing workflows – structured processes streamline workflows by providing a clear and organized sequence of tasks = increased efficiency, reduced redundancy and faster task completion 2. Consistency: ensuring standardization – structured processes help standardize procedures and operations. This consistency ensures that tasks are performed uniformly across different teams and departments, reducing the risk of errors and promoting reliable outcomes 3. Quality control: maintain quality standards – structured process often include quality control measures and checkpoints. These ensure that products/services meet predetermined standards, enhancing overall quality and customer satisfaction 4. Risk management: identifying and mitigating – structured processes include risk assessments and controls, helping orgs identify potential risks and take preventive or corrective actions. This proactive approach contributes to risk mitigation and compliance with reg requirements 5. Resource optimizing: effective resource allocation – structured processes help org allocate resources efficiently by providing a clear understanding of resources needs at different stages of a process. This prevents overallocation or Q2 Explain how a purchaser in the public sector complies with the regulatory requirement for: (i) Competitive supply (ii) Accountability (10 marks) (i) Competitive supply 1. Open and transparent tender: must comply with national and international proc regs such as the UK’s Public Contracts Regulations 2015 and EU directives. These frameworks mandate competitive tendering to ensure a fair process. Purchasers issue public tenders for contracts that exceed certain financial thresholds. This process involves multiple suppliers to submit bids, promoting competition and ensuring that no single entity has undue advantage 2. Use of E-Tendering platforms: often used to publish proc opportunities and receive bids electronically. This increases accessibility for a broad range of suppliers = better competition. Ensures all potential suppliers have equal access to info and a standardized method of submission 3. Fair evaluation processes: a transparent and objective evaluation framework must be used to assess bids. This includes scoring based on predefined criteria such as price, quality and sustainability to ensure a fair comparison and selection process. By adhering to these guidelines, public proc professionals demonstrate that contracts are awarded based on merit, promoting competitiveness Q2 Explain how a purchaser in the public sector complies with the regulatory requirement for: (i) Competitive supply (ii) Accountability (10 marks) (ii) Accountability 1. Documentation and record keeping: including bid evaluations, decision making rationale and contract awards. Essential for audits and to demonstrate compliance with reg standards. Ensures any procurement decision can be reviewed and justified 2. Compliance with ethical standards: strict standards that promote fairness, prevents conflicts of interest and ensures decisions are made in the publics best interest. This includes training proc staff on regs and ethical considerations, reinforcing accountability through the process 3. Public scrutiny and audits: public sector procurement is subject to audits and oversight by reg bodies such as the UK’s national audit office. Purchasers must be prepared to show that proc decisions were made according to regulations. Regular audits and reports demonstrate that funds were spent effectively and responsibly, fostering public trust and accountability 4. Publication of contract awards: in many jurisdictions, required t publish details of awarded contracts, including supplier name, value and procurement process used. This level of transparency ensures that stakeholders can review how public  Identify and describe 5 purposes of a procurement policy Typically include: 1. Legal and regulatory compliance – policy ensures that all purchasing activities complies with laws and regulations. This includes adherence to public procurement laws anticorruption statutes and industry specific standards protect from legal risks, penalties and reputational damage 2. Ethical standards – org align with CRS goals, enhance reputation and support broader sustainability initiatives 3. Fairness and transparency – the policy establishes clear, standardized procedures for supplier selection and bid evaluation, which fosters fairness and objectives. It outlines rules for competitive bidding, conflict of interest management and the distribution of tender docs. This ensures suppliers re treated equitably, enhancing trust in the procurement process and encouraging a more competitive market 4. Mitigate risk – outlines risk management strategies, including supplier due diligence, contract terms and contingency planning. It addresses risks related to supplier reliability, sc disruptions and financial stability. This proactive approach helps protect org from potential issues such as supplier non performance, fraud or market volatility, ensuring a more resilient supply chain 5. Support cost effectiveness and value for money – procurement policies guide decision  Governance mechanisms for procurement It is important that you can also explain how policies provide governance for the procurement function A strong internal control environment designed to support business objectives and manage identified areas of risk; robust internal policies, checks and control mechanisms Clearly defined roles, responsibilities, accountabilities and report structures for procurement The segregation of pro dutieis (the same person is not responsible for authorizing and making payments, which might enable falsification of methods) Clear requirements for approvals, authorisiation of regs, procurement and payment Rotation of project buyers, to avoid any particular buyer becoming too cosy with a particular supplier The effective budgeting, control and monitoring of pr spend across the org Q1 - Describe/explain how 5 elements of total cost of ownership add value for a buying organization when purchasing a capital item. 25 mark Definition Total cost of ownership is a strategic Procurement activity that allows them to fully understand the costs involves with a purchase over a period of time. It forms part of the wider whole life costing process. There are a seven of elements to consider as part of the total cost of ownership evaluation which will be explained in detail in the main body of the answer. If carried out correctly, a total cost of ownership process can deliver many added value benefits to the wider busines such as; increased quality of specification, lower costs, reduced risk etc. Because of the resource required to complete the process, TCO is carried out predominantly with capital purchases. A capital purchase is a high value high risk purchase such as; machinery, vehicles, land, buildings etc. They are items that may require a business case and proactive planning to ensure they are procured effectively.  Q1 - Describe/explain how 5 elements of total cost of ownership add value for a buying organization when purchasing a capital item. 25 mark Introduction Total cost of ownership is the total cost incurred by an organization by owning a product throughout its useful life which considers more than just the initial purchase price to get a true reflection of the cost of an item. As identified earlier there are seven elements of total cost of ownership. These include: 1. Purchase price. 2. Tooling. 3. Insurance. 4. Operating. 5. Training. 6. Storage. 7. Disposal. By looking at the costs you see here, Procurement will be able to understand the true, total cost of a purchase. For example, Procurement may be required to purchase a new piece of machinery for their organization and on reflection supplier A is cheaper than supplier B by looking at the purchase price alone. However, when Procurement have investigated the additional tooling costs, training etc. from supplier A compared to supplier B. The total cost means supplier A is more expensive than supplier B. The process is resource intensive and may require a degree of cross functional working however it delivers considerable added value to the organization and is therefore ana Activity that should be carried out with all capital purchases.  Q1 - Describe/explain how 5 elements of total cost of ownership add value for a buying organization when purchasing a capital item. 25 mark Delivering added value through the Total Cost of Ownership (TCO) process for capital purchases involves assessing seven key elements: Purchase Price: The initial supplier price should be benchmarked against the market to ensure competitiveness. This can lead to better negotiations, cost savings, and an improved bottom line. Tooling Charges: Costs for maintenance, repair, operations, and spare parts must be factored in. Procurement should understand service frequency and costs, potentially negotiating better terms or sourcing parts from alternative suppliers. Insurance Costs: High-value items often require insurance. Comparing providers ensures value while ensuring comprehensive coverage (e.g., replacement for damage/loss). This mitigates risks and adds value through protection. Operating Costs: Includes labor and utility expenses. Cross-department collaboration helps in understanding these resources and controlling variable costs. Training Costs: New equipment may necessitate training. Procurement can negotiate these into the purchase price or find competitive alternatives. Leveraging existing staff expertise can also reduce costs and improve internal efficiency. Storage Costs: Encompass storing the equipment and parts. Procurement should coordinate with warehousing and finance, negotiating supplier lead times to reduce unnecessary storage expenses. Disposal Costs: Specialized equipment may need expert decommissioning. Factoring these costs Q1 - Describe/explain how 5 elements of total cost of ownership add value for a buying organization when purchasing a capital item. 25 mark Conclusion As identified above, Procurement cannot consider the purchase price alone when making high value purchases such as capital equipment. By identifying all the costs identified, Procurement will be able to make an informed decision as to whether a purchase presents value for money and will support the buying decision when comparing pricing from different suppliers. Added value can be delivered through considering all the elements of a total cost of ownership process. ANALYSE THE DIFFERENT SOURCES OF ADDED VALUE IN PROCUREMENT AND SUPPLY 1. 5 RIGHTS – QUALITY, QUANTITY, PLACE, TIME, PRICE 2. CONDUCTING TCO – ENSURES PROCUREMENT HAVE CARRIED OUT DUE DILIGENT, MITIGATING FUTURE COST RISKS IN PURCHASES Defining value for money Value for money is a concept that refers to getting the best possible return on investment or utility for the resources spent. Key considerations include Quality and performance Price transparency – no hidden fees or unclear pricing structure Durability and longevity – long lifespan/ require fewer replacements Customer satisfaction – positive reviews and high ratings Innovation and features – enhance user experience or solve specific problems Social and environmental considerations – consumers consider this before buying  Q3 Compare FIVE characteristics of manufacturing sector organisations with those of retail sector organisations (25 marks) 1. Sector Role and Purpose Manufacturing Sector: Operates in the secondary sector, focusing on the transformation of raw materials or components into finished products. For example, wheat is processed into flour and then into bread. Retail Sector: Part of the tertiary sector, dealing with the sale of finished goods to consumers. Retailers purchase these products (such as fashion items, food, toiletries) and resell them to the end customers. 2. Purchasing Requirements Manufacturing Organisations: Tend to purchase capital equipment and machinery, which are often expensive and require total cost of ownership (TCO) analysis. They also need support services (e.g., transport, IT) and maintenance, repair, and operations (MRO) supplies such as lubricants and cleaning supplies. Retail Organisations: Focus on acquiring a variety of goods and services, including fixtures and fittings for their stores, ICT systems (e.g., electronic point of sale systems), and services for warehousing and transport. 3. Supplier Relationships and Competition Q3 Compare FIVE characteristics of manufacturing sector organisations with those of retail sector organisations (25 marks) 4. Focus on Quality vs. Cost Manufacturing Organisations: Quality is often the primary focus. Techniques such as Just in Time (JIT), Total Quality Management (TQM), and Material Requirements Planning (MRP) systems are used to maintain high standards. Retail Organisations: While cost is typically the primary focus to maintain profit margins, there are still quality considerations, especially when branding their goods to stand out in the market. 5. Lead Times and Product Innovation Manufacturing Sector: Generally experiences longer lead times because of the complex nature of the products they create. Specifications for production might remain stable for long periods without frequent modifications Retail Sector: Faces pressure to continually update and innovate their product offerings. This requires shorter lead times and frequent re-specification to adapt to market trends and maintain customer interest. Agility and quick response are critical for sustaining sales and market share. 1. Using an appropriate model, explain how it can assist in Monique’s market analysis (25 marks) Definition Market analysis is the process of analysing the markets your organization is active in I.e. as an organization selling to customers and the markets you buy from i.e. the supply market. Market analysis therefore involves looking at the competitive environment within the industry the organization competes in and the supply market the organization buys from. Introduction There are two key market analysis tools which can assist Monique in carrying out market analysis including; STEEPLE and Michael Porters five forces. A common market analysis tool that looks to identify the level of competition within a marketplace is Michael Porters 5 forces. The model is used by organization to assess the level of competition within a market place and decide whether it is worth breaking into a particular market, but also if the Buying organization needs to source a particular product or service they need to identify the level of supply sources in the market. A buyer such as Monique does not want to be purchasing from a monopolistic market whereby there is only one supplier in the market, this means the supplier will have all the power in a negotiation to determine prices, terms and conditions and 1. Using an appropriate model, explain how it can assist in Monique’s market analysis (25 marks) Buyers can use Porter's Five Forces to assess supplier market conditions and negotiation power: Competitive Rivalry: Measures the number of competing suppliers. High competition allows Monique to negotiate better terms, like price and quality. In markets with few suppliers (oligopolies), negotiation is harder. Threat of New Entrants: Indicates the ease of new companies entering the market. Low barriers to entry mean more competition, giving Monique leverage for better terms. Threat of Substitution: Assesses the availability of alternative products. If substitutes exist, Monique can explore these to increase supplier options and potentially lower costs. Power of Buyers: Reflects the buyer’s ability to influence terms. Large, reputable buyers with significant spending have more leverage. Monique should evaluate how her company is perceived using the supplier preferencing model (e.g., core, exploitable). Power of Suppliers: Shows supplier influence. In monopolistic scenarios, suppliers set terms. Monique should identify substitutes or leverage alternatives to reduce supplier power. 1. Using an appropriate model, explain how it can assist in Monique’s market analysis (25 marks) Monique should use STEEPLE analysis to assess external factors impacting purchases and negotiations: Social: Consider if demographic changes or consumer habits affect product demand. Recent trends like increased remote work have driven IT demand. Technological: Check if the required technology exists, assess alternatives, and consider the product’s lifecycle to avoid quick obsolescence. Economic: Assess economic timing; current UK recession impacts spending. Monique should determine purchase urgency or seek cost-effective alternatives. Environmental: Ensure products are eco-friendly and disposal aligns with regulations like the WEE directive. Consider recyclability and production impacts. Political: Political events, like Brexit, can affect prices due to currency fluctuations, trade barriers, or import restrictions. Legal: Verify if restrictions exist on importing specific goods or purchasing from certain countries. Ethical: Conduct supplier checks for adherence to ethical standards, including human rights and modern slavery policies, and ensure memberships in bodies like the Ethical Trading Initiative. 1. Using an appropriate model, explain how it can assist in Monique’s market analysis (25 marks) Conclusion To conclude, there are two key models of market analysis Monique can use to support the purchase of the required components. Porters five forces will help Monique understand the dynamics of the market she needs to purchase from and will help identify the level of power she will have in a negotiation. The STEEPLE analysis can then be used to identify other, external factors which may impact the purchase. It is important Monique carries out thorough market analysis to ensure she negotiates the strongest terms possible for the purchase however Monique must also have a good degree of knowledge of other external factors which may impact the purchase. Collectively this analysis will allow Monique to make an informed decision regarding the purchase and will place her in the strongest position possible to make the purchase. Q4) Explain five differences between organisations that operate in the public sector and those that operate in the private sector. (25 marks). Introduction There are three economic classifications that exist including public sector, Private sector and the Third sector which includes not for profit organisations. Within the UK Public sector organisations include the NHS, the Ministry of Defence and Educational organisations. Some of the UK’s largest Private sector organisations include but are not limited to; Arnold Clark, Dyson and JCB. Third sector organisations include Charities and other not for profit organisations such as; Oxfam, Red Cross, NSPCC, RSPCA etc. CIPS is also another example of a Third sector organization, the largest professional body in the world. There are a number of key differences between organisations that operate in the Public, Private and Third sector such as their objectives including their financial objectives, how they are governed, how they are financed/funded including whether shares can be bought in the organization. Other key differences include; employee benefits and the various types of legislation/regulation that impact each sector. Q4) Explain five differences between organisations that operate in the public sector and those that operate in the private sector. (25 marks). Main body of answer Owned by – Public sector organisations such as the NHS, Educational bodies, Social housing, local councils all form part of central government or local government. There are also government agencies such as the UK Nuclear Decommissioning Authority. All of these organisations are governed by the UK government and as such are not “owned” by any individuals or shareholders. This is different to Private sector organisations such as family owned business which are owned by investors or shareholders. Funding types – Public sector organisations are funded via taxation on the general public. These taxes go towards allocating budgets for providing services such as the NHS, schools, GP surgery’s etc. Public sector organisations are also funded by certain levies they may be able to obtain. The Private sector is funded by investments, loans and re-invested profits made year on year. Private sector organisations can also raise investment through the issue of share capital. This is the process of selling shares in the organization. Whilst this is useful for raising funds, it does dilute the ownership of the business therefore this must be given careful consideration by the business owner or current shareholders before issue a rights issue (selling shares) Objectives – Public sector organisations such as the NHS have very different objectives to Private sector organisations. Their main objectives include obtaining value for money and providing quality services to the general public who may make use of the services provided. Public sector spending is heavily scrutinised due to the way they are funded. They must be seen to be demonstrating value for money. Their contracts are audited by the National Audit Office. Within the private sector, the main objectives of organisations are maximising profitability and shareholder wealth. This is their Q4) Explain five differences between organisations that operate in the public sector and those that operate in the private sector. (25 marks). Employee benefits – Individuals that work within the public sector access benefits including job security and, in most cases, a higher pension contribution versus those in private sector. Individuals that work within the public sector often recognise the difference in wages between public and private sector and regardless of this, choose to work within the public as they feel as though they are making a contribution to society and are invested in the cause. Job security is higher in public sector versus private sector, and this has been evidenced over the last 18 months with redundancy levels 33% higher in private sector organisations throughout the covid pandemic. Some of the employee benefits for working in private sector include competitive salary levels, potential bonuses, extra holiday allowance etc. Legislation and regulation – There are regulations that exist that can impact public sector organisations including: Public Contract Regulations 2016, Utilities Contract Regulations 2016 (procuring water, energy, transport) and Public Procurement Regulations 2016. There is also European legislation that must be adhered to when carrying out public sector procurement such as tendering exercises. OJEU is another example of legislation stands for the Official Journal of the European Union This is the publication in which all tenders from the public sector which are valued above a certain financial threshold according to EU legislation, must be published. The legislation covers organisations and projects that receive public money. Organisations such as Local Authorities, NHS Trusts, MOD, Central Government Departments and Educational Establishments are all covered by the legislation. Explain FIVE areas which would be addressed by a code of ethics produced by organisations such as CIPS. [25 marks] Definition: A Code of Ethics, such as the CIPS Code of Conduct, is a document stating the standards, behaviours, and actions that a CIPS member must conform to during their membership of the organization. Anyone who is a member of CIPS must agree to honour this code. It promotes adoption of ethical processes and responsible sourcing within procurement. Introduction: A code of ethics, such as the CIPS code of Conduct is very important for organisations such as Infinity Inc to follow because they promote transparent working, reduce risk and maintain integrity in the business. These codes can enhance the standard of the profession, and maintain the highest quality. It can promote the eradication of unethical business practices, such as the eradication of modern slavery. They can also ensure full compliance with laws, both internationally and nationally to the business of Infinity Inc, to mitigate risk against legislative damage. In this answer, I am going to discuss 5 areas in which Infinity Inc’s business practices can be addressed by the CIPS Code of Conduct. This includes, unethical business practices, maintaining integrity, protecting the standing of the profession, enhancing the proficiency of the profession and ensuring full compliance with the law. Explain FIVE areas which would be addressed by a code of ethics produced by organisations such as CIPS. [25 marks] 1. Unethical Business Practices: Infinity Inc has faced criticism for unethical cost-cutting. The CIPS Code of Conduct emphasizes eliminating practices like modern slavery and poor working conditions. With its global supply chain, especially in South East Asia, Infinity Inc should ensure due diligence to promote ethical standards, protecting its reputation and reducing risks. 2. Maintaining Integrity: Infinity Inc must maintain impartiality and confidentiality, especially when managing supplier competition as part of its cost-control strategy. Following CIPS guidelines ensures transparency, professionalism, and the prevention of malpractice accusations, safeguarding the company's reputation. 3. Protecting Professional Standing: The CIPS Code mandates avoiding conflicts of interest to uphold the profession's reputation. Instances like hiring through a relative's company violate this standard. Transparent hiring, sourcing, and contract processes help maintain trust and protect Infinity Inc's reputation. 4. Enhancing Professional Proficiency: Incorporating the CIPS Code means fostering personal and professional growth and managing resources wisely. Ensuring fair supplier competition and responsible spending aligns with cost-control goals and ethical practices. 5. Compliance with Laws: Infinity Inc must adhere to relevant laws and ethical standards, even in countries with limited regulations. Following the CIPS Code ensures responsible sourcing and adherence to contracts, protecting both Infinity Inc and the profession’s reputation. Q1 b) Define what an MRP system is and describe TWO aims (10 marks) Definition An MRP system, also known as a materials requirement planning system is an inventory management system which is used to manage inventory levels and can also be used to generate requisitions based on manufacturing requirements. Main body of answer Material requirements planning is a planning system for inventory, production, and scheduling. An MRP converts the master schedule of production into a detailed schedule, so that the organization can purchase the required raw materials. MRP systems are commonly used within the manufacturing industry and the system is a push type of inventory control, meaning that organisations use forecasting to determine the customer demand for products. The main goals of using an MRP system include making sure that the inventory level is at a minimum, but high enough to provide for the customer need, and that the organization can plan certain activities, including purchasing, manufacturing and delivery. Q1 b) Define what an MRP system is and describe TWO aims (10 marks) Two aims of an MRP system include: 1. Keeping inventory as low as possible. An MRP system is able to do this as any new orders inputted into the master production schedule will take into consideration the stock that is already held in inventory. For example, if Monique’s organization received an order for 100 laptops, the MRP would break the order down by bill of material (BOM) which identifies all the components required to produce 100 laptops such as 100 hard drives, 100 keyboards, 100 webcams etc. The MRP system would automatically identify current stockholding of these items and deduct them from the total quantity needed to be ordered. For example, 100 laptops may require 100 keyboards however if there are already 50 keyboards in stock, the MRP system would identify that 50 keyboards need to be ordered. This helps the organization keep inventory to a minimum and will ensure the organization does not incur unnecessary storage and handling costs. 2. Planning manufacturing, procurement, and delivery schedules. The MRP system allows an organization to plan these activities as the MRP system will identify the lead time by component. This is the amount of time it takes to obtain raw materials from suppliers. Once the organization knows the lead time for all components, they will be able to advise customers of delivery dates. The MRP system will also take into consideration the cycle time which is the time taken to produce the end MRP Functions Production scheduling: MRP systems assist in creating production schedules that align with demand forecasts and customer orders. By considering lead times, production capacity and resource availability, MRP helps org optimize their production timelines Capacity planning: MRP systems can include features for capacity planning, help org assess and optimize the utilization of their production resources, including machinery and labour Order tracking and status monitoring: real time tracking of orders, this visibility helps identify potential delays and allows for proactive management Data intregation: integration with other business systems, such as ERP, allows MRP systems to share data seamlessly across various departments like finance, sales, distribution Demand forecasting: MRP systems often include demand forecasting tools that use historial data, market trends and customer orders to estimate future demand for products = effective material planning MRP 3 primary goals 1. Ensure materials availability: ensure that the necessary materials and components are available when needed for the production process. By maintaining accurate inventory data and considering factors such as lead times, order quantities and production schedules. MRP systems help prevent stockouts and ensure that production can proceed without interruptions 2. Minimise inventory costs: aims to strike a balance between having enough inventory to eet demand and minimsiing carrying costs associated with excess stock. By providing accurate demand forecasts and inventory tracking. MRP systems help org optimize their inventory levels. This reduces the costs associated with holding excess inventory while ensuring that materials are readily available for production 3. Optimise production scheduling: considering factors such as production, lead times, resource availability and customer demand. The goal is to create a production plan that maximises efficiency, minimizes idle time and meets delivery commitments. By aligning production schedules with demand forecasts and available resources, MRP systems help org operate more efficiently and respond to changes in demand  MRP benefits and challenges Benefits Efficiency: ensuring the right materials are available at the right time Cost reduction: optimizing inventory levels and production schedules Customer satisfaction: meeting production schedules and having products available when needed Challenges Accuracy: MRP systems rely on accurate data and inaccuracies can lead to planning errors Complexity: implementing and managing an MRP system can be complex particularly for orgs with diverse product lines Cost: require capital investment from the business, may not be the finances available  ERP – enterprise resource planning An ERP system is different to an MRP as it includes more functions within the organization such as accounting, HR, Supply Chain, Project management. It enables real time information exchange between functions The primary goal of an ERP system is t improve efficiency, enhance collaboration and provide real time visibility into key business processes Key features and components: Integrated modules: that cover different aspects of business operations. Common modules include finance, HR, procurement, manufacturing, sales Centralized database: stores data from various departments and functions, ensures data consistency and provides a single source of truth for the entire org Real time data access: allowing for better decision making and collaboration, real time info helps orgs respond quickly to changing market conditions and customer demands Automation of business processes: reducing the need for manual data entry and minimizing errors. Automation enhances operational efficiency and allows employees to focus on more strategic tasks Reporting and analytics – provide robust tools – analyse performance, track key metrics, generate insight reports – data driven decision making and strategic planning  ERP – enterprise resource planning CAN SUPPORT MULTIPLE FUNCTIONS IN AN ORG AS IT CONTAINS INFORMATION SUCH AS: Current stock levels: Supports inventory management and control, helps in demand forecasting and production planning previous purchase history: assist in negotiating better terms with suppliers, provides insights into vendor performance and reliability outstanding supplier orders: enables tracking of order status and delivery timelines previous sales history: aids in sales forecasting and demand planning, helps identify top performing products and customer preferences contracts by suppliers: ensures compliance with agreed upon t&cs invoices received and paid: supports financial management and accounting, streamlines the payment process and cash flow management  ERP – enterprise resource planning Advantages 1. Data consistency: since all information is stored in a single database, there is a high level of consistency and accuracy across different functions. Data entered once is available and updated in real time for all relevant users 2. Efficient communication: departments can share information seamlessly, promoting collaboration and reducing the risk of miscommunication 3. Improved decision making make informed choices with comprehensive data 4. Cost efficiency: streamlining processes, avoiding duplicative efforts and preventing errors contribute to cost savings 5. Compliance and risk management: centralized storage and tracking of contracts , invoices and purchase history support these efforts MRP/ERP Systems Material Requirements Planning (MRP) Purpose: MRP is focused on managing manufacturing processes, including production planning, scheduling and inventory control Functionality: it helps org determine what materials are needed, how much is needed and when it is needed for production Benefits: MRP ensures that materials are available when required, preventing stockouts and minimizing excess inventory Enterprise Resource Planning (ERP) Purpose: ERP is a broader system that integrates various business processes and automates back-office procedures to enhance overall efficiency Functionality: beyond inventory management, ERP integrates financials, HR, supply chain and more into a single system, providing a holistic view of business operations Benefits: improved communication, streamlined processes and better decision- making across the entire process LO2 Understanding and balancing the relationship between policy and process compliance with securing added value and customer service outcomes in different contexts Compliance is about adhering to regulations, following legislation and conforming to rules. Some of the key reasons why compliance is crucial include legal obligations: compliance ensures than an org adheres to laws and regulations relevant to its industry and operations. Non compliance can lead to fines, penalties, legal actions Ethical standards: compliance involves upholding ethical standards and values. Orgs committed to ethical Behaviour build trust with stakeholders Risk management: compliance helps identify and manage risks associated with fraud and corruption. Proactive compliance measures reduces the likelihood of legal disputes Reputational damage: compliance contributes to the preservation of an org reputation – valuable asset that can influence customer loyalty, investor confidence and ability to attract and retain top talent Financial stability: by adhering to compliance requirements, orgs can protect their financial stability by avoiding non compliance penalties, legal fees and regulatory  LO2 Understanding and balancing the relationship between policy and process compliance with securing added value and customer service outcomes in different contexts Procurement compliance Procurement compliance involves adhering to various standards, legislation, controls, policies, audits, risk management practices to ensure the procurement process is conducted legally, ethically and efficiently Is not only essential for legal and ethical reasons but contributes to the orgs reputation, financial stability and ability to meet and achieve strategic objectives Standards: industry specific standards, ethical sourcing standards and quality control requirements. Compliance wit these standards ensure products/services meet specified criteria and ethical benchmarks. E.g. adhering to ISO standards may be necessary in certain industries to demonstrate quality Legislation: must comply with relevant local, national and internationa laws. These may include laws related to public procurement, labour rights, environmental protection, anti corruption – staying compliant is essential to avoid legal issues Internal controls: put in place to manage the procurement process effectively and prevent fraud, waste and abuse. Ensures procurement activites are carried out with trasnaprency, accountability and financial responsibility Prpcurement policies: outline the rules and procedures that procurement proefessionals must  LO2 Understanding and balancing the relationship between policy and process compliance with securing added value and customer service outcomes in different contexts Process compliance and added value achievements are closely linked. It orgs and teams are compliant with processes, they are more likely to achieve a better outcome. For example, following a structured procurement process. If all the stages of the procurement cycle are followed the org is more likely to award a contract to a supplier that has been thoroughly evaluated and represents good value for money Compliance to processes within orgs is required and can deliver added value. However, can often detract value from a process too. It can be time consuming, costly, inflexible and may reduce competition The tendering process: you may have a supplier in mind you know which can deliver the right quality and service at the price however for compliance purposes we may have to go out to tender due to regulations such as public contract regulations and utilities contract regulations. This may be time-consuming and costly however we must do it Stages in the procurement cycle: the value achieved from each stage but also the trade ff i.e cost, time Compliance to processes and regulation is important i.e demonstrates good ethics, maintains reputation, satisfies stakeholder needs and the risks of non compliance Q2 Outline the potential impact of complex compliance requirements on the achievement of positive outcomes in the sourcing process (10 marks) 1. Time consumption: adhering to detailed compliance regulations often requires extensive documentation, multi step approvals and frequent audits. This prolonged process can delay decision making and slow down the overall sourcing timeline, potentially causing project setbacks 2. Increased costs: meeting stringent regulatory standards can drive up administrative and operational costs. They may include the need for specialized compliance officers, investments int raining and system updates which can strain the sourcing budget and limit financial flexibility 3. Inflexibility: complex regulations can reduce the ability to make adaptive or agile decisions. If the compliance framework is rigid, it may not allow for adjustments in response to changing market conditions or innovative procurement strategies, potentially stifling creative solutions 4. Reduced supplier pool: high compliance requirements may discourage smaller suppliers from participating in bids due to their inability to meet the demanding standards. This can limit competition, leading to fewer choices Explain the five functions of an IT based inventory management system 1. Real time inventory tracking: automatically updating when items are added/removed. This provides accurate, up to date stock info, minimizing the risk of overstocking/stockouts. Helps org respond quickly to changes in demand 2. Automated reordering and replenishment: system can be programmed to alert users when inventory falls below predefined levels. Reduces manual work, speeds up procurement process and ensures that critical items are always in stock. Minimizes human errors and prevents disruptions in operations 3. Data analytics and reporting: generate detailed reports on inventory trends and stock movement. Use these insights to make informed decisions such as identifying slow moving items, optimizing stock levels or predicting future demand based on historical data 4. Often integrate with other enterprises: such as ERP. Integration ensures that info flows seamlessly across departments, enhancing coordination and reducing redundancy. For example, sales data can automatically update inventory data, aligning supply with customer demand more efficiently 5. Barcode scanning capabilities: to track inventory movement and facilitate quick data entry. Significantly speeds up the check in and check out process of goods Explain FOUR ways in which supplier selection may add value in the sourcing process for organisations such as GFATM. [25 marks] ( in simple terms, if we select the right suppliers as part of the sourcing process, how does that add value)? Definition: Supplier selection is the process that a procurement professional undertakes to ensure that they have chosen the correct supplier for their purchase. This process requires careful examination of a supplier’s capabilities, accreditations, financial stability and policies like CSR to ensure that the supplier is qualified to be awarded the contract. Introduction: In the following essay, I am going to examine four ways in which supplier selection may add value in the sourcing process for organisations, such as GFATM, a healthcare distributor. I am going to do this by discussing four key areas that I believe enable organisations like GFATM to extract value from after sourcing a supplier. This includes location, quality, financial performance and culture. I believe all these areas bring added value to the organization. Explain FOUR ways in which supplier selection may add value in the sourcing process for organisations such as GFATM. [25 marks] ( in simple terms, if we select the right suppliers as part of the sourcing process, how does that add value)?  Q2 Outline FIVE differences between procuring goods and purchasing services (10 marks) 1. Tangibility: Goods: tangible Services: intangible, cannot be measured/weighed. 2 Measurement and specification: Goods: can be clearly defined by specs such as size, weight, material and quantity. This allows for consistent quality and standardized procurement Services: more challenging to specify precisely due to variability. Quality can depend on the service providers skills and conditions of delivery, making procurement specs less exact  Q2 Outline FIVE differences between procuring goods and purchasing services (10 marks) 3. Variability: Goods: Can be standardized with consistent quality and specifications. Services: Quality can vary based on who provides the service, their expertise, and the conditions of delivery, making standardization difficult. 4. Perishability: Goods: Can be stored for future use or sale. Services: Cannot be stored; if not used, they are lost (e.g., unsold airline seats). 5. Ownership: Goods: Ownership is transferred to the buyer upon purchase. Services: No transfer of ownership; the buyer gains temporary access to or use of the service (e.g., a taxi ride or consulting service). Four challenges for procurement when purchasing services because of their distinctive features A service by nature is intangible, it cannot be physically touched. Examples of common services procured by orgs include security services, IT and cleaning services 1. Never be officially owned: can purchase a service from a supplier, however, the service carried out will only last a period. Ownership is never transferred from the service provider to the buyer 2. Difficult to monitor the performance of the contract. Contract performance measures such as SLAs could be used to help with this. A service level agreement will capture qualitative data to monitor to the contract against the agreed contract terms 3. It is critical to carry out extensive supplier research and evaluation. In some cases, service providers attend a buyer’s site and may have access to sensitive info. It is important necessary checks are carried out Q6 Outline FIVE circumstances where ‘buying for stock’ would be an appropriate procurement policy Where there is a long lead time, for example when buying from an overseas supplier Where items are critical for operations and running out of them would cause costly disruption to the organization, for example ‘bottleneck’ items Where there are legal requirements for holding items, for example health and safety equipment Where buying in bulk might lead to economies of scale and cost savings, which outweight the storage costs Where the price of the item is expected to rise and purchasing now and holding in stock may result in cost savings Q3 Explain, with examples, the differences between direct and indirect procurement (10 marks) 1. Definition and Association with Production Direct Procurement: Involves purchasing goods and services that are directly linked to the production of a finished product. These are essential inputs for creating the end product, such as raw materials and components. For example, A car manufacturer purchasing steel, engines, and tires for vehicle assembly. Indirect Procurement: Involves purchasing goods and services not directly tied to production but necessary for the day-to-day operations of the business. These are overhead costs or support services. For example, Office supplies, IT services, and utilities for running the business. 2. Purpose and Organisational Impact Direct Procurement: Critical for primary activities of the business, making up the bulk of an organization’s procurement spend. Without these purchases, the production process would halt.Example: A food production company buying ingredients like wheat or dairy for its products. Indirect Procurement: Supports secondary activities within the organization, enabling operations but not contributing directly to the product’s creation.Example: HR services or janitorial services for maintaining a clean workplace.  Q3 Explain, with examples, the differences between direct and indirect procurement (10 marks) 3. Spend and Cost Management Direct Procurement: Generally represents a significant portion of total spend due to the high volume of essential items.Example: A tech company spending a large budget on semiconductors for their devices. Indirect Procurement: Typically smaller in spend but still necessary to ensure the smooth running of non-production areas.Example: Payment for corporate travel or marketing services. 4. Impact on Supply Chain and Inventory Direct Procurement: Directly affects the supply chain and inventory management; disruptions can lead to production delays.Example: A factory needing to maintain a steady supply of raw materials to avoid halts in production. Indirect Procurement: Less impact on production schedules but important for operational efficiency.Example: Procurement of maintenance services for equipment ensures the production line remains operational. 5. Examples of Items and Services Direct Procurement Items: Raw materials, manufacturing equipment, and parts.Example: A Direct and Indirect Procurement Model An org could consider using the kralijic matrix to identify which direct and indirect goods are critical to the running of the org and critical to the production if its finished goods Once we have conducted the matrix we can assess which suppliers require the most management or the closest level of r/s Uses of electronic systems 1. Automating supplier selection: by collecting bids and comparing them based on predefined criteria such as cost, delivery time and quality. This improves decision- making speed and reduces the manual effort involved in comparing multiple proposals from suppliers 2. Improving contract management: electronic systems like ERP help manage contracts and enforce terms, such as delivery schedules and payment conditions. By integrating sourcing activities with contract management, companies ensure compliance with contractual obligations and mitigate the risk of errors 3. Streamlining procurement to payment (p2p) cycles. P2P systems streamline the entire procurement cycle from requisitions to payment. They allow the seamless integration of e-catalogues, e-sourcing and e-payment systems, providing end to end management of procurement transactions. This reduces times and improve accuracy by automating processes like PO creation, invoice matching and payments 4. Enhancing reporting and analytics: electronic systems like ERP often enhanced reporting and analytical capabilities, providing procurement teams with real time data on spending, supplier performance and inventory levels. These systems allows org to make data driven decisions, helping optimize sourcing strategies and  Advantages of Electronic Systems in sourcing 1. Cost savings: automating manual tasks, minimizing paperwork and streamlining processes. By eliminating inefficient and error-prone manual data entry, companies can lower administrative expenses and reduce the time spent on document handling. For instance, automated purchasing systems can decrease the time and resources required for order processing and invoicing, contributing to overall cost efficiency 2. Increased accuracy: minimizes the risk of human error associated with manual data entry and processing. Automated systems ensure higher accuracy in data input, manipulation and transfer, leading to more reliable decision making. Enhanced accuracy reduces the likelihood of discrepancies in orders, invoices and inventory records – minimizing costly errors 3. Improved communication through the internal and external supply chains: electronic systems improve communication within the supply chain by providing a centralized platform for sharing information. Facilitates better coordination and decision making. Stakeholders can access real time data, ensuring everyone is on the same page regarding order statuses, inventory levels and other critical info 4. A reduced risk of fraud through fewer cash transactions: Built in verification and authorization protocols 5. Improved responsiveness: significantly reduce cycle and lead times, making sourcing processes more responsive to market demands. Automated invoicing systems can expediate payment processes, suppliers receive payments faster – adapt quickly to supply/demand  Disadvantages of Electronic Systems in sourcing 1. Costly to set up: implementing electronic systems often requires significant upfront investment In software, hardware and infrastructure. Ongoing costs like system upgrades and maintenance add to the total expenditure 2. Risk of fraud or hacking: as electronic systems handle sensitive data such as supplier contracts and financial transactions, they become targets for cyberattacks. Without adequate security measures, there is a risk of fraud, hacking and data breaches 3. System failure: systems can experience technical failure or outages which may disrupt sourcing process, delay procurement activities and result in significant downtime 4. Training costs for staff: resistance to change my also arise, as some staff members may be reluctant to adapt to new tech, impacting productivity initially. Q8 Outline THREE circumstances in which an organization might buy and hold items in stock rather than buying them only when needed (9 marks) 1. Allows the org to keep working if supply is disrupted – unforeseen events such as transportation delays, supplier issues, political instability 2. Reduce the risk of disruption to production. 3. Stocks allow rapid replenishment of goods which are in constant use – maintain uninterrupted operations 4. Bulk discounts – cost savings as suppliers may offer discounts for large orders 5. To allow for peaks & troughs of demand – seasonal peaks and troughs – manage fluctuations efficiently – stock up on winter clothing ahead to meet anticipated demand and avoid running out of popular sizes  Q2 The main focus for procurement and supply is that value can be added either by cutting costs or by securing operational efficiency. Describe FIVE methods through which value may be achieved in procurement and supply using these approaches (25 marks) 1. Early supplier involvement – collaboration with suppliers in the early stages of product development or planning Cost reduction – leverages supplier expertise to identify cost-saving opportunities e.g. material substitutions. Improve quality – help identify quality issues before production begins Faster time to market – streamlined collaboration reduces delay and rework 2. Leveraging Bulk Buying and Volume Discounts Cost Reduction: Purchasing in larger quantities often leads to lower unit prices due to volume discounts or preferential pricing. Operational Efficiency: Reduces the frequency of orders, saving time and transaction costs. Key Actions: Analyze demand patterns, consolidate orders across departments, and negotiate for discounts on bulk purchases. 3. Supplier Collaboration and Partnership Cost Reduction: Working closely with suppliers to reduce costs through joint initiatives such as cost-sharing or value engineering. Operational Efficiency: Suppliers can improve delivery times, streamline logistics, and offer innovations that reduce costs or improve product quality. Key Actions: Develop win-win partnerships, engage in collaborative planning, and share information for  Q2 The main focus for procurement and supply is that value can be added either by cutting costs or by securing operational efficiency. Describe FIVE methods through which value may be achieved in procurement and supply using these approaches (25 marks) 4. Just-in-Time (JIT) Inventory Management Cost Reduction: Reduces inventory holding costs by ordering only what is needed when it is needed, avoiding overstock and stock wastage. Operational Efficiency: Streamlines the supply chain, minimizes excess stock, and reduces warehousing and storage needs. Key Actions: Implement JIT systems, closely monitor demand forecasts, and develop strong supplier relationships to ensure timely deliveries. 5. E-Procurement and Automation Cost Reduction: Streamlines procurement processes, reducing administrative overhead and transaction costs. Operational Efficiency: Improves procurement speed, reduces human error, and enhances visibility and control over procurement activities. Key Actions: Implement e-procurement platforms, automate purchase orders and invoice processing, and use data analytics for decision-making. VALUE IN THE SUPPLY CHAIN Value comes from effective management of a number of elements: 1. Price: procurement work with suppliers to reduce costs, which may sustain competitive advantage for the buying org and may lead to higher levels of customer retention 2. Sustainability: procurement role involves achieving value for money, minimizing business risks and ensuring positive outcomes for environment/economy/community 3. Quality: inferior products can cause additional costs and reputational damage – procurement must source adequate suppliers and continue to monitor and measure their performance 4. Delivery: procurement need to consider whether the cost of transport is included in the purchase price and negotiate it. Most appropriate incoterm to be used if procuring goods on an international basis. Optimum delivery method Supply chain network Extension of a supply chain and includes all other elements involved in the process. Refers to the interconnected system and dependencies of organizations, people, activities, info and resources involved in the creation/ distribution of goods/services Key components include Suppliers, manufacturers, distribution centers and warehouses, retailers, transportation and logistics, consumers  What is meant by stakeholder mapping? describe a tool that can be used by procurement to map the stakeholders at their org Stakeholder mapping: completing an analysis of the stakeholders of an org and dividing them into categories depending on certain characteristics. This is often represented visually on a graph or matrix Stakeholder tool: Mendelow’s stakeholder matrix The reason why stakeholder mapping is important is because interests and expectations of stakeholder groups will be different and possibly conflicting. Mapping this allows an org to see the variety and decide on an appropriate management style for each stakeholder group Mendelows matrix maps stakeholders based on their influencing power and the strength of their motivation to use that power. It uses a 2x2 grid and defines power as high/low and interest as high/low. It then provides 4 strategies for managing the stakeholders based on which quadrant of the grid they fall into 1. keep satisfied: high power/low interest. If the stakeholder becomes dissatisfied or concerned, their interest may peak. Examples include regulatory bodies, shareholders, senior management. The best strategy is to keep them up to date so they are informed of what is going on but do not burden them with info they don’t need Manage closely: aka key players, includes major customers, key suppliers, partners, senior managameent. These stakeholders need to know everything that is going on and approve. The recommended strategy is early involvement and participation, aligning goals.  What is meant by stakeholder mapping? describe a tool that can be used by procurement to map the stakeholders at their org Monitor: minimum effort required. This is a low priority group as they have low power and low interest. Includes small volume supplier and other org functions with no direct interest in your activities. This group does not need to receive regular communication. Keep informed: high interest/low power. If theyre not kept in the loop and understand the need for decisions, they may lobby to protect their interest. Employee groups, suppliers, and community groups. This group should receive regular communication Conclusion Important to note that stakeholders can move through the matrix, it isn’t stagnant. For example, at the beginning of a project a manager in another department may be classed as low priority because they seem to have no interest. However, as the project progresses the manager may become interested. They will then transfer into the keep informed category. Therefore, the matrix should be redone regularly through the lifetime of a project The matrix should be redone for each individual project, it cannot assume that a stakeholder who had interest in one project would be interested in another Doesn’t provide full picture or provide much help on how to manage stakeholders e.g. 2 stakeholders may be in manage closely section but one is for the project and one is against – they would need to be handled differently Main steps for buying goods or services 1. Requirement identification – needs assessment. The process begins with identifying and validating the need for goods/services. This involves understanding specs, quality requirements and budgetary constraints. A formal purchase requisition doc is generated and approved internally 2. Sourcing – market analysis, supplier short listing, request for quote/tender 3. Evaluation and supplier selection 4. Contract award and management 5. Order fulfilment – PO sent to selected supplier, delivery, inspection, invoice processing and payment 6. Review and supplier relationship management – suppliers performance is evaluated against the agreed contract terms  Achieving five rights of procurement from external suppliers Contracts Definition: legally binding agreements between parties, and procurements role is to negotiate contracts that help achieve the 5 rights of procurement Key elements to negotiate: quality expectations, delivery requirements, price, payment terms, contract length KPIs Role: essential for monitoring supplier performance and ensuring that quality, delivery, price, quantity and timing are met Agreed upon in advance as part of the contract and used to assess and ensure compliance with the procurement objectives Qualitative: less tangible, more subjective, measuring aspects like customer satisfaction, supplier reliability and innovation Quantitative: measurable data – on-time delivery rate (%), sales growth  Distinction between procurement and supply chain The term "supply chain" refers to the entire process of making and selling commercial goods, including every stage from the supply of raw materials to the delivery of the finished product to the end consumer. It involves a network of organisations, activities, information, and resources working together to produce and distribute goods or services. Upstream activities involve: Sourcing and acquisition of raw materials, components and any other inputs needed for production. Obtaining raw materials from nature, purchasing components from suppliers Manufacturing or production: once the raw materials are obtained, they are processed and transformed into finished goods through the manufacturing or production process Downstream activities involve: Distribution and logistics: after the products are manufactured, they move downstream through the distribution network. This involves storing, transporting and managing inventory as products move from the production facilities to warehouses or distribution centers Retailers and wholesalers: getting the products to retailers or wholesalers, who then sell the goods to end customers End customer: final stage in the downstream flow  Distinction between procurement and supply chain Procurement is a specific subset of activites within the supply chain. It focuses on the acquisition of goods and servies that an org needs to operate. It involves processes such as supply market monitoring, supplier evaluation and selection, processing procurement or stock replenishment requests, preparations of specifications, negotiating, contract management Procurement is also concerned with ensuring the quality of inputs and managing risks associated with the supply chain. This includes assessing supplier capabilities, monitoring quality standards and implementing strategies to mitigate potential disruptions A wider role than purchasing and involves more added value activities such as early supplier involvement, leveraging continuous improvement opportunities, conducting value stream mapping, value analysis and value engineering, improving quality and customer and supplier management  Supply chain mapping - One key approach to managing the complexity of supply chains is supply chain mapping. Benefits > Visibility and transparency: mapping the supply chain provides a clear and visual representation of the entire process, allowing orgs to see how products or services move from suppliers to end consumers. Helps in identifying dependencies and potential risks, proactively manage and mitigate potential disruptions > Identifying vulnerabilities: by mapping the supply chain, orgs can identify vulnerabilities such as single source dependencies, geopolitical risks, exposure to natural disasters or ethical concerns SCM often includes identifying the tiered structure of suppliers. This refers to categorizing suppliers based on their R/S to the company’s core operations Example of Supply Chain Mapping with Supplier Tiering. Imagine a company that manufactures smartphones. The supply chain could be mapped as follows: 1.Tier 1 Supplier: The company sourcing the microprocessor directly for the smartphone. 2.Tier 2 Supplier: A supplier providing specialized plastic casings for the smartphone. 3.Tier 3 Supplier: A supplier providing the raw material (e.g., plastic pellets) used to produce the casings. 4.Distribution: Logistics partners handling the transportation of final products to retailers. 5.Retailers/Consumers: The final point of sale, where customers purchase the smartphones. By using supply chain mapping and tiering, the company can identify potential bottlenecks (e.g., a shortage of plastic pellets from Tier 3) and devise strategies to mitigate risks (e.g., by working with alternative suppliers or building up stock). Explain the term CAPEX and OPEX and provide examples Capex – capital expenditure, a one off cost, high value, items include machinery or land. Requires high level involvement and cross functional team working OPEX – operational expenditure, products purchased on day to day basis to help the running of the organization. Items include, utilities, employee salaries and benefits, rent, office supplies, maintenance, travel, accommodation, marketing In terms of Decision-Making Impact: CAPEX: Capital budgeting decisions involve careful consideration and analysis, as they impact the business's longterm financial position. Capital expenditures are strategic and may require significant investment and planning. OPEX: Operational decisions involve managing day-to-day activities and optimising ongoing expenses. OPEX decisions are often more tactical and focus on immediate operational needs.  CAPEX and OPEX differences 1. Cap ex items are charged to a capital account. whereas op ex is charged to a profit and loss account 2. Capital items are procured for a long period of time and have a lifespan or many years. Op ex are for short term consumption 3. Cap ex tend to be high value assets, whereas op items tend to be relatively inexpensive 4. The procurement of Cap ex items involves complex requirements and decisions about expenditure are likely to involve a wide range of stakeholders. Op ex is usually less complex and often involves straight re buys 5. Prep work on cap ex is likely to be lengthy and will involve building a business case, investment appraisal and the option to buy or lease. Op ex tends to be more straight forward and budgets are pre-set for regular demand  Identify a matrix which can be used to identify how we need to ‘manage’ suppliers Kraljic matrix – 4 box quadrant that helps us classify items we procurement in terms of their risk and cost impact on our org. This helps procurement professionals identify how important specific goods are to the running of our org and help us understand the level of relationship/communication required with suppliers based on these factors Seeks to map The importance of the items being purchased (related to factors such as the orgs annual expenditure on it and its profit potential through enable revenue of cost savings_ The complexity of the supply market (factors such as the difficulty of sourcing the item, the vulnerability of the buyer to supply or supplier failure and the relative power of buyer/supplier in the market) 1. Strategic – high profit impact/high supply risk – key to running however they are vulnerable to supply chain disruption. Requires careful management (highly specialized machinery or equipment) 2. Leverage – high value profit impact and low risk – multiple suppliers – org can leverage their buying power (bulk raw materials, standard components, packaging materials) Identify 4 main factors to achieving effective supplier relationship management 1. Manage change – be willing to change in an ever evolving environment, be agile 2. Manage relationships – invest in the relationship, regular reviews 3. Maintain strategy – ensure that companies strategies are aligned and there is no divergence which will impact 4. Monitor performance – identify where remedial action is necessary and implement. Hold regular review meetings 3 reasons why a supplier may be deemed unsuitable to be used within an org 1. Unsustainable – financially 2. Environmentally – no process/ policies for ensuring environmental protection 3. Poor ethical practice – no approach to identification of ethical issues such as; modern slavery, child labour, forced labour Outline, using examples, FIVE elements of the total cost of ownership of capital equipment. 1. Pre acquisition costs such as tendering and research 2. Acquisition costs such as the purchase price, the cost of finance if borrowing is necessary, delivery and installation 3. Operating costs for example, labour and materials 4. Maintenance costs such as replacement parts and servicing 5. Downtime costs such as lost production 6. End of life costs such as decommissioning and disposal Explain 5 selection criteria that a procurement department might use to identify suitable suppliers for a new product range Financial capabilities: the suppliers financial stability in terms of profitability, liquidity, investment ratios. Credit ratings could also be looked at Example: as this is a new supplier for a new product range the full financial ratios should be looked at as the unknown brings it with more risk Technical capability: the suppliers technical tools used; their processes and expertise; the level and adaptability or their HR Example: if this is an innovative new product then it is key that the supplier is able to meet the technical requirements which could include things like blockchain experience, tooling requirements etc Production capacity: the capacity the suppliers are ready and able to commit to the org’s current and future product and volume requirements. How do they manage the cyclic nature of the product to ensure uninterrupted supply Example: demand for a new product can be variable so can meet the max demand or min demand forecasted  Explain 5 selection criteria that a procurement department might use to identify suitable suppliers for a new product range Systems capability: to integrate in a way compatible with the org. assesses the level of IT development and e-business potential in view of the geographical distances and time zones Example: if the org wants to work to a JIT or agile supply then integrated systems would be necessary to ensure that supply is not interrupted Quality and quality insurance: including factors like fit for purpose and conformance to specification. If the product is perishable or has a short shelf life this will require clear measures for quality control and assurance  Q1 Explain the interests of FIVE connected or external stakeholders that a procurement function might need to consider (25 marks) A stakeholder is an individual, group, or entity that has an interest or concern in the activities, operations, or outcomes of a business, project, or organization. Internal stakeholders: colleagues, contractual agreement with Connected stakeholders: These are stakeholders we relate to via a contractual relationship, and it is the legally binding contract that binds or connects the organisations together. Examples include: Customers, Suppliers, Banks the organization may have finance arrangements with such as loans. External stakeholders: These are stakeholders outside of the organization and the business has no contractual relationship with them. Examples include: The public, Trade unions, Pressure groups. 1. Suppliers: fair and timely payment, long term contracts, clear specs, partnerships – nurture relationship