CIPS MODULE 1 – INTRODUCTION TO
PROCUREMENT AND SUPPLY – 1.1
QUESTIONS AND ANSWERS
Explain the basic function of procurement - ANSWER A strategic process of
obtaining something, this may be tangible (physical product) or intangible (not a
physical product)
Procurement involves the buying of goods and services that enable an
organisation to operate their supply chains, in a profitable and ethical manner
Name 5 elements of procurement - ANSWER Added value
Cost
Inventory
Logistics
Purchasing
Quality
Supply
Waste management
Inventory: The stock of goods, materials or products that are available
Strategic : High level planning, including setting direction and long term goals
Purchasing: Act of physically ordering and buying something. Ordering and
expediting.
Supply: Infrastructure to ensure the product or service makes it from supplier to
customer
,The process involved in the progress of an order to ensure stock is received as
quickly as possible
Can procurement be done without purchasing - ANSWER No, they go hand in
hand one cannot happen without the other
What is added value? - ANSWER The difference between the selling price of
a product and the cost of materials and components
Aiming to reduce the cost when obtaining the products without compromise of
quality
What is the difference between procurement, purchasing and supply? -
ANSWER Procurement is a strategic process of obtaining something for the
lowest total cost of ownership
Purchasing is the physical transaction involving buying something.
Supply is the infrastructure which ensures that products and services get from
supplier to consumer
Buying = wider and less restricted approach, activities engaged in buying goods
and services, focus on cost not value, reactive strategy
Procurement = wider approach, encompassing more pre, during and post events,
surrounding the acquisition of good and services, focus on value not cost,
proactive strategy
The Purchasing process - ANSWER 1. Define Specification.
2. Select Supplier
3. Contract Agreement
4. Ordering
, 5. Expediting
6. Evaluation Follow up
Identify FIVE differences between buying goods and buying services (10) -
SOLUTION • Goods are tangible, services are intangible: therefore, services
cannot be measured, weighed or otherwise inspected: an SLA is usually needed.
• Services cannot be separated from their supplier: goods can be delivered and
stored before they are required, whereas, services are produced and consumed
simultaneously.
• Heterogeneity: goods are usually homogeneous in nature whereas services are
heterogeneous since every delivery is different and involves different personnel
and different circumstances and therefore, cannot be 'standardized'.
• Services 'perish' immediately on delivery whereas goods can be stored until
required. Planning ahead is required so that the service is available when
needed. • Products are easier to specify, being tangible. Services are harder to
prescribe because of their intangible and heterogeneous nature.
• Ownership: No ownership is transferred in services, which makes the
definition of when a service has been delivered and when risk and liability have
passed from seller to buyer difficult to determine.
• Services require more human involvement and contact, particularly services
performed on people such as travel services. Quality will partly depend upon
the behaviour of the recipient as well as the supplier.
• Goods are often purchased for immediate use whereas services can be
purchased for a long time period.
What does cost mean within an organisation? - ANSWER An organisational
cost is the amount payable in return for getting something, often involving
money.
Examples:
Time
PROCUREMENT AND SUPPLY – 1.1
QUESTIONS AND ANSWERS
Explain the basic function of procurement - ANSWER A strategic process of
obtaining something, this may be tangible (physical product) or intangible (not a
physical product)
Procurement involves the buying of goods and services that enable an
organisation to operate their supply chains, in a profitable and ethical manner
Name 5 elements of procurement - ANSWER Added value
Cost
Inventory
Logistics
Purchasing
Quality
Supply
Waste management
Inventory: The stock of goods, materials or products that are available
Strategic : High level planning, including setting direction and long term goals
Purchasing: Act of physically ordering and buying something. Ordering and
expediting.
Supply: Infrastructure to ensure the product or service makes it from supplier to
customer
,The process involved in the progress of an order to ensure stock is received as
quickly as possible
Can procurement be done without purchasing - ANSWER No, they go hand in
hand one cannot happen without the other
What is added value? - ANSWER The difference between the selling price of
a product and the cost of materials and components
Aiming to reduce the cost when obtaining the products without compromise of
quality
What is the difference between procurement, purchasing and supply? -
ANSWER Procurement is a strategic process of obtaining something for the
lowest total cost of ownership
Purchasing is the physical transaction involving buying something.
Supply is the infrastructure which ensures that products and services get from
supplier to consumer
Buying = wider and less restricted approach, activities engaged in buying goods
and services, focus on cost not value, reactive strategy
Procurement = wider approach, encompassing more pre, during and post events,
surrounding the acquisition of good and services, focus on value not cost,
proactive strategy
The Purchasing process - ANSWER 1. Define Specification.
2. Select Supplier
3. Contract Agreement
4. Ordering
, 5. Expediting
6. Evaluation Follow up
Identify FIVE differences between buying goods and buying services (10) -
SOLUTION • Goods are tangible, services are intangible: therefore, services
cannot be measured, weighed or otherwise inspected: an SLA is usually needed.
• Services cannot be separated from their supplier: goods can be delivered and
stored before they are required, whereas, services are produced and consumed
simultaneously.
• Heterogeneity: goods are usually homogeneous in nature whereas services are
heterogeneous since every delivery is different and involves different personnel
and different circumstances and therefore, cannot be 'standardized'.
• Services 'perish' immediately on delivery whereas goods can be stored until
required. Planning ahead is required so that the service is available when
needed. • Products are easier to specify, being tangible. Services are harder to
prescribe because of their intangible and heterogeneous nature.
• Ownership: No ownership is transferred in services, which makes the
definition of when a service has been delivered and when risk and liability have
passed from seller to buyer difficult to determine.
• Services require more human involvement and contact, particularly services
performed on people such as travel services. Quality will partly depend upon
the behaviour of the recipient as well as the supplier.
• Goods are often purchased for immediate use whereas services can be
purchased for a long time period.
What does cost mean within an organisation? - ANSWER An organisational
cost is the amount payable in return for getting something, often involving
money.
Examples:
Time
