CIPS L4M8 Chapter 1 Review Questions and Correct Answers

The 13 Stages of the Procurement Cycle Stage 1 - Identify need and develop spec. Stage 2 - Market commodity/make or buy options. Stage 3 - Develop Strategy/Plan Stage 4 - Pre procurement market tests Stage 5 - Prepare Documentation Stage 6 - Supplier Selection Stage 7 - Send ITT Stage 8 - Receive & Evaluate Bids Stage 9 - Award contract Stage 10 - Warehouse/logistics prep Stage 11 - Contract management Stage 12 - Relationship management Stage 13 - End of life/asset management Procurement Cycle - Stage 1 - Understand need and develop a high-level specification The person generating the need should communicate with the buyer to ensure there is no misinterpretation. Once the need is clearly understood, the procurement professional should develop a specification Two types of specification Performance and conformance Performance specifications Specifies what the product or service will do or achieve. This covers the outputs required, tolerances and any functions the product/service may have to perform Conformance specifications (technical) Specifies which standards a requirement must meet or exceed Characteristics of Performance specifications - Allow supplier innovation - Promote competition in the marketplace - The supplier bears the risk - Buyer may not know exactly what they will be getting - Shorter document - Quicker to prepare - Takes advantage of supplier expertise Characteristics of Conformance specifications (technical) - No supplier innovation - Reduce competition - The buyer bears the risk - Buyer knows exactly what they are getting - Longer, complex document - More time consuming to prepare - Disregards supplier expertise Procurement Cycle - Stage 2 - Market commodity/make or buy options Once specification has been developed, the procurement professional is aware of what is required, why and when. The options to consider include the budget available to spend on the procurement, the number of suppliers available and whether to make or buy To fully understand the market pricing, procurement professionals should research the level of competition. The .... .... ... model is an established way of assessing the competition Porter's Five Forces Porter's Five Forces Model - Threat of new entrants - Threat of substitutes - Bargaining power of buyers - Bargaining power of suppliers - Rivalry among existing Competitors Core Competencies The processes that are critical to an organisation achieving success and competitive advantage Make or buy decisions are about whether a product or service should be made within the organisation or bought-in from an external supplier A procurement professional can use Carter's Outsource Matrix when deciding whether to make or buy The four quadrants of Carter's Outsource Matrix - Strategic Alliance (High strategic importance/Low Contribution to operational performance) - Retain (High importance/Low contribution) - Eliminate (Low importance/Low contribution) - Outsource (Low importance/High contribution) Benefits of Outsourcing - Saving money - Reducing overheads - Reducing headcount - Using external knowledge Focusing internally on core competencies - Helping with shortfalls in labour/expertise Disadvantages of Outsourcing - Losing some control within an organisation - Relying on external organisations - Reducing quality - Losing some internal knowledge Procurment Cycle - Stage 3 - Develop strategy/plan Once the decision to make or buy has been made and the market has been evaluated, the next stage is to develop the strategy or plan of how to achieve the procurement. Buyers should think about the external environment when developing this plan and take several factors into account that could affect their decisions (STEEPLE)