Outsourcing and Supplier Selection: A Comparative Analysis of Low and High Risk Decisions, Exams of Business Management and Analysis

Download Outsourcing and Supplier Selection: A Comparative Analysis of Low and High Risk Decisions and more Exams Business Management and Analysis in PDF only on Docsity! P a g e 1 | 14 1 1. What is Tactical sourcing? 2. What is Strategic sourcing? 3. What factors typ- ically represent value to the procurement or- ganisation when sourcing? 4. Novack and Simco's 11-stage sourcing process 5. CIPS Procure- ment Cycle 6. Low level decision making High profit, low risk items Short term projects Transactional relationships Top level decision making High profit, high risk items Long term projects Collaborative relationships Price, Delivery, Quality, Ethics, Sustainability, Availability 1. Identify needs 2. Define user requirements 3. Decide whether to make or buy 4. Identify purchase type (new buy, modified re-buy, straight re-buy) 5. Carry out market analysis 6. Identify potential suppliers 7. Pre-screen suppliers and create a shortlist 8. Evaluate shortlisted suppliers 9. Supplier selection 10. Final product or service delivered 11. Evaluate supplier performance Figure 1.1 P a g e 2 | 14 2 What is Out- sourcing? 7. Benefits of Out- sourcing 8. Risk in Outsourc- ing 9. What factors de- cide whether to Make or Buy de- cisions? 10. Porter's Five Forces 11. Factors & Bene- fits of Make deci- sions Contracting an external supplier to manage and run a function that was previously handled in-house Financial Technological Resource Skillset Improved focus Reduce risk Loss of control Supplier reliance Confidentiality Quality Intellectual property Reputation Loss of expertise Cultural differences The product or service - is it core to the organisation? Organisation's current position - does it have the capacity? Current market situation - would it create economies of scale? Amount of competition - can a favourable price be negoti- ated? Figure 1.2 Strategy of the organisation is to be self-sufficient Enhanced control over processes Improved quality control Workforce remains stable Continuity of supply P a g e 5 | 14 5 are kept effec- tive and gener- ate measurable data? 22. Benefits linked to market develop- ment through the growth of out- sourcing 23. Give two main advantages of the TUPE regula- tions 24. What are the approaches to sourcing? 25. When is the sin- gle sourcing ap- proach used? 26. When is Dual sourcing ap- proach used? 27. When is Multiple sourcing used? 28. How do the approaches to sourcing relate to the style of rela- tionship between the procurement Measurable Achievable Relevant Time bound Cost saving to the developed country Ability to further grow organisations due to non-core func- tions being outsourced Increased employment in developing countries Ethical and sustainable behaviour promoted 1. Continuity of supply for the buying organisation 2. Continuity of employment for the workers Single, Dual and Multiple There is a monopoly supplier (no choice - sole sourcing) Economies of scale can be achieved Order quantities are very small One supplier offers outstanding value for money against the competition There is a risk of one supplier not being being able to supply A product of service is critical to an organisation Supplier competition is vast Supplier relationship is not critical Constant supply is critical Collaborative Single sourcing Dual sourcing Multiple sourcing P a g e 6 | 14 6 professional and the supplier? Transactional 29. Advantages & AD: Disadvantages of Maximum leverage can be extracted by giving the whole Single sourcing volume to one supplier Strong relationship & commitment Innovation Confidentiality/High trust Economies of scale - cost effective DIS: Risk of failure to supply Price may inflate if there is no competition Restricted options Over-reliance on supplier 30. Advantages & Disadvantages of Dual/Multiple sourcing AD: Easy to drive down cost Switching between suppliers is easy Wide knowledge & expertise Low risk of failure to supply DIS: Transactional relationship Lack of supplier commitment Lack of economies of scale No supplier loyalty 31. Tender Process Planning “ Invitation (tender) “ Award “ Contract “ Implementation 32. L4M4 - Chapter 1 7 / 14 What information do tender docu- ments contain? 33. What are the ap- proaches to ten- dering? 34. How does each tender approach operate? 35. 5 possible out- comes of negoti- ation 36. Negotiating styles 37. What are the stages of negoti- ation? Company information Specification Contract requirements - inc T&C's Deadline for submissions Open, Restricted and Negotiated Open - evaluate bids against predetermined evaluation criteria, best value for money will be offered the contract Restricted - complete a PQQ to establish if supplier meets the required criteria, if so they receive ITT, invited to bid, enables buyer to create shortlist Negotiated - same initial process as restricted style, more complex, may be chosen due to its specialist skill, sole supplier or precise specification 1. Buyer wins, supplier loses 2. Buyer loses, supplier wins 3. Buyer wins, supplier wins 4. Buyer loses, supplier loses 5. Neither buyer nor the supplier wins (a compromise) Figure 1.8 1. Preparation 2. Information exchange 3. Bargaining 4. Closing L4M4 - Chapter 1 10 / 14 49. Total Quali- ty Management (TQM) 1. Motion 2. Inventory 3. Over-production 4. Waiting 5. Defects 6. Over-processing 7. Transportation Figure 1.13 50. What behav- iours do procure- ment profession- als look for when choosing suppli- ers? 51. How is due diligence carried out? 52. What might a lack of finan- cial stability re- sult in? 53. 53. Contribute positively to the environment Do not pollute the atmosphere Replace any natural resources that they use within their supply chain Give something back to the community where they are located Review of their financial stability Conducting credit checks Evaluating suppliers against Carter's 10 C's Delay or failure to supply - may be unable to purchase raw materials therefore unable to gather components to produce products and fulfil customers' orders Inability to invest - may not have funds to invest in up to date technology or equipment. may experience difficulty in securing loans from banks & difficult to lease equipment or machinery if they are unable to make regular payments to the leasing company L4M4 - Chapter 1 11 / 14 What are the 2 main objectives of financial ratio analysis? 1. To track company performance in order to track trends and raise awareness of any potential concerns 2. To compare the supplier's performance against those of other organisations in order to gain competitive advantage 54. Ratio results Operating margin = Market-dependent Gross profit margin = Over 20% Net profit margin = Over 15% Return on assets = Over 5% Return on equity = Over 15% Return on capital = Higher than percentage rate of borrow- ing Current ratio = Over 1 Acid test ratio = 1:1 Gearing ratio = Under 50% ROI = As high as possible 55. Limitations of ra- tio analysis 56. The 5 typical award criteria 57. What is total life cycle costs also known as? 58. What should be assessed when looking at total life cycle costs? Data used is historic and may not give a current or accu- rate result Current rates of inflation are not taken into account Economic situation may not be taken into account Purely numerical - needs support from other data Not effective as short term tool - gives view at one point in time rather than considering all financial & economic factors Price Total life cycle costs Technical merit Added value solutions Systems and resources Total cost of ownership Price of product Transport/delivery Packaging L4M4 - Chapter 1 12 / 14 59. Explain the costs associated with total life cycle costing 60. Why is price ex- amined in the award criteria? 61. Why is techni- cal merit exam- ined in the award criteria? 62. How can value added be demon- strated by suppli- ers? Insurance Cost of installation Acquisition - costs associated with acquiring an asset such as sourcing transport, insurances and installation Tooling - Costs associated with any specific moulds, cut- ting, accessories or fixings that have to be purchased with the asset Insurance - Costs associated with insuring the asset against damage, theft and downtime Operating - Costs associated with running the asset (e.g. electricity or water consumption) Maintenance - Costs associated with keeping the asset in good condition Training - Costs associated with training the operators of the asset, and health and safety requirements Storage - Costs associated with storing the asset Disposal - Costs associated with removing the asset from site when it is no longer viable to keep Ensure best overall value may be awarded. This should always be considered and compared against the compe- tition. To ensure suppliers can demonstrate a good functional fit with the buying organisation. Supplier systems should be compatible with the buying organisations systems Innovation - suppliers are forward thinking and generate ideas for continuous improvement On-time & in-full deliveries - suppliers consistently deliver