CIPS L4M8 - Procurement and Supply in Practice

Terms are the right and duties agreed between parties which are then documented in contract. Terms can be implied or expressed.

Implied terms are always present in a contract and are set by national laws; implied terms do not have to be written or verbally agreed : they always exist, for example sales of Gods Act, good being fit for purpose, Negligence, confidence, whereas expressed terms are negotiated and agreed rather than being automatically included, express terms are agreed between, parties negotiating the contract. For example; payment terms, specification, delivery detail and quantities

The Kraljic Portfolio Matrix shows where a product or services fits into in an organization. It is based on two areas 1) the risk of supply (Risk Impact). 2) Effect it has on profit (cost impact).

It would be rare to find a supplier who does not emit any form of pollution. However, part of ethical and responsible sourcing is to make effort to reduce impact of population on the planets. Pollution can be factory emission, Noise, smell, Transportation De-velopment, waste disposal. Transportation is a major cause of pollution. The carbon dioxide emitted from vehicles contributes greatly to air contamination. Yet it is better to use sea freight rather than air because it has a smaller impact on the environment.

Once the need has been understood, defined, justified and authorized, the next stages are to analyze and test the market. Analyzing and testing the market includes looking at the following

1. STEEPLE analysis

2. SWOT analysis

3. Porter’s five forces

4. Level of suppliers competition

5. Supply and demand

6. Push and pull

7. Supplier segmentation

8. Product life cycle

9. Ansoff matrix

10. Early supplier involvement

11. Make or buy

12. Offshoring

1. Porter’s five forces: The use of porter’s five forces helps the procurement professional to understand the level of competition within the marketplace. Whether it is a monopoly, oligopoly, imperfect or perfect market. Knowing these will equip the organization to better negotiate a favorable price.

2. Supply and Demand: the procurement professional must also think about supply and demand as part of their market analysis when they receive a requisition. This economic factor has a significant effect on the prices charged and on the cost incurred.

3. Supplier segmentation: in this the procurement professional start to form an opinion of potential suppliers.. They can segment current suppliers into four categories, depending on their level of integration into an organization. This can help to inform the procurement professional of which type of supplier relationship that would be most appropriate.

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During the sourcing stage of the procurement cycle, the procurement professional needs to identify and select suppliers to fulfill the business needs. Supplier selection involves evaluating suppliers against predetermine criteria to assess their suitability in working with the buying organization. Suppliers can be evaluated according to Carter’s 10Cs which are as follows: (1) Competency (2) capacity (3) consistency (4) control (5) cost (6) commitment (7) cash (8) Clean (9) culture (10) communication.

Procurement professionals can decide to evaluate and select suppliers based on the overall strategy and the business objectives. After that, it most suitable suppliers receive the documentation (Invitation to tender/ request for quotation).

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Corporate Social responsibility (CSR) policies state how organizations aim to contribute towards the community and how an organization portrays itself towards social impacts.

Tangible costs are the cost an organization incur acquiring items that can be physically touched and or seen. Examples includes; 1) Capital Purchase 2) Raw materials 3) Sundry items 4) Vehi-cles/transport 5) Utilities

Intangible costs are the cost an organization incurs acquiring something that cannot be physically seen or touched. Examples include; 1) Insurance 2) Marketing 3) Research and development 4) Salaries and/pension 5) Services 6) Training.

Direct costs – These are costs that an organization incurs acquiring product and services directly attributable/traceable to its production, for example, the cost of labour and materials directly uses to produce the goods/services which the organization sells. In the case of buying and running a Lorry for transport fleet, this would be 1) total cost of acquiring the lorry,) Tooling 3) Operation.

Indirect cost - These are costs that are not directly associated to production, for example, materials and services not used in production, labour/ staff cost not directly attributed to production, such as management, sales and marking, ICT support, rents. In the case of buying and running a Lorry for transport fleet. Examples are; 1) Insurance 2) Disposal.

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Fraud occurs when a person acts deliberately to secure monies from another party through dishonest method. Within the supply chain of an organization, fraud can represent itself in the following ways:

1. Kickbacks: e.g. (commission given to a bribe taker for service perform)

2. Corrupt influence (e.g ordering more than what is required)

3. Collusion: (group of suppliers working together to submit multiple bids and split profit.

4. Bid Rigging (a contract is informally agreed with a chosen supplier prior to the official process

5. invoicing fraud

6. Substitution (submitting products that are below the required quality

7. False claims (files false document)

Case Study

A series of news stories reporting events such as the collapse of the Rana Plaza building in 2013 have drawn attention to the poor conditions in garment factories across India and South East Asia. Human rights groups have long be critical of the excessive hours and poor wages workers are forced to endure, as well as the abuse they receive from supervisor. With consumers becoming increasingly aware of these conditions, more pressure is being put on global brands and retailers to ensure their supply chains are fair and ethical.

Certain areas have been notorious for the mistreatment of workers. In India’s textile valley’, young women are been bound into contracts where they work for two to three years, in exchange for a lump sum of money that they can then put towards a dowry. This is known as the ‘Sumangali [a married woman] Thittam’ scheme. These women are forced to live in hostels under restrictions that prevent them from moving, and are denied the opportunity to improve their living conditions. Retailers including Walmart and H&M are known to source garments from factories in the ‘textile valley’.

Reports by organizations including the Asia Floor Wage Alliance (AFWA), Central Combodia, Global Labor Justice, Sedane Labour Resource Centre (LIPS) Indonesia, and Society for Labour and Development (SLD) India have exposed unethically run factories that supply garments to H&M, Gap and Walmart. However, retailers will continue to benefit from expensive labour until mounting customers pressure causes them to change.

When organization has made the decision about which option is best for sourcing the asset, it can then begin to work on the whole life asset management strategy.

Whole life asset management is the process of evaluating the total price and all associated costs of a product to make an informed decision as to which option will provide the organization with the best value for money. This strategy is only under taken for large-value procurements because; 1) It takes considerable time (2) It involves many stakeholders and require numerous resources; If whole life asset management were conducted on every purchase it would not create value for the organization and that may tie up valuable resources.