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L4M1 WITH ANSWERS GRADED
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L4M1 WITH ANSWERS GRADED
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10/2/24, 7:12 AMEUNICE4
L4M1 WITH QUERSTIONS AND 100% SURE ANSWERS
The sourcing and supply of a product or service that is directly related to an end-
product provided to consumers.
For example, raw materials and production goods. A smartphone manufacturer will
DIRECT PROCUREMENT
need to procure microchips for the phones.
Direct Procurement is integral to an organisation as without it there would be no end-
product to sell to consumers. Thus, it has a direct impact on the bottom-line.
The sourcing and supply of goods and services that don't form part of an end-product,
but are necessary for day to day business operations and continuity of production.
Can often be sourced from several suppliers, so supplier relationships can be vary
INDIRECT PROCUREMENT different compared to direct procurement.
Examples include stationary/office supplies, utilities, maintenance & repairs, rent,
consultancies, etc. Whilst important, they don't impact the bottom-line in the same way
that direct procurement does.
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DIRECT:
- Procured in large quantities
- Ordering & lead-times are typically longer
- Product/unit cost is typically cheaper (economies of scale and bargaining power)
- Accuracy of product information tends to be higher
- Typically stock procurement, larger inventory needed
- Higher risk if supply disruption is experienced
- Supplier relationships are closely monitored and more strategic in nature
- Order frequency tends to be higher
KEY DIFFERENCES BETWEEN DIRECT AND
INDIRECT PROCUREMENT
INDIRECT:
- Procured in smaller quantities
- Ordering & lead-times are typically shorter
- Product/unit cost is typically higher
- Accuracy of product information tends to be lower
- Typically more service procurement
- Lower risk if supply disruption is experienced
- Supplier relationships are not as developed
- Order frequency tends to be lower
A set of globally recognised quality management and quality assurance standards that
help organisations document and maintain an efficient quality system. The standards are
not specific to any one industry or organisation and can be used for both service and
production organisations.
ISO 9000
ISO9001:2015 is the current quality management standard within the ISO9000 family.
Consider 5 Rights - Quality.
International Organization of Standardization
Costs that change relative to an organisation's output (amount of goods or services
produced/supplied).
VARIABLE COSTS
Examples include raw materials, wages for hourly paid workers, haulage costs, credit
card fees, commissions, packaging supplies, fuel.
High level planning, including setting direction, responsibilities and long-term goals,
and means of achieving the goals.
STRATEGIC
Often incorporates cross-functional activity.
This is just one element of procurement and refers to the act of physically ordering and
PURCHASING buying something. Typically involves requisition, receipt of goods, payment and
expediting.
This is just one element of procurement and refers to the infrastructure which ensures
that products or services get from the supplier to the customer. Typically includes
logistics, shipping and delivery.
SUPPLY
A contract or purchase order will typically state an incoterm to assign responsibility and
financial obligation between parties when delivering goods.
Costs that do not vary with business output. They must be paid regardless of how well
or how poorly an organisation is performing.
FIXED COSTS
Examples include annual salaries, insurance, office rent, loan repayments, business
licenses.
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This is the sum of fixed and variable costs. Total costs increase/decrease as variable
TOTAL COSTS costs increase/decrease. This means that as business output increases, the total costs
also increase and vice versa.
Refers to the act of obtaining something, typically at a cost, whether tangible or
intangible. In an organisation context, it is a strategic end-to-end function of a business
that includes many elements, for example:
Identifying demand, market research, negotiation, purchasing, sourcing, supply, quality
PROCUREMENT
control, logistics, inventory management, waste management, budget monitoring,
stakeholder management, added value, PACM, cost, performance management,
ordering, expediting, etc.
Refer to the CIPS Procurement Cycle.
Costs that are directly associated with a job/contract/project/activity. They directly
contribute to the production of goods and services and can be traced to specific cost
DIRECT COSTS objects.
Examples include direct labour, direct materials, manufacturing supplies, freight.
A cost object is any item for which costs are being separately measured. It is a key
concept used in cost accounting to describe something to which costs are assigned
COST OBJECTS
Common examples of cost objects are: product lines, geographic territories,
customers, departments or anything else for which leadership would like to quantify
cost.
DIFFERENCE BETWEEN DIRECT AND The essential difference between direct costs and indirect costs is that only direct costs
INDIRECT COSTS can be traced to specific cost objects.
Costs that are not directly associated with a job/contract/project/activity. They tend to
be overheads and general business expenses that keep an organisation operational
and are not easily tied to a specific cost object.
INDIRECT COSTS
Examples include head office rent, utilities, office supplies, marketing, insurance,
internet, staff phones, salaries of support staff, fringe benefits.
Procurement of tangible goods and materials that are stored in the organisations
inventory. This can consist of:
- Raw Materials: products in their natural form that are extracted in the primary sector.
Sometimes purchased for future use.
STOCK PROCUREMENT
- Components: Manufactured in secondary sector and are used to create products. For
example, nuts and bolts for a car engine.
- Finished Goods: End product ready for sale or resale to a consumer. (Tertiary/retail
sector)
The sector of the economy concerned with the direct extraction of raw materials from
PRIMARY SECTOR
their natural source.
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