Definition of Procurement & Supply - Correct answer recognition of the fact that the
purchasing function has a role in not just "buying inputs" but in "securing supply"
Direct Costs - Correct answer these are costs which can be identified directly with the
production of a good or service; e.g. raw materials.
Usually strategic or leverage suppliers
Indirect Costs - Correct answer These are costs which cannot be matched against each
product because they need to be paid whether or not the production of good or services
takes place; e.g. rent on the premises.
Karli Matrix - Correct answer A tool for portfolio analysis: a four-box matrix that reflects
the segmentation of spend based on an assessment of the value of the spend relative
to the market risk to acquire
1. Leverage Suppliers
2. Strategic Suppliers
3. Routine Suppliers
4. Bottleneck Suppliers
CAPEX is - Correct answer 1. Capital expenditures are for major purchases that will be
used in the future.
2. The life of these purchases extends beyond the current accounting period in which
they were purchased.
3. Because these costs can only be recovered over time through depreciation,
companies ordinarily budget for 4. CAPEX purchases separately from preparing an
operational budget.
OPEX - Correct answer Operating expenses are the costs for a company to run its
business operations on a daily basis.
CAPEX - Correct answer 1. Useful beyond its current year
2. Lump sum up front
3. 3-10 year accounting lifespan for depreciation
4. Listed as property or equipment
5. Tax deducted as asset depreciated
,Name the 13 stages of the procurement cycle - Correct answer 1. Understand the need.
2. Market Commodity options.
3. Develop Strategy/ Plan.
4. Pre-procurement / market test.
5. Develop required documentation.
6. Supplier Selection.
7. Issue invitation to tender.
8. Bid / tender evaluation.
9. Contract Award.
10. Warehouse logistics & receipt.
11. Contract performance review and continuous improvement.
12. Supplier relationships / contract management.
13. Asset management / end of life.
Scope of Procurement - Correct answer 1. Contributor of Added Value
2. Manages cost of procured materials & services on behalf of an organization
3. Helps manage inventory
4. Works alongside logistics partner function
5. Helps manage quality in procurement
6. Manages delivery performance
7. Manages & controls waste in the supply chain
Support Activities - Firm Infrastructure, HR Management, Technology, Procurement
Action points for CAPEX purchasing - Correct answer 1. Documentation or guideline
and standard procedure
2. Cross-functional team for appraisal & evaluation
3. Appropriate project evaluation mythology
4. Process automation (E-platform)
5. TCO / Life cycle costing
6. Regular review for better control & monitoring
5 rights of procurement - Correct answer Right Quality
Right Quantity
Right Price
Right Place
Right Time
Right Quality - Correct answer goods which are of satisfactory quality and fit for their
intended purpose e.g. ensuring an accurate specification of the requirement and its
quality standards.
,Right Quantity - Correct answer sufficient to meet demand and maintain service levels
while minimizing stock holding e.g. by ensuring that there is accurate demand
forecasting and efficient inventory management.
Right Place - Correct answer goods delivered to the appropriate delivery point,
packaged and transported so as to secure their safe arrival in good condition e.g. by
including transport instructions including packaging requirements as part of purchase
orders.
Right Time - Correct answer delivery of goods at the right time to meet demand, i.e. not
too late but not so early as to incur unnecessary inventory costs e.g. by ensuring
accurate demand management, placing orders in time for suppliers to provide timely
delivery and ensuring that suppliers are aware of delivery requirements.
Right Price - Correct answer securing all of the above at a reasonable, fair, competitive
and affordable price. Ideally, minimizing procurement costs in order to maximize profit
e.g. by carrying out price and supplier cost analysis and/or by carrying out competitive
tendering and negotiation. The 'right' price is one that represents good value for money.
Life Cycle cost (LLC) - Correct answer the total cost throughout its life including
planning, design, acquisition and support costs and any other costs directly attributable
to owning or using the asset".
Total Cost of Ownership (TCO) - Correct answer 1. TCA
2. Tooling
3. Insurance
4. Operation
5 Maintenance
6 Training
7. Storage
8. Disposal
TCO Acquisition costs - Correct answer Acquisition/Physical Hardware costs include the
cost of equipment or property before taxes, but after commissions, discounts,
purchasing incentives, and closing costs.
Sometimes this will include one-time peripheral equipment or upgrades necessary to
installation or utilization of the asset.
TCO Operating costs - Correct answer Operating costs include subscriptions or
services needed to put the item into business use. This includes utility costs, direct
operator labor, and initial training costs.
TCO Personnel costs - Correct answer Personnel overhead may include administrative
staffing, support personnel to the equipment, facility housing the equipment and
operators.
This may include ongoing training and troubleshooting labor for maintenance purposes.
, Opening Considerations 1 of 2 - Correct answer 1. Procurement involves something
which may be tangible (goods) or intangible (services
2. The procurement process begins by identifying a need and is completed once the
goods or services that meet the need are delivered.
3 Procurement is increasingle becoming a strategic function of the business and
involves a high level of skill
4. Procurement takes place in most of all organisations; everything that needs sourcing
and buying for an organisation involves procurement. Therefore, the costs of an
organisation can be linked to procurement
Supply Chain - Correct answer a network of individuals, organisations, technology,
activities and resources that work together to make sure goods or services flow.
If one part of the chain fails, every organisation further along the chain can also fail.
Suppl chain managment aims to - Correct answer 1. Reduce costs
2. Improve Value
3. Reduce risk
Should give the supplying organisation a competitive advantage by adding value
throughout the process, and achieving it in the most effective, efficient and ethical way.
SCM - Correct answer Supply chain management and procurement are not the same
thing, although they are inter-related
Without procurement, there would be no supply chain
1. Procurement as part of supply chain management
2. Procurement is about procuring products and servicing as a response to a need,
while a supply chain is the infrastructure involved in physically getting the products or
services needed.
Procurement includes the following
3. Preparing specifications
4. Monitoring quality
5. Sourcing
6. Buying
7. Stock control
8. Disposal of waste
What is logistics - Correct answer The process of planning, implementing and
controlling procedures for the efficient transporting and storage of goods, including
services and related information, from the point of origin to the point of consumption, for
the purpose of conforming to customer requirements.
Logistics can be - Correct answer 1. Inbound and outbound
2. Internal logistics (processes related to getting materials into the desired end state-
Extraction/production /Manufacturing /Warehousing/storage
3. External logistics (Distribution /Transport/ Retail )
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