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| Section | Objectives |
|---|---|
| Procurement Technology and Innovation | - Innovation in supply management
|
| Supplier Relationships and Performance | - Supplier relationship management
|
| Procurement Process and Sourcing | - Sourcing strategies
|
| Contracting and Legal Principles | - Contract management
|
| Risk, Ethics and Sustainability | - Procurement risk management
|
| Procurement and Supply Context | - External business environment
|
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NEW QUESTION # 125
What advantages could there be to holding excessive inventory?
Answer:
Explanation:
See the answer in explanation.
Explanation:
Holding excessive inventory can reduce the impact of extended lead time. i.e. by saving the buying organization from downtime, reputation loss, and also it can generate revenue for the organization if there is a sudden increase in demand.
NEW QUESTION # 126
What does the acronym SMART stand for?
Answer:
Explanation:
See the answer in explanation.
Explanation:
When the procurement professional is setting key performance indicator (KPI) where which the supplier performance will be monitored and managed. The KPI is expected to be SMART. SMART is an acronym that is used to set KPI and specification.
S - specific ,
M - measurable,
A - achievable,
R - relevant, and
T - timebound.
NEW QUESTION # 127
Analyse FIVE whole-life costs that SigmaCo should consider when sourcing globally. (25 marks) SigmaCo Following the recruitment of a new internationally focused CEO at SigmaCo. there has been a new global sales expansion strategy. To compete in a larger international market that is very price-sensitive. the senior management team has put together a project team that will evaluate current whole-life asset management practices, particularly focused on costs.
One of the areas of costs is the direct materials and equipment that are used in SigmaCo's manufacture of its toys. These are currently sourced from suppliers in SigmaCo's home country. The direct materials represent
65% of their overall spend and this area of cost has the potential to deliver vital cost savings to enable SigmaCo to compete with larger companies, but still differentiate based on its strong brand name and commitment to quality.
initial research has identified a range of global suppliers that can provide the direct materials and equipment that SigmaCo requires at significantly lower unit prices. This global sourcing approach is being considered to achieve lower costs. However, so that SigmaCo can fully understand the full implications of this change in its sourcing approach, the whole-life costs need to be analysed.
Answer:
Explanation:
See the answer in explanation.below.
Explanation:
3.3 Analyse FIVE whole-life costs that SigmaCo should consider when sourcing globally. (25 marks) Whole-life costing means looking at the total cost of an item over its full life , rather than only the initial purchase price. CIPS defines total cost of ownership as an estimate of the end-to-end cost of providing a service or manufacturing a product, including purchase price, acquisition cost, usage cost and end-of-life cost . This is important for SigmaCo because global suppliers may offer lower unit prices, but the total cost may be much higher once all other costs are included.
1. Acquisition and logistics costs
The first whole-life cost SigmaCo should consider is the cost of getting the materials and equipment from overseas suppliers to its factory. This includes freight, shipping, insurance, port handling, customs clearance, import duties and inland transport. These costs can be significant in global sourcing and may reduce or even remove the apparent savings from lower supplier prices. In analysis, a cheap overseas unit price may not represent better value if transport and import costs are high or volatile. Since direct materials account for 65% of SigmaCo's overall spend, these additional landed costs are very important. Whole-life costing specifically includes acquisition costs, not just the purchase price.
2. Inventory and lead-time costs
A second cost is the effect of longer international lead times on inventory. If SigmaCo sources globally, it may need to hold more safety stock to protect production against shipping delays, customs problems or supply disruption. This creates costs such as warehousing, stock handling, insurance, working capital tied up in inventory and possible obsolescence. This is especially relevant in a price-sensitive toy market, where demand patterns may change quickly. Therefore, global sourcing may lower the price per unit but increase the total cost of holding stock. Whole-life cost analysis should capture these ongoing usage-related costs.
3. Quality failure and non-conformance costs
The third cost is the potential cost of poor quality. SigmaCo's brand is built partly on quality, so if globally sourced materials or equipment fail to meet specification, the business could face inspection costs, rework, scrap, production downtime, customer complaints or product returns. This is an important whole-life cost because a lower-priced supplier may create higher downstream costs if quality standards are inconsistent. In analysis, SigmaCo should not compare suppliers only on purchase price, but also on the total cost of defects and the impact on brand reputation. CIPS notes that total cost of ownership includes non-value-adding processes such as scrap and rework.
4. Supplier management, compliance and risk costs
A fourth whole-life cost is the cost of managing overseas suppliers. Global sourcing often requires more supplier evaluation, relationship management, audits, communication, travel, contract administration and risk monitoring. There may also be compliance costs linked to product safety, ethical sourcing, trade rules or due diligence requirements, depending on the source country and material. These costs are often hidden, but they are real and can be substantial when moving from local to international supply markets. In analysis, global sourcing may therefore increase procurement overhead and risk-management costs even when prices appear attractive. CIPS and wider public procurement guidance both stress that whole-life cost should include implementation and delivery risks, not simply the quoted price.
5. End-of-life and disposal costs
The fifth whole-life cost is the cost associated with the end of the item's life. For direct materials, this may include waste, disposal, recycling or handling of unusable stock. For equipment, it may include decommissioning, replacement, disposal, recycling and environmental compliance costs. These costs matter because equipment bought cheaply from overseas could be more expensive to maintain, replace or dispose of later. CIPS states that end-of-life cost is one of the core categories of total cost of ownership, and procurement guidance also says buyers should consider removal and disposal when evaluating bids.
Conclusion
In conclusion, SigmaCo should not base its decision only on the lower unit prices offered by global suppliers.
It should analyse at least five major whole-life costs: acquisition and logistics costs, inventory and lead- time costs, quality failure costs, supplier management and risk costs, and end-of-life costs . By doing this, SigmaCo will be able to judge whether global sourcing genuinely reduces total cost while still protecting quality and brand value.
NEW QUESTION # 128
When should whole life asset management be applied?
Answer:
Explanation:
See the answer in explanation.
Explanation:
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.
* Refer to the question column for response
NEW QUESTION # 129
What are the four methods that can be used to try to resolve dispute?
Answer:
Explanation:
See the answer in explanation.
Explanation:
Conflict or dispute is the final area a procurement professional considers when creating terms for a contract with a supplier. If conflict or dispute arises, there must be a process put in place in the contract to try to resolve it and these includes; a) Negotiation, b) mediation, c) arbitration and d) litigation.
Negotiation is usually carried out between senior people within organization that are in conflict, if they cannot reach an agreement through negotiation, mediation is the next stage, mediation is when a third party tries to help find a resolution among the parties in dispute. If mediation fails arbitration can start, arbitration involve independent professionals (arbitrators) working with all the party to try to reach an agreement. Parties do not have a formal or legal obligation to follow the arbitrator's recommendation. Arbitration is expensive. If arbitration fails to resolve the conflict, the final stage is litigation, litigation takes time and money, and most people avoid it. It is a legal process where a court decides on the outcome of the dispute. The judge's ruling is final.
NEW QUESTION # 130
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