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| Section | Objectives |
|---|---|
| Demand management and value for money | - Whole life costing and total cost of ownership - Demand analysis and forecasting - Balancing cost, quality, and risk |
| Understanding and defining business needs | - Alignment of procurement with organisational objectives - Role of procurement in identifying and defining needs |
| Specification development | - Key performance indicators and measurable requirements - Stakeholder engagement in requirements definition - Types of specifications (input, output, conformance) |
| Risk, sustainability, and compliance considerations | - Managing procurement and supply risks - Legal and regulatory constraints affecting specifications - Sustainability and ethical sourcing requirements |
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NEW QUESTION # 118
XYZ Ltd is producing an engine which consists of many components. The procurement manager wants to find cost reduction opportunities and minimise part varieties. Which of the following may help her to achieve these objectives?
1. Value analysis
2. Segment analysis
3. Variety reduction
4. Standardisation
Answer: D
Explanation:
Value analysis is often defined as a systematic process for improving the value of a product, service or project. It is typically used in the following ways:
- To determine the value of each component used
- To find cost reduction opportunities by optimising the components used Segment analysis helps procurement and supply to shape and manage the supply markets.
There is no concept known as Variety reduction.
Standardisation is the process which is used to reduce varieties of products or parts.
In this scenario, the company's objective is cost reduction, then value analysis or value engineering is more likely to be applied. Also the company aims at reducing variety, standardisation can be combined with value analysis to produce the best results.
LO 3, AC 3.4
NEW QUESTION # 119
Buyers in the same industry with the same understanding of relative value and price may still make different decisions about whether to switch. Which of the following factors may prompt a buying organization to incline toward substitute products?
1. There is potential for backward integration
2. Access to financial resources
3. The switching cost is high
4. The substitute fits organisation's strategy
Answer: A
Explanation:
The threat of substitution is a function of three factors:
* The relative value/ price of a substitute compared to an industry's product
* The cost of switching to the substitute
* The buyer's propensity to switch
Buyers with different circumstances and in different industries do not all have equal propensities to substitute when faced with a comparable economic motivation. Differences in their circumstances lead buyers to respond to a given relative value to price (RVP) and switching cost differently. While such differences might be treated as factors that modify RVP or switching costs, it is more helpful in practice to isolate them.
Resources. Substitution often involves up-front investments of capital and other resources. Access to such resources will differ from one buyer to another.
Risk Profile. Buyers often have very different risk profiles, the result of such things as their past history, age and income, ownership structure, background and orientation of management, and nature of competition in their industry. Buyers prone to risk taking are more likely to substitute than buyers that are risk-averse.
Technological Orientation. Buyers experienced with technological change may be less concerned with some kinds of substitution risks, while extremely aware of others that a less technologically sophisticated buyer would be oblivious to.
Previous Substitutions. The second substitution may be easier for a buyer than the first, unless the first substitution has been a failure. The buyer's uncertainties over undertaking a substitution may have diminished if a past substitution has been successful, or risen if a past substitution has led to difficulties. In the soft drink industry, this seems to have worked to the benefit of aspartame.
Intensity of Rivalry. Buyers under intense competitive pressure and searching for competitive ad-vantage will tend to substitute more quickly to gain a given advantage than those that are not.
Generic Strategy. The RVP of a substitute will have different significance depending on the com-petitive advantage that industrial, commercial, or institutional buyers are seeking or the value of time and particular performance needs of the household buyer. A substitute that offers a cost saving will tend to be of more interest to a cost leader than a differentiator, for example.
Many of these factors that shape the buyer's propensity to substitute will be a function of the particular decision maker who is involved in the purchase decision.
Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p. 278-289). Free Press. Kindle Edition.
Reference: CIPS study guide page 95-96
LO 2, AC 2.2
NEW QUESTION # 120
When preparing through-life specification, which of the following requirements should procure-ment team define besides the physical asset? Select TWO that apply.
Answer: C,D
Explanation:
Through-life Management involves the life-cycle management of the products, services and activities required to deliver a fully integrated capability to the customer, while reducing the cost of ownership for the customer.
Diagram, table Description automatically generated
Source: Andrew Graves
With through-life management, buyer not only cares about the physical asset but also other factors like customer services and maintenance.
Reference: CIPS study guide page 130
LO 3, AC 3.2
NEW QUESTION # 121
Despite of better improvement rates than other types of benchmarking, functional benchmarking still has downsides. Which of the following is most likely to be a disadvantage of functional benchmarking?
Answer: D
Explanation:
Functional benchmarking is a comparison to similar or identical practices (e.g., the picking process for assembling customer orders, maintaining inventory controls of spare computer parts, logistics to move operational forces, etc.) within the same or similar functions outside the immediate industry. Functional benchmarking might identify practices that are superior in your functional areas in whatever industry they may exist. Functional benchmarking would be accomplished at the federal level by comparing the IRS collections process against those of American Express. Comparing copper mining techniques to coal mining techniques is an example in the private sector.
Benefits
- Provides industry trend information
- Quantitative comparisons
- Better improvement rate
Challenges
- Diverse corporate cultures
- Great need for specificity
- Not invented here. syndrome
- Common functions can be difficult to find
- Takes more time than internal or percent
- Must be able to visualize how to adapt the best practices
Source: USN Benchmarking Handbook
LO 1, AC 1.3
NEW QUESTION # 122
A procurement manager is supporting operational colleagues in writing a specification for an existing product.
They analyse existing functions, processes, costs, and value added. What is this an example of?
Answer: B
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2 - Specification Improvement and Value Techniques) Value engineering (VE) is a systematic review process used to improve the function-to-cost ratio of a product.
It involves:
* Analysing functions, processes, and costs,
* Eliminating unnecessary costs without reducing functionality.
Value analysis is similar but applies to existing products; VE is used for design/redesign, improving specifications.
CIPS often treats this scenario (improving an existing specification using function-cost analysis) under the VE approach, since the purpose is to optimise future performance.
Relevant L4M2 references:
* "Value analysis and value engineering techniques"
* "Improving specifications through value review"
NEW QUESTION # 123
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