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NEW QUESTION # 18
Describe the main differences between a traditional procurement approach and supply chain management approach to buying (25 points)
Answer:
Explanation:
See the solution inExplanation partbelow.
Explanation:
- The question is asking you to explain the following:
- With this type of question you would be expected to discuss 3- 5 differences, giving examples.
Example Essay Structure
Introduction - explain what is meant by 'procurement' and 'SCM' - procurement is the traditional way and is to do with purchasing goods, SCM is the new way which is a more multifaceted way of securing goods and is the result of longer, more complex and more globalised supply chains.
Paragraph 1 - the objectives of each approach (5 Rights vs added value) Paragraph 2 - the approach (reactive buying vs proactive ordering) Paragraph 3 - the way of working (silo working vs cross-functional working) Paragraph 4 - the relationships with suppliers (transactional vs collaborative) Conclusion - There are many differences between the two approaches, and different companies may favour one over the other depending on their specific circumstances. E.g. small organisations that make low value and low risk purchases may take a traditional procurement approach and large multi-national organisations may require a SRM approach due to the volume of suppliers and com-plexities of the supply chains.
Example essay:
Procurement and Supply Chain Management (SCM) represent two distinct approaches to acquiring goods, reflecting the evolution of purchasing practices. Procurement, the traditional method, in-volves the straightforward purchase of goods. In contrast, SCM is a more intricate approach, born out of longer, more complex, and globalized supply chains. This essay explores the main differences between these two approaches, highlighting their objectives, methods, ways of working, and suppli-er relationships.
In the traditional procurement approach, the focus is on achieving the "5 Rights" - getting the right goods, in the right quantity, at the right quality, for the right price, and at the right time. This en-sures efficiency in the purchasing process. On the other hand, SCM goes beyond these basic objec-tives, aiming to add value to the entire supply chain. This might involve developing strategic rela-tionships with suppliers, ensuring sustainability, and aligning with broader organizational goals. For example, a company employing a traditional procurement approach might emphasize getting the lowest price, while an SCM approach could involve working with suppliers to enhance product in-novation or reduce environmental impact.
Secondly, the traditional procurement approach is often reactive, responding to immediate needs or demands. Companies using this method typically make purchases as required, without a long-term strategy. In contrast, SCM involves proactive ordering, anticipating future needs and trends. For instance, a company employing SCM might engage in demand forecasting, allowing for better plan-ning and inventory management. This proactive approach helps prevent stockouts, reduce costs, and enhance overall supply chain efficiency.
Moreover, traditional procurement often involves silo working, where different departments operate independently. The procurement team may not collaborate closely with other departments like pro-duction or marketing. In SCM, there's an emphasis on cross-functional working, breaking down de-partmental barriers for a more integrated approach. For example, an SCM team might work closely with production to ensure materials are aligned with manufacturing schedules, fostering efficiency and minimizing disruptions.
Lastly, in traditional procurement, the relationship with suppliers is transactional - focused solely on the exchange of goods for money. Conversely, SCM promotes collaborative relationships, emphasiz-ing long-term partnerships. A company using SCM might work closely with suppliers to improve processes, share information, and jointly address challenges. For instance, an SCM approach might involve collaborating with suppliers to implement just-in-time inventory systems, leading to cost savings and improved responsiveness.
In conclusion, the differences between traditional procurement and SCM are substantial and nu-anced.
While a traditional procurement approach may suit smaller organizations with low-value and low-risk purchases, larger multinational companies with complex supply chains often find SCM more suitable.
Understanding these differences allows companies to tailor their approach based on their unique circumstances, emphasizing the importance of flexibility and strategic alignment with organizational goals in the ever-evolving landscape of buying and supply chain management.
Tutor Notes
- This question is taken from learning outcome 1.1.1 (p2 onwards). The new study guide has drasti-cally simplified the information on this topic compared to the old syllabus (the table above comes from the old syllabus). This may be good news for students in that you don't need to know as much, but I do wonder if the study guide gives students enough 'content' to write an essay on the subject.
- If a question is to come up from LO 1.1 it would be likely be something like: definitions and dif-ferences between procurement and SCM, difference between a supply chain and a supply network, elements of SCM, or how to add value in the supply chain.
NEW QUESTION # 19
Provide a definition of a stakeholder (5 points) and describe 3 categories of stakeholders (20 points).
Answer:
Explanation:
See the solution inExplanation partbelow.
Explanation:
Essay Plan:
Definition of Stakeholder- someone who has a 'stake' or interest in the company. A person or organisation who influences and can be influenced by the company.
Categories of stakeholders:
1) Internal Stakeholders- these people work inside the company e.g. employees, managers etc
2) Connected- these people work with the company e.g. suppliers, mortgage lenders
3) External Stakeholders - these people are outside of the company e.g. the government, professional bodies, the local community.
Example Essay:
A stakeholder is an individual, group, or entity that has a vested interest or concern in the activities, decisions, or outcomes of an organization or project. Stakeholders are those who can be affected by or can affect the organization, and they play a crucial role in influencing its success, sustainability, and reputation.
Understanding and managing stakeholder relationships is a fundamental aspect of effective organizational governance and decision-making and there are several different types of stakeholders.
Firstly, internal stakeholders are those individuals or groups directly connected to the daily operations and management of the organization. Internal stakeholders are key to success and are arguably more vested in the company succeeding. They may depend on the company for their income / livelihood. Anyone who contributes to the company's internal functions can be considered an internal stakeholder for example:
This category includes
1) Employees: With a direct influence on the organization's success, employees are critical internal stakeholders. Their engagement, satisfaction, and productivity impact the overall performance.
2) Management and Executives: The leadership team has a significant influence on the organization's strategic direction and decision-making. Their decisions can shape the company's future.
Secondly, connected stakeholders are those individuals or groups whose interests are tied to the organization but may not be directly involved in its day-to-day operations. Connected stakeholders work alongside the organisation and often have a contractual relationship with the organisation. For example, banks, mortgage lenders, and suppliers. These stakeholders have an interest in the business succeeding, but not as much as internal stakeholders. It is important to keep these stakeholders satisfied as the organisation does depend on them to some extent. For example, it is important that the organisation has a good relationship with their bank / mortgage provider/ supplier as failing to pay what they owe may result in the stakeholders taking legal action against the organisation.
This category includes:
1) Shareholders/Investors: Holding financial stakes in the organization, shareholders seek a return on their investment and have a vested interest in the company's financial performance.
2) Suppliers and Partners: External entities providing goods, services, or collaboration. Their relationship with the organization impacts the quality and efficiency of its operations.
Lastly external stakeholders are entities outside the organization that can influence or be influenced by its actions. This category includes anyone who is affected by the company but who does not contribute to internal operations. They have less power to influence decisions than internal and connected stakeholders. External stakeholders include the government, professional bodies, pressure groups and the local community. They have quite diverse objectives and have varying ability to influence the organisation. For example, the government may be able to influence the organisation by passing legislation that regulates the industry but they do not have the power to get involved in the day-to-day affairs of the company. Pressure groups may have varying degrees of success in influencing the organisation depending on the subject matter. This category includes:
1) Customers: With a direct impact on the organization's revenue, customers are vital external stakeholders.
Their satisfaction and loyalty are crucial for the company's success.
2) Government and Regulatory Bodies: External entities overseeing industry regulations. Compliance with these regulations is crucial for the organization's reputation and legal standing.
In conclusion, stakeholders are diverse entities with a vested interest in an organization's activities. The three categories-internal, connected and external -encompass various groups that significantly influence and are influenced by the organization. Recognizing and addressing the needs and concerns of stakeholders are vital for sustainable and responsible business practices.
Tutor Notes
- The above essay is pretty short and to the point and would pass. If you want to beef out the essay you can include some of the following information for a higher score:
- Stakeholders can be harmed by, or benefit from the organisation (can affect and be affected by the organisation). For example a stakeholder can be harmed if the organisation becomes involved in illegal or immoral practices- e.g. the local community can suffer if the organisation begins to pollute the local rivers.
The local community can also benefit from the organisation through increased employment levels.
- CSR argues organisations should respect the rights of stakeholder groups
- Stakeholders are important because they may have direct or indirect influence on decisions
- The public sector has a wider and more complex range of stakeholders as they're managed on behalf of society as a whole. They're more likely to take a rage of stakeholder views into account when making decisions. However, these stakeholders are less powerful - i.e. they can't threaten market sanctions, to withdraw funding, or to quit the business etc.
- The essay doesn't specifically ask you to Map Stakeholders, but you could throw in a cheeky mention of Mendelow's Stakeholder Matrix, perhaps in the conclusion. Don't spend time describing it though- you won't get more than 1 point for mentioning it. You'd be better off spending your time giving lots and lots of examples of different types of stakeholders.
- Study guide p. 58
NEW QUESTION # 20
Examine FIVE ways in which procurement activities can contribute to achieving BrightAid's organisational objectives. (25 marks) BrightAid BrightAid is a medium-sized charity (not-for-profit) with 20 permanent employees and it uses 400 volunteers to deliver aid and services to the individuals and groups it serves. Its main aims are to raise awareness of its cause and bring issues to people's minds to prompt them to donate and/or join campaign activities. The charity depends on these voluntary donations, as without them, it would not be able to function. It also aims for this support to be continued on a regular basis and must engage with a wide range of stakeholders (both internal and external). BrightAid is also considering joining a buying group with several other charities and aims to extend the member's purchasing power and obtain competitive prices for the group members. Recognising that there is increasing competition in the amount and frequency of donations, the charity is now looking at several ways to increase the amount or frequency of donations and make its internal processes more efficient and effective. Up to this point, any procurement activities have been undertaken ad-hoc with no formalised processes.
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
Five Ways Procurement Activities Can Contribute to BrightAid's Organisational Objectives Procurement plays a critical role insupporting the operational efficiency and sustainabilityof a not-for- profit organization likeBrightAid. Given its reliance on donations and volunteers, a structured and strategic procurement approach can help maximize resources, reduce costs, and enhance the charity's impact. Below are five key ways in which procurement can contribute toBrightAid's organisational objectives.
1. Cost Reduction and Financial Efficiency
* How Procurement Helps:
* Implementing aformal procurement strategyensures that goods and services are sourced at the most cost-effective prices.
* Joining abuying groupwith other charities can enhance BrightAid'spurchasing power, securing bulk discounts and reducing overhead costs.
* Supplier negotiations and competitive tendering can helpmaximize value for moneyon every purchase.
* Impact on BrightAid:
* More funds can be allocated to coreaid and campaign activities.
* Lower operational costs meangreater financial sustainabilityand improved service delivery.
2. Enhancing Transparency and Accountability
* How Procurement Helps:
* Implementingclear procurement policiesand procedures ensuresfair supplier selection, minimizing risks of fraud or inefficiencies.
* Establishing aprocurement audit processensures compliance with ethical and legal standards.
* Open and fair supplier engagement strengthensstakeholder trust(donors, volunteers, and partners).
* Impact on BrightAid:
* Increases donor confidence, encouragingrepeat and larger donations.
* Ensures resources are used efficiently and ethically,enhancing the charity's reputation.
3. Improving Supply Chain Reliability and Efficiency
* How Procurement Helps:
* Strategic supplier selection ensuresconsistent deliveryof essential goods and services.
* Developinglong-term supplier relationshipscan reduce risks of supply disruptions.
* Procurement can introducesupplier performance reviewsto ensure that services meet BrightAid' s needs effectively.
* Impact on BrightAid:
* Moreefficient aid distribution, ensuring beneficiaries receive timely support.
* Reducedoperational disruptions, allowing volunteers and staff to focus on charitable work instead of supply issues.
4. Supporting Ethical and Sustainable Procurement
* How Procurement Helps:
* Ethical sourcing policies ensure that supplies (e.g., food, clothing, medical aid) come from responsible andsustainable sources.
* Procurement can help BrightAid select suppliers that align withits mission and values(e.g., fair trade suppliers, environmentally friendly packaging).
* Working with ethical suppliers enhancesCSR (Corporate Social Responsibility) partnerships, attracting more donors.
* Impact on BrightAid:
* Increasespublic trustand donor support, strengthening brand reputation.
* Aligns procurement decisions with the charity's coremission and sustainability goals.
5. Enhancing Operational Effectiveness and Stakeholder Engagement
* How Procurement Helps:
* A structured procurement process ensurestimely and cost-effectivedelivery of goods and services, reducing inefficiencies.
* Procurement professionals canengage stakeholders(staff, volunteers, donors) to understand their needs and improve sourcing decisions.
* Implementing procurementtechnology or e-procurement systemscan streamline purchasing and reduce administrative burdens.
* Impact on BrightAid:
* Staff and volunteers can focus more oncore charitable activitiesrather than administrative tasks.
* Better stakeholder engagement ensures that procurementaligns with donor expectations, strengthening long-term relationships.
Conclusion
By implementing astructured and strategic procurement function, BrightAid can significantlyimprove its financial efficiency, supply chain reliability, and ethical standards, ultimately enhancing its ability to deliver aid effectivelyand attract continued donor support. With growing competition for donations, a well- managed procurement process ensurescost savings, improved transparency, and stakeholder trust, directly contributing to the charity'slong-term sustainability and success.
Bottom of Form
Top of Form
NEW QUESTION # 21
Explain what is meant by added value (5 points). Describe 4 ways the Procurement Department can add value for their organisation (20 points)
Answer:
Explanation:
See the solution inExplanation partbelow.
Explanation:
What to include in the essay:
- Definition of added value: the economic enhancement given to products or services before offering them to customers. Examples may include a product which has additional features at no additional cost to the customer or the provision of an extended warrantee.
- Description of four of the following with examples andExplanation:s: providing better customer service levels, risk management, cost control and reduction, relationship management, reputation management, innovation, use of technology, streamlining processes, improving specifications, increasing sustainability, improving quality, ordering processes such as bulk ordering, inventory management, improving the product from the customer's perspective (e.g. packaging, exclusivity), sustainability, convenience, market development.
Example essay:
Added value in procurement refers to the enhancement or improvement in the economic worth, quality, or utility of products or services before they are offered to customers or end-users. In the context of procurement, the goal is to go beyond simply obtaining goods or services at the lowest cost. Instead, procurement aims to contribute additional value to the organization through various means. This essay explores the concept of added value and outlines four ways the Procurement Department can contribute to organizational improvement.
Improving Specifications
Procurement can add value firstly by ensuring all critical items are procured against a specification, and secondly by improving and regularly updating those specifications. For example, the procurement department might be responsible for procuring light-bulbs for an office. Having an effective specification for this purchase (lightbulbs must meet X safety standard and Y environmental standard) would result in less maverick buying for the organisation and the procurement of a better-quality product. Furthermore, regularly updating specifications ensures that purchases are made against current safety standards and regulations (e.g. the use of low-energy lightbulbs). If procurement don't update specifications, then there is a risk that items are bought that don't meet the correct standards.
Added value in this regard could also therefore be considered the removal of risks of procuring the wrong item.
Stream-lining Processes
Procurement can add value by stream-lining processes such as requisitions and POs. This reduces the time it takes to procure an item, thus saving the company money. Another process that could be streamlined is the re-ordering process of regularly bought items. This could be automated when the stock levels reach a certain level. For example if an organisation requires its staff to wear PPE, an automatic request could be made once there are only 50 face masks left.
Managing Supplier Relationships
Having strong, positive relationships with suppliers is a source of added value as it means suppliers value you as a buyer and are therefore more likely to help in situations which are adversely affecting business. For example, if a manufacturer puts an order in for 300 items with their supplier but then realises that they have made an error in the amount, if there is a strong relationship, the supplier may allow the buyer to amend the order after the fact. If there is a poor relationship, the supplier may not be as flexible. The flexibility in the supply chain is therefore a source of added value.
Improving Quality / Innovation
This involves adding value from the customer's perspective. E.g. a customer may choose to purchase a phone that has a longer battery life than others. Procurement's role in this may be in completing a Value Engineering exercise or procuring higher quality components or materials at the same price in order to achieve this additional feature.
In conclusion, the Procurement Department plays a crucial role in organizational success by adding value through improved specifications, streamlined processes, strong supplier relationships, and a focus on quality and innovation. These strategies contribute to enhanced efficiency, reduced risks, and increased customer satisfaction, making procurement an essential function for organizational excellence.
Tutor Notes
- The question asks specifically to name 4 ways of adding value. You therefore won't get any additional points if you talk about 5 or 6, even though it may be tempting. Instead, focus your response on providing more information on the 4 you have chosen and bulking out your answer with examples. This demonstrates to the examiner that you fully understand the topic AND that you can apply the theory to real situations.
- You could use real-life examples from your own organisation/ experience or you could give a hypothetical situation such as a cake manufacturer. You could talk through how the procurement department at the cake manufacturer can add value by doing the four things in your essay: by amending the specification so the cakes are more tasty, by streamlining the process for ordering flour, by managing the relationship with the company that fixes the machines when they break down, and by introducing innovation such as using an e-procurement system to source raw materials and the benefits that these will bring to the organisation.
- Added value is part of the syllabus for Learning Outcome 1.2 starting from p.19 but I'm gonna be honest, I think the new study guide is a bit crap on this part of the syllabus. The section starts talking about the 5 rights of procurement and I think that makes things very confusing for students. The 5 rights and added value are linked subjects, but they're not the same. Getting the rights right, CAN lead to sources of added value, but added value is value that is IN ADDITION to what is expected. So, when you have a question on added value, focus on stuff that's listed under 1.1.4 'other sources of added value' on p.35 rather than talking about the 5 rights of procurement. My list at the top is more exhaustive than the one in the study guide.
- If you're looking to be really clever you can quote Michael Porter on 'what is added value?'. Michael Porter looks at this from a customer perspective - 'added value' refers to the addition of greater value (either by reducing the cost to produce it, or by adding something that customers are willing to pay more for). These could be; marketing / design, customer service, maintenance, delivery etc. This comes up at Level 5 / 6.
NEW QUESTION # 22
Discuss 3 areas of regulation relating to competition that a procurement professional should be aware of (25 points)
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
How to approach this question
- This question is very vague. Sometimes CIPS do this. It allows for you to be a bit more free in your response, but can also be quite stressful because you don't 100% know what they're after.
- For this question we're looking at competitions, so full tenders where lots of suppliers are invited to bid for an opportunity. This means the type of things we could be discussing include; IP, cartels, merger controls and monopolies.
Example Essay
Procurement professionals operate within a legal framework that regulates competition, aiming to ensure fair business practices and prevent anti-competitive behaviour. Three critical areas of regulation related to competition that procurement professionals should be aware of include intellectual property, cartels, and merger controls.
Intellectual Property (IP):
Intellectual property encompasses creations of the mind, such as inventions, designs, and brand names, protected by law. In the context of procurement, understanding intellectual property is essential when dealing with suppliers' products, technologies, or services that may involve intellectual property rights.
Procurement professionals must be aware of the intellectual property rights associated with the goods or services they are procuring. This includes respecting patents, trademarks, copyrights, and trade secrets owned by suppliers. Due diligence is crucial to ensure that the products or services being procured do not infringe on the intellectual property rights of others, requiring verification of legal ownership and legitimacy. An example of something procurement should look out for include ensuring goods are authentic and not counterfeit.
Cartels:
Cartels involve agreements between competitors to control prices, manipulate markets, or restrict competition.
For procurement professionals, it is imperative to be vigilant and avoid engaging in or unintentionally supporting cartel activities. Procurement professionals should refrain from participating in anti-competitive behaviour, such as bid-rigging or price-fixing, which are common cartel activities. This involves not colluding with suppliers or competitors to manipulate procurement processes. Maintaining open and fair competition is essential, ensuring that procurement processes remain transparent, competitive, and free from attempts to distort market dynamics, thereby preventing the formation of cartels and promoting a level playing field.
One notable example involved the construction industry in the UK. In 2019, the Competition and Markets Authority (CMA) fined three major suppliers to the construction industry for participating in a cartel. The companies, which supplied concrete drainage products, were found to have coordinated their behaviour to share markets, fix prices, and rig bids.The investigation revealed that these companies had breached competition law by engaging in anti-competitive practices that limited competition and negatively impacted customers. The fines imposed were part of the CMA's efforts to deter and penalize such cartel behaviour, emphasizing the importance of fair competition in procurement. The Directors of the companies have also been banned from undertaking the role of Director of any company for 12 years.
Merger Controls:
Merger controls are regulations overseeing the consolidation of companies, mergers, and acquisitions to prevent monopolistic practices and protect fair competition. Procurement professionals need to be aware of these regulations, especially when dealing with suppliers undergoing mergers or acquisitions.
Staying informed about mergers and acquisitions within the supplier base is crucial. If a key supplier undergoes such changes, it may impact the stability of the supply chain or alter market dynamics.
Procurement professionals need to be aware of potential changes in supplier relationships, pricing structures, or product/service availability resulting from mergers. Engaging in proactive risk management and contingency planning is necessary to mitigate any negative impacts on procurement operations.
Mergers are actively watched in the UK by the Competition and Markets Authority, and where rules are broken, the CMA can intervene and even prevent mergers from happening. A notable example of this was the attempted merger between JD Sports and Footasylum - the companies were fined millions of pounds for exchanging information and attempting to collude and distort the marketplace.
In conclusion, procurement professionals play a crucial role in navigating these regulatory landscapes effectively. Understanding intellectual property, avoiding cartel activities, and staying informed about merger controls contribute to fostering fair and transparent competition within the marketplace.
Tutor Notes
- The construction example of a cartel can be found here Supply of precast concrete drainage products: civil investigation - GOV.UK (www.gov.uk) but feel free to use your own!
- The JD/ Footasylum one is here: JD Sports and Footasylum fined £4.7m for competition breach - BBC News. Basically, the CMA got involved because the two firms were sharing private information and having secret meetings, with the intention that they could combine. The CMA thought it was super dodgy and that it would distort the trainer / footwear market in the UK so they fined the companies and told them to stop it.
- The study guide is a bit light on this topic, so I would do a bit of extra research and have an example in your back pocket for if you need it. P. 142 If you want an example of IP issues- Shein is a great company to look at- 'They took my world': fashion giant Shein accused of art theft | Art and design | The Guardian
NEW QUESTION # 23
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