The Purchasing process - ANSWER-1. Define Specification.
2. Select Supplier
3. Contract Agreement
4. Ordering
5. Expediting
6. Evaluation Follow up
Definition of Procurement & Supply - ANSWER-recognition of the fact that the
purchasing function has a role in not just "buying inputs" but in "securing
supply"
Direct Costs - ANSWER-These are costs which can be identified directly with
the production of a good or service; e.g. raw materials.
Usually strategic or leverae suppliers
,Indirect Costs - 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.
Kraljic Matrix - 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 - 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.
,Right Quality - 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 - ANSWER-sufficient to meet demand and maintain service
levels while minimising stock holding e.g. by ensuring that there is accurate
demand forecasting and efficient inventory management.
Right Place - 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 - 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 - ANSWER-securing all of the above at a reasonable, fair,
competitive and affordable price. Ideally, minimising procurement costs in
, order to maximise 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.
OPEX - ANSWER-Operating expenses are the costs for a company to run its
business operations on a daily basis.
CAPEX - ANSWER-1. Useful beyond its curent year
2. Lump sum up front
3. 3-10 year accounting lifespan for depreciaiton
4. Listed as preprty or equipment
5. Tax deducted as asset depreciated
Name the 13 stages of the procurement cycle - ANSWER-1. Understand the
need.
2. Market Commodity options.
3. Develop Stratgey/ Plan.
4. Pre-procurement / market test.
5. Develop required documentation.
6. Supplier Selection.
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