L4M8 Procurement and Supply in Practice Question and Answers

Tuckman’s team development model depicts from where a team is formed to the various stages they might experience before the end where the objective is achieved and these includes.

1) Forming: here they are just being put together

2) Storming: conflict and competition begin to arise

3) Norming: here agreement and consensus is reached as roles and responsibility is clear.

4) Perform: They start carrying out the roles and responsibility

5) Adjourning: Task is complete and they are discharged

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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.

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.

Fullpower projects is a training firm that trains on project management and procurement. It has the following values and ethical code of practice

1) Accountability

2) selflessness

3) openness

4) integrity

5) objectives

6) Honesty

7) Leadership

Organizational culture is made up of behaviors, traits, values and beliefs and these differ signifi-cantly across the globe. Gestures that may be positive in one country can be highly offensive in another. This culture could mean; for example, individualistic/collectivistic, masculine/feminine, uncertainty avoidance, power distance, Time perspective, indulgence/restraint.

When negotiating and forming contracts within the extended supply chain, it is important that the culture of the suppliers is understood to be compatible with the buying organization or else their might be loss of reputation, time, money material and equipment.

Also, being not aware of what is an acceptable ethically behavior in global sourcing can cost a buying organization. In some countries, bribery and kickbacks are a standard part of doing business. If procurement professional is not aware of the fact that some countries methods of doing business involves or expect kickbacks, for example, this could be costly to the organization and cancel out any savings that had originally been seen.

Cost of poor quality and rework: if the product or service quality is poor the organization may not satisfy it customers and this can lead to a loss of reputation in the market. For example, a residential building construction company contracting a supplier that supply would require home owners to reinstall a new door within three months. The organization would spend more funds in carrying out rework.

More administrative cost in contract management: an organization will have to manage it sup-pliers and the contracts to ensure they are delivering what they were contracted to do. A poor con-tract management is a waste in the process of delivery that can lead to loss of money. Also, to cor-rect this would cost the organizations administrative cost.

Stakeholder are individuals or organizations that can be affected directly or indirectly by any project or decision. For successful procurement activities to take place, stakeholders must be identified, engaged and managed. Not all stakeholders require the same level of engagement and management. To appropriately manage identified stakeholders, the Mendelow management matrix has categorized stakeholders in four quadrants, according to how low or high their power and interest in the project could be. The four categories are:

1) Minimum effort (low power-Low interest)

2) Keep satisfied (high power-Low interest)

3) Keep informed (Low power – high interest)

4) Manage closely (High power- High interest)

Carter’s 10cs is a detailed mechanism that procurement professional uses to evaluate potential supplier. What the procurement professional should consider in supplier are the following 10 things.

1) Competency 2) capacity 3) Cost 4) Cash 5) Clean 6) Consistency 7) Control 8) Cul-ture 9) Commitment 10) Communication.

At the early stages In procurement and supply cycle, buyers begin segmenting current supplies in the categories, depending on their level of integration into the organization. To help get this done, the buyer may use the Kraljic portfolio matrix. The kraljic portfolio matrix segment suppliers into four categories, which are;

1) Routine 2) Bottleneck 3) Leverage 4)strategic supplier

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Tangible costs are the cost an organization incur acquiring items that can be physically touched and or seen. Examples includes; 1) Capital Purchase 2) Raw materials 3) Sundry items 4) Vehi-cles/transport 5) Utilities

Intangible costs are the cost an organization incurs acquiring something that cannot be physically seen or touched. Examples include; 1) Insurance 2) Marketing 3) Research and development 4) Salaries and/pension 5) Services 6) Training.

Direct costs – These are costs that an organization incurs acquiring product and services directly attributable/traceable to its production, for example, the cost of labour and materials directly uses to produce the goods/services which the organization sells. In the case of buying and running a Lorry for transport fleet, this would be 1) total cost of acquiring the lorry,) Tooling 3) Operation.

Indirect cost - These are costs that are not directly associated to production, for example, materials and services not used in production, labour/ staff cost not directly attributed to production, such as management, sales and marking, ICT support, rents. In the case of buying and running a Lorry for transport fleet. Examples are; 1) Insurance 2) Disposal.

Assets are things that an organization owns regarded as having value and available to meet debt and generate revenue. The following are list of assets owned by Fullpower project, a shoe manufacturing firm;

1) Machinery,

2) a factory,

3) an innovative software,

4) skills of its personnel,

5) land,

6) Distribution network.

7) Its long time relationship with experienced suppliers of raw materials and Distributors of finished shoes.

When evaluating offers, it is important to remember that the best price may not be the lowest. To ascertain that; the total cost of Acquisition TCA (the cost a buyer bears for placing orders and re-ceiving a product from a supplier) should be uncovered and compare against offers received. Things to consider that might make up the total cost of acquisition are;

1) logistics and handling costs

2) Cost of requisition

3) Rework

4) stock cost

5) Delay

6) Inspection

7) customer services

8) consumables

9) Training & support

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Once the need has been understood, defined, justified and authorized, the next stages are to analyze and test the market. Analyzing and testing the market includes looking at the following

1. STEEPLE analysis

2. SWOT analysis

3. Porter’s five forces

4. Level of suppliers competition

5. Supply and demand

6. Push and pull

7. Supplier segmentation

8. Product life cycle

9. Ansoff matrix

10. Early supplier involvement

11. Make or buy

12. Offshoring

1. Porter’s five forces: The use of porter’s five forces helps the procurement professional to understand the level of competition within the marketplace. Whether it is a monopoly, oligopoly, imperfect or perfect market. Knowing these will equip the organization to better negotiate a favorable price.

2. Supply and Demand: the procurement professional must also think about supply and demand as part of their market analysis when they receive a requisition. This economic factor has a significant effect on the prices charged and on the cost incurred.

3. Supplier segmentation: in this the procurement professional start to form an opinion of potential suppliers.. They can segment current suppliers into four categories, depending on their level of integration into an organization. This can help to inform the procurement professional of which type of supplier relationship that would be most appropriate.

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Organizations which display good behavior create a positive social impact. The com-munity in which they are based and to which they supply will benefit from the following.

1. High employment

2. Fair wages

3. low pollution

4. sustainable resources

5. Engagement and movement with local organization

14001 set out as international standards for an environmental management system.

A business case is a document containing the justification and the commercial benefits achievable for a potential project or an identified need, for example, the purchase of a capital equipment, con-struction of an additional warehouse or procuring more innovative software to replace the current on in use.

The essence of the business case is to obtain support and get buy-in from senior management.

In order to gain authority to apply whole life asset management a business case will need to be created and presented. A developed business case will cover the following element.

1) Introduction: Outline of what the business case is all about

2) Objective: Explanation of what the business case desired outcome is.

3) Approach that will be undertaken

4) List of resources required

5) Benefits of achieving the objective

Damages are ‘sum of money that the supplier pays if it fails to carry out its contractual obligation. Damages are categorized into two types; liquidated and un-liquidated.

Liquidate Damages are fixed amount of money agreed between the parties that is payable if a contract is breached. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device and going ahead to include a fee in the contract if the device was destroyed.

Un-liquidated damages are unfixed amount of money. It is used when the amount of money that will compensate the injured party cannot be known in advance. A court decides the amount when the damages occur. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device, other appliances and equipment unknown, cause the buyer delay in the process and reputational damage as in customer dissatisfaction. Yet, unquantifiable as both party are unable to fix a fee in advance on the damages and leaving it to the court to decide the damage if it may occur.

Name of company: Full power projects

Business: Project management training and consultancy

If an organization is sourcing an asset that is readily available or mass produced then the cost associated with the design and manufacturing will be lower percentage of the total cost than if an organization commissions a bespoke piece of equipment to be designed and manufactured.

The following are a list of assets owned by fullpower projects.

Standard/off the shelf (Mass produced)

Projector from a shop-displayed files and document jackets from market

Desks and furniture

Bespoke/specialist - white board and marker

With extra, e.g. made with company color

Gift/ sovereign (bags and T. shirt) with coup any label, color and design

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The Kraljic Portfolio Matrix shows where a product or services fits into in an organization. It is based on two areas 1) the risk of supply (Risk Impact). 2) Effect it has on profit (cost impact).

The public sector uses tenders a lot more in the working environment than private sector.

When reviewing supplier’s response the procurement professional should consider the right quantity of product or service that has to be ordered at anytime as against the price to decide how to gain the best cost.

Factors to consider include the following

(1)Cost of inventory

(2) cost of insurance

(3) cost of transportation.

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Responsible and ethical sourcing promotes working with suppliers who want to have a positive effect on the environment or at least minimize the damage they cause. Suppliers can make effort to reduce their impact on the planet through reducing the pollution, taking steps to recycle or reuse products can improve on supplier’s impact on the environment, also supplier can consider sustainability as another environmental factor. Suppliers with strong values on ethics will have a programme to return anything taken from nature in the form of replanting or replacing.

Supply chain involves a network of individuals, organizations, technology activities and resources to make sure goods or services flow along the chain. If one point fails, every part further along the chain fails.

Fullpower projects (a flour manufacturer) supply chain begins with producers (raw materials, wheat farmers), suppliers, manufactures, distributors, retailers and end users (customer).

Fullpower projects supply chain falls within the primary sector (producers of wheat), the secondary sector include the manufacturing (those that converts the wheat the suppliers brings into flour) and tertiary sector (the distributor those that takes the wheat to the end users).

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.

Tuckman’s team development model depicts from where a team is formed to the various stages they might experience before the end where the objective is achieved and these includes.

1) Forming: here they are just being put together

2) Storming: conflict and competition begin to arise

3) Norming: here agreement and consensus is reached as roles and responsibility is clear.

4) Perform: They start carrying out the roles and responsibility

5) Adjourning: Task is complete and they are discharged

The social impact of an organization is formed by various behaviors. If an organization; behavior is poor this will create social impact which is likely to be reflected in the business performance. Organizations which display poor behavior face outcomes such as the following.

1. Reduce brand loyalty

2. Difficulty in recruiting

3. Negative media coverage

4. Reduced sales/profit

5. reputation damage

Bonded labour and forced labour are among the five types of modern slavery which is against ethical and responsible sourcing.

Bonded labour also known as debt bondage, this is an individual’s promise to provide services through exploitation as repayment, or part of them, of a debt or other obligation whereas forced labour is work that people are forced to do with the heat of punishment if it is not carried out.

(Correct)

Topics that are covered within ethics are;

1. Environmental factors

2. The triple bottom line: profit, people and planet

3. Adopting sustainable practice.

4. considering the social impact of organization’s behaviors

When an organization want to purchase an asset, it considers the depreciation and deterioration in the whole life of the asset and how it will be manage.

Depreciation is the reduction in value of a tangible and a fixed asset over time. The purpose of calculating the depreciation of the asset is to give the organization a fair and current view of what the asset is worth at a particular time. Depreciation is a way of converting the cost of an asset into an expense over a period of time. Depreciation is a permanent feature listed against an asset throughout its life time and it based on wear and tear, reduction in performance and reduction in value.

Deterioration is the process of something becoming lower in quality or performance. The longer the asset can last without deteriorating the better value the asset represents.

The reputation of all the organizations within a supply chain is linked. A Company’s reputation is an intangible asset that can contribute to the failure of an organization if damaged. Factors that could damage organizational reputation within the supply chain are;

1. Quality: if the product or service quality is poor the organization may not satisfy it customers and this can lead to a loss of reputation in the market. For example, a residential building construction company contracting a supplier that would do a bad job which in three months may require home owners to reinstall new doors.

2. Sustainability: if the organization is not replenishing that which it is extracting, it will some day run out of business or probably loss loyal customers. For example a drilling company that spills hydrocarbon as it drills.

3. Fit for purpose: if an organization produce a product or carry out services that are not fit for purpose, it may run at loss for there will be so much rejection and rework. This can lead to customers switching to another organization which product or services are fit for their purpose.

4. Contract management: an organization will have to manage its suppliers and the contracts to ensure they are delivering what they were contracted to do. A poor contract management is a waste in the process of delivery that can lead to reputational loss.

When a contract has been awarded, either is to meet tangible needs or intangible needs, contractors or suppliers should be managed to ensure that they are meeting up with fulfilling their contractual agreement. To establish this, there are methods of managing contracts and suppliers.

Service level agreement (SLA) clauses: is placed in contract to ensures that supplier meets the expected and agreed level of service

Key performance indicator (KPI): are used to manage contracts that fulfill tangible needs, the KPIs are set performance thresholds that are used to monitor supplier’s performance.

Management by objectives (MBO): is the process of defining objective that are strategic to the organization relating them to the vision and mission and communicating them to the supplier through the contract and ensuring that this objective is met during contract performance.

Reviews: Regular supplier reviews are good practices, for it gives the buyer opportunity to give feedback on performance.

Continuous Improvement: Contracts and suppliers can be monitored through how they are chang-ing for better incrementally as they are fulfilling the schedule. There must be a set down system to timely improve on the process, people and continuously reduce waste.

Training: It is essential that training, are provided to come up on areas supplier is lacking.

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A sector is an area of an industry, e.g., private, public or third sector.

A public sector is a sector of the economy that is owned, finance and run by the government. This sector is financed with tax payer’s money. And therefore owe the general public an ethical explanation towards all investment and decision.

Once the supplier that is awarded the contract has accepted, the buyer can tell the unsuccessful bidders. This usually happens through email or letter. The public sector is more likely to give feedback to unsuccessful bidders and also have to respond to any stakeholders that request information on why a supplier is not successful.

Terms are the right and duties agreed which are then documented in a contract. Five types of con-tract terms that a procurement professional should create with a supplier when forming an agree-ment includes;

Price term is when the buying organization wants to protect its budged and spending, it include price terms in the contract, for the buyer to buy goods or services in response to a need they some-time enshrine a bespoke specification in the contract.

Payment Term is to specify when and how the buyer will pay the supplier. The buyer may include a payment term in the contract.

Warrantee is when the buyer requires a promise from the supplier that the product or service will meet the specified need in the contract.

Time is of the essence term is included in the contract to detail when a product or service should be delivered and explains the potential losses of business if time is not observed.

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Damages are ‘sum of money that the supplier pays if it fails to carry out its contractual obligation. Damages are categorized into two types; liquidated and un-liquidated.

Liquidate Damages are fixed amount of money agreed between the parties that is payable if a contract is breached. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device and going ahead to include a fee in the contract if the device was destroyed.

Un-liquidated damages are unfixed amount of money. It is used when the amount of money that will compensate the injured party cannot be known in advance. A court decides the amount when the damages occur. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device, other appliances and equipment unknown, cause the buyer delay in the process and reputational damage as in customer dissatisfaction. Yet, unquantifiable as both party are unable to fix a fee in advance on the damages and leaving it to the court to decide the damage if it may occur.

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Benchmarking is the process of comparing a function, process or performance with another which is best-in-class. Benchmarking is either internal or external. External benchmarking has three types; 1) Competition benchmarking, 2) Functional 3) Generic

Company Toyota with the Porsche a competition in the same industry and by suggesting that drives will find the cars performances comparable with that of Porsche Cayman sports car, suggest think it is an external competitive benchmark.

2(a) Describe a supplier evaluation approach that HFS could use to select a bidder using the table provided, including a proposal for an appropriate weighting method for scoring the bidders. (10 marks)

HFS should use a weighted scoring supplier evaluation approach . This method is suitable because there are several award criteria, not just price, and HFS has already experienced poor cleaning quality under the previous contract. Therefore, HFS should assess both cost and quality-related factors before selecting the successful bidder.

A sensible approach would be:

Step 1: Set evaluation criteria

Using the tender table, HFS can evaluate bidders against:

bid price

ISO 9000 certification

Investors in People (IIP) certification

labour standards criterion linked to ILO requirements

ISO 14000 certification.

ISO says the ISO 9000 family supports quality management and consistent delivery, while ISO 14001 is the recognised framework for environmental management. Investors in People is an externally recognised accreditation for people management.

Step 2: Apply weightings

Because HFS was not satisfied with the quality of the previous cleaning service, quality and service assurance should carry more weight than price alone. A suitable weighting could be:

Price = 40%

ISO 9000 = 25%

IIP = 15%

ILO criterion = 10%

ISO 14000 = 10%

This totals 100%. The reason for this weighting is that price is important, but service quality should be prioritised for a five-year contract. ISO 9001 is especially relevant because it is the best-known quality management standard and is intended to support consistent products and services. ISO 14001 is also relevant because it gives assurance on environmental management.

Step 3: Score the bidders

For price , HFS could award the full 40 marks to the lowest bid and score the others proportionately using the formula:

Lowest bid ÷ bidder’s price × price weighting

Using €120,000 as the lowest bid:

A = 120,000 / 120,000 × 40 = 40.00

B = 120,000 / 135,000 × 40 = 35.56

C = 120,000 / 132,000 × 40 = 36.36

D = 120,000 / 142,000 × 40 = 33.80

For the certification criteria, a simple method would be:

Yes = full marks

No = zero

So the total weighted scores would be:

A = 40 + 0 + 15 + 0 + 0 = 55.00

B = 35.56 + 0 + 15 + 10 + 0 = 60.56

C = 36.36 + 25 + 15 + 10 + 10 = 96.36

D = 33.80 + 0 + 0 + 0 + 0 = 33.80

Overall, this weighted evaluation method is appropriate because it gives HFS a transparent and objective way to compare bids while reflecting the importance of service quality, people management and environmental standards, not just lowest price.

2(b) Recommend and justify which ONE of the bidders should be awarded the contract and why each of the three other bids should be rejected. (15 marks)

Based on the weighted scoring analysis, CleenKwik (C) should be awarded the contract.

Recommended bidder: CleenKwik (C)

CleenKwik should be selected because it offers the best overall value rather than just the lowest price. Its bid of €132,000 is only slightly above the lowest bid, but it is the only bidder with all four listed accreditations or compliance indicators in the table: ISO 9000, IIP, ILO criterion and ISO 14000 . This is important because HFS has already had poor service quality from the previous contractor, so quality assurance should be a major factor in the decision. ISO 9001 is specifically designed to support consistent service quality, while ISO 14001 supports structured environmental management. Investors in People also gives assurance on workforce management, which is relevant in a labour-intensive cleaning contract.

CleenKwik therefore represents the strongest balance between price, quality, staff management and environmental responsibility . For a five-year service contract, that makes it the most suitable choice.

Why Associated Cleaning (A) should be rejected

Associated Cleaning has the lowest price at €120,000 , but it only has IIP certification and lacks the other three criteria. This means it gives weaker assurance on quality systems, labour standards and environmental management. Since HFS’s main problem in the last contract was poor cleaning quality, selecting the cheapest bidder without strong quality evidence would be risky. Therefore, A should be rejected because the low price does not compensate for the lack of broader service assurance.

Why Bright’N’Clean (B) should be rejected

Bright’N’Clean is a stronger bid than A because it has IIP and the ILO-related criterion , but it still lacks ISO 9000 and ISO 14000 . This is significant because ISO 9001 is the strongest direct indicator in the table for quality management, and HFS is specifically trying to avoid another poor-quality contract. B is also more expensive than both A and C. Therefore, B should be rejected because it offers less assurance than C while not being the cheapest option.

Why Doubleshine (D) should be rejected

Doubleshine should be rejected because it is the highest-priced bid at €142,000 and has none of the listed certifications or indicators. This means HFS would be paying the highest price for the weakest quality and compliance evidence. There is no justification for awarding the contract to D when it scores lowest on overall value.

Conclusion

In conclusion, CleenKwik (C) should be awarded the contract because it achieves the highest weighted score and provides the strongest evidence of quality, people management, labour-related assurance and environmental management. The other three bids should be rejected because they either provide insufficient quality assurance, poorer overall value, or both. This recommendation is justified because HFS needs to improve service quality, not simply reduce cost.

A new buy is the purchase of goods and services by an organization or an individual for its first time. For example a transport organization for the very first time contracting the purchase of a Lorry out to an external supplier. In situations like this, it is advisable to start the procurement cycle from the very first stage. Which is understanding the need and developing high level specification.

Modified re-buy is the purchase of goods or services that an organization has bought before there was a need but with changes to the specification or supplier or quantity or quality. In carrying out modified re-buy, procurement professional should start from the very first stage of the procurement cycle to justify the added need and follow through. Not in all cases that buyer would have to start from understanding the need. In a situation where the changes required is a change of supplier, the organization will start from its preferred suppliers list and contract the next ranking supplier as the case may be.

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Structured procurement policies, processes and procedures are the formal rules and methods that guide how an organisation purchases goods and services. According to CIPS, procurement policy sets out the principles for how procurement should be conducted, while procurement procedures explain how tasks should be carried out in practice. CIPS also emphasises that procurement should be managed across the whole procurement cycle, from identifying needs through sourcing, contracting and supplier management.

At Nexar Consulting, procurement is currently informal, ad hoc and unpredictable. This has led to concerns about wasted time, wasted resources and poor alignment with strategic objectives. As Nexar is growing rapidly and buying more recruitment services, research, software, hardware and specialist subcontractor services, structured procurement would give the business greater control and consistency. However, although the benefits are significant, there are also some limitations that the board should consider before implementation.

Benefit 1: Improved cost control and spend visibility

One major benefit of structured procurement at Nexar would be improved control over expenditure . At present, the case states that expenditure is unpredictable and that sourcing activity is inefficient. This suggests that departments may be buying independently, without common approval routes, supplier frameworks, budget controls or spend analysis.

If Nexar introduces formal procurement policies and procedures, purchases would follow an agreed process. For example, there could be standard requisition approvals, competitive quotation thresholds, preferred supplier lists and contract management controls. This would allow the organisation to monitor what is being bought, from whom, at what price and for what purpose. CIPS explains that spend analysis improves spend visibility, compliance and control, and helps organisations identify risks and opportunities while directing expenditure to where it adds value.

This would be especially valuable for Nexar because its spending has increased in several categories, including technology, recruitment and subcontractors. Structured procurement would make it easier to:

reduce duplicate purchasing

consolidate spend with fewer suppliers

negotiate better prices and terms

control maverick or off-contract spend

support budgeting and forecasting.

In analysis, this benefit is not only about saving money in the short term. It also supports better financial planning and stronger resource allocation. Since the financial analyst has already highlighted waste, a structured procurement system would help convert procurement from a reactive administrative activity into a value-adding business function. Therefore, improved spend visibility and cost control would directly support Nexar’s strategic objective of operating more efficiently as it grows.

Benefit 2: Greater process efficiency and consistency across the organisation

A second benefit is that structured procurement would create standardisation and consistency in how purchasing decisions are made. Nexar’s current system is described as ad hoc, and colleagues appear to focus mainly on their own individual objectives. This can cause fragmented buying, unclear responsibilities and inconsistent supplier selection.

With structured policies and procedures, all departments would follow the same procurement route. CIPS notes that the procurement team oversees the steps of the procurement cycle, including market analysis, sourcing, negotiation, contracting and supplier relationship management. A defined cycle creates a more reliable and professional method for acquiring goods and services.

For Nexar, this could improve efficiency in several ways:

staff would know exactly how to raise a purchasing need

standard documents and templates could reduce errors and delays

procurement lead times could become more predictable

roles and responsibilities would be clearer

procurement decisions would be easier to audit and review.

This matters because Nexar operates across several sectors, including defence, aerospace, agriculture and education. These are varied and potentially complex markets, so inconsistent purchasing methods could lead to confusion, poor supplier choices or service disruption. By implementing formal processes, the company would develop a repeatable method that improves internal coordination.

From an analytical perspective, consistency is important because it reduces waste caused by rework, unclear communication and duplication of effort. Informal procurement may appear flexible, but in a growing business it often becomes inefficient because each team reinvents the process. In contrast, a structured approach creates organisational discipline. As a result, Nexar would likely achieve faster and more reliable procurement outcomes, particularly as purchase volumes continue to rise.

Benefit 3: Better risk management, compliance and alignment with strategic objectives

A third key benefit is that structured procurement would improve risk management and governance . CIPS states that procurement must identify, minimise and manage risks within the supply chain, including supply risk, demand risk, process risk and control risk.

At Nexar, the current informal approach creates several risks:

poor supplier due diligence

inconsistent contract terms

weak data security or technology purchasing decisions

overdependence on unsuitable subcontractors

lack of accountability over spending decisions.

These risks are especially relevant because Nexar buys software, hardware infrastructure and specialist subcontracted services. In sectors such as defence and aerospace, procurement errors can have significant operational, legal and reputational consequences. Structured procedures would help ensure that suppliers are assessed properly, approvals are documented, contracts are reviewed, and procurement decisions are aligned with company policy.

Structured procurement would also help Nexar link procurement activity to corporate strategy. The case states that current inefficiencies prevent the company from meeting its strategic objectives effectively and efficiently. With a procurement team following recognised frameworks such as those promoted by CIPS, purchasing decisions would be more likely to support business goals such as growth, quality, service continuity and responsible use of resources. CIPS recognises procurement as a contributor to organisational value-added strategies, not just a transactional function.

This benefit is significant because risk management and strategic alignment are often more valuable than simple price savings. A business may save money through informal buying in the short term, but if it suffers supplier failure, poor-quality services or non-compliant contracts, the long-term cost can be much higher. Therefore, structured procurement would strengthen governance at Nexar and help the board make more informed, controlled and strategic decisions.

Limitation 1: Implementation costs and resource requirements

Despite these benefits, one limitation is that introducing structured procurement will require time, money and organisational resources . The financial analyst is proposing a dedicated procurement team, which means recruitment or redeployment costs, training costs, systems development and the creation of policies, procedures and templates.

For a rapidly growing company like Nexar, this may be seen as a burden in the short term. The board may worry that the business must invest in new people, new systems and change management before savings are realised. There may also be indirect costs, such as the time spent by managers attending training, adapting to new approval processes and working with procurement specialists.

This limitation is important because the benefits of structured procurement are often medium- to long-term, whereas the implementation costs are immediate. In other words, Nexar may have to absorb upfront expenditure before improved control and savings become visible. Some colleagues may therefore resist the proposal if they see it as extra bureaucracy without instant benefit.

However, this limitation should be analysed carefully. Although implementation costs are real, they should be compared against the existing waste identified by the financial analyst. If current informal procurement is already causing inefficient spending and missed strategic objectives, then the cost of doing nothing may be higher than the cost of implementing formal procurement. Even so, the short-term investment remains a genuine limitation that the board must consider.

Limitation 2: Possible resistance to change and reduced flexibility

A second limitation is that structured procurement can be viewed as bureaucratic and less flexible , particularly by staff who are used to informal buying. In the case, colleagues currently focus on their individual goals, and some believe the informal approach has advantages, even though no formal data supports this. This suggests there may be cultural resistance to central control.

When policies and procedures are introduced, employees may feel that:

purchasing takes longer due to approvals

they lose autonomy over supplier choice

procurement rules do not reflect urgent operational needs

innovation is restricted by standardisation.

This is a realistic limitation for Nexar because consultancy businesses often value speed, specialist knowledge and responsiveness. For example, a project manager may want to appoint a niche subcontractor quickly to meet a client deadline. If the new process is overly rigid, stakeholders may feel frustrated and may try to bypass the rules. This could reduce internal support for procurement and create conflict between departments and the new procurement team.

From an analytical point of view, the issue is not that structured procurement is inherently bad, but that poorly designed controls can slow decision-making. The challenge for Nexar would be to design policies that balance governance with commercial agility. For example, low-value routine purchases could follow a simplified process, while high-risk or high-value purchases require more formal control. Therefore, reduced flexibility is a limitation, especially during implementation, unless the procedures are proportionate and stakeholder needs are considered.

Conclusion

Overall, implementing structured procurement policies, processes and procedures at Nexar Consulting would bring major advantages. The three main benefits are better cost control and spend visibility , greater efficiency and consistency , and stronger risk management and strategic alignment . These benefits directly address the problems identified in the case, particularly unpredictable spending, inefficiency and failure to support organisational objectives. CIPS guidance supports the view that procurement should operate through a defined cycle, with clear policies, procedures, risk controls and spend analysis to add value across the organisation.

However, two limitations must also be recognised. These are the cost and resource burden of implementation and the risk of resistance or reduced flexibility . Even so, these limitations are manageable if Nexar introduces procurement in a phased and proportionate way, supported by leadership and stakeholder engagement.

In conclusion, the benefits are likely to outweigh the limitations. For a rapidly expanding organisation such as Nexar, structured procurement would provide a more professional, controlled and strategic approach to purchasing, helping the business achieve its objectives more effectively.

ILO stands for International Labour Organization- It is a United Nations agency whose mandate is to advance justice and promote decent work by setting international labor standard.

ETI is Ethical Trading Initiative: It is a leading alliance of companies, trade unions and NGOs that promote respect for workers right around the globe. Its vision is a world where all workers are free from exploitation and discrimination and enjoys condition of freedom, security and equity.

Corporate Social responsibility (CSR) policies state how organizations aim to contribute towards the community and how an organization portrays itself towards social impacts.

By using STEEPLE and SWOT analysis, the organization can reach out to the following strategic decision in how it will engage with its external environment, and utilize it strength to cover up for its weakness and achieve its strategic goals;

1) STEEPLE can aid an organization to come up with informed decision by understanding when is the right time to procure goods or services?

2) STEEPLE and SWOT analysis can uncover the quantity that could be most economical to ac-quire at the point in time.

3) When an organization want to decide on the currency that could be most favorable for the buy, it will analyze the countries involved and the strength of their currency and make its decisions on which currency that the supplier should be paid that will not make the organization to lose unnecessary money to exchange.

4) Should the product or services be made or bought?

5) Should the product or services be resourced?

6) Should the product or services be placed?

Damages are ‘sum of money that the supplier pays if it fails to carry out its contractual obligation.

When creating terms for damages in the contract, it should be considered that Damages are categorized into two types (liquidated and un-liquidated). And which or if both are applicable to the contract in hand.

Liquidate Damages are fixed amount of money agreed between the parties that is payable if a contract is breached. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device and going ahead to include a fee in the contract if the device was destroyed.

Un-liquidated damages are unfixed amount of money. It is used when the amount of money that will compensate the injured party cannot be known in advance. A court decides the amount when the damages occur. For example, knowing that supplier not being able to install a device properly in a power transformer may destroy the device, other appliances and equipment unknown, cause the buyer delay in the process and reputational damage as in customer dissatisfaction. Yet, unquantifiable as both parties are unable to fix a fee in advance on the damages and leaving it to the court to decide the damage if it may occur.

Human rights are the statutory ways in which individual expects to and should be treated. Ethical and responsible sourcing includes the protection of human rights, not violating it.

When young women are being bound into contracts where they work for two to three years, they are not being granted the right to freedom from slavery.

Forcing these women to live in hostels under restrictions that prevent them from moving and are denied the opportunity to improve on their living condition is a violation of their right to life, liberty and personal security, also, their freedom from torture and degrading treatment is being violated.

Bonded labour and forced labour are among the five types of modern slavery which is against ethical and responsible sourcing.

Bonded labour also known as debt bondage, this is an individual’s promise to provide services through exploitation as repayment, or part of them, of a debt or other obligation whereas forced labour is work that people are forced to do with the heat of punishment if it is not carried out.

Topics that are covered within ethics are;

1. Environmental factors

2. The triple bottom line: profit, people and planet

3. Adopting sustainable practice.

4. considering the social impact of organization’s behaviors

Trying to measure how sustainable an organization was use to be challenging undertaking. However, during the 1990s, a concept brought up by American John Elkington change the way sustainability was measured. This framework is known as the triple bottom line (TBL) and measures sustainability in relation to organizational performance and investment against the 3Ps (1) Profits (2) People (3) Planet. For example;

Profit: A packaging manufacturer reinventing its profits in a State- of-the-art recycling machinery for it wasted cardboard.

People: A large privately owned call centre donate its end of life computers to a local youth clubs and social groups to help gain internet cases.

Factors that contribute towards value for clothe gum in a fashion firm;

1) How much money does the gum cost?

2) How much is the benefits of using the clothe gum?

3) Does customers prefer clothe gum at the bottom of their garment?

4) Is the clothe gum difficult to use?

5) Does the clothe gum beautifies the fabric when placed properly?

6) Does it give a better finishing?

7) Is it ethical to use?

8) Is it from a sustainable source?

9) is it environmental friendly?

10) Does using clothe gum suggest innovation in fashion?

Refer to the question column for response

When a fixed asset reaches the end of its life, it requires decommissioning before reconditioning or disposal.

Decommissioning is to observe all the safety measures and technical procedures and stop active machinery or an asset from operation (example; gas plant, power generator, transformer etc.

Decommissioning process include the following aspect

1) Preparation: Plan the process

2) Dismantle: Take the asset apart and remove hazardous waste

3) Processing: make safe any hazardous waste

4) Disposal: Ensure paper work is received to confirm removal and disposal

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After all the due diligence is carried out, before awarding contract to the best supplier, sometimes procurement professionals find themselves in some problem solving situation; this might have been emanated from supplier facing a financial challenge or problems from external environment. Responding to this might require an amendment or an addendum, depending on the case in hand.

An amendment is for a physical change in the existing contract for example; if a contract contains a negotiated and agreed fixed price for the period of the contract but unexpected market forces such as an economic down turn or force majeure occur, the supplier may have to request an amendment order to continue to make a profit.

An addendum is when an additional document is added to the existing contract for example, If a contract have a schedule of rates and the market forces prices up, an addendum can be added to an existing contract with a revised schedule. Once accepted, the addendum becomes part of the con-tract. Addendum are physically used when the forecasted cost of a project rises and approval is needed to increase the contract spend.

Quality is fitness for purpose. It is important that quality is investigated by procurement professionals before forming relationship with potential supplies.

If quality is not investigated before selecting supplier the organization might stand the risk of facing the following disadvantages;

Reputational Damages

Cost of Rework

Cost of Downtime

Cost of Material

Cost of being stocked with the wrong supplier

Cost of being stocked in a project that may not come to an end at the forecasted time.

How buyer can choose a supplier with a good quality culture is first by defining the quality of the product or services to be carried out .Having knowledge of the product or service quality, supplies can rightly select and evaluated supplier with total quality management (TQM) in their system, ISO 9001 accreditation. TQM includes everyone in the organization with knowledge on the required quality; there would be little or no rejection/reworks. Thus is an added value to the organization.

When a contract has been awarded, either is to meet tangible needs or intangible needs, contractors or suppliers should be managed to ensure that they are meeting up with fulfilling their contractual agreement. To establish this, there are methods of managing contracts and suppliers.

Service level agreement (SLA) clauses: is placed in contract to ensures that supplier meets the expected and agreed level of service

Key performance indicator (KPI): are used to manage contracts that fulfill tangible needs, the KPIs are set performance thresholds that are used to monitor supplier’s performance.

Management by objectives (MBO): is the process of defining objective that are strategic to the organization relating them to the vision and mission and communicating them to the supplier through the contract and ensuring that this objective is met during contract performance.

Reviews: Regular supplier reviews are good practices, for it gives the buyer opportunity to give feedback on performance.

Continuous Improvement: Contracts and suppliers can be monitored through how they are chang-ing for better incrementally as they are fulfilling the schedule. There must be a set down system to timely improve on the process, people and continuously reduce waste.

Training: It is essential that training, are provided to come up on areas supplier is lacking.

The reputation of all the organizations within a supply chain is linked. A Company’s reputation is an intangible asset that can contribute to the failure of an organization if damaged. Factors that could damage organizational reputation within the supply chain are;

1. Quality: if the product or service quality is poor the organization may not satisfy it customers and this can lead to a loss of reputation in the market. For example, a residential building construction company contracting a supplier that would do a bad job which in three months may require home owners to reinstall new doors.

2. Sustainability: if the organization is not replenishing that which it is extracting, it will some day run out of business or probably loss loyal customers. For example a drilling company that spills hydrocarbon as it drills.

3. Fit for purpose: if an organization produce a product or carry out services that are not fit for purpose, it may run at loss for there will be so much rejection and rework. This can lead to customers switching to another organization which product or services are fit for their purpose.

4. Contract management: an organization will have to manage its suppliers and the contracts to ensure they are delivering what they were contracted to do. A poor contract management is a waste in the process of delivery that can lead to reputational loss.

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Key performance indicator (KPI) is another method of monitoring how a supplier is delivering on a contract.

When creating KPIs to manage suppliers and their contracts the areas monitored should be related to the organization’s overall strategy that is where organization’s success will be measured.

Ones the need is understood, the procurement professional develops the specifications while working together with stakeholders and colleagues to ensure that the final design is fit for purposes that it meets the generated need.

Specification can be focus on performance or conformance.

Performance specification states what the product or service must do or how it should perform but leave the supplier the freedom to achieve this, however they wish.

Performance specification brings the following advantages; it allows supplier innovation, promote competition in the market place, shorter document, quick to prepare. The disadvantage of perfor-mance specification is that buyers may not know exactly what they will be getting.

Conformance specification gives clear instructions to the supplier about what is required and how it should be achieved. Examples of conformance specifications are chemical formulae, recipes and technical drawings. Conformance specification specifies which standards a requirement must meet or exceed. The advantage of using it is; buyers know exactly what they will get. It has the following disadvantages; the buyer bears the risk, it does not encourage supplier to innovate, take longer and complex documentation.

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The procurement cycle is the heart of purchasing, sourcing and supplying and should be followed in day-to-day practice in the industry. The procurement cycle has thirteen stages. Contract award is stage 9, and the stages after the contract award are;

Stage 10: ware house, logistic and receipt

Stage 11: Contract performance review and continuous improvement

Stage 12: SRM/SCM and contract management

Stage 13: Asset management, lessons learned, end of life.

When reviewing supplier’s response the procurement professional should consider the right quantity of product or service that has to be ordered at anytime as against the price to decide how to gain the best cost.

Factors to consider include the following

(1)Cost of inventory

(2) cost of insurance

(3) cost of transportation.

These three should be considered against price.

Note: Incoterms are versatile and procurement professionals should understand how they are ap-plied and what point the risk transfers from being the supplier’s responsibility to being the buyer’s responsibility. It is important to consult the ICC for the most recent definitions, but in the following questions (101-111) you can understand the rules.

Note: sharpen your knowledge on INCOTERMS. Please consider the following Objective Re-sponse questions