july 2015 webinar d2 slides

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  1. 1. CIPS On-line Tutoring Webinar July 2015
  2. 2. Agenda Introduction Overview of D2 Business Needs in P & S Study Tips and Exams Past D2 Exam Paper & Assessor Report Review of past exam questions Q&A
  3. 3. Business Needs in Procurement and Supply Diploma in Procurement and Supply Learning outcomes: 1. Understand how to devise a business case for requirements to be sourced from external suppliers 2. Understand the fundamentals of specifications and key performance indicators that are included in contractual arrangements made with suppliers 3. Understand the main clauses that are included in contracts 4. Understand the main implications of outsourced work or outsourced services for procurement
  4. 4. What are business needs? An organisation needs certain inputs in order to perform its activities and pursue its objectives The planners of business activities, and the users of inputs, typically notify the procurement function of these requirements, in various ways The task of procurement is to fulfil the input requirements, by achieving what are often called the five rights of procurement Operational objectives of procurement are to provide right inputs to meet operational needs on an organisation But may also have strategic and commercial objectives - profit, competitive advantage, cost leadership, differentiation, learning
  5. 5. Type of purchase (1.1) page 7 Straight re-buy of items already sourced from a supplier Modified re-buy, where some of the requirement has changed New buy, where the requirement has not previously been specified or sourced Has implications for the extent to which systematic business case justification is required. Must understand how business needs may influence procurement decisions for each of these types of purchase
  6. 6. The business case process objectives of a formal business case process (1.1) Fostering strategic, business-focused thinking Improving the efficiency and quality of decision-making Enabling management to evaluate proposals for feasibility, suitability and acceptability Enabling management to compare alternatives and options Establishing measurable yardsticks by which the subsequent performance, deliverables or outcomes of projects can be evaluated Is the project or asset achieving the business case benefits anticipated? Are the assumptions made in the business case turning out to be accurate? Is the business case justification for the project still valid?
  7. 7. Informal business case structure (low value & low risk) Introduction/ background Overview of the business need Priority of the need or issue (eg using Kraljic analysis) The current situation Options Options considered (if any), with reasons for rejecting or carrying forward each option Business benefits Expected outcomes of the proposed solution, and their associated business benefits Alignment of the proposed solution with business objectives, strategies, policies and values Costs and risks Estimated costs of the proposed solution Anticipated risks of the proposed solution Anticipated impacts on activities and relationships Anticipated risks and costs of not pursuing the proposed solution (or doing nothing) Recommendation Net (on-balance) cost/benefit assessment Return on investment or payback period (if data is available) KPIs (if data is available) Target costs and results which will be used to evaluate performance
  8. 8. Business benefits that can be included in business case (1.3) Fulfilment of a specific business objective Increased revenues Reduced costs Enhanced profitability Enhanced value for money Enhanced shareholder value Competitive advantage Leverage of key resources Increased capacity, capability or flexibility Improved brand or reputational equity
  9. 9. BUSINESS OBJECTIVES PURCHASING OBJECTIVES Maintain or increase market share Provide supplies to match customer needs; assure quality; reduce delivery lead time; reduce cost Improve profits, cashflow, and return on capital Reduce stocks; improve reliability; more frequent deliveries Shorten time to market Early supplier involvement Eliminate non-core activities Develop effective make-or-buy policy; integrate purchasing and capacity planning Introduce continuous improvement Reduce supplier base; partnership approaches; reduce product complexity; increase accuracy and reliability Become world class supplier Work with suppliers to establish world class standards; improve flexibility of response to market conditions; liaison with technological sources Links between corporate and purchasing objectives (1.3)
  10. 10. Communication with suppliers The buyers database of market data The marketing communications of suppliers Online market exchanges, auction sites and forums Advisory and information services Trade fairs, exhibitions and conferences Informal networking and information exchange Primary sources of market data on costs and prices (1.2)
  11. 11. Components of the cost base Raw materials (and/or components, subassemblies and consumables) Labour Overheads
  12. 12. Benefits and limitations of WLC Benefits Enabling the fair (like-with-like) comparison of competing options Enabling realistic budgeting over the life of the asset Highlighting, at an early stage, risks associated with the purchase Promoting cross-functional communication on cost and asset management issues, and improving awareness of total costs Supporting the optimisation of value for money Limitations It is not an exact science, and future cost estimates are subjective Many costs are incurred through the life of a product or asset, and not all of these will be easy to forecast A wide range of intervening factors may affect costs over the lifecycle of a product or asset A systematic WLC exercise can be time-consuming, labour-intensive and costly
  13. 13. Objectives of preparing a budget (1.4) To express organisational objectives as operational targets To communicate plans and targets to stakeholders To motivate people to attain performance and cost targets To motivate managers to identify risks and problems To measure unit or project performance To help evaluate managerial performance To pre-authorise estimated levels of expenditure for procurement activities To co-ordinate operations To control procurement activities and costs
  14. 14. The role of a specification (2.1) To define the requirement To communicate the requirement To provide a means of evaluating the quality or conformance of the goods or services supplied
  15. 15. Types of specification (2.1) Conformance specification The buyer details exactly what the required product, part or material must consist of. This may take the form of an engineering drawing or blueprint, a chemical formula or recipe of ingredients, or a sample of the product to be duplicated, for example. The supplier may not know in detail, or even at all, what function the product will play in the buyers operations. The suppliers task is simply to conform to the description provided by the buyer. Performance specification The buyer describes: what it expects a part or material to be able to achieve, in terms of the functions it will perform and the level of performance it should reach; or what outputs or outcomes (results) it expects to be delivered by a service. It is up to the supplier to furnish a product or service which will satisfy these requirements: the buyer specifies the ends, and the supplier has relative flexibility as to means of achieving those ends.
  16. 16. Developing specifications - Content (2.2) ITEM CONTENT Identification Title, reference number, authority, designation, issue number and date Circulation Distribution list of the specification Contents List of parts, clauses, illustrations and annexes Foreword Reasons for writing the specification Introduction Summary of the business need and technical aspects of objectives Scope Range of objectives and content Definitions Terms used with special meanings in the text Main body of the specification Requirements, guidance and methods Annexes Additional detailed technical information and examples Index Alphabetical index Bibliography Details of internal and external standards and publications referred to in the specification
  17. 17. Drafting specifications Features of an effective specification: Clear and unambiguous as to what is required Concise Comprehensive Compliant with all relevant standards, and health, safety and environmental laws and regulations Up-to-date Expressed in terms which can be understood by all key stakeholders Value-analysed
  18. 18. Environmental criteria in specification might include (2.2): Location in relation to the buyer and lower tiers of supply The use of less, and greener, materials and packaging Green design and innovation capability; reverse logistics and recycling capability; and so on The development and enforcement of strong environmental policies Robust environmental management systems Compliance with environmental protection and emissions law and regulation in the country of operation
  19. 19. The development of robust CSR policies and ethical codes Location in relation to the buyer Evidence of responsible and ethical labour policies and practices Evidence of, and commitment to, conformance to relevant legislation and regulations Compliance with International Labour Organisation standards Evidence of ethical trading policies and practices Compliance with Fair Trade standards, or membership of the Ethical Trading Initiative Commitment to transparency and improvement, in collaboration with the buyer CSR and social sustainability criteriafor specification may include (2.2)
  20. 20. Defining KPI - What is performance measurement? Supplier performance measurement is the assessme