1. Categories of Procurement

What are Goods?

Goods are tangible or material items that can be consumed.

What is indirect procurement?

Indirect procurement refers to the purchase of any other items. Indirect procurement refers to the procurement of inputs and consumables for the support activities.

What are KPIs?

KPIs stand for Key Performance Indicators. These can be drawn up to suit the needs of a particular service contract. KPIs are agreed, specific measures of the performance of a unit or organisation, against which progress and performance can be evaluated. Where possible, KPIs will often be quantitative (numerical/statistical). Some targets, however, will be more qualitative (subjective and pertaining to qualities or attributes that cannot really be identified).

What is leasing?

Leasing is a contract between a leasing company and the customer under which the leasing company buys and owns the asset. The lessee hires it, paying regular instalments over a predetermined period in order to use the asset.

What two main features distinguish capital goods from other items procured by an organisation?

Length of Lifecycle - a capital item is one which the procuring organisation will use for a long time High Acquisition Cost - a capital item is a large-value asset

What are MRO supplies?

MRO stands for maintenance, repair and operating and these are all goods and services (other than capital equipment) necessary to transform raw materials and components into end products. The real value of MRO items may not be fully reflected in their purchase price. Their absence, or defective quality, may cause costly disruption to production.

What is stock to order?

Stock to order is a non-stock procurement policy whereby the organisation only procures materials as required to fulfill orders received from customers.

What is supply?

Supply is the process of providing something or making something available, often in response to buyer or customers requirements. It involves the transfer of goods, services and information from the supplier to the customer.

Name four examples of capital goods?

- Buildings - Manufacturing Plant - Computer Hardware - Vehicles

In relation to MRO supplies, how should a systematic approach to inventory management be considered?

- Each item of MRO supplies must be accurately described and a comprehensive catalogue developed - Opportunities for rationalisation should be investigated - Stock movements must be recorded accurately on a computerised system - Slow moving stock should be monitored with particular care

What does the procurement function do?

- Supply market monitoring and identifying potential sources of supply - Supplier evaluation and selection - Processing procurement or stock replenishment requests - Providing input to the preparation of specifications for new purchases - Negotiating, buying and developing contracts - Expediting or contract management - Clerical and administrative tasks

How does the procurement of capital goods differ to the procurement of other goods?

- The basic purchase or leasing price is only one element and sometimes not the most important element in the total costs of owning a capital asset - The monetary value of the asset is high - Negotiations are usually more extended and complex compared to other procurements - The procurement of a capital item tends to be non-recurring - Specifications for capital equipment are usually more difficult to draft because of the technical complexity of the item; and the service elements which are usually included -The benefits to be obtained from the procurement are often difficult to evaluate

What two factors does the Kraljic matrix aim to show?

- The importance to the organisation of the item being purchased - The complexity of the supply market At a strategic level, the Kraljic matrix is used to examine an organisation's procurement portfolio and its exposure to risk from supply disruption.

What are the four ways to minimize the costs of stockholding?

- The use of economic order quantities - Improving the process of demand forecasting - The use of vendor managed inventory - The use of management information systems to support inventory management

What is stock to forecast?

A stock to forecast policy is based on forecasting or estimating demand for finished products (for sale to customers) and for supplies (for operations), and planning inventory quantities and timing on this basis.

What is stocking for inventory?

A stocking for inventory policy is where items are procured and placed into storage in advance of future need or demand.

What are Constructional Works?

Constructional Works include projects such as construction, alteration, repair, maintenance or demolition of buildings or structures.

What is direct procurement?

Direct procurement refers to a range of situations when the items procured are either for resale or for incorporation in goods for sale. Direct procurement refers to the procurement of inputs and consumables for the primary revenue-earning activities of the enterprise.

What is outsourcing?

Outsourcing may be defined as the process whereby an organisation delegates non-core tasks, under contract, to external service providers on a long-term basis. One of the main reasons for outsourcing is that it is often cheaper to procure the services from external providers than to perform them in-house.

What is Porter's Value Chain?

Porter's Value Chain distinguishes between the primary activities of an organisation and the secondary support activities.

What are primary commodities?

Primary commodities are items that occur in nature and provide raw materials for businesses to incorporate in their products. Considerations include an unequal geographical distribution and can be subject to significant and unexpected fluctuations in price.

How is procurement different to purchasing?

Procurement embraces a broader process than purchasing and reflects the more proactive, relational, strategic and integrated role of the function.

What is procurement?

Procurement is the process if obtaining goods and services in any way, including purchasing, hiring, leasing and borrowing.

What are the five rights?

Right Quality Right Quantity Right Place Right Time Right Price

What is segmentation?

Segmentation is an approach to analysing expenditure with external suppliers by categorising the procurement portfolio or suppliers according to their priority, value or importance.

What are Services?

Services are actions individuals or organisations perform which confer a benefit, but do not result in the 'ownership' of anything.

What a perishable goods?

These are goods that are subject to deterioration over time. Once they have deteriorated, they are no longer fit for their intended purpose.

What are non-stock procurements?

These dominate sectors such as construction, where most of the organisation's outputs consist of products made in direct response to customer orders. Non-stock procurement is also a feature of just in time (JIT) manufacturing and supply environments.