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Managing purchasing and
supply relationships
Session 1Definition and classification of
purchasing and supply relationships
Relationship and process
stakeholders
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Learning objectivesAt the end of this session candidates will beable to:
define key terms used throughout this coursebook explain the different types of relationship within
the relationship spectrum define and differentiate between a ran e of
relationships between buyers and sellers diagrammatically explain the supply positioning
model in a supplier relationship context identify stakeholders in the process of
purchasing
identify typical requirements of externalcustomer stakeholders and internal customerstakeholders other than technical specialists
identify typical requirements of technicalspecialist stakeholders, internal supplier
stakeholders and external supplierstakeholders.
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Key definitions
In small groups define what you
think is meant by the following:
commercial
supplier approved list of suppliers
relationship
purchasing and supply relationship.
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Relationship spectrum ofbuyers and sellers(Diagram from course book by Mike Fogg)
RELATIONSHIP SPECTRUM
Distant Closer
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Relationship spectrum ofbuyers and sellers
(Diagram from course book by Mike Fogg)
RELATIONSHIP SPECTRUM
adversarial
arms
Len
gth
tran
sactio
nal
str
ate
gic
alliance
sin
gle
sourc
ed
outs
ourcin
g
co
-destiny
distant relationships closer relationships
clos
ertactic
al
partnership
adversarial
arms
Len
gth
tran
sactio
nal
str
ate
gic
alliance
sin
gle
sourc
ed
outs
ourcin
g
co
-destiny
distant relationships closer relationships
clos
ertactic
al
partnership
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Supply positioning analysis(Diagram from course book by Mike Fogg)
Supply
Positioning
A tool to identify strategies and tactics for goods and services purchased, including consideration of:,
Risk identification
and management
Relationship
opportunities
Stakeholder
management
People allocation
and skills
Make, buy,
outsource
Inventory
Management
Purchasing
processes and
measurement
e Purchasing
Time AllocationControlling price
and cost
Contracting
strategies
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Using the supply positioningmodel(Diagram from course book by Mike Fogg)
xposure
x
Risk,
vulnerability,
Relative cost to the organisation
x
x
x
x
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Supply positioning model(Diagram from course book by Mike Fogg)
Strategic
Security
Strategic
Critical
HIGH
y,exposure
Tactical
Acquisition
Tactical
profit
LOW HIGHRelative cost
Ris
k,vulnerabilit
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Stakeholders
Individuals or groups who have anongoing interest or influence on the
process o purc as ng
Includes customers and suppliers.
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Quality
Research and
Development
The Purchasing
team
Inventory
Management
Finance
Human
Resources
Customers
Suppliers
The purchasing process and its stakeholders(Manufacturing environment)
(Diagram from course book by Mike Fogg)
Production
Maintenance
Warehousing
And
Distribution
Sales andMarketing
Information
Technology
NB : The hierarchical sequence of the business functions in this chart is not meant to give prominence to one
function over another. It is simply a convenient way of grouping stakeholders together in this environment
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Cabinet and
led member
procurement
champion .
(Scrutiny ofexpenditure )
Elected
Councillors
Council tax
payers and
voters
Regional
centre of
excellence
Special
Users of services
to the community ,
e.g.,
o
Children andparents
o Householders
o Senior
citizens
o Library users
o Motorists
o Sports and
Office of
Government
Commerce
The purchasing process and its stakeholders:a County Council in the UK
External
suppliers
Local
government
officers, e.g.,
IT, finance,
internal audit
Local Strategic
Partnership ,
e.g.,
o Health
o Police
o Business
Interests
o Voluntary
sector
Other Local
Central
Government
e.g., (Office of
deputy Prime
Minister)
n eres groups
leisure users
Local
businesses
The Chamberof Commerce
:The hierarchical sequence of the business functions in this chart is not meant to give prominence to one functionover it is simply a convenient way of grouping stakeholders together in this environment
.
Diagram from course book by Mike Fogg, with thanks to Fiona Holbourn of Leicestershire County Council and Ken May of ESPO
Regional
Development
agencies
External Audit
Other Local
Authorities
Consortia
Purchasing
team
Trade Unions
InternalSuppliers
Partnerships ,
e.g.,o Waste
o Children
and young
persons
EuropeanUnion
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External customer stakeholders External customers who purchase goods
and services from your (the buyers)
organisation
In small groups, consider what might be the
example, on-time delivery)
Give two examples of how these
requirements might impact upon thepurchasing process.
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Internal customer stakeholders(not technical specialists)
The people in your organisation whoactually use the goods and services whichyou (the buyer) purchase
The people in your organisation who shouldbe consulted about all proposals that mightaffect them
Typically includes end users, businessmanagers, functional groups, anddepartments such as finance or logistics.
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Technical specialists
Who are the technical specialists inyour organisation?
have specific needs for purchases
How do they communicate their
purchasing needs, or get involvedwith purchasing, in yourorganisation?
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Internal supplier stakeholders
Provide some element(s) of the goods andservices supplied to your (the buyers)organisations customers
May be separated by distance and timefrom the main site or location
Relationships need to be managed to beeffective choice, payment models, andso on.
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External supplier stakeholders
Suppliers to your (the buyers)
organisation
Need to know what is expected of them interms of the relationship, the
spec cat ons or goo s an serv cessupplied, the contractual terms andconditions, and so on
These relationships develop over time.
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Managing purchasing and
supply relationships
Session 2
Relationship challenges and riskmanagement
Managing strategic relationships
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Learning objectives
At the end of this session candidates will be able to:
evaluate the risks run by buyers and sellers in tacticalrelationships
evaluate the differing views that suppliers have of theircustomers and the customer's ability to change that view
show diagrammatically the dynamics of differing legitimateobjectives of buyers and sellers
compare challenges faced by organisations in differentbusiness environments and how they impact tactical
formulate strategies and tactics for improving given tacticalsituations which are disadvantageous to the buyer'sorganisation
formulate a basic risk management process identify where strategic involvement of suppliers is
appropriate for purchasing organisations.
describe typical interaction between the purchasingorganisation and the selling organisation when a strategicapproach is used
define and evaluate the importance of transparentcommunication in supply relationships
assess the role of people and communication in supplyrelationships.
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Relationship spectrum 2
(Diagram from course book by Mike Fogg)
low
none
none
to get a good deal
instant
may not do, or will do on own
high
lots
lots
to maintain & develop relationship
eternity
done together
quality of information exchange
trust
openness
commitment
duration
risk assessment
dvers
arial
arm
sl
ength
transac
tional
str
ate
gic
allia
nce
sin
gles
ourc
ed
outso
urcin
g
co-
desti
ny
distant relationships closer relationships
o on own ave n egra e process or
clo
ser
tacti
cal
part
nership
RELATIONSHIP SPECTRUM
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Relationship spectrum 3(Diagram from course book by Mike Fogg)
Strategic criticalTactical Acquisition Strategic SecurityTactical profit
adversarial co-destiny relationship spectrum
adversarial
co-destiny
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Tactical relationships
Adversarial Arms length
Transactional
Single sourced
What examples of each can you givefrom your experience?
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Tactical relationships(Diagram from course book by Mike Fogg)
Strategic criticalTactical Acquisition Strategic SecurityTactical profit
adversarial co-destiny relationship spectrum
adversarial
arms length
transactional
ct
single sourced
ct ct
co-destiny
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Supplier preferencing model(Paul Steele and Brian Court,
Profitable Purchasing Strategies,
McGraw Hill)
Development Core
HIGH
fcustome
r
Nuisance Exploitable
LOW HIGHRelative value of the account
A
ttractiveness
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Marketing management matrix(Paul Steele and Brian Court, Profitable Purchasing Strategies, McGraw Hill)
N uisance Explo itable
D evelopm ent C ore
N uisance Explo itable
D evelopm ent C ore
Strategic S trategic
N uisance Explo itable
D evelopm ent C ore
N uisance Explo itable
D evelopm ent C ore
TacticalAcquisit ion
Tact icalProfit
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Tactical relationships(Diagram from course book by Mike Fogg)
TacticalAcquisition
TacticalProfit
StrategicSecurity
StrategicCritical
Nuisance Exploitable
Development Core
Nuisance Exploitable
Development Core
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Strategic relationships
Outsourcing
Strategic alliance
Partnership
Co-destiny
What examples of each are you
aware of in your own organisation?
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Relationship spectrum(Diagram from course book by Mike Fogg)
Adversarial Co-destiny Relationship Spectrum
Adversarial
Arms length
Transactional
CT
Single Sourced
CT CT
Strategic criticalT actical Acquisition Strategic SecurityTac tical profit
Strategic Alliance as supp liers facing a Purchas ing Organ isation
Strategic Alliance Purchasing Organ isation participates
Co-destiny
Partnership
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Strategic relationships(Diagram from course book by Mike Fogg)
N uisance E xp lo itab le
D evelopm ent C ore
N u isance E xp lo itab le
D eve lopm ent C ore
Tact ica lAcquisi t ion Tact ica lProf i t
StrategicSecur i ty
StrategicCri t ical
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Risk management(Diagram from course book by Mike Fogg)
identifypotenti
al
risks
determine
individual
likelihoo
dand
asses
soveral
lrisk
investigate risk
reductio
n
plancontrolreduce
risk
impact
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Risk assessment(Table adapted from course book by Mike Fogg)
Risk description Likelihood Impact Calc
Risk 1 example, late delivery 3 3 9
Risk 2 2 5 10
Risk3 2 5 10
Risk4 1 3 3
Risk5 2 4 8
Total40
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Selecting strategic suppliers
Knowledge of people, processes and
performance
Capability to meet requirements
Compatibility
Comparison with competitors
Relationships tend to evolve over time.
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Managing purchasing andsupply relationships
Session 3
E- urchasin and its im acts on
relationships
The relationship life cycle
Managing conflict in relationships
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Learning objectives
At the end of this session candidates will be able to: define what is meant by e-purchasing, and identify key e-
purchasing tools link the e-purchasing tools to relationships described in the
relationship spectrum and the benefits of the relationships
sought explain how e-purchasing tools can be used to tackle supplysituations unfavourable to the purchasing organisation
analyse the consequences of using e-purchasing toolsinappropriate to the relationship sought by the purchasing
argue the costs and benefits of e-purchasing from a supplierspoint of view define a relationship life cycle appraise the position of their organisation in any given
relationship life cycle demonstrate the positive and negative role of conflict within a
relationship assess alternative appropriate courses of action in resolving
conflict within relationships distinguish between different reasons for termination of
relationships judge whether termination or retrieval is appropriate, and
plan appropriately.
E purchasing
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E-purchasing(Helen Alder)
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E-purchasing
What are the benefits of e-purchasing from
a sellers point of view?
What opportunities are there to reduce
costs?
What disadvantages can you think of?
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E-purchasing tools
What e-purchasing tools or
ca abilities are ou aware of
in your organisation?
Examples:
EDI (Electronic Data Interchange)
electronic catalogues,
EFT (Electronic Funds Transfer)
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Use of e-purchasing tools inunfavourable situations
Cartel
Monopoly
as a nuisance!
What other examples are you aware of?
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The relationship life cycle
Initiation both parties identify eachothers needs and aspirations.
requirement.
Delivery goods and services deliveredfor as long as required.
S t i th i t h i it i t i tThe relationship life cycle
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S t e p s w i th i n t h e i n it ia t io n s e g m e n t a r e :
1 S e l le r d e v e lo p s o f fe r in g
2 S e l le r th e re to b e fo u n d
3 B u y e r h a s n e e d
4 S e l le r c re a te s n e e d
5 B u y e r s p e c if ie s
6 C o n d it io n in g b y s e lle r
7 S e l le r s e l ls
8 B u y e r s e a rc h e s
9 C o n d it io n in g b y b u y e r
1 0 S e r io u s d is c u s s io n
S t e p s w i th i n th e D e l iv e r y s e g m e n t a r e :
2 5 F in a l te rm in a t io n
2 4 L a te n t te rm in a tio n
2 3 C o m p le tio n
2 2 E x te n s io n
2 1 B us in e s s d e v e lo p m en t
2 0 C o n tin u o u s im p ro v e m e n t
1 9 O ng o in g d e liv e ry
1 8 R e f in in g
1 7 In it ia l d e liv e ry
I n i t i a t i onD e l i v e r y
21
2 1
6
7
8
4
5
32 3 24
20
22
2 5
The relationship life cycle
S t e p s w i th i n th e a g r e e m e n t s e g m e n t a re :
1 1 B u y e r e n q u ir y
1 2 S e l le r q u o ta tio n
1 3 N e g o tia t io n
1 4 H ea d lin e a g re e m en t
1 5 D eta i l a g re e m en t
1 6 Im p le m en ta t io n
A g r e e m e n t
9
1 2
1 1
1 9
1 710
18
13
15
1 4
16
(Diagram from course book
by Mike Fogg)
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Conflict in relationships
There are many occasions when conflictmight arise, particularly where there is lackof clarity about the nature of the relationshipor any agreements entered into
Resolution should take a problem-solvingapproach, where both parties seek the factsand identify options which mean that the
situation can be resolved within theboundaries of the relationship.
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Terminating a relationship
Often a serious event, unless perhaps thecontract is already at or near the end of its
useful life
Termination ma be due to man factors,
such as a breakdown in the relationship,supplier unable to meet demand, orchanges in the buyers needs
What experiences have you of termination ofrelationships: and what were theconsequences?
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Managing purchasing and
supply relationships
Session 4
Corporate social responsibility
Lean and agile relationships
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Learning objectives
At the end of this session candidates willbe able to:
identify the component parts of corporatesocial responsibility
argue the cases for and against corporate
identify how corporate social responsibilityimpacts on purchasing and supplyrelationships
distinguish traditional manufacturing supplyphilosophies from both lean and agilesupply philosophies
assess the lean supply philosophy assess the agile supply philosophy.
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Corporate Social Responsibility(CSR)
A widely-accepted concept, embodying acollection of related issues which combineto describe an organisations overall ethos,ersonalit hiloso h and character
Included are environmental responsibility,diversity and supplier diversity, ethics andethical trading, and impacts of business andcommerce on wider society
What examples have you within yourorganisation, or ones that you know well, ofthe impact of CSR on the purchasing andsupplier relationship?
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Drivers to improve CSR within apurchasing and supply relationship are
Corporate Social Responsibility(CSR)
varied, and include:
customers and other stakeholders
political parties
public opinion and the media
employees and their trades unions.
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Lean thinking
Specify customers perception of value Identify steps across the value chain
Act to create smooth flow and eliminate
Make for the customer when they want it Generate a culture of continuous
improvement.
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Agile supply
..using market knowledge and a
profitable opportunities in the marketplace
CIPS Position on Practice
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Agile Supply
Driver is shortening product life cycles andchanging customer needs
Includes late customisation andpostponement
Stock held at appropriate levels in bill ofmaterials
Utilises collaborative working and extensivesupplier networks with strong relationships.
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Lean and agile in manufacturing
Traditional focuses on economies of scaleto maximise output and control costs; just-in-case (JIC) not just-in-time (JIT)
Lean oods roduced when the customer
wants them, to the standard demanded,with a focus on customer value and theelimination of waste.
Agile semi-finished goods tailored and
customised to each individual customersrequirements, with a focus on customerschanging needs.
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Waste in the supply chain
Over production
Waiting times
Inappropriate processing Stock (WIP, buffer stock)
Unnecessary movements of stock andgoods
Defective products
Unsafe practices.
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Managing purchasing andsupply relationships
ess on
Supplier appraisal
Evaluating the effectiveness ofsupplier appraisal
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Learning objectivesAt the end of this session candidates willbe able to:
define and distinguish between termscommonly used in different supplierassessments
x l in h iv f li r r i l design a supplier appraisal process explain the impact of internal suppliers on
the supplier selection and appraisalprocess
analyse the deliverables of supplier
appraisal for the purchasing organisation consider a supplier's view of supplier
appraisal assess the impact of supplier appraisal
upon relationship development.
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Supplier appraisal
Assess the benefits of working together
Cost of meeting requirements
Consider development of relationship.
Assessing Suppliers
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(Diagram from course book by Mike Fogg)
Assessingsuppliers
Pre contract award
SupplierAppraisal
Post contract award
VendorRating
Pre contract award
SupplierDevelopment
a pre-commitment
assessment of apotential suppliers
capability ofcontrolling quality,
delivery, cost and allother factors
forming part of abuyers requirement
is an objective
assessment, oftenexpressed as an index,of a suppliers
performance in meeting
standards agreed withthe buyer in the supply
of goods, works
materials or servicesduring the lifetime of a
contract
The provision of finance,
technology or otherforms of assistance bythe buyer to a supplier
to enable the supplier to
offer a product orservice which meets the
buyers needs, or to
interface with the buyingorganisation in a
mutually appropriate
way (Compton andJessop CIPS
dictionary of terms andconditions)
A supplier appraisal process
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6 Weight subareas / setscoring
mechanism
A supplier appraisal process
1 - Planningthe process
2 - SupplyMarket
research andtargeting
SupplyPositioning
SupplierPreferencing 7 The
Questionnaire
Ten planningissues
Start
Seven Steps
(Diagram from course book
by Mike Fogg)
3 Determineevaluation
areas 8 Plan on - siteappraisal
5 Identify subareas
4 Determinethe
importance ofeach area
10 Review ,decide ,
feedback ,next steps
9 An on - siteappraisal
End
Conducting supplier appraisal
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Conducting supplier appraisal
Suppliers expectations include:
clear objectives set for the appraisal
time to prepare for the visit opportunity to gather information on
purchasing organisations
involvement in the process of appraisal
risk to own business of initiating therelationship
feedback in how well they did!
Suppliers understand that if they want businessthey need to show that they are capable of meetingthe requirements at the right price.
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Evaluating supplier performance
Price Quality
Delivery
ustomer sat s act on
Performance management systems can becomplex; and should include alerts whenKPIs are not met.
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Managing purchasing and
supply relationships
ess on
Process constraints applicable topublic sector purchasing
Reciprocal trading
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Learning objectives
At the end of this session candidates willbe able to:
contrast the process constraints in thepublic sector with those in the private
summarise the purchasing routes availableto public sector organisations
argue the case for and against the currentlegislation
define what is meant by reciprocal trading state which purchasing processes are
impacted by reciprocal trading propose a policy for reciprocal trading.
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Public and private sector
Public
Includes governmentdepartments and localauthorities
Private
Includes plcs, partnerships,sole traders and charities
Not legally bound by EU
Legally bound by EU
procurement rules to considerall EU suppliers equally
Money comes from fundsraised by government fromcorporate and individual taxpayers.
,
include or exclude suppliersat will
Accountable to organisationfor spending monies raisedfrom financial stakeholders.
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EU procurement directives
When triggered by exceeding spend
thresholds, all EU public bodies must:
notify the European supply market of therequ rements an opportun t es or
business, and give reasonable time forresponses (OJEU)
outline selection criteria clearly (MEAT)
show that they treat all suppliers equally
use mandated processes comply with processes, or risk severe legal
penalties.
EU procurement
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(Diagram from course book by Mike Fogg)
Open
procedure
Restricted
procedure
Negotiated
procedure
Competitive
Dialogue
EU Procurement Procedures
Framework
agreements
Central
purchasing bodies
Electronic
auctions
purchasingsystems
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Reciprocal trading
Reciprocal trading, or counter trading, is an
agreement that makes being a customer ofan organisation a condition of becoming asupplier to that organisation. CIPS view isthat this is enerall not an acce tablebusiness practice.
CIPS Position on Practice
Have you had any experience of reciprocaltrading agreements?
In what situations might they be acceptable?
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Managing purchasing andsupply relationships
Session 7
The risk and cost of changing supplier
The process of outsourcing
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Learning objectiveAt the end of this session candidates will be able to:
identify the possible risks in a change of supplier demonstrate what is meant by the cost of change formulate strategies for reducing exposure to risk
when changing supplier,
and sub-contracting determine why organisations are outsourcing and
the benefits they seek determine what organisations typically outsource explain a process for outsourcing, taking into
account the needs of the purchasing
organisation's business explain how recent UK legislation and case law
impacts upon the process of outsourcing state reasons why some organisations are
insourcing.
Risks of changing supplier
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Risks of changing supplier
Out of the frying pan into the fire the newsupplier is not able to meet targets for
price, quality, delivery and so on.
Having to return to the original supplier and.
Losing the benefits of a long-termrelationship.
Risks are usually greater with astrategic/critical supplier than with atactical one.
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Costs of changing supplier
Time and resources to select new supplier
Phasing in and phasing out
Transaction and administration
Relationship development
Learning curve.
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Preventing exposure to risk
Check contract terms and conditions ofoutgoing supplier so there are no surprises
there is nothing that you need to know if thetermination was acrimonious
Deflect some of the risk to the supplier byinserting a clause in the contract to coverthe transition period
Ensure there are contingency plansto cover changing suppliers.
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Drivers for outsourcing(Beulan et al)
Quality increased quality demands,
shortage of trained staff and transition.
Cost to assist in controlling and reducingcosts.
Finance to avoid diverting funds fromcore business.
Getting rid of non-core activities, to alloworganisations to concentrate on their corebusiness.
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Outsourcing: definitions
Service contract legally binding contractexists between purchaser and supplier.
Subcontracting - delegating part of yourresponsibilities under a contract to anotherperson or business. Many contracts restrictthe ability of the parties to do this.
Outsourcing - placing non-core (and core?)business activities with external specialists.
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Outsourcing: aspects
Requires a legally-binding contract, as the
purchasing organisation is still responsiblefor the service provided to its customers.
employees, not our employees. The supplier gets paid, not our employees.
Contracts are usually long-term.
The supplier is given a level of control andautonomy over delivery of the service.
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The processes of outsourcing
Strategic analysis of current position and
identification of core and non-core activities.
Identification of target areas for outsourcing.
Clear and unambiguous specifications set.
Selection of supplier.
Implementation and review.
Development of relationship.
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Outsourcing: EU directives
The EU Acquired Rights Directive 2001
enacted in the UK by the TUPERegulations (Transfer of UndertakingsProtection of Employment)
In situations of outsourcing whenemployees move from one organisation toanother, TUPE regulations broadly statethat employees must retain the same termsand conditions of employment.
In an outsourcing situation both partiesmust be clear what and who is beingtransferred, and what/who isnt.
Insourcing
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Insourcing
If the expected benefits of outsourcing donot materialise, companies may terminatethe contract with the supplier and revert topaying their employees to supply theservice.
y
renegotiate the contract with the supplierrather than take the business back in-house.
What experience have you of insourcing?Why was the original decision made tooutsource?
What went wrong?
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Managing purchasing andsupply relationships
Session 8
Managing and maintaining anoutsourced relationship
The impact of organisational culture onrelationships
Learning objectives
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At the end of this session candidates will be able to: evaluate the differences in relationship between an internal
customer department and a service department to thatinternal customer before and after the service departmentis outsourced
contrast the objectives of the purchasing organisation andthe outsourced service provider over the life of the contract
calculate the typical areas of cost and benefit ofoutsourcin
formulate performance measures to ensure delivery of
promised benefits compare outsourcing relationships with other relationships
within the relationship spectrum
evaluate the change in relationships between the peopledelivering and receiving a service when that service isoutsourced
identify different cultures and their impact uponrelationships within the supply chain
appraise the different cultures and pick out circumstanceswhere cultures may complement and conflict with eachother.
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Outsourcing internal functions When a function that was once a part of the
organisation is outsourced, it becomes asupplier to the organisation.
The relationship and management of thatfunction inevitably then changes.
typ ca examp e: a sc oo outsourc ng ts
canteen)
The function (as a new supplier) will now beworking to a specification set out by thepurchasing organisation (their formeremployers)
How do you think that might affect the waythat you, as a buyer, would now work with
that function?
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Organisational culture
Deep-rooted and resistant
Difficult to change
Defines the way things are done round here
Defines who has the real power in theorgan sa on
Based on tradition, shared values and beliefs Includes rituals and routines, and sets norms
for behaviour
Maintained through power structures,
management controls and supervision, andmany less formal routes
Stories told in the organisation are indicatorsand perpetuators of organisational culture.
Examples of organisational
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culture
Paternalistic perhaps a traditional familyfirm
procedures
Aggressive tendency to fight, perhapscharacterised by lack of trust
Progressive forward thinking.
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Managing purchasing andsupply relationships
Session 9
Relationships in an International setting
Power, dependency and multi-tieredrelationships
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Learning objectivesAt the end of this session candidates will be able to:
evaluate the differences of maintaining relationships with
suppliers in different parts of the world assess the steps that may be taken to protect the position
of an organisation when buying or selling internationally
-
evaluate the benefits that multi-national suppliers bring tomulti-national customers
show diagrammatically how a supply base may be tiered to
provide advantage to the buyer
assess the benefits of supplier tiering
consider control mechanisms for delivering benefit from atiered supply base
analyse the circumstances when dependency is a criticalissue in supply relationships.
Potential cultural barriers
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Different:
spoken language
body language
timevalues
mannersetiquette
management styles
communication styles
financial rules
legislation
ethical standards.
Overcoming national/cultural
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barriers
Information technology is improving speedand quality of the flow of information and
universal IT skillsets.
co- operation and seek to facilitate it.
Many organisations now manage diverseworkforces.
Students are taught global management.
Protections when trading
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internationally
Appoint overseas agents.
Use letters of credit.
Use Incoterms (International Chamber ofTrade terms)
Establish an overseas base.
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Power of multinationals
Leverage.
Standardisation of goods and services and.
Strategic selling and pricing policies.
Determining development strategies.
Promoting corporate social responsibility.
Supplier tiering
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Car manufacturer
T1 T1 T1 T1 T1
T2T2 T2T2 T2 T2T2 T2 T2T2 T2 T2T2T2 T2 T2T2
T3T3 T3T3 T3T3
T4T4 T4
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Supplier tiering removes the need for a
bu er to work with ever sin le su lier to
Supplier tiering
the organisation.
What are the key benefits for:
the purchasing organisation?
the suppliers?
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Managing purchasing and
supply relationshipsSession 10
Supplier and relationship development
Measuring relationships and their
development
L i bj ti
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Learning objectivesAt the end of this session candidates will beable to:
define supplier and relationship development give examples of supplier development and
evaluate costs and benefits of development
opportunities to both buyers and suppliers evaluate why and when buyers would benefit
from measuring supplier performance and thestrength of relationships
assess how sellers see the relationship with
buyers give examples of measures used in supplier
performance measurement for both goods andservices
give examples of relationship measures.
Supplier relationship
t (SRM)
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management (SRM)
The process for managing the interactionbetween two entities, one of which issu l in oods works or services to theother. SRM is a two-way process in that
it should improve the performance of thebuying organisation as well as thesupplying organisation, and hence bemutually beneficial.
CIPS Glossary of Terms 2006
Supplier development(Taken from course book by Mike Fogg)
Form of supplier development Percentage of organisations practisingthis form
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this form
enhancing working relationships 72.1%
increasing performance goals 68.1%
requiring supplier capabilityimprovements
51.5%
providing support personnel 27.9%
conducting training programmes 25.3%
agreeing to contingent liability 17.6%
providing capital 10.3%
providing equipment 11.8%
providing progress payments 8.8%
From Purchasing and Supply Chain Managementby Monczka, Trent and Handfield. 1998. Reprinted with permission of South-Western, a division of Thomson Learning.
Supplier development
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Supplier development
You purchase training services from a
large training provider to help you todeliver the management developmentprogrammes in your organisation.
You feel it is time for both of you to get toknow each other better, as this shouldimpact positively on the quality of thetraining.
What are the potential opportunities andthe associated costs of developing thisrelationship?
Measuring satisfaction
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Measuring satisfaction
Benefits of measurement include:
both parties form an objective view of eachother
agreed targets of satisfaction mean that
standards can be maintained andimprovements identified measurements can be used to inform
constructive discussion
enables the relationship to continue as bothparties have a clear understanding of whatis expected.
Measuring supplier
relationship development
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relationship development
Willingness to interact and proactiveness in
seeking improvements.
improve performance.
Willingness and capability of devotingresources to relationship development.
Purchaser-supplier satisfaction(Reproduced from course book by Mike Fogg)
(0,10) (10,10)(5,10)
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isfaction
(0,10) (10,10)( , )
Quadrant A
Both parties
satisfied
Quadrant C
Purchaser dissatisfied
Supplier satisfied
Complete
Satisfaction
Purchasers satisfaction
Supplierssa(0,5)
(0,0) (5,0) (10,0)
(10,5)
Quadrant D
Both parties
dissatisfied
Quadrant B
Purchaser satisfied
Supplier dissatisfied
Total
dissatisfactionMarginal
SatisfactionComplete
Satisfaction
Marginal
Dissatisfact
ion