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Which of the following are examples of environmental and social criteria in supplier tender evaluation?
Compliance with labour standards
Carbon footprint measures
Compliance with technical specification
After-sales maintenance service levels
Comprehensive and Detailed Explanation (from CIPS L4M2 -- Sustainable Procurement Evaluation)
Environmental criteria: carbon emissions, waste, resource efficiency.
Social criteria: labour standards, equality, community impact.
Thus, 1 and 2 fit perfectly.
Items 3 and 4 are quality or service considerations, not sustainability metrics.
Relevant L4M2 references:
''Incorporating sustainability in tender evaluation''
''Triple bottom line and responsible sourcing''
Robert is a senior buyer at MMC Construction Ltd. His company is doing multiple development projects in the country, which increases procurement workload significantly. Meanwhile, most of the tasks are handled manually, which causes bottlenecks in the workflows. The procurement team is overwhelmed by the workload and complains from other departments. From previous experience, Robert knows that electronic system may help his procurement team. He writes a business case to submit to the senior management, in which he insists on the possible productivity improvement by adopting e-system in procurement. Is Robert's action reasonable?
Explanation
Composing a compelling business case requires the proposer to write in the language of the approvers. Generally, approvers are business executives or important shareholders whose major interest is the profitability of the firm. Business case proposer may embed the following contents:
- Return on investment: according to Investopedia, Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment's cost. A business case would seem more attractive if the proposal is expected to have high ROI.
- Time to market: Time-to-market (TTM) refers to the time from which a company initially con-ceives a product or service idea to the point when the actual product or service is accessible to buyers in the market (Afonso et al., 2008). The speed at which companies can introduce products into the market is critical for sustaining competitive advantage, and the reduction of product development cycle time has become a strategic objective for many technology-driven firms.
- Customer satisfaction: Keeping existing customer to stay in the business can affect greatly on the profit margin of a firm. A new proposal that finds the way to innovate while keeping the current customers satisfied may gain the interest of senior management.
- Improving productivity: Productivity is the measure of how efficient and effective a firm is. Im-proving the productivity means that with the same or lesser input, better output is generated. In-creasing productivity also improves the profitability of a company.
- Risk management: Any business activity contains inherent risks. For example, for a mining company to be truly responsible, it must keep all of its workers safe, healthy and motivated, meet the expectations of the local community and government for the region in which it is operating, ensure it impacts on the environment positively if at all, as well as achieve the financial objectives set by its investors for both the short and long term. Managing risks well improves the production throughput and maintains customer satisfaction.
In the scenario, Robert is trying to convince the senior management to adopt e-procurement system by insisting on potential productivity improvement. This is the right approach. A business plan should engage and please senior management and directors. An appealing business case tells them how important things to the business (such as productivity, return on investment, customer satisfaction or costs) are affected by the plan.
LO 1, AC 1.1
Buyers are more powerful than the supplier when they are purchasing from monopoly market. Is this statement true?
Explanation
A monopoly is a market with a single seller (called the monopolist) but with many buyers. In this market, the bargaining power of supplier is higher than of buyer since the supplier is the only seller.
- CIPS study guide page 88-92
- Bargaining Power of Suppliers - Factors that Give Suppliers Power (corporatefinanceinsti-tute.com)
- Monopoly - Understanding How Monopolies Impact Markets (corporatefinanceinstitute.com)
LO 2, AC 2.2
Azram, a procurement analyst, has been tasked with applying whole life asset management when purchasing laboratory equipment. Was this the correct course of action?
Comprehensive and Detailed Explanation (from CIPS L4M2 -- Whole Life Costing)
Whole life asset management (WLC) considers all costs associated with acquiring, operating, maintaining, and disposing of an asset.
This includes:
Purchase price
Operating and maintenance costs
Energy consumption, training, downtime, disposal
Therefore, Option B is correct --- WLC takes a complete, long-term view, not just purchase price.
Relevant L4M2 references:
''Whole life costing and total cost of ownership (TCO)''
''Using WLC in capital investment decisions''
