How to approach the question
Your answer should provide details on 3 of the following:
- Contract Award and Implementation
- Warehouse Logistics
- Contract performance and Improvement
- Supplier Relationship Management
- Asset Management
Because the question is only asking for 3 stages, you’re going to have to go much more into detail for each stage, giving lots of information about why each stage is important and examples. You could consider thinking of an example procurement you have done recently and explaining the stages for that. Or you could take a hypothetical procurement too. Either will get you the same marks. Pick the three that you can write the most about.
Essay Plan
Introduction – explain that sourcing of goods and the role of Procurement doesn’t end once a contract is signed. There is ongoing management and processes which must be carried out to ensure success.
Paragraph 1 – Contract Performance and Improvement
· This is about ensuring contract obligations are fulfilled. Contract administration includes P2P procedures, database management, budgeting / costs monitoring, reporting and dispute resolution
· Procurement’s role may be in managing contract performance through the use of SLAs and / or KPIs. This can be done via reporting, using a Supplier Scorecard and meeting regularly to discuss.
· It’s important KPIs are measured and that there are consequences for failing to meet them. An example of consequences could be using a Performance Improvement Plan.
· Contract Management also includes updating the contract where required – e.g. issuing variations to contract and updating the change control log
· Another important aspect of this is ensuring the costs remain within scope of the budget
· Contract performance can be compared if you have several suppliers delivering the same goods- could use a Factor Rating Method.
· Performance could be measured against several criteria such as on time deliveries, response time of supplier, number of complaints.
Paragraph 2 – Supplier Relationship Management
· There is a difference between managing the contract and managing the supplier relationship. It’s possible to have excellent contract performance and a terrible relationship. However, the two are generally linked- where there is a good relationship, the contract often performs well.
· The supplier management approach depends on where the relationship falls on the relationship spectrum (e.g. transactional or collaborative)
· This involves; maintaining regular contact with the supplier, motivating the supplier, working collaboratively with them (e.g. on performance issues or resolving any disputes)
· Incentivising the supplier leads to collaboration and mutual support
· To assess or rank suppliers you could use a vendor rating method or supplier evaluation forms
· Supplier relationship management may involve investing in the supplier- e.g. through training or technology sharing
Paragraph 3 – Asset Management
· Includes creating a post contract ‘lessons-learned’
· Assessments should be carried out to determine if business requirements have changed, whether the agreement is still required and fit for purpose, what can be learnt from the process and how improvements can be incorporated next time.
· This is the final stage of the Procurement Cycle and takes us back to the start of cycle, which begins again when the item needs to be reprocured
· Whole life costing should be considered at this stage: this is the total cost of ownership over the life of an asset. The concept is also known as life-cycle cost (LCC) or lifetime cost, and is commonly referred to as "cradle to grave" or "womb to tomb" costs.
· Generally used on large purchases such as machinery and vehicles. Full Asset Management may not necessary for direct cost items such as raw materials incorporated into final goods.
· Considerations may include; costs of running the asset, how long it will perform, insurance, maintenance, opportunity costs, disposing of the asset.
· Also consider environmental and social impacts of the procurement.
Conclusion – it is important that procurement are involved at every stage of the cycle, not just in the pre-award stages. Procurement can add value at every stage.
Tutor Notes
- Depending on the examples you choose to use, you could talk about how the type of item procured could impact on the different stages. For example, high risk purchases may require more contract management than low risk purchases, and capital expenditure items such as new machinery may require more attention to the Asset Management stage.
- You could also think about how procurement adds value at each of the stages.
- Study guide p. 79
