Course: Procurement Management

Internal Assignment Applicable for December 2023 Examination

1. XYZ Corporation is a medium-sized manufacturing company that specializes in producing

electronic components. Over the years, the company has experienced growth and expansion,
leading to an increased demand for various raw materials, components, and services. However,
the procurement processes within the organization have not evolved to accommodate these
changes. As a result, there have been instances of delays in sourcing materials, inconsistent
purchase practices, and potential cost inefficiencies. Evaluate the current purchase policy and
procedures at XYZ Corporation and recommend improvements to the purchase policy and
procedures that could lead to more streamlined and effective procurement processes. Also,
Identify and describe the various requisition types that XYZ Corporation might encounter in its
procurement operations by explaining the importance of categorizing requisition types and how it
can help in better procurement planning and execution. Lastly, propose a step-by-step process for
issuing an RFx for XYZ Corporation to ensure effective supplier selection and negotiation. (10
Marks)

Answer: Introduction

The procurement planning phase includes several key processes in the procurement lifecycle. From
identifying and defining a need to determining the most appropriate acquisition method that
addresses that need, the planning phase formulates the procurement approach and strategy. Key
activities include conducting research and analysis, documenting the results, evaluating alternatives,
and deciding on an approach.

Evaluating and Improving the Purchase Policy and Procedures:

To improve the purchasing processes at XYZ Corporation, it is necessary to evaluate and refine the
purchasing policy and procedures. Here are recommended improvements and steps to streamline
and enhance procurement operations:

Identify the need: The procurement process begins with identifying the needs and requirements of
the XYZ Corporation. Needs are identified in a variety of ways, ranging from a program implemented
on a major budget project, to a program looking for specific needs to fulfil its mission, to the need for
a state wide contract to address state wide needs. Till the identifying SPO. Once XYZ Corporation has
determined its needs, it must determine whether the need can be met with domestic capacity or
must be purchased.

Once XYZ Corporation determines that its needs must be met, it must work to prioritize them. XYZ
Corporation will need to review its priorities and select and schedule those purchases that most align
with those priorities and budgetary constraints. Additionally, XYZ Corporation should conduct a
comprehensive review of its purchasing needs to determine where consolidation or combination
purchasing may be feasible. This way, they can improve purchasing efficiency and potentially achieve
better pricing through economies of scale.
Create a procurement team: Once the purchasing XYZ Corporation has defined and prioritized the
requirement, it is important for the agency's procurement officer to identify a team of stakeholders
who will participate in the procurement. Stakeholders are people who have an interest in the
required good, service or creation. These individuals provide significant contributions to the effort
based on their subject matter expertise in elements of the project scope or deliverables. Working
with stakeholders, XYZ Corporation procurement officer will define and document the project scope
and functional requirements. During the solicitation and awards phase, the procurement team will
develop the solicitation and evaluate responses.

Develop Purchasing Strategy Plan: The procurement team should meet to develop the procurement
strategy. The procurement strategy meeting is an important step in the planning process as it gives
the team the opportunity to brainstorm and discuss market research once they gather. From this
discussion, the procurement team will make decisions that will drive the effective execution and
management of the procurement during the remainder of the procurement lifecycle.

Define the scope: The need for the purchase must be completely understood to properly define the
scope of the purchase. By defining the characteristics and functions of the desired item, service or
creation, XYZ Corporation begins to establish the scope of the purchase. Their procurement official
should work to identify the scope by consulting with identified stakeholders as well as reviewing the
State agency's historical purchases or use of the identified goods, services, or manufacturing.
Without a clear scope, XYZ Corporation will have to face difficulty to develope detailed functional
specifications for the requirement. Following contract award, the Agency Project Manager will be
responsible for managing the defined requirement within the defined scope, thereby preventing
increases in the scope or volume of the contract, or adding functions or features not originally
contemplated, or proposed

Requisition Types and Importance:

Procurement is the process of acquiring goods or services from an external source. It includes
everything from identifying a need and finding potential suppliers to negotiating contracts and
managing relationships with vendors. Categorizing requisition types is crucial for better procurement
planning and execution. Different requisition types have varying procurement needs, approval
processes, and lead times. Common requisition types include:

1. Direct purchase

Direct procurement is the receipt of goods, materials or services that a business can use to generate
profits through the production of a final product or through resale. Direct purchase items may
include equipment, hardware, raw materials or resale items. The goals of achieving these items
include developing ongoing relationships with other businesses and suppliers and continued growth
in earnings.

2. Indirect purchase

Indirect procurement is the procurement of goods, materials or services used internally to support
daily operations. They can help , XYZ Corporation team members manage work performance, travel,
and facilities. Indirect procurement items may include outsourcing, office supplies, perishable goods,
furniture or transportation vehicles. The goals of achieving these items include creating an
operational work environment and optimizing support for , XYZ Corporation employees.

3. Purchase Services

Procurement of services is the receipt of services based on people. For example, , XYZ Corporation
may want an outside marketing service to handle communications, promotional materials, and
outreach. The goals of obtaining these outside services may include filling service gaps and freeing
up full-time employees' time for other responsibilities related to business objectives. , XYZ
Corporation’s Businesses may seek outside services for IT support, security services, customer
service, contractors, or law firms.

4. Purchase of goods

Purchasing merchandise is the receipt of physical items that professionals can use for services or
resell. For example, , XYZ Corporation may obtain a software subscription for office use. They may
also find furniture that employees can use temporarily and then repurpose as a resale item. Goods
procurement can be the direct or indirect purchase of goods, depending on their use and value to
the business.

Issuing an RFx Process:

To ensure effective supplier selection and negotiation, follow this step-by-step process for issuing an
RFx (Request for Information, Request for Proposal, or Request for Quotation):

Define requirements: Clearly outline the required specifications, quantity, quality and delivery
timelines.

Market Research: Identify potential suppliers through market research and vendor databases.

Prequalification: Screen potential suppliers based on their qualifications, experience, and financial
stability.

RFX Preparation: Prepare RFX documents including terms and conditions, evaluation criteria and
submission requirements.

Supplier Invitation: Send RFX to selected suppliers, giving them ample time to respond.

Supplier Questions: Provide suppliers the opportunity to seek clarification on RFX.

Evaluation and Scoring: Evaluate supplier responses based on predetermined criteria, considering
factors such as cost, quality, and delivery.

Negotiations: Initiate negotiations with shortlisted suppliers to refine terms and pricing.

Final Selection: Select the supplier that best matches the company's requirements and the outcome
of the negotiations.

Finalizing the contract: Draft a formal contract specifying all terms and conditions, including
payment schedules, warranties, and dispute resolution procedures.
Supplier Performance Monitoring: Implement post-award contract management and monitor
supplier performance.

Continuous Improvement: Collect feedback from procurement and end-users to continually improve
the process.

Conclusion

By implementing these improvements in the purchase policy and procedures, categorizing

requisition types, and following a systematic RFx process, XYZ Corporation can streamline its
procurement operations, enhance efficiency, reduce costs, and ensure better supplier selection and
negotiation outcomes.

2. GlobalMart Inc. is a multinational retail company that operates in various countries. The
company sources products from suppliers located worldwide and distributes them to its retail
stores. However, GlobalMart Inc. has been facing challenges in ensuring timely and cost-effective
transportation and delivery of goods. The lack of standardized transportation strategies,
documentation discrepancies, and limited shipment traceability have led to operational
inefficiencies. Explain the concept of INCO terms and their significance in international
procurement and shipping by evaluating how selecting appropriate INCO terms can impact
GlobalMart Inc.'s transportation costs and responsibilities. Also, discuss the potential
consequences of inaccurate or incomplete documentation on the transportation and delivery
process by Proposing strategies or technologies that GlobalMart Inc. can implement to improve
shipment tracking and visibility. Lastly, recommend a comprehensive transportation and logistics
strategy that aligns with the company's global operations, focusing on cost efficiency and timely
delivery. (10 Marks)

Answer : Introduction

In international trade, one of the most important areas to take into account when writing and signing
a sales contract are Incoterms, as they affect the final price of the freight quote. Incoterms or
international commercial terms are a series of pre-defined rules of voluntary use related to
international commercial law. They describe the terms to which sellers and buyers of goods agree for
the international sale and supply of those goods (who is responsible/pays for what).

Concept & Application

INCO terms (International Commercial Terms) are a set of standardized international trade terms
used in international purchasing and shipping. They are published by the International Chamber of
Commerce (ICC) and are globally recognized and accepted. The terms of the INCO define the
responsibilities, risks and costs associated with the delivery of goods from the seller to the buyer.

Selecting appropriate INCO terms in international purchasing and shipping is important for several
reasons:

1. Clarity and consistency: INCO terms provide a common language for international trade, reducing
misunderstandings and disputes between parties in different countries. They define who is
responsible for what, making transactions more predictable and transparent.
2. Responsibility for costs: The terms of the INCO specify which party (seller or buyer) is responsible
for various transportation costs, including shipping, insurance, and customs duties. This allocation of
costs is important for budgeting and financial planning.

3. Risk allocation: The terms of the INCO determine when the risk of loss or damage to the goods is
transferred from the seller to the buyer. This is necessary to manage the potential financial impact of
items damaged or lost during transit.

4. Customs Procedures: INCO terms help specify which party is responsible for import and export
customs procedures, documentation and associated costs. This is important for compliance with
international trade rules.

5. Transportation method: The choice of INCO terms often determines the mode of transportation
and carrier used, which can affect transit time and cost. For example, some conditions may require
air freight, while others may use sea freight.

Let's evaluate the impact of selecting appropriate INCO terms on Globalmart Inc.'s transportation
costs and responsibilities:

Scenario 1: Ex-Work (EXW)

In EXW arrangement, the seller's responsibilities are minimal. They make the goods available at their
premises, and the buyer is responsible for everything from transportation to export and import
processes. Globalmart Inc. will have full control over the transportation but will bear the entire cost
and responsibility. This may reduce transportation costs but may increase complexity in logistics and
customs management.

Scenario 2: Cost, Insurance and Freight (CIF)

Under CIF terms, the seller is responsible for cost, insurance and freight to the designated
destination port. Globalmart Inc. will have fewer responsibilities, but costs are likely to be higher.
However, they will have peace of mind knowing that the goods are insured during transit, and the
seller handles most of the logistics.

Scenario 3: Free on Board (FOB)

As per FOB terms the seller has to bear the cost and responsibility of delivering the goods to the port
of shipment. Globalmart Inc. handles transportation, insurance, and customs from the port of
shipment to their facility. This can provide a balance between control and cost savings.

Scenario 4: Distributed Fee Payment (DDP)

In a DDP arrangement, the seller takes almost all the responsibilities including transportation,
insurance and customs duties. Globalmart Inc. The control will be minimal, but the goods will be
delivered to their facility with all costs incurred. This option may be more expensive but less
complicated.

The selection of INCO terms should be consistent with GlobalMart Inc.'s specific goals, risk tolerance,
and expertise in international logistics. By selecting appropriate terms, they can strike a balance
between cost savings and operational simplicity while ensuring that goods are delivered as planned
and in good condition. Careful consideration and negotiation of INCO terms is important to optimize
the international purchasing and shipping process.

Consequences of Inaccurate or Incomplete Documentation:

Inaccurate or incomplete documentation in international shipping can lead to several
adverse consequences for GlobalMart Inc.:
1. Customs delays: Incomplete or incorrect customs documentation can cause delays at
border crossings, resulting in longer transit times.
2. Fines and penalties: Incorrect documentation may result in fines or penalties being
imposed by customs officials.
3. Lost Shipments: If shipments lack proper tracking or labeling, they may get lost in
transit.
4. Supply chain disruption: Incorrect documentation can disrupt the entire supply
chain, causing production delays and inventory shortages.

Strategies and Technologies for Shipment Tracking and Visibility:

To improve shipment tracking and visibility, GlobalMart Inc. can consider the following
strategies and technologies:
1. EDI (Electronic Data Interchange): Implementing an EDI system allows electronic
exchange of documents with customs authorities and carriers, reducing errors and
speeding up clearance processes.

2. Shipment Visibility Platforms: Use shipment visibility platforms that provide real-
time tracking and monitoring. These platforms integrate with carriers and allow
GlobalMart to monitor shipments and receive notifications of delays or issues.

3. Blockchain Technology: Blockchain can be used to create secure and tamper-proof

records of transactions and documents, increasing the accuracy and reliability of
documentation.

4. Barcode and RFID technology: Apply barcode and RFID technology to improve
tracking accuracy and reduce the risk of lost shipments.

5. Document management systems: Use document management systems to centralize

and automate the creation and storage of shipping documents, reducing the
potential for incomplete or inaccurate paperwork.

Comprehensive Transportation and Logistics Strategy:

To align with its global operations, focus on cost efficiency, and ensure on-time delivery,
GlobalMart Inc. can incorporate the following elements into its transportation and
logistics strategy:
1. Multi-modal transportation: Use multiple modes of transportation (e.g., road, rail,
sea, air) to optimize costs and delivery speed. Choose the most cost-effective and
efficient method for each shipment based on factors such as distance, urgency and
cargo type.
2. Supply chain network optimization: Regularly assess the design of the supply chain
network, including the location of distribution centers and warehouses, to reduce
transportation costs and improve product availability.
3. Route optimization: Employ route planning and optimization software to ensure
efficient delivery routes, reducing transportation costs and delivery times.
4. Intermodal containers: Use standardized intermodal containers to facilitate the
transfer of goods between different modes of transportation, thereby reducing
handling costs and transit times.
5. Global Trade Compliance: Stay up to date with international trade regulations and
customs procedures to ensure cross-border shipments run smoothly, avoid delays,
and minimize fines or penalties.

Conclusion
By selecting appropriate INCO terms, addressing documentation accuracy, and implementing
advanced tracking technologies, GlobalMart Inc. can enhance its transportation and logistics
operations, reduce costs, and ensure timely and efficient delivery of goods in its global
supply chain.

3. TechCom Solutions is a fast-growing IT services company that provides a wide range of solutions
to its clients. As the company expands its operations, it faces challenges in effectively sourcing
reliable suppliers, streamlining the supplier registration process, and evaluating supplier
performance. These challenges have the potential to impact the company's service delivery and
profitability.

a) Discuss the importance of conducting spend analysis for TechCom Solutions to identify cost-
saving opportunities and strategic sourcing possibilities. Also, recommend steps and criteria for
enhancing the supplier selection process, ensuring the registration of qualified and reliable
suppliers. (5 Marks)

Answer : Introduction

Importance of Spend Analysis for TechCom Solutions:

Spend analysis is a critical process for TechCom Solutions that involves the examination and
categorization of all the company's expenditures, including purchases from suppliers.

Concept & Application

Here's why conducting spend analysis is essential for the TechCom Solutions:

Cost Reduction: Expense analysis helps to identify areas where the company can reduce costs. It
provides insight into how money is spent across different categories, suppliers and business units.

Strategic Sourcing: By understanding how money is spent, Techcom Solutions can develop a strategic
sourcing strategy. This enables the company to consolidate suppliers, negotiate better contracts, and
take advantage of economies of scale.

Supplier Performance Assessment: Expense analysis allows the company to assess supplier
performance. It can identify poorly performing suppliers and help in supplier consolidation.

Risk Management: Spend analysis helps identify supplier and supply chain risks. By understanding
where the vulnerabilities lie, Techcom Solutions can take proactive measures to mitigate the risks.

Compliance: Expense analysis ensures that the company is in compliance with purchasing policies
and regulations. It helps keep track of expenses and ensure that all purchases follow established
guidelines.

Better decision making: Data-driven insights gained from spend analytics enable better decision
making. This provides a clear picture of where investment is most effective and where cuts can be
made without compromising quality.

Steps and Criteria for Enhancing Supplier Selection Process:

To enhance the supplier selection process and ensure the registration of qualified and reliable
suppliers, TechCom Solutions can follow these steps and criteria:

1. Supplier Registration and Evaluation:

A. Supplier Registration Portal: Create an online portal where potential suppliers can register. Gather
necessary information about their abilities, certifications, financial stability, and references.

B. Qualification Criteria: Establish clear qualification criteria, including financial stability, quality
certification, industry experience and past performance. Suppliers must meet these criteria to be
considered.

2. Supplier Evaluation:

A. Supplier Audits: Conduct on-site audits to verify the capabilities and quality control processes of
critical suppliers.

B. Risk assessment: Evaluate the potential risks associated with each supplier, including financial,
geopolitical and operational risks.
C. Performance metrics: Develop key performance indicators (KPIs) to continuously evaluate supplier
performance

3. Request for Proposal (RFP) Process:

A. Detailed RFP: Create detailed RFPs that clearly outline project requirements, expectations, and
evaluation criteria.

B. Response Evaluation: Evaluate supplier responses based on their ability to meet Techcom
Solutions' needs, cost-effectiveness, and alignment with strategic goals.

C. Negotiate: Engage in negotiations to finalize terms, conditions and pricing.

4. Supplier Onboarding:

A. Legal and compliance checks: Ensure suppliers comply with all legal and regulatory requirements.

B. Contract development: Draft comprehensive contracts outlining responsibilities, terms and

conditions.

C. Performance metrics: Establish clear performance metrics, service level agreements (SLAs), and
penalty clauses.

5. Continuous Monitoring:

One. Performance Tracking: Continuously monitor supplier performance using established KPIs and
SLAs.

B. Feedback and Improvement: Provide feedback to suppliers and work collaboratively to resolve any
issues and improve performance.

6. Supplier Relationship Management (SRM):

A. Regular communication: Maintain open and regular communication with suppliers to build strong
relationships.

B. Joint Planning: Collaborate with key suppliers to develop joint business plans and strategies.

7. Supplier diversity: Consider supplier diversity to promote inclusivity and innovation. Encourage
diverse suppliers to register and participate in procurement opportunities.

8. Review and Update: Periodically review and update supplier selection criteria and processes to
adapt to changing business needs and market conditions.

Conclusion

By following these steps and criteria, Techcom Solutions can ensure that it collaborates with
qualified, reliable and high-performing suppliers, ultimately increasing the efficiency and
effectiveness of its procurement and supplier management processes.

b) Discuss how understanding total cost ownership can contribute to TechCom Solutions’ decision-
making process when selecting suppliers and products. Also, explain how ABC can help TechCom
Solutions allocate costs more accurately and make informed procurement decisions. (5 Marks)

Answer:
Understanding Total Cost of Ownership (TCO) for Supplier and Product Selection:

Understanding total cost of ownership (TCO) is important for supplier and product selection for
Techcom solutions. As a technology-focused company, Techcom Solutions must consider TCO in the
context of its technology purchasing and supplier selection processes. Here's how TCO applies to
Techcom Solutions:

1. Initial Acquisition Cost: When purchasing IT equipment or software, Techcom Solutions must
consider not only the upfront purchase cost but also any associated fees such as licensing and
installation.

2. Operating Cost: Include ongoing maintenance and support expenses. This may include salaries for
IT staff, maintenance contracts, and support services from vendors.

3. Downtime and disruption costs: Consider the cost of downtime due to technology failures,
including lost employee productivity. Telecom Solutions understand how technical disruptions may
impact customers, potentially resulting in loss of business or reputational damage.

4. Scalability and Expansion Cost: When considering hardware and software solutions, think about
how they will scale with the business. Scalability costs should be included in TCO.

5. Data Security and Compliance: Expenses related to cybersecurity, including firewalls, antivirus
software, and security audits. Compliance costs: Costs associated with regulatory compliance, such
as GDPR or HIPAA, including legal and auditing expenses.

To calculate TCO for supplier and product selection, Techcom Solutions should:

1. Identify all costs: Carefully identify all relevant costs associated with the technology, supplier or
service.

2. Estimate costs over the lifecycle: Estimate these costs over the expected lifetime or duration of the
supplier relationship.

3. Discounting future costs: Consider the time value of money by discounting future costs to the
present value.

4. Quantitative and qualitative evaluation: Evaluate alternatives by comparing both quantitative

factors (cost) and qualitative factors (vendor reputation, product quality, reliability).

By taking a comprehensive approach to TCO analysis, Tech Com Solutions can make well-informed
decisions regarding supplier and product selection, aligning its technology purchasing strategy with
long-term business goals while minimizing hidden or unexpected costs. This approach ensures that
the company invests in technology that contributes to its success and sustainability.

Activity-Based Costing (ABC) for Accurate Cost Allocation and Informed Procurement Decisions:

Activity-based costing (ABC) is a cost allocation method that can greatly benefit Techcom Solutions in
terms of accurate cost allocation and informed purchasing decisions. In the technology industry,
where product development, IT infrastructure and procurement play critical roles, ABC can provide
valuable insights. Here's how ABC can be applied for accurate cost allocation and informed
purchasing decisions:

1. Identifying cost drivers: ABC begins by identifying activities within an organization and the
cost drivers associated with those activities. In the context of TechCom Solutions, these
 activities may include software development, hardware maintenance, purchasing, and IT
support. Cost drivers for purchasing activities may include the number of purchase orders,
the number of suppliers, or the complexity of the purchasing transaction.

2. Allocating costs to activities: Once the cost drivers are identified, costs are allocated to these
activities. For example, costs related to the purchasing department, including staff salaries,
software equipment, and office space, would be allocated to the purchasing activity.

3. Calculating Activity Costs: Techcom Solutions can calculate the total cost of each activity by
aggregating the allocated costs. It provides a clear picture of how much each activity costs
the organization.

4. Identifying cost objects: In the purchasing context, cost objects may include products,
projects, or departments. By associating specific costs with these cost objects, TechCom
Solutions can determine the cost of procurement for each product or project.

5. Accurate Cost Allocation: ABC enables TechCom Solutions to more accurately allocate costs
to the products or projects driving procurement activities. This helps in understanding the
true cost of the purchase and its impact on various areas of the business.

By implementing activity-based costing, Techcom Solutions can gain a more accurate understanding
of the costs associated with purchasing activities and make informed purchasing decisions that
enhance cost-efficiency, supplier relationships, and overall business performance.