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Financial and Legal Aspects of Procurement

Question 1

Take a supplier that you work with, and that you can obtain annual financial reports on. If you cannot obtain the data on an actual supplier use data from a similar supplier in a country which makes the information available.

Making a number of simplifying assumptions, use the financial information to estimate the breakeven level of sales for the supplier. This can be given as either a number of units sold or a sales value.

You need to clearly show the assumptions that you make in your calculation. You are not being marked on the accuracy of the assumptions that you make, though you will not gain marks if your assumptions are not clear and stated, nor if assumptions have no relevance to the supplier.

(15 marks)

Question 2

Explain in your own words, the idea behind marginal costing. Discuss what kind of opportunities this might bring to a buyer, and how it might impact your approach to purchasing a category.

(15 marks)

Question 3

Take a material or service that you are familiar with and develop a cost model from first principles. Identify at least the six largest cost-drivers, and explain the basis of your cost estimates. If you are not able to obtain accurate data to answer this question, use a guestimate and describe how you would get more accurate data in a real situation.

(30 marks)

Question 4

Competition is just not about asking 4 or 5 suppliers to quote.

Explain the thinking behind this statement, and describe four different approaches to increasing the levels of competition amongst suppliers. For each given an example of how it might be used.

In this module it was also stated that competition requires a range of techniques to be used. Describe the reasoning behind this claim. How would the range of techniques used differ if you are in a truly collaborative relationship with a supplier?

(25 marks)

Question 5

The following is taken from the standard T&C of purchase of a major Middle East organisation.

The tenderer shall submit with its Tender a bond in the form for a value equal to 5% of the value of the tender price.

The Tender Bond shall act as surety against the withdrawal of the Tender before the expiry of the period of validity of Tenders or otherwise failing to comply with the terms of the Tender. The Tenderers attention is drawn to the fact that, if the Tender is not completed and submitted as stated in these Instructions to Tenderers, the Employer reserves the right to call the Tender Bond in whole or in part as the circumstances warrant.

What do you think the intent of the buying organisation is in this clause?

What are the disadvantages in a clause of this type? Make reference to both the risks to suppliers and the supplier behaviours that this could encourage.

(15 marks)

Learning outcomes to be tested

Completing this assignment successfully will mean that you have demonstrated that you have:

1.Calculated a suppliers break-even point from a set of company accounts
2.Explained the concept of marginal costing and how this can be used as the basis for low pricing
3.Build a cost model for a supplier
4.Demonstrated a range of different methods that can be used to increase the level of competition in a supply market
5.Understood the fundamental differences between using competition and collaboration to manage supplier value and performance.
6.Shown your ability to critically assess a contract clause and explain the potential influence it could have on the other partys behaviour.



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