Is the procurement manager’s opinion correct?

A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in specification are higher than ISO standards, her company can achieve greater cost-savings.

Is the procurement manager’s opinion correct?
A . No, because higher specification may incur additional costs for the buyer
B. No, because higher requirements in specification, the greater bargaining power of buying organisation
C. Yes, because optimising the specification is the only method to achieve value for money
D. Yes, because higher requirements will help buying organisation find the best supplier

View Answer

Answer: A

Explanation:

The specification that is produced too detailed will incur unnecessary cost because it does not allow suppliers to use their expertise in finding the most efficient way to produce it. ‘No, because higher requirements in specification, the greater bargaining power of buying organi-sation’: more detailed specifications could tighten the supplier base and potentially leave buying organisation with fewer potential supplier. This may reduce buyer’s bargaining power in negotia-tion.

‘Yes, because higher requirements will help buying organisation find the best supplier’: in some circumstances, higher requirements will lead to smaller supplier base. In the worst scenario, there is no supplier who has capability to carry out those requirements

‘Yes, because optimising the specification is the only method to achieve value for money’: There are other methods to achieve cost saving and value for money, inter alia, volume concentration, relationship restructuring, etc.

Reference: CIPS study guide page 118-119

LO 3, AC 3.1