L2M1 — Introducing Procurement and Supply
L2M1 — Introducing Procurement and Supply
20 core cue cards
1. What is procurement?
Answer:
Procurement is the full process of identifying a need, sourcing suppliers, agreeing contracts, ordering goods or services, receiving them, paying suppliers, and managing supplier performance.
Exam decision tip:
If the answer describes the whole process, it is procurement. If it only talks about placing an order, it is purchasing or buying.
2. What is the difference between procurement, purchasing and buying?
Answer:
Procurement is strategic and covers the full supply process. Purchasing or buying is more transactional and usually means ordering and paying for goods or services.
Exam decision tip:
Procurement = wider process.
Purchasing/buying = narrower transaction.
3. What is the purpose of procurement?
Answer:
The purpose of procurement is to obtain the right goods or services at the right quality, quantity, price, time and source, while managing risk and value for money.
Exam decision tip:
Look for answers that balance cost, quality, timing, risk and value — not just the cheapest price.
4. What are the five rights of procurement?
Answer:
The five rights are: right quality, right quantity, right price, right time and right place/source.
Exam decision tip:
In OR questions, these often appear in scenarios. For example, late delivery links to right time; unsuitable goods link to right quality.
5. What is a supply chain?
Answer:
A supply chain is the network of organisations, people, processes and resources involved in producing and delivering goods or services to the final customer.
Exam decision tip:
Supply chains include more than the buyer and supplier. They can include raw material providers, manufacturers, logistics providers, distributors, customers and consumers.
6. What is the difference between direct and indirect procurement?
Answer:
Direct procurement is buying goods or services used in the organisation’s final product or service delivery. Indirect procurement supports the organisation’s operations but does not become part of the final product.
Example:
For a bakery, flour is direct procurement. Cleaning services, office supplies and uniforms are indirect procurement.
7. What is the difference between goods and services?
Answer:
Goods are tangible items that can be physically owned or stored. Services are intangible activities performed for the buyer.
Exam decision tip:
Goods are often assessed by specification, quantity and delivery. Services are often assessed by performance, outcomes and service levels.
8. What is the difference between capital and revenue expenditure?
Answer:
Capital expenditure is spending on long-term assets, such as vehicles, machinery or buildings. Revenue expenditure is day-to-day operating spend, such as fuel, stationery, cleaning or maintenance.
Exam decision tip:
Long-term asset = capital.
Ongoing operating cost = revenue.
9. What is value for money?
Answer:
Value for money means achieving the best overall balance of cost, quality, service, risk and whole-life value.
Exam decision tip:
Value for money does not always mean the lowest price.
10. What is total cost of ownership?
Answer:
Total cost of ownership is the full cost of owning or using something over its life, including purchase price, delivery, installation, operation, maintenance, repairs, training and disposal.
Exam decision tip:
If a question includes costs after purchase, think total cost of ownership or whole-life cost.
11. What is a specification?
Answer:
A specification is a clear description of what the buyer requires from a supplier, including quality, quantity, performance, technical requirements, timing or standards.
Exam decision tip:
A good specification helps suppliers understand the requirement and helps the buyer compare offers fairly.
12. What is the basic sourcing process?
Answer:
The basic sourcing process is: identify the need, define the specification, research suppliers, request quotes or tenders, evaluate responses, award the contract, place the order and manage performance.
Exam decision tip:
In sequence questions, the need and specification normally come before contacting suppliers.
13. What is a request for quotation?
Answer:
A request for quotation, or RFQ, asks suppliers to provide a price for a clearly defined requirement.
Exam decision tip:
Use RFQ when the requirement is clear and the buyer mainly needs pricing and basic commercial information.
14. What is an invitation to tender?
Answer:
An invitation to tender, or ITT, is a formal request asking suppliers to submit detailed offers against a defined requirement.
Exam decision tip:
Tendering is usually more formal than a simple quotation and is used for higher value, higher risk or more complex requirements.
15. What is a purchase order?
Answer:
A purchase order is a formal document issued by the buyer to the supplier confirming what is being ordered, including quantity, price, delivery details and terms.
Exam decision tip:
A purchase order controls spend and creates a clear record of what has been requested.
16. What is invoice matching?
Answer:
Invoice matching is checking the supplier invoice against the purchase order and delivery record before payment is made.
Exam decision tip:
This is often called three-way matching: purchase order, goods receipt/delivery note and invoice.
17. Why are approvals and delegated authority important?
Answer:
They ensure that only authorised people can commit the organisation to spend, usually within set financial limits.
Exam decision tip:
Approval controls reduce unauthorised spend, fraud, errors and non-compliance.
18. What is separation of duties?
Answer:
Separation of duties means different people are responsible for different parts of the procurement process, such as requesting, approving, receiving and paying.
Exam decision tip:
This is a control to reduce fraud and mistakes.
19. What is ethical procurement?
Answer:
Ethical procurement means buying in a way that is fair, honest, transparent and responsible, avoiding bribery, corruption, conflicts of interest, forced labour and exploitation.
Exam decision tip:
Ethics questions usually focus on fairness, transparency, integrity, confidentiality and avoiding personal gain.
20. What is responsible procurement?
Answer:
Responsible procurement considers the wider social, environmental and economic impacts of buying decisions.
Exam decision tip:
If the question mentions sustainability, labour standards, environment, local communities or social value, think responsible procurement.