CPSP cheat sheet

Total Cost of Ownership (TCO) = acquisition price + logistics + inspection + inventory carrying + quality/defect + disposal costs; use TCO rather than unit price for award decisions.

Inventory carrying cost typically 20-30% of average inventory value per year, covering capital, storage, obsolescence, insurance, and taxes.

Economic Order Quantity: EOQ = sqrt(2DS/H), where D = annual demand, S = order cost per order, H = holding cost per unit per year.

Reorder point = (average daily demand x lead time in days) + safety stock.

Safety stock approximates z x sigma_dLT, where z is the service-level factor (1.65 for 95%, 2.33 for 99%) and sigma_dLT is demand variability over lead time.

The five rights of purchasing: right quality, right quantity, right time, right price, right source.

Purchase requisition to purchase order to receipt to invoice is the standard P2P flow; three-way match compares PO, receipt, and invoice before payment.

Spend under management = total addressable spend + influenceable spend; addressable spend excludes items locked by policy, sole source, or regulated contracts.

Days Payable Outstanding = (average accounts payable / cost of goods sold) x 365; higher DPO extends cash conversion but can strain supplier liquidity.

The seven-step sourcing process: profile spend, assess supply market, develop strategy, screen suppliers, execute competitive event, negotiate and contract, operationalize and measure.

Kraljic matrix axes are profit impact (spend, value at risk) and supply risk (availability, substitutability); quadrants are strategic, leverage, bottleneck, and non-critical.

Leverage items: high spend, low risk - use competitive bidding, volume consolidation, and price benchmarking. Bottleneck items: low spend, high risk - secure supply, qualify alternates, hold buffer stock.

RFI gathers capability data; RFP requests a proposed solution and pricing; RFQ requests price for a defined specification. Use RFQ only when the spec is fully defined.

Weighted scoring model: score = sum of (criterion weight x normalized supplier score); weights must sum to 1.0 and be fixed before responses are opened.

Reverse auction is viable when there are at least three qualified suppliers, a clear specification, and low switching cost; it is unsuitable for highly customized or strategic items.

Should-cost modeling builds cost from raw material, conversion, overhead, SG&A, and margin, giving a negotiation floor independent of supplier quotes.

Single sourcing concentrates volume and leverage; sole sourcing means no alternative exists. Dual sourcing trades unit-price leverage for continuity.

Early supplier involvement (ESI) moves supplier input into design phases, where an estimated 70-80% of product cost is committed.

Category management is a cross-functional, long-term approach that manages spend by category rather than by transaction or business unit.

Category strategy components: internal demand profile, supply market analysis, category segmentation, strategic objectives, sourcing plan, and performance metrics.

Spend cube analysis segments spend along three dimensions: category (what), business unit or cost center (who), and supplier (from whom).

Demand management levers (specification standardization, volume consolidation, compliance to contract) usually deliver savings faster than price negotiation alone.

Category maturity models typically progress from transactional purchasing to leveraged sourcing, then integrated supply management, then value-chain integration.

Tail spend (roughly the lowest 20% of transactions, often under 10% of spend) usually consumes disproportionate transaction cost; address with catalogs, p-cards, or distributor consolidation.

Category savings should be classified as hard (budget-visible, contractually realized) or soft (cost avoidance, demand reduction) and tracked with a baseline and validation method.

A category business plan links savings targets, risk mitigations, sustainability goals, and supplier development actions to a timeline and named owners.

BATNA (best alternative to a negotiated agreement) defines the walk-away point; ZOPA (zone of possible agreement) is the overlap between each side's reservation value.

Distributive bargaining claims value from a fixed pie; integrative bargaining expands the pie through logrolling trades on differently valued issues.

Reservation price is the least favorable deal acceptable; target price is the aspirational outcome; the gap between them is the negotiation range.

Contract formation requires offer, acceptance, consideration, capacity, and legality; a counteroffer operates as a rejection of the original offer.

Incoterms 2020 rules allocate cost, risk, and customs duties: EXW (buyer bears most), FCA, FOB, CIF, DAP, and DDP (seller bears most). Risk transfer point differs from cost transfer point under CIF and CIP.

Key clauses to review: price adjustment and indexation, volume commitment, lead time, warranty, indemnification, limitation of liability, termination for convenience, force majeure, audit rights, and IP ownership.

Evergreen (auto-renewing) clauses require a notice window; track renewal dates in a contract repository to avoid unintended extensions.

Negotiation preparation ratio: roughly 80% preparation and 20% interaction; define issues, priorities, tradeables, and the concession plan before the meeting.

Concession strategy: make decreasing, diminishing concessions, never concede without a reciprocal, and label each concession's value explicitly.

SRM segments suppliers by strategic importance: strategic partners, preferred suppliers, transactional suppliers, and exit or phase-out suppliers.

Supplier scorecards typically combine quality (PPM defects), delivery (on-time-in-full), cost, responsiveness, and sustainability or compliance metrics.

OTIF = orders delivered on time and in full / total orders; OTD measures timing only and can mask short shipments.

Supplier development is a structured program of capability building (lean, quality systems, capacity) usually targeted at strategic or bottleneck suppliers.

Business reviews: quarterly business reviews for strategic suppliers, annual executive reviews for partnership alignment; both require a shared agenda and data pack.

Supplier risk signals include financial distress (declining DSO, credit downgrades), single-site concentration, key-person dependency, and high tooling ownership by the supplier.

A supplier code of conduct sets minimum labor, ethics, safety, and environmental requirements; adherence is verified through audits and self-assessment questionnaires.

Joint improvement programs (value engineering, VA/VE workshops) share gains via agreed gain-sharing formulas rather than unilateral price cuts.

Exit management requires a transition plan covering tooling ownership, IP, last-time buys, knowledge transfer, and dual-running periods.

Risk assessment uses probability x impact scoring; risks are then treated by avoid, mitigate, transfer (insurance, contracts), or accept.

Common risk categories: supplier financial, geopolitical and trade (tariffs, sanctions), natural disaster, logistics and port disruption, cyber, quality, and regulatory.

Time to recover (TTR) versus time to survive (TTS): resilience requires TTR shorter than TTS for critical nodes.

Supply chain mapping beyond tier 1 (n-tier visibility) is necessary because sub-tier concentration often creates hidden single points of failure.

Mitigation levers: safety stock, capacity buffers, dual or multi-sourcing, nearshoring or regionalization, supplier financial monitoring, and contractual force majeure and allocation clauses.

Business continuity planning requires a bill of materials-level criticality analysis identifying parts with no qualified alternate source.

Concentration risk metric: share of category spend with the largest supplier; high single-supplier share raises both price and continuity exposure.

Scenario planning stress-tests the network against defined disruptions (port closure, supplier failure, demand spike) and quantifies financial and service impact.

Force majeure relieves performance obligations only when the event was unforeseeable and unavoidable; it does not automatically excuse payment or terminate the contract.

Scope 1 emissions are direct fuel and process emissions; Scope 2 are purchased electricity, heat, or steam; Scope 3 are all other value-chain emissions, typically the large majority of a company's footprint.

Supplier engagement on climate usually follows a tiered path: spend-based estimate, supplier-reported data, then verified primary data for high-impact suppliers.

Science-based targets require emissions reductions consistent with limiting warming to 1.5 degrees C, with near-term and long-term boundaries.

Conflict minerals reporting under Dodd-Frank Section 1502 covers tin, tantalum, tungsten, and gold (3TG) sourced from the DRC and adjoining countries.

Modern slavery and forced labor due diligence frameworks call for risk assessment, supplier auditing, remediation, and grievance mechanisms, not termination alone.

Circular procurement levers include design for disassembly, take-back clauses, recycled content requirements, and product-as-a-service models.

Ethical risks in sourcing include bribery and facilitation payments, conflicts of interest, gifts and hospitality thresholds, and collusion in bidding.

Supplier diversity and local-content programs are measured as share of spend with certified or qualifying suppliers and often carry contractual reporting obligations.

Greenwashing risk: sustainability claims should be substantiated by third-party verification, recognized standards, and auditable data rather than marketing language.

Source-to-pay (S2P) suite modules: sourcing, contract management, procure-to-pay, supplier management, spend analytics, and invoice automation.

e-Procurement catalogs enforce contract compliance by restricting purchase to pre-negotiated items and prices, reducing maverick spend.

Spend classification depends on a taxonomy (e.g., UNSPSC or internal category tree) plus supplier name normalization; poor master data is the main cause of inaccurate spend cubes.

Data quality dimensions: completeness, accuracy, timeliness, consistency, and uniqueness; classify spend data quality before drawing savings conclusions.

Descriptive analytics reports what happened; predictive forecasts supplier risk or demand; prescriptive recommends actions such as optimal award allocation.

Robotic process automation suits high-volume, rules-based tasks (invoice matching, PO creation); it does not replace judgment-based category strategy.

AI-based contract analytics extract clauses, renewal dates, and obligations from contract text, enabling proactive renewal and risk management.

Key procurement KPIs: savings realization, spend under management, P2P cycle time, invoice error rate, supplier OTIF, contract compliance rate, and cost per PO.

Blockchain and distributed ledger use cases focus on provenance and traceability in multi-tier supply chains; adoption is limited by data-entry integrity and network participation.