Financial Analysis Executive Summary
Considering high financial risks that the considered supplier currently faces and inability to ensure stability of financial results, it is recommended to avoid long-term contractual agreements with this particular vendor. In case of significant supplier power in the industry or a small number of market players, the company can contract this particular vendor on condition of substantial contract bank guarantee that will be refunded at the contract expiration. Contract is also supposed to include specific terms to protect the buyer from costs associated with recalls or defects. It is also recommended to conclude the cost reimbursable contract that will cover reasonable direct costs incurred by the contract fulfillment and ensure that the vendor will receive fixed fee to cover other operating expenses and profits. In case of cost reimbursable contract, the vendor financial results are supposed to vary less, and hence its financial position will be more sustainable. The maximum contract value in the case is recommended to limit to $5.43 million
Using Financial Analysis to Evaluate Suppliers
The current research assignment aims to evaluate the finances of the given organization as a potential supplier highlighting the strengths and weaknesses of their financial position. Our analysis is conducted from perspective of Equate tender terms. Therefore, the potential vendor is expected to supply the specified equipment during the next 2 or 3 years. The contract term will start on 1st January 2017. It is expected that the potential supplier will be able to supply the required equipment and warranty services, therefore its financial position should be sustainable.
Financial statements analysis is a useful tool for pre-qualifying potential suppliers that can include horizontal analysis, vertical analysis and ratio analysis. Horizontal analysis is a comparative technique evaluating changes in financial statement accounts over the particular periods of time, aiming to identify the direction, speed and size of any tendencies in financial performance. Vertical analysis of the financial statements aims to evaluate the internal structure of financial statements and also can be used for benchmark analysis across industry peers. Ratio analysis aims to evaluate the relations between several financial statement accounts through the use of specific financial measures. Categories of financial ratios include profitability ratios, liquidity ratios, gearing and investment ratios. As a result of the analysis conducted it was determined that cooperation with this particular vendor is associated with high financial risks. Recommendations on further cooperation with the vendor are also provided.
Pre-Qualification Criteria in the Sourcing Process
Procurement process, or a sourcing process, is a very universal process required for all businesses. Organizations acquire goods and services that will satisfy the requirements of other people (clients, employees, or other stakeholders) and be suitable inputs for defined processes and systems.
Procurement process can be defined as act of obtaining or buying goods and services. The process includes preparation and processes of a demand as well as the end receipt and approval of payment. The trigger for the procurement process is the creation of a purchase requisition. Procurement often involves the following activites: identification of …