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CIPS Level 4 Diploma in Procurement and Supply

Module title: Scope and Influence of Procurement and Supply [L4M1]

Leading global excellence in procurement and supply

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Learning Outcome 1: Understand and analyse the added value that can be achieved through procurement and supply chain management �

1.1 Describe the categories of spend that an organisation may purchase

1.2 Analyse the different sources of added value in procurement and supply

1.3 Compare the concepts of procurement and supply chain management

1.4 Differentiate the stakeholders that a procurement or supply chain function may have

Slide 1

Leading global excellence in procurement and supply

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(1.1) Stock and non-stock procurements

Stock procurements

Non-stocked procurements:

Cleaning service
Telephone system
Internet contract
Organisational insurance
Advertising campaign

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Slide 2

Raw Materials	Components	Finished Goods
Coal	Light bulbs	Shoes
Cotton	Plastic fittings	Beds
Fish	Castings	Confectionary
Oil	Nuts and bolts	Clothes
Rubber	Wearing parts	Jewellery
Wheat	Metal housing	Tinned food

Leading global excellence in procurement and supply

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(1.1) Direct and indirect procurements

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Figure 1.5 Different supplier types, based on The Kraljic matrix

Leading global excellence in procurement and supply

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(1.1) CAPEX and OPEX

Capital Purchases (CAPEX)	Operations Expenditure (OPEX)
An asset purchased to last a long period of time	An ongoing expense to an organisation
Often paid as a lump sum or through a bank loan	Paid monthly or annually
Accounted for and depreciated over a period of time	Accounted for in the current month or year
High value	Low to medium value

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Leading global excellence in procurement and supply

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(1.2) TCA and TCO

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Figure 1.8 The elements of TCO

Leading global excellence in procurement and supply

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(1.2) Use of KPIs

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Figure 1.9 Examples of KPIs relating to quality, quantity, timescales and place

Leading global excellence in procurement and supply

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(1.3) Supply chain management

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Figure 1.12 A basic supply chain

Figure 1.13 A supply chain network (Source: Arteria Technologies Private Limited, finessart.com)

Leading global excellence in procurement and supply

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(1.4) Stakeholders

To identify stakeholders

Who is affected directly and indirectly by the organisation’s actions?
Who has power to influence the organisation’s decisions?
Who would be concerned if the project/organisation succeeded or failed?
Who has a personal interest in the project/organisation?
Who will benefit through success of the project/organisation?
Who could help solve problems?
Who sets the regulations that must be adhered to?
Who carries out related actions?

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Slide 81

Leading global excellence in procurement and supply

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(1.4) Managing stakeholders

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Figure 1.22 Stakeholder matrix based on Mendelow’s theory

Leading global excellence in procurement and supply

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Learning exercise: Chilled Logistics

Work in groups to discuss the following questions.

Identify five examples of procurements that the distributor might need to make and categorise them according to whether they are:
Stock or non-stocked
Direct or indirect
CAPEX or OPEX
Create a supply chain, and expand it into a supply chain network relevant to this example.
Identify at least four specific stakeholders of the distributor. You can refer back to the questions to ask to help you with this.

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Slide 10

Leading global excellence in procurement and supply

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Learning Outcome 2: Understand and analyse the key steps when procuring goods or services �

2.1 Explain the key aspects of the procurement cycle

2.2 Analyse the key stages of a sourcing process

2.3 Explain how electronic systems can be used at different stages of the sourcing process

2.4 Analyse the relationship between achieving compliance with processes and the achievement of outcomes

Slide 11

Leading global excellence in procurement and supply

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(2.1) CIPS Procurement Cycle

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(2.1) CIPS Procurement Cycle: Stages 1–4

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Figure 2.2 The make or buy decision

based on Linton

Figure 2.3 The product lifecycle

Leading global excellence in procurement and supply

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(2.1) CIPS Procurement Cycle: Stages 5–8

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Invitation to tender	Request for quotation
Document sent out to invite bids	Document sent out to invite quotations
Formal	Informal
Suppliers are often pre-evaluated	Suppliers not usually pre-evaluated
Most commonly used in the Public Sector	Most commonly used in the Private Sector
Response will be in set format	Response will be in supplier’s own format
Terms can be negotiated	Terms cannot be negotiated
Used when purchasing Complex products or services	Used when purchasing Standard, regularly used products or services
Used when purchasing High value products or services	Used when purchasing Low value products and services

Leading global excellence in procurement and supply

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(2.1) CIPS Procurement Cycle: Stages 9–13

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Collaborative	Distributive
Information is shared	Information is withheld
Needs are understood and attempted to be met	No effort made to understand the other side
Common goals, strategies and objectives	No shared goals
Focus of team work, openness and trust	One sided, aims to meet own needs only
Aims for win-win situation	Often results in win-lose situation
Long term relationship	Usually short term or one off relationship
Open communication	Little communication
Promotes supplier relationship management	Focuses on contract management

Leading global excellence in procurement and supply

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(2.2) Key stages of the sourcing process

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Stage	Added value
Defining needs / developing specification	Ensures quality standards are met and reduces need for requotes due to lack of information or misinterpretation. Saves time
Developing contract / documentation	Ensures potential suppliers are fully briefed on the terms and conditions which eliminates at an early stage suppliers that cannot conform.
Supplier selection	Evaluation of suppliers removes unethical, unsuitable suppliers and those in financial difficulties
Contract award	Saves time compared with spot buying. Ensures goods are sourced against ongoing needs.
Contract / supplier management	Develops relationships which increase the chances of innovation, change management and trust between organisations.

Leading global excellence in procurement and supply

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(2.3) Electronic systems used in sourcing

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Figure 2.11 The e-procurement process

Leading global excellence in procurement and supply

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(2.4) Compliance and achieving outcomes

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Figure 2.16 Areas covered by compliance

Leading global excellence in procurement and supply

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Learning exercise: Save the Earth’s marketing contract

Based on the information provided, would you advise Conrad to develop documentation for an ITT or an RFQ?
Considering the purpose of the charity, what factors might Conrad want to find out about suppliers during the supplier selection stage?
What activities could Conrad undertake in order to ensure the selected suppliers are appropriate to work with his organisation?

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Learning Outcome 3: Understand and analyse the key aspects of organisational infrastructure that shape the scope of a procurement or supply chain function

3.1 Explain key aspects of corporate governance of a procurement or supply chain function

3.2. Analyse the impact of organisational policies and procedures on procurement

3.3 Examine the different structures of a procurement or supply chain function

3.4 Explain the common IT systems that can be used by a procurement or supply chain function

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(3.1) Conflicts of interest (1)

Questions to ask yourself:

Will I gain financially in addition to my salary?
Do I have any personal relationships with colleagues or suppliers?
Am I doing an identical role for a competitor?
Should I disclose any of my concerns?

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(3.1) Conflicts of interest (2)

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Figure 2.2 The 4D model

Leading global excellence in procurement and supply

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(3.2) Procurement policies and strategies

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Figure 3.5 Policies and procedures

Leading global excellence in procurement and supply

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(3.2) Involving other functions in the sourcing process

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Function	Involvement in sourcing process
Procurement	Supplier evaluation, information gathering, specification collation, RFQ/ITT creation and evaluation, purchase order placing, contract management
Sales	Guide procurement on stakeholder needs, suggest sales figures to enable correct volumes to be secured
Finance	Set budgets, payment terms and credit limits. Analyse potential supplier’s financial performance.
Human resources	Ensure staff are treated ethically and that working conditions are acceptable
Operations	Help with testing, cost models, overhead costs training that may be required, bring in new business to increase volume
Research and design	Create specifications, give input on components from functionality and quality perspective, help with cost reduction ideas

Leading global excellence in procurement and supply

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(3.3) Types of procurement structures

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	Devolved	Hybrid	Centralised
How it works	Individuals are responsible for their own procurement	A mix of centralised and devolved	The vast majority of purchasing is done from a central location
Used by	Smaller organisations	Various	Large organisation with multiple sites
Advantages	Specialist product knowledge Direct communication with supplier	Reduces costs Reduces workload	Reduces costs and control Enhances relationships
Disadvantages	Individuals aren’t procurement professionals No economies of scale	Reduces competition Internal conflict	Longer lead time Doesn’t support local suppliers or economy

Leading global excellence in procurement and supply

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(3.3) Hybrid structures – Shared services

Hybrid structures of a procurement or supply chain function:

Consortium structures
Shared services
Lead buyer structures
Outsourced

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(3.3) Hybrid structures - Outsourcing

Advantages	Disadvantages
Cost reduction	Difficulty in managing the change from internal to outsourced procurement
Reduced overheads (fewer procurement staff required)	Lack of control
Reduced training costs	Need to ensure time spent managing outsource suppliers is less than time previously spent on task
Economies of scale	Can be problems integrating company systems with the outsourced procurement function
Access to highly skilled buyers	Redundancies in current procurement team
Enables organisation to focus on core competencies	Lack of continuity of supply and supplier relationships

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Slide 271

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(3.4) Inventory management systems

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Figure 2.2 Kanban system

Leading global excellence in procurement and supply

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Learning exercise: Yoko’s options

Why was it important for Yoko to meet with the Directors of the other functions before making any decisions?
What types of structures could Yoko implement within her team in order to make cost savings? What are the advantages and disadvantages of each one?
If Yoko and the Procurement Directors of the neighbouring authorities decide to work together, what type of structure could they implement? What advantages could this bring?
One of the members of Yoko’s team mentioned that their partner worked at a private procurement organisation that could be used to outsource work to. Would this present a conflict of interest for Yoko or the staff member who suggested it?

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Learning Outcome 4: Understand and analyse the need for compliance with requirements when undertaking procurement activities in different sectors

4.1 Classify different economic and industrial sectors

4.2 Analyse the impact of the public sector on procurement or supply chain roles

4.3 Examine the impact of the private sector on procurement or supply chain roles

4.4 Examine the impact of the not-for-profit or third sector on procurement or supply chain roles

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(4.1) Economic classifications

Private sector
Public sector
Third sector or not-for-profit
Primary sector
Secondary sector
Tertiary sector

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(4.2) The Public Sector

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Sector	Public sector
Owned by
Funded by
Purpose and objectives
Industrial sector
Examples

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(4.2) The Public Sector - impact on procurement

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Figure 4.1 Stakeholders in the public sector (www.publicengagement.ac.uk)

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(4.3) The Private Sector

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Sector	Private sector
Owned by
Funded by
Purpose and objectives
Industrial sector
Examples

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(4.3) The Private Sector - impact on procurement

Regulatory bodies:

The International Labour Organisation (ILO)
The International Organisation For Standardization (ISO)

Regulations (UK)

The Consumer Rights Act 2015
Transport Driving Regulations

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(4.4) Not-for-profit sector

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Sector	Third sector
Operated by
Funded by
Purpose and objectives
Sector
Examples

Leading global excellence in procurement and supply

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(4.4) Not-for-profit sector – impact on procurement

Similarities with private sector:

aim to achieve best value for money
conduct ethical procurement
promote sustainability
benchmark to ensure fair pricing
carry out supply chain management.

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Differences from private sector:

suppliers might offer something for nothing or reduced prices because they want to help the cause
gifts and hospitality is allowed, but they should be documented and verified to ensure donors aren’t looking to influence decision making.

Leading global excellence in procurement and supply

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Learning exercise: Rules and regulations

Work in groups to discuss and carry out research to answer the following questions in preparation for your meeting with Malthe:

What are the key differences between the public and the private sector?
How does the way the public sector is funded have an impact on procurement?
Identify regulations that apply in three particular circumstances (e.g. requisition authorisation thresholds, tendering processes, etc.) and explain what they are, and how they impact procurement.

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Slide 381

Leading global excellence in procurement and supply

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