L4M4 Tutor Notes FINAL

CIPS Level 4 Diploma in Procurement and Supply
Tutor Notes
Module title: Ethical and Responsible Sourcing [L4M4]
All rights reserved. Content may not be copied, reproduced, published, altered or transmitted in any
form or by any means, in whole or in part, without the prior written permission of CIPS.
Copyright ©2018 CIPS
Leading global excellence in procurement and supply

Learning Outcome 1 Understand options for sourcing of requirements from suppliers
These notes are designed to support teaching staff using the CIPS Teaching Resources PPT slides. Teaching
staff are advised to cross reference against the relevant module content and learner resources (e.g., study
guide). Supplementary resources are available on cips.org in the Student Zone, CIPS Knowledge and Supply
Management online journal (www.cips.org).
SLIDE TUTOR NOTES
1 Not applicable
2 There are costs associated with all forms of sourcing. They include the following.
• Procurement professional’s wages
• Resources such as computers and telephones
• Training
• Development of policies and procedures
• Time
The Kraljic matrix is used to identify the category, where a need is situated, by considering
the impact it has on the organisation’s profit and the level of supply risk it poses to the
organisation. A different relationship should be used for suppliers in each of the four
quadrants – use the diagram on the slide and provide examples to describe the supply risk
and profit impact of each category.
• Non critical – relationship: arm’s length
• Leverage – relationship: transactional
• Strategic – relationship: collaborative
• Bottleneck – relationship: closer tactical
The categories indicate how much cost should be spent on a need, and the procurement
style that should be used. Tactical procurement style should be used with every category,
except for strategic.
The costs that are associated with outsourcing include the following.
• Procurement involvement to establish whether outsourcing is a viable option
• Procurement involvement in evaluating, selecting and awarding the contract to
suppliers
• Management of the outsourced contract, i.e. performance levels and quality
Learner activity
1. List some of the purchases that are made by your department/organisation.
2. In a pair, or small group, discuss each person’s list and for each item identify:
• the impact on profit
• the supply risk
3. Then identify:
• which of the categories/quadrants each item sits in
• and therefore which item(s) should have most costs, and which should have
2
SLIDE TUTOR NOTES
the lowest costs

3 The outsourcing decision matrix can be used to evaluate which functions within an
organisation could be considered for outsourcing – refer to the diagram on the slide
The following are the two factors considered.

• The strategic importance of the function or activity
• The contribution it makes towards operational performance
The following are the four quadrants that are produced.

• Retain – high strategic and highly important functions should be outsourced.
These are core to the organisation. Core activities should remain in-house because
outsourcing poses too much of a risk to the organisation.
• Form a strategic alliance – although some functions are strategically important
they contribute very little to the operational performance. These functions can be
trusted to a strategic partner but an element of control must be kept by the
buying organisation.
• Outsource – operationally important functions but not key to strategy. Can be
outsourced with minimal risk.
• Eliminate – these functions offer little contribution to the organisation’s strategy
so should be questioned as to their value and possibly eliminated.
Frequently outsourced functions include the following.

• IT support
• Catering
• Cleaning
• Marketing
• Social media
• Human resources
• Accountancy and payroll
Learner activity
1. Make a list of all functions within your organisation.
2. Use the outsource matrix to categorise them. (If you are not sure of their strategic
importance or contribution to operational performance, talk to a partner in class,
or someone at your organisation.)
3. Which functions does your categorisation suggest could be outsourced?
4. Which functions are actually outsourced by your organisation?
5. Are there any examples of strategic alliances for certain functions?
4 Single-sourcing – one supplier is contracted by the buying organisation to supply all the
needs for an item. It is used in the following situations.
• it suits the buyer
• there is a monopoly supplier so the buyer has no choice
3
SLIDE TUTOR NOTES
• economies of scale can be achieved

• order quantities are very small
• if one supplier offers outstanding value for money against the competition
Therefore, collaborative relationships are used.
Dual sourcing – two suppliers are made responsible by the buying organisation for
supplying all the needs for an item. It is used in the following situations.
• there is a risk of one supplier not being able to supply
• a product or service is critical to an organisation
Multiple sourcing – many suppliers are made responsible by the buying organisation for
supplying all the needs for an item. This is used in the following situations.
• where supplier competition is vast
• where the supplier relationship is not critical
• to guarantee constant supply
Therefore, transactional relationships are used.
Each possible approach is linked to a chosen procurement strategy for the item or service
it relates to.
Learner activity
1. List at least five needs that are procured by your department.
2. For each need, identify whether single, dual or multiple sourcing is used.
3. In each case, consider what the main driver was behind the decision.
4. Could more value be extracted using a different arrangement?
5 The process of issuing a tender is more formal than issuing an RFQ.

Tenders are frequently, though not always, used for service requirements. In most
countries, the public sector conducts the vast majority of its contracting needs by using
invitations to tender.
The following are the three main approaches to tendering.
Open tendering
• The opportunity is widely advertised, therefore allowing any supplier that wishes,
to submit a bid.
• All bids received by the deadline are reviewed.
• The bid that provides the best value for money will be offered the contract.
Restricted tendering
• The opportunity is advertised for interested suppliers to respond with an
expression of interest.
• Suppliers that have expressed interest are required to complete a
4
SLIDE TUTOR NOTES
pre-qualification questionnaire (PQQ) to establish if they meet the required

criteria to work with the buying organisation.
• Suppliers that meet the criteria are sent an invitation to tender (ITT) and are
invited to submit their bid to the buying organisation.
Negotiated tendering
• This is similar to the restricted approach. The procurement professional advertises
the opportunity and invites expressions of interest.
• The difference is that negotiated tendering can only have between one and three
suppliers involved.
• This supplier may be chosen because of the following.
• A previous relationship with the buyer
• Their specialist skill, either being a sole supplier or having a precise
specification
• It involves amending or expanding on an existing contract
• Negotiated tendering can be used to do any of the following.
• Reduce cost
• Reduce the duration of the tendering process
• Allow the supplier to get involved in the design stages of a product
• However, it can be difficult to reach an agreement that is considered fair by both
parties due to the lack of competition.
• Negotiated tending also risks the buyer getting complacent and reusing the same
supplier, rather than seeking better terms elsewhere.
The following are examples of when to use each type of tendering.

• Open is used when the buyer expects there to be relatively limited interest so
there would not be too many bids to evaluate.
• Restricted is used where the interest is expected to be higher and so the buyer
needs a method of de-selecting unsuitable bidders and creating a shortlist of
acceptable organisations.
• Negotiated procedures are suitable when the requirements are very complex and
there are few suppliers (maybe even just one).
Learner activity
Speak with a colleague in your organisation to find out the following.

1. Which tendering approaches are used in your organisation?
2. Are different approaches used for different needs?
3. List the factors that are considered when determining the approach to use by your
organisation.
6 When selecting external suppliers, the way that they manage their quality processes is
important.
5
SLIDE TUTOR NOTES
Suppliers may need to have ISO 9001, which is an international standard for quality
management.
This ensures that the organisation has procedures and policies in place to guarantee a
consistently high level of quality.
Other methods of quality management the supplier could use include the following.
• Continuous improvement
• Total quality management (TQM)
Learner activity
1. Divide learners into small groups and split continuous improvement and TQM
between them.
2. Next, the learners should find out about the following.
• How each method works/what it aims to achieve
• Key stages in the method
• What tools are used
3. Finally, each group should report back their key findings.
The tutor should fill in any gaps – the key points are indicated below.
Continuous improvement
• A concept of constantly looking for ways to improve processes to eliminate waste –
something that does not add value to a process
• Seven types of waste identified by Ohno: motion, inventory, over-production,
waiting, defects, over-processing, transportation
• Based on the Japanese theory known as kaizen
• Ideas from all individuals within the organisation are welcomed with the objective
of removing waste from the supply chain
• There are four stages in the process:
• Identify
• Plan
• Execute
• Review
Total quality management (TQM)
• A management approach that aims to gain complete customer satisfaction
• Based on the culture and attitude of the organisation and requires everyone to
believe in the process
• Works towards long-term strategic success through complete customer and
consumer satisfaction
• TQM includes continuous improvement
7 Financial/profitability ratio analysis can be used in conjunction with credit scores to
determine the financial health of a potential supplier.
Ratio analysis has the following two main objectives.

• To track company performance in order to track trends and raise awareness to any
6
SLIDE TUTOR NOTES
potential concerns
• To compare against other organisation’s performance in order to gain competitive
advantage
The information required to calculate ratios is drawn from an organisation’s income

statement and balance sheet.
Profitability ratios measure the extent to which an organisation can convert sales into
profits over a period of time.
• Gross profit margin is calculated by dividing the gross profit by sales revenue, then
multiplying by 100.
• Net profit margin is calculated by dividing the net profit by sales revenue, then
multiplying by 100.
• Liquidity ratios calculate if an organisation has sufficient current or short-term
assets to meet its current or short-term liabilities. It is calculated by dividing the
total current assets by current liabilities. A ratio of more than 1:1 is desired, as this
means that the business has more current assets than current liabilities.
• The acid test ratio calculates the ability of an organisation to meet current
liabilities with current assets but it is more conservative. It is the same calculation
as the previous current ratio, but this time excludes the value of inventories held.
• Gearing ratio is the proportion of an organisation’s long-term borrowing against its
equity. It is calculated by dividing long-term debt by shareholders’ equity. High
gearing means a lot of long-term debt, which may present a risk, especially when
interest rates are rising.
• Return on investment (ROI) ratio is used to measure the performance of the
business in terms of the profit generated relative to the amount of money that is
invested in the business. It is calculated by dividing net income by total assets. The
ROI ratio should be as high as possible.
Learner activity
1. Prepare a worksheet that includes fictional P&L for a fictional organisation.
2. List the various ratio formulae on the worksheet – or ask learners to refer to the
study guide.
3. Work through the first question together – ask learners to identify the figures they
need for the calculation, and work through it as a class.
4. Ask learners to complete the rest of the calculations.
5. Check answers as a class.
6. Lead a discussion to decide what the figures tell you about this organisation’s
financial position.
8 Technical criteria – aspects concerned with whether the supplying organisation can
physically produce and supply what is needed in accordance with the RFQ or ITT at an
7
SLIDE TUTOR NOTES
acceptable price. Examples include the following.

• Specification
• Delivery
• Quality
Commercial criteria – aspects concerned with the organisational fit – are the buying and
the supplying organisation compatible to work together? Examples include the following.
• Cultural fit
• Ethical standards
• Sustainability
Both sets of awarding criteria need to be balanced to enable a procurement professional

to make an informed decision that offers a suitable long-term solution.
Tools, such as weighted score cards and evaluation matrices can be used to balance the
awarding criteria.
A weighted evaluation matrix is used to give more ‘weight’, that is more important, to
certain elements of a quotation and to allow a fair evaluation for all suppliers. Refer to the
diagram on the slide.
Learner activity
Ask colleagues in your department if they use a scorecard or weighted matrix to evaluate
bids.
Are different weightings used to evaluate different needs?
How are the weightings determined?
9 Aadarsh works for a mobile phone provider. He has been asked to investigate which, if
any, of their functions could be outsourced, and then identify a suitable strategy.
The functions up for consideration include the following.

• Product development
• Manufacturing
• Catering
• Marketing
• Finance
Discuss the following questions in small groups and record your answers.
1. Consider the five functions’ contribution to operational performance and strategic
importance and place them in the outsourcing matrix. Based on the following.
• Which function(s) should not be outsourced?
• Which function(s) could outsourcing be considered for?
2. Which sourcing arrangement would be most suitable for the outsourced function:
single, dual or multiple? Give reasons to support your answer.
3. Aadarsh knows there are many suitable suppliers for the function. Which approach
8
SLIDE TUTOR NOTES
to tendering would you recommend he uses?
Learning Outcome 2: Understand the key processes that can be applied to the
analysis of potential external suppliers
SLIDE TUTOR NOTES
10 Not applicable
11 In most organisations it works so that 80% of the total spend is distributed between 20%
of the suppliers. This distribution is known as the Pareto Principle – refer to the diagram
on the slide to explain the concept, and provide an example.
ABC analysis – refer to the diagram on the slide

• Uses the Pareto Principle
• Categorises suppliers into three levels according to their value and importance to
the organisation. They can be used to determine the style of management that
should be used with each one:
• Category A suppliers – most likely to supply the strategic products or
services to an organisation – develop strategic relationships
• Category B suppliers – develop closer tactical relationships
• Category C suppliers – develop transactional relationships
When an organisation is considering changing a supplier, it should apply the Pareto

Principle and use ABC analysis to provide an understanding of the importance of the
supplier as well as the product or service that they supply.
Tutor-led discussion
How can the ABC analysis be applied when trying to make cost savings?
Use the ABC analysis to work out which items make up the majority of spend.
Use this knowledge to identify the biggest supplier to negotiate with.
A buyer is likely to be able to save money by negotiating with suppliers of large volume, or
A-graded products, than by negotiation with lots of C graded product suppliers.
Learner activity
1. Find out the ABC classification of spend for your organisation.
2. What does the ABC classification tell you about where procurement effort should
be focused?
3. Does the reality of the procurement effort reflect the ideal? Where are the
9
SLIDE TUTOR NOTES
differences? What are the reasons for the differences?
12 Credit rating agencies assess the financial stability of an organisation. They use data
provided by the following.
• Banks and other financial institutions
• Lenders
• Creditors
• Public information
• Financial reports
• Court judgements for debt
Credit scores are made up of different elements – refer to the diagram on the slide
• Payment history – Has the organisation paid on time and in full in the past?
• Amounts owed – Does the organisation have any debts?
• Length of credit history – What is the average time taken by the organisation to
pay its debts?
• New credit – Has the organisation been approved for any new credit recently?
• Credit mix – Is there a variety of credit options, i.e. various lenders and terms?
The elements are weighted to create a weighted score – refer to the diagram on the slide
Procurement professionals use credit scores to evaluate suppliers by reviewing the

feedback from the credit rating agency.
• A low score suggests a high level of risk associated with the supplier and more
investigation should be carried out prior to engaging with them.
• A high score suggests the risk is lower and that the supplier is financially stable at
the current time, suggesting that awarding them with a contract would include
lower levels of risk.
NOTE: A supplier with a low score may be classified as higher risk for reasons that are not
as a result of poor credit.
• They may have recently been set up as a new organisation
• They may have no loans, including credit cards
• They may have no high value assets (high value assets can suggest good financial
stability and may be used to pay debts if needed)
In such situations the buyer may still wish to engage with the supplier but may add clauses
or make changes to the documentation to reduce the level of risk to the buying
organisation.
13 A request for information may be sent to a potential supplier to find out details about
them such as the following.
• Financial position
10
SLIDE TUTOR NOTES
• Capabilities
• Capacity
• Mission and vision
• Ethical and sustainability policies
The information gathered from RFIs generates data on the following.
• Number of capable suppliers
• Number of suppliers with capacity
• Amount of supplier competition
• Amount of product/service competition
• Acceptable lead time
• Market trends
• Any expected changes in the marketplace
The procurement function can use the information obtained to create a suitable strategy
for sourcing and begin to plan for the negotiation. For example, if the information shows
that there is a high level of competition in the marketplace, a strategy for negotiation can
be built on the fact that the buyer has the power and if an agreement cannot be reached
there is no concern about walking away and attempting to create a contract with another
pre-evaluated supplier.
Learner activity
1. What types of contract has your organisation used RFIs for?
2. Obtain a copy of the RFI if possible. Categorise the questions asked according to
whether it is finding out about financial position, capabilities, etc.
3. Speak with a colleague who has used an RFI.
• What was the contract for?
• What did they need to find out from the RFI?
• What did the information gathered from the RFI reveal?
• How did this affect the strategy used?
14 Lead class discussion referring to the diagram on the slide, and use key terms below as
prompts to draw out learners’ existing knowledge about each of the stages.
1. Preparation – Detailed and clear specifications setting out exactly what is required
of the supplier so that the bids received can be fairly evaluated
2. Approach – The tendering approach that is going to be used should be justified
3. Timescales – How long is the process going to take? Dates should be set for the
PQQs to be sent/received, the invitations to tender to be sent/received, the
decision made and the suppliers advised
4. Advertising - Where does the opportunity to bid have to be advertised in
association with any regulations or legislation?
5. Documentation - Collation of the documentation to be sent out with the invitation
11
SLIDE TUTOR NOTES
to tender
6. Consistency - Ensure that all suppliers receive exactly the same document and that
they are sent out at the same time
7. Submission - All bids should be submitted and received by the buying organisation
by the deadline stipulated and any that arrive after that date should not be
included in the tender process. All bids that have arrived by the deadline should be
opened together
8. Analysis - Careful and stringent analysis should be carried out in accordance with
the criteria outlined at the preparation stage
9. Decision - A decision should be made based on the criteria which results in the
most suitable supplier and best value bid being selected
10. Verification - Final supplier verification if required i.e. samples, prototypes or
demonstrations
11. Negotiation - Final arrangements agreed and any fine-tuning carried out. Once the
best bid has been chosen post-tender negotiation (PTN) can take place to see if
there is any further room for improvement in the offer
12. Contract preparation - The contractual documentation is drawn up in accordance
with the bid and any amendments that have been agreed
13. Contract awarded - The supplier is awarded the contract and both parties sign
14. Notification - Any notification that needs to happen to comply with internal
procedures or regulations should take place such as advising which supplier has
been awarded the contract
15. Feedback - Advise the unsuccessful suppliers and give feedback
16. De-brief - Internally discuss how the process ran and consider any improvements
that could be made in the future
15 The purpose of assessment is to gauge which supplier best meets the requirements of the
specification included in the tender documentation and analyse the added value options
such as innovation opportunities.
A weighted points system is an evaluation procedure which enables fair comparison of set
criteria. The weight of each criteria determines its importance in the decision-making
process and the total for all weights should equal 100.
The process for creating and conducting a weighted points system for assessment is as
follows:
• Define the criteria which are going to be used in the assessment
• Decide on the weight for each criterion
• Determine a points scoring system
• Allocate a score to each criterion in each supplier’s proposal
• Calculate the total score for each supplier
• Then rank the suppliers to see which has the highest score.
The following are some advantages of using a weighted points system.

12
SLIDE TUTOR NOTES
• It involves cross-functional teams.

• It has high stakeholder engagement.
• It is not easy to manipulate.
• It increases transparency.
The following are some disadvantages of using a weighted points system.

• It can take a long time to create.
• It relies on numbers.
• It costs in terms of training and potential investment in software.
• It can be very hard to be entirely objective.
Learner activity
Prepare a tender scenario. For example, consider a not-for-profit organisation that
provides medical care and kits in the aftermath of disasters. They are developing a tender
for a supplier, for the components in the medical kits.
Learners to discuss in groups what weighting they would allocate to the following criteria:
price, quality, lead time, financial stability, technical capability, ethical conduct.
(The aim is to encourage discussion based on views of the organisation’s needs rather than
to arrive at a ‘correct’ answer.)
16 Procurement professionals can carry out independent financial reviews on potential or

existing suppliers by looking at an organisation’s financial documents which are available
for both public and private limited companies.
Profit and loss statement

• Sometimes referred to as an income statement.
• Summarises the revenues, costs and expenses that have been incurred within a
financial period.
• Can be used to establish whether the supplier or potential supplier is generating a
profit by subtracting the cost of sales from the total revenue.
Balance sheet
• Shows details of an organisation’s assets, liabilities and shareholder’s equity.
• Provides information on an organisation’s financial position at a particular point in
time.
Cash flow statement

• Contains details about the amount of money coming in and going out of an
organisation (during its last financial year).
• Can be used to determine whether a supplier has enough cash coming in to be
able to pay its expenses and to assess the long-term strength of the organisation.
Other, non-financial, factors should also be evaluated when assessing suppliers.

13
SLIDE TUTOR NOTES
Learner activity
Either provide, or ask learners to find and print out a P&L statement, balance sheet and
cash flow statement for an organisation.
Ask learners to highlight key figures, e.g., revenues, expenses, assets, liabilities, cash, etc.,
and explain what the figures suggest about the organisation’s financial position.
17 E-requisitioning is the use of electronic systems to raise and approve requisitions.

Some organisations use MRPs (material requirements planning) systems to raise
requisitions. This reduces the need for human intervention, and reduces the likelihood of
errors.
Use the diagram on the slide to explain what data the MRP requires in order to raise a
requisition.
Requisitions can also be approved electronically.

The process for approval usually depends on the value of the requirement and the
authority of the individual. Thresholds vary between organisations.
For example, in one organisation, it may be that:
• Requisitions of up to $200 can be placed directly with procurement
• Requisitions with a value of between $201 and $1000 require low-level approval
• Requisitions with higher values will require a high-level approval.
Tutor-led discussion
What are some of the advantages of e-requisition and e-approvals systems?
Prompt on time taken, accuracy, reliance on data/technology, impact on environment, e.g.,
paper-free, traceability/transparency.
Learner activity
What are the approval thresholds and processes in your organisation?
18 Valerie works in the procurement team at a local authority. She has been asked to make a
10% cost saving for the category that she manages.
She has also been asked to carry out due diligence on the financial stability of the suppliers
of incumbent contracts.
Discuss the following questions in small groups and record your answers
1. How can Valerie determine which suppliers to negotiate with first in order to
obtain the 10% savings from incumbent contracts?
2. What information should Valerie obtain in order to assess suppliers’ financial
stability? Where can she source this information from?
14
Learning Outcome 3: Understand compliance issues when sourcing from suppliers
SLIDE TUTOR NOTES
19 Not applicable
20 The stages of the UK Public Contract Regulations (2015) – refer to the diagram on the slide
Specification stage
• Describe requirements
• Avoid using brand names (prevent lock-in with OEMs)
• Avoid favouritism with particular suppliers
• Define performance requirements using performance specifications
• Specify required production methods (if necessary)
Selection stage
• Review evidence of previous sanctions, criminal convictions, other offences and
the history of known poor performance
• Exclude unsuitable suppliers
• Review the financial standing of remaining suitable suppliers
• Review the technical capability of remaining suitable suppliers
Award stage
• Contract should be awarded to the most economically advantageous tender
(‘MEAT’). Generally based on price but quality and other factors linked to the
contract should also be considered.
• Beware – abnormally low tenders should be investigated!
Class discussion/learner research activity

1. Are the stages the same for public sector contracts in your country?
2. What are the differences between public sector and private sector contract
regulations (in your country)?
21 Options for tendering procedures – refer to the table on the slide and discuss the different
timings (timings cited are for the UK) and reasons for any variances.
• Open procedure – used for well-specified requirements and there is no

pre-qualification of bidders. Many suppliers could submit a bid, which could result
in lots of bids to assess, so the open procedure is normally only used where the
number of potential bidders is expected to be relatively low.
• Restricted procedure – a two-stage process that is used where the interest from
15
SLIDE TUTOR NOTES
the supply market is likely to be high. The buyer initially assesses the technical
capability and financial stability of the potential suppliers to determine which
suppliers will submit detailed bids for full evaluation.
• Negotiated procedure – used in some circumstances, but they can be perceived as
limiting competition so must be used carefully and only when justifiable.
• Competitive dialogue procedure – similar to a restricted tender, but includes a
period of time during which the buyer and bidders are permitted to meet to
discuss the specification.
• Innovative partnership – may be developed whereby the buyer and supplier take
an idea through development and into production together, supported by the
procurement process.
Learner activity
Consider the following questions either individually, or discuss with a partner and record
your answers.
1. What types of procedure have you been involved with?
2. What types of procedure are used in your organisation?
3. What needs were sourced using the different types of procedures and why was that
particular procedure selected?
4. Could any of the other procedures been used, or been more appropriate?
Follow-up: Refer to your organisation’s procedures and guidelines to understand which
procedures should be used when.
22 All organisations, whether in the public, private or not-for-profit sector need to follow the
laws of the country (or countries), that they are based in.
Key areas of regulations that organisations must follow, include the following. Refer to the
table on the slide for examples of laws from different countries.
• Data protection regulations cover the movement, storage, ownership and
distribution of personal data, such as names and addresses.
• Ethical practice regulations govern and promote fair practice between
organisations and their customers to prevent bribery and corruption, the
exploitation of slave labour and human trafficking.
• Health, safety and environment and worker rights regulations demonstrate a
country’s commitment to caring about their workforce, ensuring that workers have
the right to work without prejudice, suffer no injury in the duty of carrying out
their work and enjoy a suitable balance of work and leisure time.
• Marketplace competition regulations are designed to regulate fairness in business
and trading, while promoting and facilitating competition within different markets.
• Product safety standard regulations govern minimum levels of safety or quality a
product should conform to before sale within a country or region.
Learner activity
16
SLIDE TUTOR NOTES
1. Carry out research into the regulations that are in place in your country for each of
the areas indicated on the slide.
• What is the name of the regulation?
• When did it come into effect?
• What does it cover?
• Is there more than one regulation for a particular area?
• Does one regulation cover more than one area?
2. Tutor to lead class discussion to share findings and collate key points for each area.
23 • When goods are imported, they need to be accompanied with appropriate

documentation that covers all aspects of delivery.
• Correct documentation should enable the goods to easily pass from their point of
origin to their destination.
• Documentation requirements vary from country to country. It is important that
both the buyer and the supplier have a good understanding of the export and
import requirements in relation to any local or international laws that may apply.
Methods used within the EU

Documents used within the European single market that enable free and traceable
movement of goods within its borders include the following.
• T1 Documents – must accompany goods that are in transit through the EU until
they reach their final destination (enabling traceability). While travelling under this
document, the goods are not subject to duty charges, but will be when they reach
their destination (if duties exist).
• Import/Export Licence – may be required to permit the import or export of a
particular product.
• Single Administrative Document – only required for goods entering or leaving the
EU, not required for goods arriving from within the EU, or those being transported
outside of the EU. Predominantly used when manual processing is required in the
event of computer system failures.
The following are systems used within the European single market.
• New Computerised Transit System – used to electronically track the movement of
goods that are being transported within the EU.
• Users can electronically submit union transit (UT) and Transports
Internationaux Routiers (TIR) declarations in lieu of paper declarations to
facilitate the easy movement of the goods in transit.
• The procedure for TIR applies in cases where goods are delivered to,
transported from or pass through EU member states with this system
allowing greater traceability of their movement.
• Customs Declaration Service – the system in the UK that will replace the previous
system from early 2019, customs handling of import and export freight (CHIEF).
Users will submit electronic import and export requests. Maintains an audit trail of
17
SLIDE TUTOR NOTES
previous requests and calculates tariff and duty requirements on their behalf.
Learner activity
1. Use the Internet to find out what documentation would apply to the movement of
goods from your country to a country within the EU, and to a country not in the EU.
2. Obtain copies of the documentation you have identified.
3. Review the documentation and list the types of information required, e.g., details
of the goods, duties, etc.
Follow-up: ask to see a copy of the documentation used by your organisation to facilitate
the movement of goods to your country.
24 The following are documents that are required to facilitate the flow of international
imports and exports.
• Purchase order – the purchase request from the buyer to the supplier, providing
deliverable lines that the supplier can submit an invoice for payment against upon
delivery.
• Bill of lading – documents of title that detail what is required of those involved in
transporting, carrying and consigning goods until their point of delivery. Used for
the transportation of goods across borders.
• Insurance cover – ensure the goods being transported the buyer, supplier or both
may be responsible for ensuring that any goods to be transported are covered by a
suitable insurance policy. This should cover the value of the goods and should
detail how it applies, i.e. dates and locations. The buyer must be sure of their
responsibilities relating to the chosen policy and should ensure that it adequately
covers the correct stages of the journey.
• Certificate of origin – a declaration that officially specifies the origin of a particular
delivery of goods. It provides assurance for customs agency officials as well as the
buyer that the goods have come from a particular country, allowing access to
certain tariffs or duty reliefs.
• Carnet – a document that allows the temporary free movement of goods for a
specified purpose, within a designated boundary or along a set route (known as an
Admission Temporaire or ATA carnet). Goods must not remain in the country
permanently. Throughout the use of a carnet, the person responsible for the goods
should ensure that all goods are accounted for and apply to the customs
regulations of the countries they enter.
Learner activity
Prepare a scenario for learners. For example, a shipment of clothing being sent from a
factory in India to a distributor in France, or learners can use a scenario that they are
familiar with from their organisation.
Either provide examples of each of the documents mentioned above, or ask learners to
source them themselves.
Ask learners to do the following.
18
SLIDE TUTOR NOTES
1. Identify the method of transport and the route that the shipment will take, noting
the different countries it will pass through.
2. Complete all the necessary documents for that shipment.
Learners may wish to work in pairs or small groups to discuss the activity.
25 Incoterms®
• A list of commercial rules that provide a recognised standard of trade
understanding and terminology between buyers and sellers.
• Used to describe the point when a deliverable is no longer the responsibility of the
selling organisation, and the risk is transferred to the buyer.
• Used to represent the following information when included in contracts.
• The point at which the goods will be considered to have been ‘delivered’.
• Which party is responsible for organising transportation, and what form
this takes.
• Which party pays to insure the goods and which is responsible for
arranging this.
• Which party is responsible for making duty and tariff arrangements and
passage through customs control organisations?
• Can take the place of otherwise lengthy contractual clauses
Refer to the table on the slide and discuss the examples.

• E-X-W is ‘ex-works’. The goods are considered delivered at the point of release
from the seller’s premises. The risk is on the buyer from this point, and the buyer
must arrange loading and transporting the goods, and export clearance.
• C-I-P means ‘carriage and insurance paid to’. The seller is responsible for delivering
the goods to a carrier or intermediate agreed place and should ensure that the
goods have at least minimal insurance cover until this point. The buyer is
responsible for ensuring that the goods reach their named destination from here.
• D-A-P means ‘delivered at place’. The seller is responsible for delivering the goods
to the buyer’s premises, bearing all risk up until this point.
Learner activity
Think back over procurements you have arranged, or ask a colleague the following.
1. Which methods are commonly used for shipments in your organisation?
2. Are there guidelines about which methods are preferred? What determines the
method selected, e.g., trust in supplier.
3. What are the risks and benefits of the methods commonly used by your
organisation?
26 There are various payment mechanisms that can be used in international trade. They
carry different risks in relation to payment and delivery – refer to the diagram on the slide.
• Some are more beneficial for the importing buyer, such as an open account.
19
SLIDE TUTOR NOTES
• Some are more beneficial for the exporting supplier, such as cash in advance risks.
Open Account
• Supplier ensures goods are delivered to the buyer long before payment is due
(potentially as much as 90 days)
• A great deal of domestic trade is undertaken in this way.
• Highly beneficial to the buyer, but not beneficial to the supplier, as there is a risk
of not getting paid.
• An open account needs to be carefully managed to prevent cash flow problems for
the supplier.
Term/Time Draft
• A guarantee of payment (from the buyer’s bank) that ensures the exporting
supplier retains the title of the goods until the point at which the importing buyer
has receipted them.
• Following confirmation that goods have been received, the supplier is paid after a
short delay.
• The delay gives the buyer time to inspect the goods and ensure that they are
satisfied before paying the supplier.
• The supplier has the benefit of knowing payment is guaranteed.
Sight Draft
• A guarantee of payment (from the buyer’s bank) that ensures the exporting
supplier retains the title of the goods until the point at which the importing buyer
has receipted and paid for them.
• The supplier is paid for the goods as soon as they are received (‘on sight’) and
there can be no delay in this.
Letter of Credit
• A guarantee provided by the buyer’s bank to the supplier stating that the
exporting supplier will only be paid when the supplier meets the conditions
detailed in the letter.
• This option supports the payment of the supplier, but is especially favourable to
the buyer as they are not obliged to repay the bank until the terms of the letter of
credit are met, with all required documents provided.
Cash-in-Advance Payment Terms
• The buyer pays the supplier for goods before they are received.
• This benefits the exporting supplier, but may pose risks to the buyer, for example,
if the buyer does not receive the delivery (due to loss in transit, the supplier never
despatching it etc.,) they might not be able to recover the money they have
already paid to the supplier, who may not accept any responsibility for the loss.
Learner activity
20
SLIDE TUTOR NOTES
1. Which payment methods are used within your organisation?

2. Is there a default method, or does it vary?
3. What factors determine which method is selected?
27 Samir works for a printers firm based in Spain.

He has been tasked with procuring paper for their industrial printers.
He has identified a suitable supplier who is based in India. They have requested payment
up-front, but Samir thinks this could be risky because he has not worked with them before.
Samir also needs to find out what import and export documentation will need to be filled
in, and discuss with the supplier the Incoterms® that will apply.
1. What Incoterms® would you recommend Samir negotiates in order to keep the risk
to his organisation as low as possible?
2. What method of payment could Samir propose to reduce the risk to his
organisation, while ensuring the supplier is satisfied?
3. What import and export documentation will be needed for the goods being
transported from the supplier to Samir’s organisation?
Learning Outcome 4: Understand ethical and responsible sourcing

SLIDE TUTOR NOTES
28 Not applicable
29 Corruption – the abuse or misuse of a person’s entrusted position, power or authority for
personal gain.
• Within procurement, this could include a person with authority agreeing to give a
specific supplier a contract before a fair competitive tender has been carried out
(rendering it unfair) to determine which supplier wins the business.
Bribery – the corrupt exchange of something of value, known as a bribe, by one party in
order to secure a desirable outcome for another party.
• For example, within procurement, a potential supplier might offer a gift or
hospitality to a buyer in exchange for being awarded a contract.
• It defies ethical practice because it is a barrier to fair competition.
• Bribes may go by other names in an attempt to make them sound more official
21
SLIDE TUTOR NOTES
and ethically acceptable, such as a facilitation or ‘grease’ payment.

• In some countries, bribes may be more readily accepted as a business norm so you
need to be careful when international supply chains are involved.
• Responsible supply chain professionals must reject all forms of bribery and seek
advice where cases of bribery are known or suspected.
Gift-giving
• In some cultures, this is considered a normal business practice and the people
giving the gift might not intend for them to be bribes.
• Refusing the gift can cause offence to the giving party.
• Accepting the gift could be perceived as accepting a bribe.
• To protect their employees, organisations often have a gifting and hospitality
policy that outline the following.
• When it is appropriate to accept a gift.
• What types of gifts are not acceptable?
• How to proceed depending on the value of the gift.
Fraud – deliberately misleading or telling lies to a person to achieve the outcome they
desire at their victim’s expense.
Reasons why people commit fraud – refer to the fraud triangle on the slide
• Perceived pressure (on the individual committing fraud) – for example, personal
debt problems that the individual believes they will not be supported in resolving
in a legitimate manner.
• Perceived opportunity (to carry out fraud) – any situation or vulnerability in a
system or organisation that the individual believes they can exploit in order to
satisfy the perceived pressure.
• Rationalisation (of the fraud) – the individual’s internal dialogue that provides
justification (from their point of view) for carrying out the fraud, such as “it’s only
going to be one time” and “it’s not that bad” or “I need to support my family and
this is the only way I’ll be able to”.
Learner activity
1. Find out if your organisation has a gift-giving and hospitality policy.
2. Find out what the repercussions of accepting a bribe as part of your work are both
within your organisation and according to your country’s laws.
30 Modern day slavery – which is the forcing of adults and children to carry out labour
against their will.
• This may be the result of a perceived debt owed to an ‘employer’ or individual
which they must work to pay off, potentially with no end.
• An individual may be threatened with violence against them and their families.
• Someone may be promised a life with better prospects in another country and are
22
SLIDE TUTOR NOTES
then enslaved through human trafficking networks.

• It can be easily hidden beneath tiers of supply and can take place in any country.
Procurement professionals need to be vigilant and look out for signs that slavery may be
taking place in the supply chain. Potential indicators of slavery may include the following.
(Note: it does not always mean that slavery is taking place) – refer to the slide.
• Suppliers based in nations with poor scores in the corruption perceptions index
• Suspiciously low labour costs in sub-tier suppliers
• Fluctuations in the quality of products due to unskilled labourers
• Evidence that workers live on-site or are held against their will elsewhere
• Poor quality workstations and workshops
• Few labourers, but long shifts or ‘round-the-clock’ working taking place
• A UK-based supplier that does not have a published anti-slavery statement
If a buyer suspects modern day slavery within an organisation, they can do any of the
following.
• Carry out a due diligence check
• Check the code of conduct documents provided by the supplier
• UK-based buyers can contact the modern slavery helpline for advice.
Learner activity
1. What checks do you need to undertake prior to awarding a contract to ensure
there is no modern-day slavery?
2. What checks/procedures/policies does your organisation have in place in relation
to modern-day slavery?
31 Five sections of the CIPS Code of Conduct – refer to the points on the slide (more details
are included below)
1. Enhance and protect the standing of the profession – by acting in a manner that
does not bring CIPS or the profession as a whole into disrepute. This does not just
cover how you act at work, but it includes your personal life, where inappropriate
actions could have a negative impact on other’s perceptions of you as a
professional. Specifically, this rule advises that you should not accept gifts or
hospitality, as this could be perceived as the unethical acceptance of bribes.
2. Maintain the highest standard of integrity in all business relationships – by not
using your authority for personal gain, by challenging improper business practices
and by promoting honesty in all aspects of the work you carry out. This rule also
advises that you should not disclose any confidential information entrusted to you.
3. Promote the eradication of unethical business practices – by promoting and
protecting human rights, responsibly challenging business relationships where
unethical practices have been found and abstaining from modern day slavery, fraud
and other forms of corruption. This rule also states that due diligence should be
23
SLIDE TUTOR NOTES
used to support you in identifying unethical business practice, so that you can best
manage the situation.
4. Enhance the proficiency and stature of the profession – by undertaking continuing
professional development and by using your position of influence to encourage
your team to follow the same standards for carrying out ethical procurement. This
also requires you to use the resources for which you are responsible for the benefit
of your organisation.
5. Ensure full compliance with laws and regulations – by following CIPS professional
practice guidance, following the laws of countries you operate in and by ensuring
that contractual agreements are properly fulfilled.
Learner activity
1. Obtain a copy of the CIPS Code and Conduct and familiarise yourself with it.
2. If your organisation has its own Code of Conduct, familiarise yourself with that too.
What aspects does it cover?
3. Were there any aspects you were not aware of in either Code?
32 Pre-qualification questionnaire (PQQ)

• Used to assess the compatibility of a supplier to a buying organisation
• Provides information that allows you to identify whether the supplier:
• has the capability to deliver a contract
• shares your organisation’s ethical values
• can help identify potential risks early
• Gives you the opportunity to filter out unsuitable suppliers before they enter your
supply chain, which protects your organisation against:
• reputational damage
• wasted time and money in resolving conflicts
• potential late deliveries to customers
Suppliers can be assessed on their commitment to the following. Refer to the content in
the table on the slide for examples of each category.
• Social criteria
• Environmental criteria
• Economic criteria
Due diligence should be carried out on all suppliers, even if you receive favourable
responses at this stage.
Learner activity
1. Does your organisation use PQQs? If so, are they used regularly or infrequently?
2. Obtain a copy of a PQQ (issued by your organisation, or from the Internet) and
annotate it to flag what aspects are being asked about. Categorise them according
to whether they reflect social, environmental or economic criteria.
24
SLIDE TUTOR NOTES
33 Audits:
• Audits can be carried out by the procuring organisation, or by a contracted
independent third-party.
• If audits are undertaken by the buyer, they can do the following.
• Form their own assessment of the practices within a supplier’s workplace,
and whether or not they believe the supplier operates in an ethical and
sustainable manner.
• Assess for other concerns, such as quality and production where required.
• Audits are generally conducted on the supplier’s premises - the auditor needs the
support of the supplier’s senior employees to ensure they have access to any
required areas, employees and documents.
• Structured around a series of questions that are aligned to contract requirements
and international standards or regulations.
• May include interviews with members of staff in relevant positions.
• Generally carried out as scheduled on-going, occasional activities
• May take place following a failure of some kind – focus is on the problem and the
elements that are believed to contribute to it.
To reduce the risk of being misled, a buyer can give the supplier very little or no warning
that the audit is taking place, to ensure that they do not have time to prepare for what
they believe the auditor should see.
Before the audit takes place, the lead auditor should set out the scope of the audit. Talk
through aspects covered on the slide.
Learner activity
Learners to work in small groups to scope out an audit in response to a scenario.
• A routine audit on an overseas supplier to check that standard procedures, health
and safety regulations and requirements for working conditions are being adhered
to in a clothing manufacturing factory.
• Or a post-failure audit designed to investigate a problem, e.g., as a result of
repeated customer complaints about the handle of a bag breaking, and understand
what factors contributed to it, to avoid it happening again.
For each scenario, learners to discuss and decide on the following.

1. How long should the audit take?
2. What period of time should be reviewed?
3. What teams or functions will be focused on?
4. Whether the supplier should be given notice of the audit, and if so, how much
time?
34 Three aspects or ‘pillars’ of sustainable development are the following.

• Social – How an activity impacts people, relationships, cultures, laws and political
situations.
25
SLIDE TUTOR NOTES
• Environmental – How an activity impacts ecosystems, environments and the

abundance of natural resources.
• Economic – How an activity impacts the finances or resources of individuals,
organisations, markets and national economies.
Triple bottom line – an economic term developed by John Elkington that follows the
principles of sustainability.
• Considers performance against all three factors as important value streams within
an organisation.
• Is made up of the three ‘P’s (refer to the diagram on the slide)
• Profit – The organisations economic focus on the generation of financial
wealth from the products or services it sells. (This relates to the ‘economic’
aspect.)
• People – The organisation’s socio-cultural focus on those it directly and
indirectly affects, including the people it employs, the communities it
operates in and the markets of customers it sells to. (This relates to the
‘social’ aspect.)
• Planet – The organisation’s focus on its impact to the ‘environment’, which
could include ecosystems, ground water contamination and over-extraction
of resources. (This relates to the ‘environmental’ aspect.)
If a company actively monitors and promotes the factors that make up its triple bottom
line, it will be able to more easily understand its financial, social and environmental
performance.
Class discussion
Why are each of the aspects/pillars important to the continued success of an
organisation?
Prompts: What might happen if an organisation does not consider the
social/environmental/economic aspects? (Each should be explored in turn.)
What might happen when an organisation does consider each of the aspects?
• Considering environmental factors can lead to energy-efficiency measures which
can result in cost-savings, and increase profit.
• Considering people and the planet can result in improved reputation, which will
attract high-calibre employees, and make consumers loyal to the brand. Which in
turn can lead to an increase in profits.
• All contributes to sustainability (longevity) of the organisation, as well as the
planet.
Learner activity
Find out if your organisation reports its triple bottom line.
26
SLIDE TUTOR NOTES
35 As a supply chain professional, the decisions you make could play an important part in
determining whether or not procurement activities are sustainable.
With the products you purchase, there are potential impacts at the three following stages.
• During manufacture
• In use
• At the point of disposal
Consider what impacts your purchases may have on the environment and on people, by
asking questions – refer to the diagram on the slide
An organisation’s supply chain is one of the areas that can both best benefit from
sustainable practice and potentially be vulnerable to practices that are not sustainable.
As a result, organisations may choose to implement a standard that their workforce and
suppliers can follow, to support working towards sustainable practice.
Some examples of standards that support organisations to act ethically and sustainably
include the following.
• ISO 20400:2017 (International Organization for Standardization)
• The Sustainable Agriculture Standard (Rainforest Alliance)
• The Standard for Hired Labour (Fair Trade International).
• (There are many more.)
Learner activity
1. Individually or in small groups: Learners to use the Internet to research either the
standards listed above, or to find other examples of international standards, or
ones specific to your country, that support organisations to act ethically and
sustainably.
• What is the name of the standard?
• What does it cover?
2. How can buyers ensure suppliers follow a particular standard?
3. How can suppliers demonstrate that they follow a particular standard?
36 Juno is planning a tender for the supply of coffee beans for a large multi-national chain of
coffee shops.
She wants to ensure that the winning supplier:
• has no modern-day slavery in the extended supply chain
• is committed to improving social outcomes for the local community they source
from
• has a CSR policy that aligns with her own organisation’s
1. Why do you think it is important to Juno’s organisation that the supplier meets
these criteria? (Prompt: large multi-national chains would have a massive impact;
CSR policies; reputational damage if found to be associated with suppliers that do
not adhere to the criteria.)
27
SLIDE TUTOR NOTES
2. What methods could Juno use prior to awarding the contract to ensure that the
supplier(s) awarded the contract meet the criteria specified?
3. What methods could Juno use during the contract to ensure that the supplier(s)
meet the criteria specified?
28

L4M4 Tutor Notes FINAL

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

L4M4 Tutor Notes FINAL

Uploaded by

Copyright:

Available Formats

CIPS Level 4 Diploma in Procurement and Supply

Leading global excellence in procurement and supply

SLIDE TUTOR NOTES

the lowest costs

The following are the two factors considered.

The following are the four quadrants that are produced.

Frequently outsourced functions include the following.

• economies of scale can be achieved

5 The process of issuing a tender is more formal than issuing an RFQ.

The following are the three main approaches to tendering.

pre-qualification questionnaire (PQQ) to establish if they meet the required

The following are examples of when to use each type of tendering.

Speak with a colleague in your organisation to find out the following.

Ratio analysis has the following two main objectives.

The information required to calculate ratios is drawn from an organisation’s income

acceptable price. Examples include the following.

Both sets of awarding criteria need to be balanced to enable a procurement professional

The functions up for consideration include the following.

to tendering would you recommend he uses?

SLIDE TUTOR NOTES

ABC analysis – refer to the diagram on the slide

When an organisation is considering changing a supplier, it should apply the Pareto

differences? What are the reasons for the differences?

Procurement professionals use credit scores to evaluate suppliers by reviewing the

The following are some advantages of using a weighted points system.

• It involves cross-functional teams.

The following are some disadvantages of using a weighted points system.

16 Procurement professionals can carry out independent financial reviews on potential or

Profit and loss statement

Cash flow statement

Other, non-financial, factors should also be evaluated when assessing suppliers.

17 E-requisitioning is the use of electronic systems to raise and approve requisitions.

Requisitions can also be approved electronically.

SLIDE TUTOR NOTES

Class discussion/learner research activity

• Open procedure – used for well-specified requirements and there is no

23 • When goods are imported, they need to be accompanied with appropriate

Methods used within the EU

Refer to the table on the slide and discuss the examples.

1. Which payment methods are used within your organisation?

27 Samir works for a printers firm based in Spain.

Learning Outcome 4: Understand ethical and responsible sourcing

SLIDE TUTOR NOTES

and ethically acceptable, such as a facilitation or ‘grease’ payment.

then enslaved through human trafficking networks.

32 Pre-qualification questionnaire (PQQ)

For each scenario, learners to discuss and decide on the following.

34 Three aspects or ‘pillars’ of sustainable development are the following.

• Environmental – How an activity impacts ecosystems, environments and the

You might also like