CIPS L4-Scope and Influence of Procurement and Supply

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

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
All rights reserved. These slides are provided exclusively to CIPS Approved Study Centres for the sole purpose of teaching CIPS Professional Qualifications, they are not to be
used for any other purpose and may not be altered, copied, sold or lent to other parties. Copyright ©2018 CIPS
Slide 1
(1.1) Stock and non-stock procurements
Stock procurements
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
Non-stocked procurements:
•Cleaning service
•Telephone system
•Internet contract
•Organisational insurance
•Advertising campaign
Slide
Slide 92
(1.1) Direct and indirect procurements
Figure 1.5 Different supplier types, based on The Kraljic matrix

Slide
Slide 93
(1.1) CAPEX and OPEX
Operations Expenditure
Capital Purchases (CAPEX)
(OPEX)
An asset purchased to last a long An ongoing expense to an
period of time organisation
Often paid as a lump sum or through
Paid monthly or annually
a bank loan
Accounted for and depreciated over Accounted for in the current
a period of time month or year
High value Low to medium value
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41
(1.2) TCA and TCO
Figure 1.8 The elements of TCO

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51
(1.2) Use of KPIs
Figure 1.9 Examples of KPIs relating to quality, quantity, timescales and place
Slide 96
(1.3) Supply chain management
Figure 1.12 A basic supply chain
Figure 1.13 A supply chain network (Source: Arteria Technologies Private Limited, finessart.com)
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7
(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?
Slide
Slide9 81
(1.4) Managing stakeholders
Figure 1.22 Stakeholder matrix based on Mendelow’s theory
Slide 9
Learning exercise: Chilled Logistics
Work in groups to discuss the following questions.
1.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
2.Create a supply chain, and expand it into a supply chain network relevant to
this example.
3.Identify at least four specific stakeholders of the distributor. You can refer
back to the questions to ask to help you with this.
Slide
Slide 910
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
(2.1) CIPS Procurement Cycle
Figure 2.1 The CIPS Procurement cycle (Source:

www.cips.org/en-gb/knowledge/procurement-cycle/. Copyright CIPS 2014. All rights reserved.)
Slide 9
12
(2.1) CIPS Procurement Cycle: Stages 1–4
Figure 2.2 The make or buy decision Figure 2.3 The product lifecycle
based on Linton
9
Slide 13
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 Used when purchasing Standard, regularly
services used products or services
Used when purchasing High value products Used when purchasing Low value products
or services and services
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9
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
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15
(2.2) Key stages of the sourcing process
Stage Added value
Ensures quality standards are met and reduces need for
Defining needs / developing
requotes due to lack of information or misinterpretation.
specification
Saves time
Ensures potential suppliers are fully briefed on the terms and
Developing contract /
conditions which eliminates at an early stage suppliers that
documentation
cannot conform.
Evaluation of suppliers removes unethical, unsuitable
Supplier selection
suppliers and those in financial difficulties
Saves time compared with spot buying. Ensures goods are
Contract award
sourced against ongoing needs.
Develops relationships which increase the chances of
Contract / supplier
innovation, change management and trust between
management
organisations.
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16
(2.3) Electronic systems used in sourcing
Figure 2.11 The e-procurement process

Slide
Slide917
(2.4) Compliance and achieving outcomes
Figure 2.16 Areas covered by compliance

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181
Learning exercise: Save the Earth’s marketing
contract
1. Based on the information provided, would you advise Conrad to
develop documentation for an ITT or an RFQ?
2. Considering the purpose of the charity, what factors might Conrad
want to find out about suppliers during the supplier selection stage?
3. What activities could Conrad undertake in order to ensure the
selected suppliers are appropriate to work with his organisation?
Slide
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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
Slide 201
(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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211
(3.1) Conflicts of interest (2)
Figure 2.2 The 4D model
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221
(3.2) Procurement policies and strategies
Figure 3.5 Policies and procedures
Slide 9
23
(3.2) Involving other functions in the sourcing
process
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 Create specifications, give input on components from functionality and
design quality perspective, help with cost reduction ideas
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24
(3.3) Types of procurement structures
Devolved Hybrid Centralised
How it works • Individuals are responsible • A mix of • The vast majority of
for their own centralised and purchasing is done from
procurement devolved a central location
Used by • Smaller organisations • Various • Large organisation with
multiple sites
Advantages • Specialist product • Reduces costs • Reduces costs and
knowledge • Reduces control
• Direct communication workload • Enhances relationships
with supplier
Disadvantages • Individuals aren’t • Reduces • Longer lead time
procurement competition • Doesn’t support local
professionals • Internal suppliers or economy
• No economies of scale conflict
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25
(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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Slide 9261
(3.3) Hybrid structures - Outsourcing
Advantages Disadvantages
Difficulty in managing the change from internal to
Cost reduction
outsourced procurement
Reduced overheads (fewer
Lack of control
procurement staff required)
Need to ensure time spent managing outsource
Reduced training costs
suppliers is less than time previously spent on task
Can be problems integrating company systems with the

Economies of scale
outsourced procurement function
Access to highly skilled buyers Redundancies in current procurement team

Enables organisation to focus
Lack of continuity of supply and supplier relationships
on core competencies
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(3.4) Inventory management systems
Figure 2.2 Kanban system
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281
Learning exercise: Yoko’s options
1. Why was it important for Yoko to meet with the Directors of the other
functions before making any decisions?
2. 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?
3. 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?
4. 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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291
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
Slide 301
(4.1) Economic classifications
• Private sector
• Public sector
• Third sector or not-for-profit
• Primary sector
• Secondary sector
• Tertiary sector
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311
(4.2) The Public Sector
Sector Public sector
Owned by
Funded by
Purpose and objectives
Industrial sector
Examples
Slide
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9
(4.2) The Public Sector - impact on procurement
Figure 4.1 Stakeholders in the public sector (www.publicengagement.ac.uk)

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33
(4.3) The Private Sector
Sector Private sector
Owned by
Funded by
Industrial sector
Examples
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341
(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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351
(4.4) Not-for-profit sector
Sector Third sector
Operated by
Funded by
Sector
Examples
9
Slide 361
(4.4) Not-for-profit sector – impact on
procurement
Similarities with private sector: Differences from private sector:
•aim to achieve best value for money •suppliers might offer something for
•conduct ethical procurement nothing or reduced prices because
•promote sustainability they want to help the cause
•benchmark to ensure fair pricing •gifts and hospitality is allowed, but
•carry out supply chain management. they should be documented and
verified to ensure donors aren’t
looking to influence decision making.
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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:
1. What are the key differences between the public and the private sector?
2. How does the way the public sector is funded have an impact on
procurement?
3. 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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381

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CIPS Level 4 Diploma in

Procurement and Supply

Leading global excellence in procurement and supply

Figure 1.5 Different supplier types, based on The Kraljic matrix

Figure 1.8 The elements of TCO

Figure 1.12 A basic supply chain

Figure 1.22 Stakeholder matrix based on Mendelow’s theory

Figure 2.1 The CIPS Procurement cycle (Source:

Suppliers are often pre-evaluated Suppliers not usually pre-evaluated

Common goals, strategies and objectives No shared goals

Figure 2.11 The e-procurement process

Figure 2.16 Areas covered by compliance

Questions to ask yourself:

Figure 2.2 The 4D model

Figure 3.5 Policies and procedures

Sales Guide procurement on stakeholder needs, suggest sales figures to enable

Can be problems integrating company systems with the

Access to highly skilled buyers Redundancies in current procurement team

Figure 2.2 Kanban system

Purpose and objectives

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

Purpose and objectives

Purpose and objectives

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