CIPS L4M1 Scope and Influence of Procurement and Supply Exam Practice Test

How to approach this question:

- Define stakeholder mapping – completing an analysis of the stakeholders of an organisation and dividing them into categories depending on certain characteristics. This is often represented visually on a graph or matrix.

- Describe a Stakeholder mapping tool – the most common tool is Mendelow’s Stakeholder Matrix so I would recommend using this one. It is explained in detail in the study guide. However, the question is open so you could choose to describe another tool such as Edgar’s Stakeholder Position Analysis if you so wished. You wouldn’t be wrong choosing this, but honestly, I’d just go for Mendelow. You can’t go wrong with Mendelow. Because the Matrix has 4 sections you can imagine you’d get 5 points for the definition of stakeholder mapping, and 5 points for each of the quadrants of the matrix.

Essay Plan:

Introduction - The reason why stakeholder mapping is important is because interests and expectations of stakeholder groups will be different and possibly conflicting. Mapping this allows an organisation to see the variety and decide on an appropriate management style for each stakeholder group.

Paragraph 1 - Mendelow’s Power / Interest Matrix maps stakeholders based on their influencing power and the strength of their motivation to use that power. It uses a 2x2 grid and defines power as high or low and interest and high or low. It then provides four strategies for managing the stakeholders based on which quadrant of the grid the stakeholder falls into. These 4 categories are:

Paragraph 2 - Keep satisfied – high power but low interest. If the stakeholder becomes dissatisfied or concerned their interest may peak. Examples include regulatory bodies, shareholders, senior management. The best approach is to keep them up to date so they are informed of what is going on, but do not burden them with information they do not need.

Paragraph 3 - Manage Closely – AKA Key players – includes major customers, key suppliers, partners, senior management. These stakeholders need to know everything that is going on and approve of what is going on. The recommended strategy is early involvement and participation, and integrating their goals with yours. This group requires regular communication and meetings. You should take their opinions on board.

Paragraph 4- Monitor – minimum effort required – this is the low priority group as they have low power and low interest. Includes small volume suppliers and other organisational functions with no direct interest in your activities. This group does not need to receive regular communication.

Paragraph 5 - Keep informed - high interest, but low power. If they’re not kept in the loop and understand the need for decisions, they may lobby together to protect their interest if they feel threatened. Employee groups, suppliers and community groups may be in this category. This group should receive regular communication.

Conclusion - Mendelow created the matrix in 1991 and it is still used today. It is a popular management tool due to its simplicity. It’s important to notes that stakeholders can move through the matrix- it isn’t stagnant. For example, at the beginning of a project a manager in another department may be classed as ‘low priority’ because they are seen to have no interest and no power in the project. However, as the project progresses the manager may become interested. They will then transfer into the keep informed category. Therefore, the matrix should be redone regularly throughout the lifetime of a project to capture any movements. The matrix should also be redone for each individual project – it cannot be assumed that a stakeholder who had interest in one project would be interested in another.

Tutor Notes

- The above essay plan is basically the entire essay, I got carried away. The only thing you’d need to add into that is an example of a stakeholder for each of the sections! (e.g. the CEO is high power, but low interest stakeholder for the procurement department. He/ She doesn’t care about the day to day operations but should be kept informed of any big news). For your examples you could use your own place of work.

- At level 4 you don’t have to analyse the model, you just have to be able to memorise it and repeat it. Mendelow comes up again at Level 5 and 6 in a bit more detail. If you want to score super bonus points you could mention in your conclusion that the main disadvantage of Mendelow’s Matrix is that it doesn’t take into consideration the stakeholder’s position on the project – whether they’re for it or against it. Therefore, it doesn’t provide the full picture or provide much help on how to manage stakeholders. E.g. two stakeholders might both be in ‘manage closely’ section, but one is for the project and the other against – they’d need to be handled very differently!

- Study guide p. 65

How to approach this question

- This question is very vague. Sometimes CIPS do this. It allows for you to be a bit more free in your response, but can also be quite stressful because you don’t 100% know what they’re after.

- For this question we’re looking at competitions, so full tenders where lots of suppliers are invited to bid for an opportunity. This means the type of things we could be discussing include; IP, cartels, merger controls and monopolies.

Example Essay

Procurement professionals operate within a legal framework that regulates competition, aiming to ensure fair business practices and prevent anti-competitive behaviour. Three critical areas of regulation related to competition that procurement professionals should be aware of include intellectual property, cartels, and merger controls.

Intellectual Property (IP):

Intellectual property encompasses creations of the mind, such as inventions, designs, and brand names, protected by law. In the context of procurement, understanding intellectual property is essential when dealing with suppliers' products, technologies, or services that may involve intellectual property rights.

Procurement professionals must be aware of the intellectual property rights associated with the goods or services they are procuring. This includes respecting patents, trademarks, copyrights, and trade secrets owned by suppliers. Due diligence is crucial to ensure that the products or services being procured do not infringe on the intellectual property rights of others, requiring verification of legal ownership and legitimacy. An example of something procurement should look out for include ensuring goods are authentic and not counterfeit.

Cartels:

Cartels involve agreements between competitors to control prices, manipulate markets, or restrict competition. For procurement professionals, it is imperative to be vigilant and avoid engaging in or unintentionally supporting cartel activities. Procurement professionals should refrain from participating in anti-competitive behaviour, such as bid-rigging or price-fixing, which are common cartel activities. This involves not colluding with suppliers or competitors to manipulate procurement processes. Maintaining open and fair competition is essential, ensuring that procurement processes remain transparent, competitive, and free from attempts to distort market dynamics, thereby preventing the formation of cartels and promoting a level playing field.

One notable example involved the construction industry in the UK. In 2019, the Competition and Markets Authority (CMA) fined three major suppliers to the construction industry for participating in a cartel. The companies, which supplied concrete drainage products, were found to have coordinated their behaviour to share markets, fix prices, and rig bids.The investigation revealed that these companies had breached competition law by engaging in anti-competitive practices that limited competition and negatively impacted customers. The fines imposed were part of the CMA's efforts to deter and penalize such cartel behaviour, emphasizing the importance of fair competition in procurement. The Directors of the companies have also been banned from undertaking the role of Director of any company for 12 years.

Merger Controls:

Merger controls are regulations overseeing the consolidation of companies, mergers, and acquisitions to prevent monopolistic practices and protect fair competition. Procurement professionals need to be aware of these regulations, especially when dealing with suppliers undergoing mergers or acquisitions.

Staying informed about mergers and acquisitions within the supplier base is crucial. If a key supplier undergoes such changes, it may impact the stability of the supply chain or alter market dynamics. Procurement professionals need to be aware of potential changes in supplier relationships, pricing structures, or product/service availability resulting from mergers. Engaging in proactive risk management and contingency planning is necessary to mitigate any negative impacts on procurement operations.

Mergers are actively watched in the UK by the Competition and Markets Authority, and where rules are broken, the CMA can intervene and even prevent mergers from happening. A notable example of this was the attempted merger between JD Sports and Footasylum – the companies were fined millions of pounds for exchanging information and attempting to collude and distort the marketplace.

In conclusion, procurement professionals play a crucial role in navigating these regulatory landscapes effectively. Understanding intellectual property, avoiding cartel activities, and staying informed about merger controls contribute to fostering fair and transparent competition within the marketplace.

Tutor Notes

- The construction example of a cartel can be found here Supply of precast concrete drainage products: civil investigation - GOV.UK (www.gov.uk) but feel free to use your own!

- The JD/ Footasylum one is here: JD Sports and Footasylum fined £4.7m for competition breach - BBC News. Basically, the CMA got involved because the two firms were sharing private information and having secret meetings, with the intention that they could combine. The CMA thought it was super dodgy and that it would distort the trainer / footwear market in the UK so they fined the companies and told them to stop it.

- The study guide is a bit light on this topic, so I would do a bit of extra research and have an example in your back pocket for if you need it. P. 142

If you want an example of IP issues- Shein is a great company to look at- ‘They took my world’: fashion giant Shein accused of art theft | Art and design | The Guardian

- Firstly start with a definition of Corporate Governance – this means the rules, policies, processes and organisational structures that ensure an organisation adheres to accepted ethical standards, good practices, the law and regulations. It’s the systems put in place which directs and controls organisations to do ‘the right thing’.

- Then move on to discuss why having this is important – I’d maybe think of 3-4 examples here such as: protects the interest of shareholders, reduces risk, moral obligations, legal obligations

- The last part of your essay should talk about the 2 obstacles – describe two from the following list: lack of executive support, poor stakeholder co-operation, lack of clarity and / or resources, having poor IT systems, lack of co-ordination of procurement responsibilities. Because you’re only talking about 2 here, you’ll need to go into detail about them. So pick 2 you know well. Don’t be tempted to talk about more than 2. You won’t get extra marks.

Example Essay:

Corporate governance refers to the system of rules, practices, processes, and structures by which a company is directed and controlled. It encompasses the relationships among a company's management, its board of directors, shareholders, and other stakeholders. The primary objective of corporate governance is to ensure that the company operates in an ethical, transparent, and accountable manner, safeguarding the interests of shareholders and promoting long-term value creation. Corporate governance can be defined internally (by shareholders/ managers) or externally (by governments and international standard-setting bodies such as ISO) and is important for all organisations

Corporate governance is needed because you can’t assume everyone will act ethically- rules and procedures need to be written down and the organisation needs to have recourse for dealing with behaviour that falls outside of what is accepted. Procurement’s role in Corporate Governance includes control over finance and expenditure, ensuring the supply chain is ‘clean’ (i.e. not involved in unethical business practices such as child labour) and risk management.

Why having a corporate governance structure is important:

1) The procurement department has a ‘stewardship’ role – it controls large sums of organisation’s funds. There are many opportunities to commit fraud, make unethical or biased decisions so it’s important that there are corporate governance structures in place to prevent this. It protects the organisation from individuals with bad intent, scandal, and legal repercussions.

2) Strong Corporate Governance is required to successfully manage a supply chain. It’s important to ensure good relationships- suppliers need to see you as a ‘good customer’. If your organisation is seen to be unethical or underhand, suppliers may not want to work with you.

3) Financial impact – where corporate governance isn’t implemented, there may be financial costs for the organisation. For example, in the Public Sector if a supplier successfully challenges a tender award, the buyer may have to award the value of the tender – so there’s financial impact on a company if corporate governance isn’t followed.

Obstacle 1 – lack of senior management support

Unless there is buy-in from the senior leadership team it will not be possible for departments such as Procurement to implement sound Corporate Governance procedures. Corporate Governance needs to be directed from the top of an organisation to ensure all departments and staff give importance to this. If Senior Leadership are seen not to care about implementing or following Corporate Governance, other staff won’t care either. They need to lead by example to ensure the whole organisation ‘buys into’ the processes.

Obstacle 2 – Poor IT infrastructure.

For Corporate Governance to be effective, an effective IT system must be implemented. For example, to avoid fraud it’s not just necessary to have a written anti-fraud policy, there must be ways of checking that fraud isn’t being committed. The way to do this is to have an effective IT system which can flag anomaly payments and procurement activities outside of what is considered ‘normal’. Therefore, having a poor IT infrastructure is a barrier to effective Corporate Governance.

In conclusion, corporate governance is essential for building trust among stakeholders and contributing to the overall success and sustainability of a company. Effective governance structures and practices instil confidence in investors, enhance the company's reputation, and foster a culture of responsibility and accountability throughout the organization. Good corporate governance is a cornerstone of sound business management and contributes to the long-term prosperity of the company.

Tutor Notes

- Corporate Governance became a big thing in the 70s and 80s following high profile scandals and the collapse of several companies. Investors were concerned about what companies were doing which led to increased control on the powers of directors and greater transparency of corporate actions.

- Examples of Corporate Governance. Enron is a good real life example you could use: Impact of Bad Corporate Governance - Corporate Fraud and Corruption: A Holistic Approach to Preventing Financial Crises (ebrary.net)

- This is a really good real-life example of Public Sector procurement gone wrong: Flawed nuclear tender sees £100m payout to firms - BBC News

- Adding in some real life examples will take your essay from a Merit result (50-70%) to a Distinction (70% +)

- Another way this topic can come up as a question is describing the elements of corporate governance, or asking what a procurement manager should do when corporate governance is broken/ not followed.

- LO 3.1 p.117

- Definition of P2P - Purchase to Pay or Procure to Pay is the process an organisation takes from ordering a product to paying for it. The main stages of this process are product ordering, supplier requisition to pay, budget authorisation, receipt of delivery, and invoice processing.

- Impact of using IT Systems – can include the use of these systems: EPOS, barcodes/ RDIF, e-commerce systems such as POs and invoicing, and electronic communications such as email. Impacts can be; increased productivity, quicker processes, higher levels of visibility, increased responsiveness to demands, cost savings, less paper used, supplier relationships are managed virtually rather than in person. Generally the impacts are positive, but you could also discuss some disadvantages or challenges a department might face as the question is quite open.

Example Essay

A Procure-to-Pay system is a comprehensive solution that automates and integrates the procurement process within an organization, covering the entire lifecycle from requisitioning goods or services to making payments to suppliers.

The P2P process includes the following: a buyer requests an item, they put in a requisition, it is accepted by the supplier, the item is delivered and the item is then paid for. The order of the steps may be different depending on the industry / requirement (e.g. sometimes payment is made before delivery), or sometimes there are additional steps such as getting the requisition approved by a manager.

Nowadays the P2P process is mainly digitalised- orders are made online or via a PO system and payment is made via BACS. It is not common to pay for items in cash or bycheque any more. This digitalisation has had many effects on the way the procurement department functions. The P2P system streamlines and standardizes the purchasing process, enhancing efficiency, transparency, and control.

The integration of Information Technology (IT) systems has a profound impact on the functioning of the Procurement department within an organization. This digital transformation brings about significant improvements in efficiency, transparency, collaboration, and decision-making processes. Some of the key impacts include:

- Raised productivity – using IT systems results in quicker processes and they’re often more accurate and consistent than humans doing the tasks manually. For example, an electronic requisition system can flag when a requisition isn’t completed properly (e.g. part of the requisition is missing or a supplier name has been spelled incorrectly). When doing this manually the errors may not be spotted.

- Innovation – the use of IT means new avenues can be explored in terms of new product markets and new supply chains. Without the use of IT, procurement may be limited to working with local suppliers or those they can find in the phone book. Using IT systems such as e-auctions and even just the internet to complete research, opens up more opportunities to make purchases. This could involve working with international supply chains and result in cost savings for the business.

- Improved business processes – the use of IT means there is more transparency as everything is recorded and it is easier for managers to oversee. This results in less risk exposure for the business, particularly in fraud. The use of IT also standardises processes which makes it easy for everyone to know what to do.

- When IT is used, there is an increased responsiveness of the procurement function – it allows for 24/7/365 ordering compared to making purchases in person in a shop which may only be open 9-5. Moreover , there are paperless communications when IT is used– this has a positive environmental impact

- Supplier Relationship Management (SRM) - IT systems support Supplier Relationship Management by providing tools to assess and manage supplier performance. This can include logging KPIs and tracking supplier performance. SRM functionalities enhance communication, collaboration, and visibility into supplier relationships.

In summary, the integration of IT systems into the Procurement department transforms traditional practices, making processes more streamlined, data-driven, and strategically focused. The impact is not only on operational efficiency but also on the ability of the procurement function to contribute strategically to the organization's overall objectives.

Tutor Notes

- The word impact is quite vague. I’ve mainly talked about advantages but you could discuss the impact that the use of IT has had on the department, not just in how it functions, but in how it is perceived. IT has professionalised the procurement industry as a whole- it’s no longer seen as ‘purchasing’ but as a vital function within a business that contributes to added value and strategic goals.

- You could also talk about the impact it’s had on ways of working. The use of IT has allowed for innovative procurement and manufacturing techniques such as Just-In-Time.The use of IT also ends silo-working, instead allowing for more collaboration with other business departments and the supply chain as a whole.

- LO 3.4 P. 171

- There’s 2 main approaches to layout you could take for this question. Firstly, divide your essay into three sections for the public, private and third sectors and talk about the key drivers for each sector separately. Alternatively, you could select a couple of drivers and form paragraphs around them, explaining in each paragraph whether the driver is strong or weak or even applicable for the different sectors.

- Drivers you could talk about include attitudes towards money, survival in the industry, differentiation, need for transparency, resources available, stakeholders, regulatory compliance

- Your answer should say why these are drivers in each of the industries, whether these drivers are strong or weak and why.

Example essay:

Organizations across the public, private, and third sectors operate within different paradigms, driven by distinct motivations and constraints. Understanding these key drivers is essential for comprehending how these organizations function and achieve their objectives. This essay explores the fundamental drivers of organizations in each of these sectors, focusing on attitudes towards money, survival, differentiation, need for transparency, resource allocation, and stakeholder management.

Attitudes Towards Money:

The approach to profit significantly differentiates the sectors. In the private sector, profit is a primary driver, essential for survival and rewarding shareholders. Conversely, the public sector is not profit-driven; its primary aim is to provide essential services to society, regardless of financial gain. The third sector, often termed 'not-for-profit', also requires profit generation, but uniquely, all profits are reinvested into the organization to further its aims, rather than being distributed as shareholder dividends. The Public-Sector needs to ‘balance the books’ but it is not a profit-generating area of the economy. The priority around money is ensuring that taxpayer money is well spend and that procurement activities represent value for money.

Survival in the Industry:

Survival strategies vary across sectors. Private and third sector organizations must focus keenly on survival, necessitating efficiency and sound business processes. The public sector, by contrast, can continue operating even when inefficient or running at a deficit, as seen in cases like local councils operating with budget shortfalls. This difference underscores a greater urgency for efficient management in the private and third sectors.

Differentiation:

Differentiation is a key driver in the private sector due to competition. Private entities often strive to distinguish their goods or services to gain a competitive edge, either through cost competitiveness or unique offerings. However, differentiation is less of a driver in the public and third sectors, where organizations are often sole providers of certain services or focus on specific social causes without direct competition.

Need for Transparency and Regulatory Compliance:

Transparency and adherence to regulations are paramount in the public and third (not-for-profit) sectors. These sectors are highly regulated, with public organizations adhering to regulations like the Public Contract Regulations 2015 and third sector organizations following guidelines set by bodies like the Charities Commission. The public's right to information through mechanisms like Freedom of Information requests further underscores this need for transparency. In contrast, the private sector faces less pressure for transparency, though it is not entirely exempt from regulatory compliance.

Resource Availability:

The availability and management of resources are different across sectors. Public and third sector organizations often operate with limited funds, making value for money a critical driver. They must achieve their objectives within these financial constraints. In contrast, the private sector generally has greater flexibility in resource acquisition, able to raise funds through loans or share sales, providing them with a broader scope for investment and expansion.

Stakeholder Management:

Stakeholder dynamics vary significantly among sectors. Public and third sector organizations often have a wide range of stakeholders, though these stakeholders may not wield significant power. Conversely, stakeholders in private organizations, like employees, can exert considerable influence, as seen in cases where employees might strike for better working conditions. Therefore, managing and satisfying stakeholders can be a more pressing concern in the private sector compared to the public sector, where actions like strikes can be legally restricted.

Conclusion:

In summary, organizations in the public, private, and third sectors are driven by different motivations and constraints. While profit is a major driver in the private and third sectors, it serves different purposes in each. Survival strategies, the need for differentiation, transparency requirements, resource management, and stakeholder relations all vary significantly across these sectors, reflecting the distinct roles and responsibilities they hold in society. Understanding these key drivers is crucial for anyone looking to navigate or interact with these diverse organizational landscapes effectively.

Tutor Notes:

- If you’re asked about different sectors of the economy it can be difficult to know what to talk about. An easy way to remember topics you can discuss in your essay is the acronym CAROLS which stands for: Competition, Activity, Responsibilities, Objectives, Legal Restrictions and Stakeholders. This acronym may generate some ideas of things you can discuss in your essay.

- This question takes some content from different Learning Outcomes throughout L4. Charities are discussed separately from Public and Private Sectors in LO 4.4 p.230.

How to approach this question

- You do need to know some legislation for public sector here. This may be difficult if you don’t work in the Public Sector. If you’re struggling with this, you could also talk about general legislation that governs all types of organisations such as the Equalities Act and Modern Slavery Act.

- This is also a tough question if you’re not British. CIPS is a UK based organisation and the syllabus therefore only talks about British legislation. If you’re in a different country you could talk about the legislation in your own country, providing the question doesn’t specifically mention UK Law.

- Either way I would recommend knowing a couple of pieces of British Legislation. You don't need to be an expert but just state what they are and what the purpose is should be enough to get you a pass.

Example essay

The public sector, which encompasses various governmental and state-owned enterprises, plays a pivotal role in the governance and provision of essential services. This sector operates under a strict framework of regulations and policies, ensuring that its operations are fair, transparent, and accountable. Among the most critical aspects of these operations is procurement, the process through which the public sector acquires goods, services, and works. This essay will explain key regulations governing the public sector, focusing on the Public Contracts Regulations (PCR) 2015, Late Payment Regulations 2016, Equalities Act2010, and Public Services (Social Value) Act 2012, and explores how these regulations impact procurement activities.

The Public Contracts Regulations (PCR) 2015

The PCR 2015 plays a foundational role in public sector procurement in the UK. It sets out the procedures for procuring contracts, aiming to ensure fairness and transparency in the process. The regulations mandate that all procurement processes must be conducted in a manner that prevents discrimination and allows equal access to potential contractors, regardless of their size or location. For example, the open tendering process under PCR 2015 has enabled a more diverse range of companies, including small and medium-sized enterprises, to participate in government contracts, enhancing competition and innovation. The four ‘pillars’ of the PCR are derived from EU Procurement Directives and are: non-discrimination, free movement of goods, equality of treatment and transparency.

Late Payment Regulations 2013

The Late Payment Regulations 2013 address a critical aspect of procurement: the timely payment for goods and services. This regulation ensures that public sector organizations pay their suppliers within a stipulated time frame, significantly impacting the financial stability of these suppliers. For instance, the regulation has been particularly beneficial for small businesses that rely on prompt payments to maintain cash flow. The introduction of these regulations has improved the trust between public sector entities and their suppliers, leading to more efficient procurement processes.

Equalities Act 2010

The Equalities Act 2010 is another crucial piece of legislation impacting public sector procurement. This Act prohibits discrimination in the workplace and in the provision of services, extending its influence to the procurement process. Public sector entities must ensure that their procurement decisions do not discriminate against any group and that they promote equality. For instance, when a public sector organization issues a tender, it must ensure that the selection criteria do not unfairly disadvantage any potential supplier based on irrelevant characteristics. This approach not only fosters a more inclusive procurement environment but also helps to tap into a wider talent and supplier pool, enhancing the quality and effectiveness of public services.

Public Services (Social Value) Act 2012

The Public Services (Social Value) Act 2012 marks a significant shift in how procurement is approached in the public sector. This Act requires public sector organizations to consider how the services they procure can improve the economic, social, and environmental well-being of their area. This means that when a public sector entity procures goods or services, it must consider factors beyond just the price and quality. For example, a local government might prioritize suppliers who can demonstrate a commitment to environmental sustainability or who offer employment opportunities to local residents. This approach to procurement encourages a more holistic view of value for money, factoring in the wider impact of procurement decisions on society.

Public Accountability and Freedom of Information Requests

In addition to these specific regulations, the concept of public accountability and the mechanism of Freedom of Information requests play a crucial role in the public sector, especially in procurement activities. Public accountability ensures that entities are answerable to the public and their actions are transparent. Freedom of Information requests enable individuals and organizations to access information held by public authorities, which includes details of procurement decisions and contracts. This transparency is critical in ensuring that procurement activities are conducted ethically and responsibly, deterring corruption and mismanagement.

In conclusion, the regulation of the public sector, particularly in the realm of procurement, are complex. Regulations such as the PCR 2015, Late Payment Regulations 2016, Equalities Act 2010, and the Public Services (Social Value) Act 2012, along with the principles of public accountability and transparency, ensure that procurement activities are conducted in a fair, transparent, and socially responsible manner. These regulations not only safeguard the interests of suppliers, especially smaller businesses, but also ensure that the public sector remains a model of integrity and efficiency and that taxpayers’ money is well spent.

Tutor Notes

- Okay this is important: The PCR 2015 regulations are being rescinded in 2024. They’re based on EU Law and the UK has left the EU. I know we left a while ago now but it’s taken us a long time to address the issue and figure out what we want to do about it. There was also a pandemic that got in the way of people making any decisions in parliament that weren’t to do with Covid. The PCR 2015 will be replaced in late 2024 with new ‘British’ rather than European rules.

- At the time of writing this (December 2023) we don’t 100% know what the new rules are going to look like and if you’re taking this exam from November 2024 onwards, I recommend doing a bit of research into the new regulations.

- Now the complicated bit- the CIPS syllabus is valid from 2024-2028 and doesn’t address that legislation is changing. I therefore don’t really know what they’re going to expect when students are taking this exam and the study guide information is out of date. If you’re not working in the Public Sector, how are you to know the legislation has changed?

- My advice is this- briefly learn PCR 2015- the four pillars in particular, and when the new legislation comes out, have a quick google and see if these pillars are still the same. The regs aren’t going to change THAT much – things like transparency and equal treatment are still going to be really important, but there may be some slight language changes. Plus, if you’re able to mention in an essay that there’s new legislation, it’s going to make you sound super clever.

- LO 4.2 p.211

How to approach this question

- This question is testing to see if you know the 4 procurement procedures allowed in the Public Sector which are: open, restricted, competitive dialogue, competitive dialogue with negotiation. The Public Sector is limited in how it can procure due to the Public Contract Regulations, so things like Early Supplier Involvement isn’t an option.

- The question doesn’t specifically say it has to be these four, but these are the ones in the book. Because of the vagueness you could say something like running a competition and awarding via a Framework instead. Talking about Public Private Partnerships could also be appropriate but that is outside of the scope of this module (and Level! It comes up in Level 5). These answers would be accepted.

- Also note that it doesn’t say the UK in the question, so if you answered this about your own country, that would be fine.

Example Essay

Each country’s government has its own regulations relating to how goods, services and works can be procured. The UK’s procurement rules is currently dictated by the Public Procurement Regulations 2015 which is based off EU Procurement Directives. This piece of legislation will likely be superseded in Autumn 2023 due to the UK leaving the EU. Until this point, the PCR allows UK public sector organisations to procure in the following ways: open, restricted, competitive dialogue, competitive dialogue with negotiation

Open Procedure: This is the most straightforward and transparent method. A local government issues an open tender for office supplies. Any company that provides these supplies can submit a bid. The government then evaluates all bids based on price, quality, and delivery terms to select the supplier. Any interested supplier can submit a tender. The process is open from the outset, and all submissions are evaluated against pre-defined criteria. This procedure is used when you wish to attract a large number of bidders for the opportunity and is often posted online on a platform such as Find A Tender.com so that suppliers can find the opportunity. If it is a large contract it is a requirement for details to be published on OJEU. The disadvantage of using this approach is that you may receive many bids which can be time-consuming.

Restricted Procedure: In this method, the public sector organization invites suppliers to express their interest. After a preliminary selection process, only those who meet the criteria are invited to submit tenders. This is used when the opportunity is more technical, for example a healthcare authority needs specialized medical equipment. The authority would requests expressions of interest from suppliers. After reviewing these, it invites a shortlist of qualified suppliers to submit detailed bids for further evaluation. The benefit of this approach is that unsuitable suppliers are weeded out early, this saving time.

Competitive Dialogue: This is used for complex contracts where the organization cannot define the technical means or legal or financial make-up of a project in advance. A dialogue with selected bidders is conducted to develop one or more suitable solutions, which are then put out to tender. For example, a local council is planning a new public transport system but is unsure of the best solution. It enters into a dialogue with several firms specializing in transport systems to explore various options before requesting final bids based on the developed solutions. Suppliers can be eliminated through the dialogue process based on pre-determined criteria.

Competitive Dialogue with Negotiation: Similar to competitive dialogue, but with an added phase of negotiation. It's used for particularly complex projects where the needs cannot be met without adaptation of readily available solutions. For example: a government department requires a complex IT system that integrates various existing systems. It engages in a competitive dialogue to develop potential solutions and then negotiates with bidders to refine these solutions before finalizing the contract. This procedure allows for negotiations with the winning bidder to readjust requirements if needed.

The approach taken by a public sector organisation will depend on a number of factors, but in particular the complexity of the project and whether there is a pre-determined scope. Other factors to consider include; the time-sensitiveness of the project and how quickly the procurement exercise needs to be completed, the amount of suppliers in the marketplace, and whether suppliers need to be consulted on to create the specification.

Tutor Notes

- These four procedures are outlined on p.212. Post PCR 2015, these procedures may change, or be renamed, depending on what the UK government decide to do. So if you’re taking this exam in November 2024 or later, note that the study guide is now out of date and you should conduct a bit of your own research.

- You could also mention that the value of spend is a factor when public sector organisations are deciding on a procurement route. For really low value stuff, like they need a new sofa for the office, most organisation's requirements are to get three quotes and compare them. That isn't in the study guide, it's just real life (I've worked in this sector so know thisstuff). Each organisation will have it's own thresholds for what procurement route needs to be taken, so I wouldn't comment on that but generally if it's under £10k there's quite a bit of flexibility. Where you reach 'threshold' then things become very serious and there's much more scrutiny.

- Thresholds are not part of the syllabus so don't worry about learning this. But if you're interested have a read here: New public procurement thresholds from 1 January 2024 - BM Insights - Blake Morgan

Five Ways to Manage Conflicts of Interest Through Effective Corporate Governance

Conflicts of interest arise when an individual or entity has competing personal and professional interests that could compromise their judgment or decision-making in business transactions. Effectivecorporate governanceensures that such conflicts are identified, managed, and mitigated to uphold transparency, integrity, and accountability within an organization. Below are five ways corporate governance can help manage conflicts of interest:

1. Establishing Clear Policies and Codes of Conduct

Organizations should implementformal policiesthat outline what constitutes a conflict of interest and how employees and stakeholders should handle such situations.

Effectiveness:

Provides clear guidelines on ethical behavior.

Ensures employees disclose conflicts before engaging in business transactions.

Sets disciplinary actions for non-compliance.

2. Mandatory Disclosure of Interests

Employees, board members, and executives should berequired to declare financial, personal, or business intereststhat may conflict with their duties.

Effectiveness:

Enhances transparency in procurement and business dealings.

Prevents individuals from unduly influencing decisions for personal gain.

Enables proactive identification of potential conflicts before they escalate.

3. Implementing Independent Oversight and Decision-Making Structures

Establishing independent committees such asaudit, risk, and procurement committeesto oversee critical decision-making.

Effectiveness:

Ensures decisions are made objectively, reducing the risk of favoritism or unethical influence.

Promotes accountability by having multiple parties involved in key transactions.

Prevents a concentration of power in one individual or department.

4. Whistleblowing Mechanisms and Ethical Reporting Channels

Organizations should provideanonymous reporting mechanismsfor employees to report unethical behavior or conflicts of interest.

Effectiveness:

Encourages a culture of transparency and ethical behavior.

Protects whistleblowers from retaliation.

Allows management to address conflicts before they result in financial or reputational damage.

5. Regular Audits and Compliance Monitoring

Conducting periodicinternal and external auditsto detect and investigate potential conflicts of interest.

Effectiveness:

Helps identify patterns of unethical behavior.

Ensures continuous improvement in governance practices.

Reinforces a compliance-driven corporate culture.

Conclusion

By implementing these governance strategies, organizations can effectivelymanage conflicts of interest, reduce risks associated with unethical practices, and ensure decisions are made in the best interest of stakeholders. Effective corporate governance fosters trust, accountability, and long-term business sustainability.

- The question is asking you to explain the following:

- With this type of question you would be expected to discuss 3- 5 differences, giving examples.

Example Essay Structure

Introduction – explain what is meant by ‘procurement’ and ‘SCM’ – procurement is the traditional way and is to do with purchasing goods, SCM is the new way which is a more multifaceted way of securing goods and is the result of longer, more complex and more globalised supply chains.

Paragraph 1 – the objectives of each approach (5 Rights vs added value)

Paragraph 2 – the approach (reactive buying vs proactive ordering)

Paragraph 3 - the way of working (silo working vs cross-functional working)

Paragraph 4 – the relationships with suppliers (transactional vs collaborative)

Conclusion – There are many differences between the two approaches, and different companies may favour one over the other depending on their specific circumstances. E.g. small organisations that make low value and low risk purchases may take a traditional procurement approach and large multi-national organisations may require a SRM approach due to the volume of suppliers and com-plexities of the supply chains.

Example essay:

Procurement and Supply Chain Management (SCM) represent two distinct approaches to acquiring goods, reflecting the evolution of purchasing practices. Procurement, the traditional method, in-volves the straightforward purchase of goods. In contrast, SCM is a more intricate approach, born out of longer, more complex, and globalized supply chains. This essay explores the main differences between these two approaches, highlighting their objectives, methods, ways of working, and suppli-er relationships.

In the traditional procurement approach, the focus is on achieving the "5 Rights" – getting the right goods, in the right quantity, at the right quality, for the right price, and at the right time. This en-sures efficiency in the purchasing process. On the other hand, SCM goes beyond these basic objec-tives, aiming to add value to the entire supply chain. This might involve developing strategic rela-tionships with suppliers, ensuring sustainability, and aligning with broader organizational goals. For example, a company employing a traditional procurement approach might emphasize getting the lowest price, while an SCM approach could involve working with suppliers to enhance product in-novation or reduce environmental impact.

Secondly, the traditional procurement approach is often reactive, responding to immediate needs or demands. Companies using this method typically make purchases as required, without a long-term strategy. In contrast, SCM involves proactive ordering, anticipating future needs and trends. For instance, a company employing SCM might engage in demand forecasting, allowing for better plan-ning and inventory management. This proactive approach helps prevent stockouts, reduce costs, and enhance overall supply chain efficiency.

Moreover, traditional procurement often involves silo working, where different departments operate independently. The procurement team may not collaborate closely with other departments like pro-duction or marketing. In SCM, there's an emphasis on cross-functional working, breaking down de-partmental barriers for a more integrated approach. For example, an SCM team might work closely with production to ensure materials are aligned with manufacturing schedules, fostering efficiency and minimizing disruptions.

Lastly, in traditional procurement, the relationship with suppliers is transactional – focused solely on the exchange of goods for money. Conversely, SCM promotes collaborative relationships, emphasiz-ing long-term partnerships. A company using SCM might work closely with suppliers to improve processes, share information, and jointly address challenges. For instance, an SCM approach might involve collaborating with suppliers to implement just-in-time inventory systems, leading to cost savings and improved responsiveness.

In conclusion, the differences between traditional procurement and SCM are substantial and nu-anced. While a traditional procurement approach may suit smaller organizations with low-value and low-risk purchases, larger multinational companies with complex supply chains often find SCM more suitable. Understanding these differences allows companies to tailor their approach based on their unique circumstances, emphasizing the importance of flexibility and strategic alignment with organizational goals in the ever-evolving landscape of buying and supply chain management.

Tutor Notes

- This question is taken from learning outcome 1.1.1 (p2 onwards). The new study guide has drasti-cally simplified the information on this topic compared to the old syllabus (the table above comes from the old syllabus). This may be good news for students in that you don’t need to know as much, but I do wonder if the study guide gives students enough ‘content’ to write an essay on the subject.

- If a question is to come up from LO 1.1 it would be likely be something like: definitions and dif-ferences between procurement and SCM, difference between a supply chain and a supply network, elements of SCM, or how to add value in the supply chain.

How to approach this question.

- There’s many aspects to this question – make sure you’re answering them all:

- Explain what added value is and explain what ‘ensuring processes are compliant’ means (this could be your introduction) Added Value = achieving more for the same money. May be in producing an item cheaper, or by procuring additional features at no additional cost. Requires innovation and creativity. The focus is on the outcome. Compliant Processes – this is focusing on the process, rather than the outcome. Ensuring that purchases are made in line with internal and external rules/ procedures. This may be following Standard Operating Procedures, purchasing to strict budgets and the exclusive use of e-procurement tools.

- Explain the consequences of focusing on added value over compliance; can result in maverick spending, less visibility for management, may have additional risks if procuring items without following procedures – this may have legal and financial repercussions, Time-consuming, May lead to added expenses

- Consequences of focusing on compliance over added value; May foster a silo-mentality, Misses out on flexibility and agility, misses out on collaborative whole life costs reductions, Procurement function becomes rigid, inflexible and inwardly focused

- How both can be achieved; 1) Seek to add value only for certain purchases such as capital-expenditure items and not for others such as stationary.2) Ensure time is well-spent i.e. focus on added value for purchases where this can be most achieved, and focus on compliance where there is high risks. 3) Review processes regularly to ensure both goals are being achieved 4) Complete ‘lessons learned’ activities after big procurement activities to advise on future procurement activities- were both Added Value and Compliance achieved? How could this be improved next time?

- these three should form the main body of your essay. Above are many ideas you could explore, you won’t have time to talk about all of them so pick a couple that resonate with you

Conclusion – the balance is important

Example Essay

Added value refers to the extra worth or enhancement a company provides to a product, service, or process that goes beyond the intrinsic value inherent in the initial input. It represents the additional benefits or features that make a product or service more desirable to customers, often justifying a higher price or distinguishing it from competitors. Procurement often look to achieve added value in procurement activities but achieving this whilst remaining compliant (adhering to established laws, regulations, standards, and internal policies) can be tricky. Achieving a delicate equilibrium between pursuing added value and ensuring stringent compliance in procurement activities is pivotal. This essay explores the consequences of emphasizing one area over the other and outlines strategies for organizations to successfully navigate the dual goals of attaining added value and maintaining compliance.

Consequences of Focusing Solely on Added Value:

Prioritizing added value without due consideration for compliance can expose an organization to a myriad of risks. One notable consequence is the potential compromise of regulatory requirements and legal standards. For instance, if a procurement team is solely driven by obtaining cost-effective solutions or innovative products, they may inadvertently overlook compliance with industry-specific regulations, leading to legal ramifications and reputational damage.

Moreover, an exclusive focus on added value may neglect crucial ethical considerations. An organization, in pursuit of cost savings or improved efficiency, might engage with suppliers that violate ethical standards or engage in unethical business practices such as modern day slavery. Such associations can tarnish the organization's reputation, eroding the trust of stakeholders and customers alike.

Consequences of Overemphasizing Compliance:

Conversely, a hyper-focus on compliance without adequate consideration for added value can result in missed opportunities and suboptimal outcomes. Strict adherence to procedural norms and regulations might lead to an overly bureaucratic procurement process, hindering innovation and stifling the organization's ability to adapt swiftly to market changes.

Furthermore, an excessive emphasis on compliance might limit engagement with suppliers, stifling creativity and potential breakthroughs. For instance, a procurement team rigidly adhering to compliance protocols might miss out on collaborating with smaller, innovative suppliers that could offer unique and value-added solutions.

Strategies for Achieving Both Added Value and Compliance:

To navigate the delicate balance between added value and compliance, organizations can adopt several strategic approaches. First and foremost, an organization should establish clear procurement policies and procedures that incorporate both compliance requirements and avenues for seeking added value. This ensures that all procurement activities align with regulatory standards while leaving room for innovation.

Effective supplier management plays a pivotal role in achieving this balance. By thoroughly vetting and categorizing suppliers based on their ability to deliver value and comply with regulations, organizations can strategically align their procurement activities. For example,suppliers that have a proven track record of compliance can be trusted with critical components, while those offering innovative solutions may be engaged for projects that prioritize added value.

Leveraging technology is another essential strategy. Implementing advanced procurement software that integrates compliance checks and offers analytics for value assessment can significantly enhance the efficiency of procurement processes. Automated systems can streamline due diligence, ensuring that suppliers meet compliance standards while providing insights into their potential to deliver added value.

Additionally, fostering a culture of collaboration within the procurement team and across organizational departments is crucial. Encouraging open communication enables different stakeholders to contribute insights on compliance and added value. Cross-functional collaboration ensures that procurement decisions align with broader organizational goals and values.

In conclusion, the strategic balancing act between achieving added value and ensuring compliance in procurement is indispensable for organizational success. By recognizing the consequences of favouring one area over the other and adopting a holistic approach, this safeguards against risks but also positions the organization for sustained growth and competitiveness in the ever-evolving business landscape.

Tutor Notes:

- Examples highlight that you understand the material you have studied and can apply it to real life scenarios. You could take a certain industry or organisation and explain the consequences for them of focusing on one over the other. E.g. In the construction industry it is very important that organisations achieve compliance in their procurement activities. This includes ensuring there are robust contracts in place and that legislation such as CDM and Health and Safety is followed. When procuring a construction contract the danger of focusing on Added Value over compliance is that this may result in key legislation being forgotten which leads to legal proceedings against the buyer. For example, if the buyer procures a construction contract without fulfilling the responsibilities outlined in the CDM and H&S regulations, this can result in huge fines for the company and potential jail time for senior management.

- The risk of focusing on compliance over added value may be in missing out on alternative proposals. For example, if a buyer is procuring a construction project of a new hospital and they focus too much on compliance, they may not engage in Early Supplier Involvement or cross-functional working which may bring up alternative ideas such as different ways the hospital could be built. The alternative ideas may result in higher quality or cost savings which are missed by the buyer. This results in a more costly, or lower-quality hospital being built.

- Overall, what CIPS are testing you on here is that you understand that the procurement department should aim to achieve both – it’s a balancing act between compliance and added value and this could be viewed as a pendulum- it’s important not to swing too heavily in one direction. That’s actually a really good metaphor – feel free to use that in your conclusion!

- study guide p. 114

Five Ways Procurement Activities Can Contribute to BrightAid’s Organisational Objectives

Procurement plays a critical role insupporting the operational efficiency and sustainabilityof a not-for-profit organization likeBrightAid. Given its reliance on donations and volunteers, a structured and strategic procurement approach can help maximize resources, reduce costs, and enhance the charity’s impact. Below are five key ways in which procurement can contribute toBrightAid’s organisational objectives.

1. Cost Reduction and Financial Efficiency

How Procurement Helps:

Implementing aformal procurement strategyensures that goods and services are sourced at the most cost-effective prices.

Joining abuying groupwith other charities can enhance BrightAid’spurchasing power, securing bulk discounts and reducing overhead costs.

Supplier negotiations and competitive tendering can helpmaximize value for moneyon every purchase.

Impact on BrightAid:

More funds can be allocated to coreaid and campaign activities.

Lower operational costs meangreater financial sustainabilityand improved service delivery.

2. Enhancing Transparency and Accountability

How Procurement Helps:

Implementingclear procurement policiesand procedures ensuresfair supplier selection, minimizing risks of fraud or inefficiencies.

Establishing aprocurement audit processensures compliance with ethical and legal standards.

Open and fair supplier engagement strengthensstakeholder trust(donors, volunteers, and partners).

Impact on BrightAid:

Increases donor confidence, encouragingrepeat and larger donations.

Ensures resources are used efficiently and ethically,enhancing the charity’s reputation.

3. Improving Supply Chain Reliability and Efficiency

How Procurement Helps:

Strategic supplier selection ensuresconsistent deliveryof essential goods and services.

Developinglong-term supplier relationshipscan reduce risks of supply disruptions.

Procurement can introducesupplier performance reviewsto ensure that services meet BrightAid’s needs effectively.

Impact on BrightAid:

Moreefficient aid distribution, ensuring beneficiaries receive timely support.

Reducedoperational disruptions, allowing volunteers and staff to focus on charitable work instead of supply issues.

4. Supporting Ethical and Sustainable Procurement

How Procurement Helps:

Ethical sourcing policies ensure that supplies (e.g., food, clothing, medical aid) come from responsible andsustainable sources.

Procurement can help BrightAid select suppliers that align withits mission and values(e.g., fair trade suppliers, environmentally friendly packaging).

Working with ethical suppliers enhancesCSR (Corporate Social Responsibility) partnerships, attracting more donors.

Impact on BrightAid:

Increasespublic trustand donor support, strengthening brand reputation.

Aligns procurement decisions with the charity’s coremission and sustainability goals.

5. Enhancing Operational Effectiveness and Stakeholder Engagement

How Procurement Helps:

A structured procurement process ensurestimely and cost-effectivedelivery of goods and services, reducing inefficiencies.

Procurement professionals canengage stakeholders(staff, volunteers, donors) to understand their needs and improve sourcing decisions.

Implementing procurementtechnology or e-procurement systemscan streamline purchasing and reduce administrative burdens.

Impact on BrightAid:

Staff and volunteers can focus more oncore charitable activitiesrather than administrative tasks.

Better stakeholder engagement ensures that procurementaligns with donor expectations, strengthening long-term relationships.

Conclusion

By implementing astructured and strategic procurement function, BrightAid can significantlyimprove its financial efficiency, supply chain reliability, and ethical standards, ultimately enhancing its ability todeliver aid effectivelyand attract continued donor support. With growing competition for donations, a well-managed procurement process ensurescost savings, improved transparency, and stakeholder trust, directly contributing to the charity’slong-term sustainability and success.

Bottom of Form

Top of Form

How to approach the question

Your answer should provide details on 3 of the following:

- Contract Award and Implementation

- Warehouse Logistics

- Contract performance and Improvement

- Supplier Relationship Management

- Asset Management

Because the question is only asking for 3 stages, you’re going to have to go much more into detail for each stage, giving lots of information about why each stage is important and examples. You could consider thinking of an example procurement you have done recently and explaining the stages for that. Or you could take a hypothetical procurement too. Either will get you the same marks. Pick the three that you can write the most about.

Essay Plan

Introduction – explain that sourcing of goods and the role of Procurement doesn’t end once a contract is signed. There is ongoing management and processes which must be carried out to ensure success.

Paragraph 1 – Contract Performance and Improvement

· This is about ensuring contract obligations are fulfilled. Contract administration includes P2P procedures, database management, budgeting / costs monitoring, reporting and dispute resolution

· Procurement’s role may be in managing contract performance through the use of SLAs and / or KPIs. This can be done via reporting, using a Supplier Scorecard and meeting regularly to discuss.

· It’s important KPIs are measured and that there are consequences for failing to meet them. An example of consequences could be using a Performance Improvement Plan.

· Contract Management also includes updating the contract where required – e.g. issuing variations to contract and updating the change control log

· Another important aspect of this is ensuring the costs remain within scope of the budget

· Contract performance can be compared if you have several suppliers delivering the same goods- could use a Factor Rating Method.

· Performance could be measured against several criteria such as on time deliveries, response time of supplier, number of complaints.

Paragraph 2 – Supplier Relationship Management

· There is a difference between managing the contract and managing the supplier relationship. It’s possible to have excellent contract performance and a terrible relationship. However, the two are generally linked- where there is a good relationship, the contract often performs well.

· The supplier management approach depends on where the relationship falls on the relationship spectrum (e.g. transactional or collaborative)

· This involves; maintaining regular contact with the supplier, motivating the supplier, working collaboratively with them (e.g. on performance issues or resolving any disputes)

· Incentivising the supplier leads to collaboration and mutual support

· To assess or rank suppliers you could use a vendor rating method or supplier evaluation forms

· Supplier relationship management may involve investing in the supplier- e.g. through training or technology sharing

Paragraph 3 – Asset Management

· Includes creating a post contract ‘lessons-learned’

· Assessments should be carried out to determine if business requirements have changed, whether the agreement is still required and fit for purpose, what can be learnt from the process and how improvements can be incorporated next time.

· This is the final stage of the Procurement Cycle and takes us back to the start of cycle, which begins again when the item needs to be reprocured

· Whole life costing should be considered at this stage: this is the total cost of ownership over the life of an asset. The concept is also known as life-cycle cost (LCC) or lifetime cost, and is commonly referred to as "cradle to grave" or "womb to tomb" costs.

· Generally used on large purchases such as machinery and vehicles. Full Asset Management may not necessary for direct cost items such as raw materials incorporated into final goods.

· Considerations may include; costs of running the asset, how long it will perform, insurance, maintenance, opportunity costs, disposing of the asset.

· Also consider environmental and social impacts of the procurement.

Conclusion – it is important that procurement are involved at every stage of the cycle, not just in the pre-award stages. Procurement can add value at every stage.

Tutor Notes

- Depending on the examples you choose to use, you could talk about how the type of item procured could impact on the different stages. For example, high risk purchases may require more contract management than low risk purchases, and capital expenditure items such as new machinery may require more attention to the Asset Management stage.

- You could also think about how procurement adds value at each of the stages.

- Study guide p. 79

1) A definition of Value for Money: ensuring a purchase is cost effective. This may be that the purchase achieves the 5 Rights of Procurement or that the purchase achieves the 4Es: Economy, Efficiency, Effectiveness and Equity. – this is only worth 5 points, so don’t spend too long on this

2) 4 techniques Bob can use to achieve VFM: this is the bulk of your essay. Each of the 4 will be worth 5 points, so remember to give a thorough Explanation: and example. Pick 4 from the list below: complete a value analysis to eliminate non-essential features, minimise variety/ consolidate demand, avoid over specification, pro-active sourcing, whole life costing methodologies, eliminate / reduce inventory, use electronic systems, international sourcing, sustainability / environmental policies, currency/ exchange rate considerations, negotiating good payment terms, packaging, warrantees.

Example Essay:

"Value for money" (VFM) is a concept that refers to obtaining the best possible return on investment or benefits relative to the cost incurred. It involves assessing whether the goods, services, or activities provided offer an optimal balance between their cost and the quality, benefits, or outcomes they deliver. Value for money is not solely about choosing the cheapest option; instead, it considers the overall efficiency, effectiveness, and long-term value derived from an expenditure. For Bob, the Procurement Manager at ABC Ltd there are four key ways that he can achieve this for all future purchases.

Value Engineering

This is looking at the components of a product and evaluating the value of each component individually. You can then eliminate any components that do not add value to the end product. To do this Bob would choose a product to review and determine whether any parts of this can be omitted (thus saving the company money) or could be replaced by components that are of a higher quality at the same price (thus providing added value to the customer). For example, Bob could complete a Value Engineering exercise on the new mobile phone prototype ABC plan to release next year. His findings may discover a way to provide a higher quality camera at no additional cost or that some components don’t add value and can be eliminated.

Consolidate demand

Bob can achieve value for money by consolidating demand at ABC ltd. This would mean rather than each individual person/ department ordering what they want when they need it, Bob creates a centralised process for ordering items in bulk for the departments to share. For example, if each department require stationary to be ordered, Bob can consolidate this demand and create one big order each quarter. This will likely result in cost savings for ABC as suppliers often offer discounts for large orders. Moreover, consolidating demand will allow for saving in time (one person does the task once, rather than lots of people doing the same task and duplicating work).

International sourcing

Bob may find there is value for money in changing suppliers and looking at international sourcing. Often other countries outside of the UK can offer the same products at a lower cost. An example of this is manufactured goods from China. By looking at international supply chains, Bob may be able to make cost-savings for ABC. He should be sure that when using this technique there is no compromise on quality.

Whole Life Costing methodology

This is a technique Bob can use for procuring capital expenditure items for ABC. This involves looking at the costs of the item throughout its lifecycle and not just the initial purchase price. For example, if Bob needs to buy a new delivery truck he should consider not only the price of the truck, but also the costs of insurance for the truck, how expensive it is to buy replacement parts such as tyres and the cost of disposing of the truck once it reaches the end of its life. By considering these factors Bob will ensure that he buys the truck that represents the best value for money long term.

In conclusion Bob should ensure he uses these four techniques for all items he and his team procures in the future. This will ensure ABC Ltd are always achieving value for money, and thus remain competitive in the marketplace.

Tutor Notes

- This case study is really short, and the ones you’ll receive in the exam are often longer and give you more guidance on what they’re expecting you to write. With case study questions, you have to make your entire answer about Bob. So don’t bring in examples from your own experience, rather, focus on giving examples for Bob.

- A good rule of thumb for case study questions is make sure you reference the case study once per paragraph.

- Value for Money is a really broad topic and you can pretty much argue anything that procurement does is helping to achieve value for money. There’s a large table of stuff that’s considered VFM on p.38 but that table isn’t exhaustive. So feel free to come up with your own ideas for this type of essay.

Some additional tidbits of information on VFM:

- The ‘academic’ definition of Value for Money is ‘the optimum combination of whole life cost and the quality necessary to meet the customer’s requirement’

- Value for Money is an important strategic objective for most organisations but particularly in the public sector. This is because the public sector is financed by public money (taxes), so they must demonstrate that the organisation is using this money wisely. This might be an interesting fact to put into an essay on VFM.

- Value can often be hard to quantify, particularly in the service industry. E.g. in customer service it can be difficult to quantify the value of having knowledgeable and polite employees delivering the service.