L3M1 Tutor Notes

CIPS Level 3 Advanced Certificate in Procurement and Supply
Operations
Teaching Notes
Module title: Procurement and Supply Environments [L3M1]
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Leading global excellence in procurement and supply

Learning Outcome 1: Know the different sectors of procurement and supply
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 Not applicable
3 Introduce/recap key terms relating to the private sector.

• Incorporated company - treated in law as being distinct from its owner. All
incorporated businesses have to register with their government, in the UK this is
done through Companies House.
• Unincorporated company - no legal distinction between the company and its
owner.
Discuss implications of being incorporated: e.g., protection of the owner against
bankruptcy.
Types of unincorporated companies:

• Sole trader - has exclusive ownership of the business
• Partnerships - two or more people have ownerships of the business. Can be
between individuals, governments, not-for-profits or separate businesses. Can be
general, limited liability or limited
Unincorporated companies can operate as owners on their own, e.g., a self-employed
shopkeeper, artist, or business consultant, or have employees, e.g., a self-employed
decorator could take on employees.
Types of incorporated companies:
• Shares in a public limited company can be traded on the stock exchange
• Shares in a private limited company cannot be traded on the stock exchange
Ask learners to carry out some internet research to identify:
• Three well-known public limited companies and three well-known private limited
companies (to ensure they understand that the distinction is not just dependent on
the size/turnover of the organisation)
• Five local businesses that operate as sole traders or partnerships – ask them to
note down the nature of the business as well as the name
Lead class discussion to draw out similarities and differences.
4 Companies in the private sector can vary greatly in size:

• Micro business: fewer than ten employees and annual turnover of less than $2m
• Small business: fewer than 50 employees
• Medium-sized business: fewer than 250 employees
• Small and medium-sized enterprises known collectively as SMEs. Mainly operate in
the service sector. Can be incorporated or unincorporated.
2
SLIDE TUTOR NOTES
• MSMEs – includes micro enterprises as well as SMEs.

• Multinational corporations have facilities and assets in multiple countries that are
managed from a central company.
According to World Bank Enterprise Surveys, SMEs accounts for two-thirds of formal non-
agricultural private employment.
The graph on the slide indicates the number of MSMEs per 1000 population in different
regions.
What can you conclude from the graph?
Carry out some research to find out key information about the composition of businesses in
your own country. For example, number or percentage of companies that are MSMEs.
At the other end of the scale, some multinationals have a larger revenue than the GDP of
many countries.
Ask learners to carry out some research on a multi-national company that operates in your
country and create a short fact file that covers areas such as:
• What type of business is it?
• What does it provide?
• How many people does it employ worldwide?
• What percentage or number of people does it employ in your country?
• Annual revenue? Etc.
5 Porter’s value chain illustrates how private sector organisations make profit - refer to diagram on
slide which illustrates the primary (bottom half of arrow) and secondary activities (the top half of
the arrow) in the value chain. Use a specific example, e.g., fast food restaurant, to ensure learners
understand each of the activities in relation to a case study
• making a profit/margin
• maximising financial return
• contributing to economic growth
• gaining market share
• ensuring healthy cash flow
• providing return on investment
• maintaining and improving the share price
• other measures, such as a balanced scorecard which looks at customer satisfaction
measures, internal process efficiency and effectiveness, as well as the learning and
growth of staff
• corporate social responsibility
The role of Procurement is to obtain all resources and inputs that the organisations needs
in order to carry out its primary activities.
Ask learners to work in pairs or groups. Assign a different business, e.g., catering,
electronic equipment, insurance, to each group of learners and ask them to discuss and
note down the specific activities undertaken by that business for each of the functions
shown in the chain and consider what sort of procurements they might need, etc.
Lead a class discussion to draw out similarities.
3
SLIDE TUTOR NOTES
6 Public sector – organisations that are owned and run by the state to provide services such
as education, housing or transport for citizens.
• Central government – central governing body with a defined authority. It sets
minimum standards across services offered to the public. The government may use
public enterprises, state businesses and public contractors to deliver some of the
services.
• Local government – interacts with the general public in order to understand their
specific needs. Receives funding from revenue from central government and local
taxes.
Suggest some taxes that are applied in your country, e.g., income tax, road tax, council or
city tax, VAT, etc., and ask learners to identify if funds go to central or local government.
Delivering services is the ultimate goal of public sector organisations.
Accessibility is an important performance measure for government. If the target isn’t met
it could be an indicator that the need was not accurately identified, or that people are
unaware of the service or not able to access it easily.
Procurement and supply activities in the public sector:
• Commissioning – the activities that generate demand for services
• Sourcing – the activities that generate options for meeting the demand and
ensuring markets can meet demand now and in the future
• Procurement – the act of engaging with markets to source providers and let
contracts for the agreed option, using one of the best-practice competitive tender
routes
Options for delivering the service:
• In-house
• Joint delivery with one or more partners
• Private sector partnership
• Developing and shaping local markets, etc.
Use diagram on slide to discuss an example, for example, how a local government might
respond to demands for more support for mental health in their area.
7 As in private companies, procurement in the public sector still needs to get the best value
for money, particularly as it is public money that is being spent.
Use diagram to explain three methods of securing budget savings and how they contribute
collectively to overall goals, and provide examples to illustrate each method:
• Economy – paying lower prices for the same items
• Efficiency – reducing inputs but maintaining outputs, or maximising outputs from
the same inputs
• Effectiveness – the relationship between the actual and intended impact of a
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SLIDE TUTOR NOTES
service, balancing the importance of services against their cost
8 Tenders
Check learners are familiar with tenders (what they are, what they’re used for) before
continuing.
Five processes can be used to issue and manage a tender:
• Open procedure allows an authority to go straight to tender.
• Restricted procedure has a pre-qualification stage before suppliers can be invited
to tender.
• Competitive dialogue procedure is complex and can only be used where it is not
possible to award a contract using open or restricted procedures. It ensures the
best value in terms of quality and price.
• Competitive procedure with negotiation is for goods or services that are not ‘off-
the-shelf’ – they may need modifications.
• Innovation partnership procedure is for products or services that are not currently
on the market and so need to be developed through innovation.
Public sector procurement rules mean the process must be fair, open, transparent and
ethically compliant as it can involve significant sums of public money.
Activity
Ask learners to use the internet to find a list of tenders that were awarded in the public
sector in your country and find out:
• What is the price range of the tenders?
• What proportion of tenders were for products and for services?
• What types of services or products were they for? Make a list of at least ten
different needs.
Lead a class discussion to share findings. Were there any surprises, e.g., value of individual
contracts, types of contracts, etc.
Regulating organisations and individuals

There is no single way in which the private sector is governed. Therefore, accountability
has to be achieved by a system of reporting and oversight by bodies. An organisation that
provides oversight in the UK is the National Audit Office. In India, it’s the Comptroller and
Auditor General (CAG).
9 The terms ‘not-for-profit’, or ‘third sector organisations’ (TSOs) can be used interchangeably.
Purpose of TSOs – to create social (rather than monetary) wealth.
Examples of TSOs: social enterprises, mutuals and cooperatives, housing associations,

voluntary groups, community organisations, self-help groups and charities.
Ask learners to name some examples of TSOs for each of the groups indicated in the
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SLIDE TUTOR NOTES
diagram on the slide.
Accountability in the third sector looks at finances, governance, performance and

mission.
The four core components of accountability are transparency, answerability, compliance

and enforcement.
Accountability for TSOs can be complicated due to the range of people or groups who
have an interest in them:
• People who fund the service
• People who receive or benefit from the service
• People within the organisation who want to demonstrate they are delivering on
their mission.
To help demonstrate accountability, TSOs:
• Set goals
• Design strategies to achieve the goals
• Create a culture of performance
• Use disclosure statements and reports
10 Start by reviewing the differences between the public, private and third sector
organisations.
Ask learners to provide details of the following for each sector:
• Purpose of organisation: Help citizens/make a profit/create social wealth (‘do

good’)
• Size of organisation - range
• Level of regulation - public sector has to adhere to certain regulations, and TSOs
are also subject to the same regulations when awarding tenders if more than 50%
of its revenue comes from public sector organisations. Whereas Private sector
organisations are not bound by the same regulations.
• Transparency/level of information provided – transparency is critical for public

sector and TSOs. Public sector is accountable for how money raised in taxes is
spent to benefit the population; and TSOs have to account for how donations and
grants are spent.
Explore the differences and similarities in the role of procurement and supply in the
6
SLIDE TUTOR NOTES
sectors:
Similarities:
• Achieve value for money
• Use specifications to detail requirements
• Use quotations and tender processes to identify best supplier
Differences:
• Managing and developing markets to encourage new entrants in order to increase

competition and stimulate innovation
• In Public sector and TSOs, procurement ensures the focus is on outputs that
deliver intended outcomes, and consider whole-life (or lifetime) costs.
11 Not applicable
12 Jared has just achieved his CIPS Level 2 qualification. He is trying to decide what type of
organisation to apply for a job at.
He has friends who work in the public, private and third sectors and they all seem to be
happy in their jobs, but he doesn’t know which one is right for him. He likes working in
teams, and he wants to be able to help people (either personally or through the
organisation), but he also wants to have career progression.
Put learners into groups of three.
In each group, ask one learner to research a private sector company, one a public sector
company, and one a TSO based in the local area.
Each learner to compile a short report for their organisation that covers:
• Name of company, sector it operates in and main goal (e.g., profit, helping,
creating social wealth)
• Size of organisation, and number of employees
• The industry the organisation operates in, and the main products or services it
offers
• What requirements procurement might be dealing with (this could be an educated

guess if no information can be found)
• What the role of procurement is likely to be within the company, e.g., strictly
regulated, free to innovate, etc.
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SLIDE TUTOR NOTES
Once learners have written their reports, ask them to have a group discussion to
determine to what extent each of the workplaces they researched meets Jared’s criteria.
8
Learning Outcome 2: Understand types of pricing arrangements in commercial
agreements
SLIDE TUTOR NOTES
13 Not applicable
14 Not applicable
15 Pricing schedules
• State the price for different quantities purchased.
• Clearly indicate the volume discount, if offered. For example, $5 per unit if up to 49
packs purchased, dropping to $4.50 per unit if 50 or more are purchased.
• Often used in markets where supply and demand dictate the price and the buyer
doesn’t have much influence over it, for example, metals, agricultural products and
utilities, also stationery and computer hardware.
• Used to provide a breakdown of costs as part of a tender bid.
Buyer needs to have a good understanding of the supply market in order to understand
whether supply and demand is in balance, and watch for trends in the market in order to
be able to react to them. For example, buying larger quantities when prices are lower.
Tutor-led worked example, or learner activity:

Find an example of a pricing schedule, such as for grain, office stationery, or building
supplies.
Locate an item and identify the volume bands. For example, 1-49, 50-200, etc.
Use the pricing schedule to calculate the cost of purchasing the highest number in the first
band, and the lowest number in the second band. Then use trial and error/estimates to
locate the volume at which it is cheaper to purchase a higher quantity at the lower price.
16 Fixed pricing arrangements - fixed prices for goods or services.

Used when:
• The specification is clearly defined
• Work is not complex
• Quantity can be estimated with reasonable accuracy
• Few (if any) changes to scope of project are expected
Advantages:
• Predictability for both supplier and buyer
• No risk to the buyer if market costs increase
• Benefit for the supplier if market costs decrease
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SLIDE TUTOR NOTES
Disadvantages
• Risk to the supplier if costs increase
• Buyer does not benefit if market costs decrease
Activity
Print out a blank fixed pricing table for each learner and ask them to complete it with the
following information for producing 500 Marketing brochures:
Writer: Two days @ $300 per day
Designer: 1.5 days @ $250 per day
Printer: $300 fee for 500
Admin assistant for packaging and posting: One day @ $150
Postage: $1 per item
Check totals to ensure learners have understood correctly.
Types of fixed priced contract.
• Firm fixed price contract – detailed requirements and a price are agreed in
advance; price does not vary.
• Firm fixed price with incentive – price paid can vary depending on whether the
final cost is above or below the planned cost.
• Fixed price with economic price adjustment – a fixed price that can be adjusted
for specific changes in costs, e.g., an adjustment for annual wage increases.
17 Cost plus arrangements – supplier calculates the costs of the components of the product
or service, then adds an amount of profit to arrive at the price to quote.
Advantages:
• Simple to understand and calculate as long as the direct costs and indirect costs, or
overheads, are taken into account
• The supplier is assured of making a profit as long as they have done their
calculations correctly.
Disadvantages:
• Based on historic costs –no incentive for innovation
• No incentive for supplier to manage their costs – they will get paid for the work
that is done and still make a profit.
• Doesn’t account for competition C a competitor could undercut costs.
Cost reimbursable pricing arrangements – supplier’s costs are covered and an agreed
amount is paid on top for their profit.
• Often used when the requirements are not clear at the start, for example, repairing
a fire-damaged building.
Advantages:
• guaranteed profit for the supplier, therefore no risk
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SLIDE TUTOR NOTES
Disadvantages:
• High risk to the buyer
• There is no incentive for the supplier to complete the work quickly, and costs could
escalate unless a ceiling is put on the price
Activity (as shown on slide)
Calculate the cost-plus quote price using the figures provided below:
• Material costs: $40,000
• Direct labour costs: Four people, working five days each, at a rate of $350 per day
• Allocated overheads: $3000
• Margin/profit: 30%
Gain share pricing – based on the supplier achieving a level of performance over and
above what would be expected in normal conditions, and the buyer and supplier sharing
these savings.
Incentive-based pricing – ties the price to the achievement of an agreed level of

performance which the supplier has to meet.
18 Index - used for commodity-based markets, e.g., metals and chemicals that have cyclical
or fluctuating supply and demand.
To calculate an index:
• Select a year. This becomes the base year with a value of 100
• Subsequent years are expressed as a percentage of the base year
• This process is called ‘normalising’
Activity
Ask learners to:
• Use the Internet to locate a commodity
• Find information/graph showing price points over the last five years or more
• Identify a base year, e.g., five years ago
• Calculate the index of the commodity for the subsequent three years
Suppliers use indexed prices:
• To react quickly to changes in the market
• When they have entered into a commitment without knowing the costs, e.g., a
logistics supplier needs to account for changes in the cost of fuel.
Graph on slide shows comparison of purchase price with index of input cost.
Ask learners: What can you deduce from the graph?
• The ‘your price’ (price to buyer) has risen steadily
• Input cost initially dropped, but then rose.
• ‘your price’ was higher in Years 1 and 2, but lower in Years 3 and 4, which could
indicate that this is a commodity that fluctuates so the supplier is trying to even
out the price to buyer.
Does the graph indicate what will happen in the future? (No. Can look back at historic data
to give an indication, but you’d need more market information to give an indication)
Guidelines for setting price adjustment clauses in contracts:
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SLIDE TUTOR NOTES
• Establish the base selling price

• Select and agree an appropriate index and the source of that index
• Agree whether the index will be adjusted for seasonality
• Agree the frequency of price adjustments
• Define how the price adjustment will be calculated
• Allow for negative price adjustments
19 Payment terms provide details about invoicing procedures

Explain each of the terms on the slide:
• Terms of sale
• Payment in advance, immediate payment, net x days
• Line of credit
• Interest invoices
• Letter of credit
• Bill of exchange
• Contra
Why do payment terms need to be discussed by suppliers and buyers prior to agreeing a
contract?
What could happen if a buyer and supplier have different understandings about the
payment terms that apply to a contract?
20 Open book costing – supplier shares information with the buyer about actual costs
incurred in delivering the product or service.
• The supplier is paid for these costs, plus an agreed profit margin.
• Promotes collaboration between supplier and buyer.
• Aim is to reduce costs for the buyer, while maintaining or increasing profits for the
supplier.
Stages of implementation:
• Exploring – briefing the supplier and gauge their level of willingness and
commitment to open book costing.
• Testing – stabilising current performance to test out in a low-risk way whether
open book costing will work in practice.
• Scaling – current performance is improved to ramp up the level of activity and test
in more major areas in order to generate benefit.
• Embedding - innovating to further improve performance to embed the open book
culture in ways of working with both parties.
What are the benefits of open book costing to the supplier?
21 Lean thinking – making a series of incremental adjustments that over time deliver
efficiencies.
Identifies the maximum value from a customer’s viewpoint, and eliminates functions that
create no value, thus minimising waste.
12
SLIDE TUTOR NOTES
Discuss the seven types of waste that can be eliminated within a procurement
department using Lean thinking – refer to diagram on slide
• Motion – additional movement that does not contribute to the task, e.g., going to
printer to collect print outs, having to walk to other offices.
• Inventory – purchasing or making things before they are needed
• Over-production – any processing that is done on a routine schedule
• Waiting – slow computer speeds, internet or phone downtime, requisitions waiting
in a queue to be actioned, waiting for information.
• Defects – data entry errors resulting in errors in orders
• Over-processing – generating unused reports, having to re-enter data into multiple
information systems, unnecessarily cumbersome processes.
• Transportation – unnecessary movement of paperwork or goods; copying people
into e-mails they don’t need to see
22 Not applicable
23 A farmer has asked Will, a builder, to provide a quote to repair some of his farm buildings
that have been damaged during a flood.
The farmer has outlined what he thinks needs to be done, but the builder suspects that
there may be some hidden damage.
The builder has asked you for advice because he doesn’t want to make a loss by
suggesting the wrong sort of contract.
Which costing method should the builder propose?
What other pricing methods could be beneficial to him?
Which pricing method offers the lowest advantage to the builder?
Learning Outcome 3: Know the external environment and its impact on procurement
and supply
SLIDE TUTOR NOTES
24 Not applicable
25 Not applicable
26 Methods of gaining data on a market: Environmental scanning, STEEPLED, Porter’s five forces
model.
Environmental scanning – used to collect appropriate data on supply markets.
13
SLIDE TUTOR NOTES
• Key info: other major competitors that buy from your supply markets, trends in key
supply markets.
• ‘Pen portraits’ of your key suppliers can also be useful, including major news
stories, changes to senior management or key accounts they have won.
• SWOT analysis can be used to evaluate the data you have gathered.
• (internal) strengths and weaknesses
• (external) opportunities and threats
STEEPLED – used to identify the factors that can impact on your market.
• Social – e.g. reports in the media on organisations, trends, etc. can influence
demand for products/services
• Technological – e.g. emerging technologies can disrupt the market; advances make
more powerful computing/storage available at the same prices
• Economic – e.g. inflation rates could result in rising costs; a booming economy
could result in increased demand for goods/services
• Environmental – geographic factors such as location, climate, etc. and impact on
the environment, such as carbon footprint
• Political – governmental policies and plans, and whether there is an election
coming up
• Legal –all policies that relate to, or are created by your organisation, from
international trade legislation, to a company’s CSR policy
• Ethical – relating to corporate governance, business ethics, including working
practices, bribery and corruption, and reputation
• Demographic – education, gender, age, language, population, etc.
Porter’s Five Forces model - used to analyse the structure and competitiveness of a
market.
The five forces are – refer to diagram on slide:
• Supplier power
• Buyer power
• New entrants
• Substitute products or services, and
• Competitive rivalry
Could illustrate by carrying out an analysis with the class on an example market that is
established in your country/local area. Or asking learners to work in small groups to
complete their own analysis.
Interpreting the model:

• Vertical axis determines the market structure
• Horizontal axis determines the cost structure of the supply chain
Five Forces model can be used to analyse the competitive forces by looking at the relative
power and dependency in the supply chain.
Some of the factors that make suppliers powerful include:
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SLIDE TUTOR NOTES
• Few suppliers compared to buyers

• Unique or differentiated products or services
• Cost of switching suppliers
• Threat of the supplier entering the market as a buyer
Some of the factors that make buyers powerful include:

• Few buyers compared to suppliers
• Standard products or services offered by suppliers
• Low profitability among buyers, and
• If the buyer poses a credible threat of integrating backwards into the supply chain
The price of a product or service is a key determinant of the profitability of a business. It is

a way to exert power in the industry.
Ask targeted questions to encourage learners to engage with the model, e.g.
What impact can ‘cost of changing/switching’ have on buyer power? Consider personal
contracts you may have taken out that have a penalty clause if the contract is terminated
early, e.g. broadband or mobile phone contract provider, utilities suppliers, mortgage.
What impact does this have on you as a buyer?
27 Demand – how much of a product or service is demanded by customers.

The law of demand states that the demand for a product decreases as the price increases.
Supply – how much of a product or service is provided by organisations.
The law of supply states that the supply of a product will increase with price.
Discussion: offer an example relevant to your country, e.g. Meal Deal at a national fast
food restaurant, soft drink, etc.
State the current selling price of the item and ask how many learners have, or would
purchase the item at that price.
Then state that the price has just increased by $1, $2, etc. and ask how many learners are
prepared to pay for the item at each price.
Indicate how this relates to the demand graph.
Equilibrium point
• Point at which the demand curve and the supply curve intersect when they are
drawn on the same axes
• Theoretical point at which the quantity of products produced exactly matches the
quantity of products required by the market: businesses sell all of the products
they produce and buyers can purchase all the goods they require.
• Organisations try to identify this point when forecasting sales, however it is
difficult to forecast accurately as factors are constantly changing
Indicate on the graph the effects of the following:
• Excess supply – if price of a product is set higher than buyers are willing to pay
• Excess demand – if price of a product is lower than businesses can afford to
produce it
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SLIDE TUTOR NOTES
• Movements – can occur in both supply and demand. A change in price can result in
a change in quantity sold, but the ratio between the two remains the same, e.g.
more items are sold if price decreases.
• Shifts – can occur in both supply and demand as well. For example, during rainy
weather, the demand for umbrellas will increase even though the price point
remains the same.
Market factors:
• Market capabilities – the ability of a supplier to deliver requirements. Dependent
on process, improvement, technology, financial and change management
capabilities.
• Supply risk – made up of technical complexity of the product or service, structure
of the supply market, and the organisation’s position in the supply market.
28 Product life cycle – also known as market growth and decline – can be represented as a
curve on a graph – refer to graph on slide and use an example, e.g. smartphone with new
functionality, etc.
• Introduction – product or service is first launched, slow sales, most sales are to
first-time buyers
• Growth – sales increase rapidly as more people hear about buy the product or
service
• Maturity – sales reach saturation point
• Decline – the product or service is becoming out of date, and a new one needs to
replace it. At this point, customers are likely to be repeat buyers.
Ask learners how understanding the product life cycle can help in the following instances:
• A manufacturer trying to determine how much of a product to produce at different
times.
• A marketing department decide when to launch marketing campaigns and who to
target.
29 Macro-economic criteria that impact on procurement and supply – refer to first list on
slide
• Interest rates – change due to supply and demand for money changing over time.
Businesses can manage fluctuating interest rates by anticipating future market
conditions, improving cash management, focusing on cost of purchases and
analysing spending.
• Increasing or high inflation – can result in increased running costs, and therefore
reduced profits; can lead to loss of international sales, rapid price changes can lead
consumers to not buy the product or shift to a different solution.
• Exchange rates affect any organisation that imports or exports goods or services.
As a country’s exchange rate weakens against other currencies, exports become
16
SLIDE TUTOR NOTES
cheaper and imports become more expensive. Fixed price contracts can delay or
even out the impact of exchange rate changes.
Level of economic activity:
• GDP – Gross domestic product - the total value of the output of organisations and
people in a country in a year. Organisations use GDP to help them decide whether
or not to make investments in business growth that could increase employment.
Businesses also monitor the GDP of other countries to decide where to make
future investments.
• Gross national product is the total value of the output of businesses and people
of a country in a year no matter where in the world they are based. GNP is a
measure of supply, but if we assume it is equal to demand then we can consider
the components of demand: consumption (household spending), goods and
services, investment spending, and net exports.
Class discussion. How can procurement and supply be prepared for changes in macro-
economic factors? e.g., keep up to date with world and business news and be alert for how
events might impact on your market/organisation/suppliers. Take factors into
consideration when drawing up contracts.
Micro-economic criteria that have an impact on organisations include the following
groups – refer to second list on slide and ask learners to suggest how each group can have
an impact on an organisation, and procurement in particular.
• Customers – customers determine the need for a product/service
• Employees – need to have appropriate levels of training/skill and be motivated
• Competitors – sign of a healthy market
• Media – can influence potential customers’ views of an
organisation/product/service
• Shareholders – can vote at AGMs
• Suppliers – their influence depends on the power they have in the market
30 Many high-cost countries look to global markets so that they can reduce costs and
therefore sales price, which in turn can drive sales. This brings other challenges, such as
needing to be aware of the political climate in the county you’re dealing with.
Political factors include:
• Corruption
• Trade control
• Bureaucracy
• Tariffs
• Freedom of the press
• Consumer protection
• Laws such as competition regulation, data protection, employment, health and
safety, intellectual property, consumer and e-commerce, environmental,
education and discrimination
• Import limitations
• Government stability
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SLIDE TUTOR NOTES
• Government participation in trade unions

• Tax policy
• Regulation and de-regulation
Refer to diagram on side - discuss the democracy index (according to Economist

intelligence unit report) of different countries:
• Full democracy
• Flawed democracy
• Hybrid regimes
• Authoritarian regimes
How does the democracy level impact on the work of procurement and supply?
Democratic governments can result in uncertainty and instability around the time of
elections. But governments that are not fully democratic can be more fundamentally
unstable. Sudden political unrest in a country that contributes to a supply chain can result
in disruption to supply. In this situation, procurement and supply chains have to react
quickly to find alternatives in order to avoid disrupting the business.
Key legislation that impacts on organisations that procurement and supply needs to be
aware of:
• Corporate law
• Business law
• Finance law
• Employment law, and
• Environmental law
Divide learners into five groups and assign each group one type of research. Suggested
areas to research:
• What does the law cover – key areas?
• What are the penalties for breaking the law?
• Find an example of a court case and summarise the case and outcome.
31 Environmental criteria that can impact on procurement and supply – suggest examples
and ask learners to suggest how they could impact on procurement and supply:
• Natural risks such as floods, hurricanes, earthquakes and fires - can damage an
organisation’s assets or interrupt the supply chain.
• Waste emissions - need to be disposed of in a way that is safe and efficient or
recycled, in compliance with environmental laws, and this incurs a cost.
• Pollution has an impact on the environment - organisations should aim to reduce
this impact where possible. Procurement needs to monitor suppliers’ emissions
closely to ensure they are in line with their CSR policies.
• Organisations should aim to maximise energy efficiency. ISO 50001:2011 was
18
SLIDE TUTOR NOTES
proposed to help achieve this.

Ask learners to provide suggestions for ways that procurement can minimise the impact of
environmental factors on their organisation,
• E.g., risk of interrupted supply chain as a result of natural disaster could be
mitigated by having back-up suppliers in different countries
• Waste emissions can be kept to a minimum by reviewing own organisation’s
processes and identifying improvements, and selecting suppliers who have low
emissions
Ask learners to carry out research into a particular organisation to find out how it has
reduced waste emissions, and what targets it hopes to hit.
Ethical and social criteria that can impact on procurement and supply:
• Ethical codes
• Employment rights
• Community benefits
• Working conditions and standards
What can procurement professionals do to ensure that their organisation’s ethical codes
are adhered to by everyone in the supply chain?
32 Social criteria determine the demand for an organisation’s products or services.

Procurement therefore needs to be aware of the following – refer to slide:
• Societal preferences, tastes and fashions – influenced by media, brand, lifestyle
trends, cultural taboos, consumer attitudes and buying patterns.
• Demographics
• Labour, ethics and working conditions – of their own organisations and of suppliers
Fair Trade creates opportunities for economically disadvantaged producers.

The Fair Trade standards include:
• Transparency and accountability
• Fair trading practices and fair payment
• Ensuring no child labour or forced labour is used
• Commitment to non-discrimination, gender equality and women’s economic
empowerment, and freedom of association
• Ensuring good working conditions, and
• Respect for the environment
Corporate social responsibility (CSR) - understanding the impact an organisation has on
19
SLIDE TUTOR NOTES
the wider world and how that impact can be made positive.
There are five groups that can be impacted by an organisation and its suppliers:
• Customers
• Suppliers
• Employees
• The local community
• The environment
Activity: ask learners to select a well-known brand and carry out some research and write
a short report about how it has changed over the years, e.g.,
• Marketing campaigns
• Target demographic (consider location as well as age, gender, etc.)
• Working conditions in its supply chain,
• When it first implemented a CSR policy and what it covers
You could pair up learners so they are looking at competitors in an industry that can then
be compared through a discussion at the end of the task.
33 Not applicable
34 Christina works for ShatterWare, an organisation that offers on-site security consulting
services to the world’s top software companies. They are based in Dubai.
While there are plenty of consulting services, Shatter Consulting is one of only a few
organisations that carries out in-depth analysis of the security measures in place on the
organisation’s systems prior to arriving on site. They spend much of their time
on-site meeting with workers at all levels to get a feel for day-to-day operations, before
making suggestions for upgrades and security measures that they know can be
implemented.
They have panel agreements with suppliers based all over the world, and they select
consultants to make up teams for each organisation based on their knowledge of the
specific industry, and language considerations, etc.
They place high value on customer satisfaction, which is backed up by the testimonials on
their website.
In pairs or small groups, discuss the following questions and write down your answers once
you’ve reached an agreement:
1. What level of power does the organisation currently have in the market?
2. What level of power do buyers have in the market?
3. What do you think would happen if:
20
SLIDE TUTOR NOTES
a) There was a new market entrant, based in the USA?

b) Exchange rates were to increase in Dubai?
4. What type of political regime exists in Dubai? What impact could a change in
regime have on the organisation?
Learning Outcome 4: Understand procedures that regulate procurement and supply

SLIDE TUTOR NOTES
35 Not applicable
36 Not applicable
37 Use the diagram on the slide to recap the procurement operational cycle to ensure
learners have an understanding of the procurement process.
Ask learners if they can suggest what documentation is used at each of the stages.
Documentation is needed to create an audit trail of what was purchased when, from
whom, and who authorised or approved it.
38 A purchase requisition – refer to first form on slide, talk through all the elements included
• Used to inform the procurement department that an item is needed.
• It has to be authorised by someone who has accountability for the budget that will
be used to pay for it.
• For example, Administrator could raise a purchase requisition for stationery, the
administrator’s manager (the budget holder) approves the order, and the
procurement team review and place the order.
Prepare a completed example to share with the learners and explain what information is
included.
Purchase orders – refer to second form on slide, talk through all the elements included and
indicate how they relate to the Purchase requisition
• Sent to the supplier so items can be procured on credit, that is, items are paid for
once received, not at point of ordering.
• Create a legally binding contract once the supplier has accepted it.
• Tell warehouse staff what to expect, and when.
39 Delivery notes – refer to form shown on slide. Compare back to previous forms to indicate
similarities and differences:
• Sent with a delivery of goods, or services.
21
SLIDE TUTOR NOTES
• Lists the quantity of each item in a delivery against product codes.

• Should be signed only when the delivery has been checked.
Invoice
• Sent by the supplier once the goods or services have been delivered.
• The finance team checks the invoice against the purchase order and the delivery
note to ensure they all contain the same information before they process the
invoice.
What information should be included on an invoice? Ask learners to suggest as many
elements as they can, then use the internet, or refer to Study Guide, to find out best
practice.
Other documents typically used within procurement and supply include: (check learners
are aware of where they fit in the process)
• A request for information (RFI) is used to gather information about suppliers and
their capabilities prior to a formal procurement process
• A request for quotation (RFQ) is used to invite quotes from suppliers for a specific
item that has a clear specification
• A request for proposal (RFP) is used to canvas potential solutions from suppliers
when the specification is unclear
• A pre-qualification questionnaire (PQQ) is completed by suppliers who wish to
bid. Suppliers who pass the evaluation can then be invited to participate in the
next stage of procurement
• An invitation to tender (ITT) is a document that suppliers respond to with a bid to
provide goods or services
• A bill of materials (BOM) is a complete list of the materials and components that
are required in order to manufacture an item, including quantities and product
structure
• Various types of specification, ranging from detailed technical specifications
through to performance specifications that allow the supplier to propose a
solution
Ask learners to suggest what documentation would be used in different scenarios, and the
sending and receiving parties, for example:
• A purchaser needs to obtain a price for 40,000 plugs that are needed for the new
television set they are developing. The specification has already been prepared.
• Paperwork to accompany a delivery of gas cannisters to an organisation.
• A bus company has provided buses and drivers to an organisation to transport the
employees to an away day, and now they want payment.
22
SLIDE TUTOR NOTES
• A manager needs an additional workstation provided for a new employee who will
be starting work in three weeks.
40 Responsibilities for procurement – depend on size of organisation and how procurement
fits into the organisational structure:
• In small organisations – procurement duties are usually shared between a number
of people as the size of the spend budget will not warrant a full-time manager.
Usually senior managers authorise purchases, and members of staff find suppliers
and agree a price.
• In large organisations – a department of procurement specialists is needed not
only to make savings, but to manage supply chain risk.
• Procurement can be viewed as a strategic function, as in the structure chart
shown on the slide.
• Or it can be viewed as operational, in which case the Procurement manager
reports into the Finance Director.
Regardless of the structure, the Procurement Director is responsible for supply chain risk
failure.
Ask learners to suggest some of the activities that procurement is responsible for, based
on what they’ve learnt so far.
The procurement team is responsible for:
• Providing strategic direction
• Information management
• Category management
• Contract management
• Supplier relationship management
• Ensuring rules and regulations relating to competition are followed
Levels of delegated authority

Delegation – the assignment of responsibility or authority to another person.
Michael Hyatt identified five levels of delegated authority:
• Level 1: Do exactly as I tell you
• Level 2: Research the topic and report back
• Level 3: Research the topic, outline the options and make a recommendation
• Level 4: Make a decision then report back
23
SLIDE TUTOR NOTES
• Level 5: ‘Make whatever decision you think best; no need to report back’
It’s important that the person being delegated to has the right skillset and experience to
handle the task they are being given, otherwise mistakes can be made.
41 There are three levels of procurement authority when awarding contracts:
• Budget
• Signature
• Procurement authority
RACI matrix - responsible, accountable, consulted, and informed.

Helps to clarify:
• What people think their jobs are
• What others think their jobs are
• Who should do them
• What people actually do when they perform their job
For each stage in the sourcing process, the procurement team should consult with key
stakeholders and list the people who are responsible, accountable, consulted and
informed at each stage.
For example, for the first step, profile the category. You could have the following:
• Responsible – Procurement professional
• Accountable – Procurement director
• Consulted – Finance operations
• Informed – Operations director
Activity – small group or whole-class activity
Ask learners to select an organisation they are familiar with, consider the sourcing process
they use, and complete the RACI matrix for each stage.
42 Responsibilities for each document are as follows:
• The person who requests the item is responsible for the requisition.
• The procurement department is responsible for the purchase order.
• The Goods In team is responsible for checking the delivered goods match the
delivery note, and signing the delivery note only once the order has been checked.
• The finance team is responsible for matching the invoice to the authorised
requisition and purchase order.
24
SLIDE TUTOR NOTES
Class/small group discussion: discuss the potential outcomes of some or all of the
following scenarios:
• Purchase requisition is passed directly to procurement without authorisation
• The manager does not approve the purchase requisition straight away – it sits on
their desk for a week
• Procurement professional raises purchase order without checking the requisition
• Supplier makes a typo on the delivery note
• Goods In team signs delivery note before checking the delivery so as to not hold the
driver up.
• Finance team processes the invoice without doing the three-way match.
43 Governance – an appropriate level of control, honesty and integrity in the management of

procurement activities.
This can be achieved through a commissioning and commercial board. The board’s
purpose is:
• to ensure there is a clear business need for purchases
• that a sound commissioning and commercial strategy is in place to ensure
optimum value for money is achieved
• to have an overview of all commercial activity
The board can adopt a gated method for managing projects – use chart on slide to
introduce the gated method.
Key questions are asked at different points in the project, which require clear evidence to
be presented in the form of documentation.
Questions are:
• What is the opportunity?
• Is there a strong business case?
• Is there a strong commercial case?
• Is there a strong delivery route?
• Should the contract be awarded?
How can a gated method help organisations manage their budgets?
Why does the evidence need to be documented?
44 Not applicable
25
SLIDE TUTOR NOTES
45 Logan works in the head office of a charity that is researching treatments for motor
neurone disease.
He is preparing some documentation ahead of a new member of staff, Josie, starting work
next week. Josie is coming in as the Procurement Lead.
To date, there has not been one member of staff who had sole responsibility for
procurement: the finance and administrator staff have worked with the researchers to
fulfil their needs. However, the charity has recently received substantial funding from the
government, which means they’re looking to take on more researchers, and invest in
more advanced equipment. It also means they’ll be subject to higher levels of scrutiny as a
result of the funding.
The type of procurements Josie will be responsible for will range from the cleaning and
security services for the offices and laboratories, marketing materials, and specialist
computer, software, and scientific equipment for the laboratory research team.
Logan will need to brief Josie on her responsibilities, and how she’ll work with the existing
team in the Head Office, which consists of:
• Finance staff and director
• Operations staff and director
• Facilities
• Research assistants and Research Director
• Administrators
To help Logan prepare for Josie’s first day:
1. Collect or create template forms for all the documents Josie is going to need throughout
the procurement and supply cycle.
2. Discuss each of the roles listed and decide who would be Responsible, Accountable,
Consulted and Informed:
• Identifying needs/creating requisitions
• Providing strategic direction
• Liaising with suppliers
• Paying suppliers
• Authorising budget
26

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CIPS Level 3 Advanced Certificate in Procurement and Supply

Leading global excellence in procurement and supply

SLIDE TUTOR NOTES

3 Introduce/recap key terms relating to the private sector.

Types of unincorporated companies:

4 Companies in the private sector can vary greatly in size:

• MSMEs – includes micro enterprises as well as SMEs.

service, balancing the importance of services against their cost

Regulating organisations and individuals

Purpose of TSOs – to create social (rather than monetary) wealth.

Examples of TSOs: social enterprises, mutuals and cooperatives, housing associations,

diagram on the slide.

Accountability in the third sector looks at finances, governance, performance and

The four core components of accountability are transparency, answerability, compliance

• People who fund the service

• People who receive or benefit from the service

To help demonstrate accountability, TSOs:

• Design strategies to achieve the goals

• Create a culture of performance

• Use disclosure statements and reports

Ask learners to provide details of the following for each sector:

• Purpose of organisation: Help citizens/make a profit/create social wealth (‘do

• Size of organisation - range

• Transparency/level of information provided – transparency is critical for public

• Achieve value for money

• Use specifications to detail requirements

• Use quotations and tender processes to identify best supplier

• Managing and developing markets to encourage new entrants in order to increase

Put learners into groups of three.

• Size of organisation, and number of employees

• What requirements procurement might be dealing with (this could be an educated

SLIDE TUTOR NOTES

Tutor-led worked example, or learner activity:

16 Fixed pricing arrangements - fixed prices for goods or services.

Incentive-based pricing – ties the price to the achievement of an agreed level of

• Establish the base selling price

19 Payment terms provide details about invoicing procedures

SLIDE TUTOR NOTES

Interpreting the model:

• Few suppliers compared to buyers

Some of the factors that make buyers powerful include:

The price of a product or service is a key determinant of the profitability of a business. It is

27 Demand – how much of a product or service is demanded by customers.

• Government participation in trade unions

Refer to diagram on side - discuss the democracy index (according to Economist

proposed to help achieve this.

32 Social criteria determine the demand for an organisation’s products or services.

Fair Trade creates opportunities for economically disadvantaged producers.

a) There was a new market entrant, based in the USA?

Learning Outcome 4: Understand procedures that regulate procurement and supply

SLIDE TUTOR NOTES

• Lists the quantity of each item in a delivery against product codes.

Levels of delegated authority

RACI matrix - responsible, accountable, consulted, and informed.

42 Responsibilities for each document are as follows:

• The procurement department is responsible for the purchase order.

• Purchase requisition is passed directly to procurement without authorisation

• Procurement professional raises purchase order without checking the requisition

• Supplier makes a typo on the delivery note

43 Governance – an appropriate level of control, honesty and integrity in the management of

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