CIPS certification practice
L4M1 Practice Questions
Try 10 free L4M1 exam-style questions for Scope and Influence of Procurement and Supply. Check each answer and review the explanation and source references.
- Exam code
- L4M1
- Provider
- CIPS
- Free questions
- 10
- Full set
- 40 questions
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part
below.
Explanation:
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 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 Chin
a. 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.
part
below.
Explanation:
- This is essentially two mini essays, so you can do them completely separately if you like.
1) Definition of centralised procurement – when an organisation has a designated procurement
function which makes purchases on behalf of other teams. When departments need to make a
purchase, they would do this by approaching the procurement department who would purchase the
item they need. This is in contrast to devolved procurement where departments can make purchases
themselves.
2) of 2 forms of hybrid structures- there’s a couple in the study guide you can pick from –
consortium, shared services, lead buyer and outsourced. In the old syllabus they used to discuss
SCAN – Strategically Controlled Action Network and CLAN = Centre Led Action Network. This has
been removed from the new syllabus, but I don’t think it would be wrong to use SCAN and CLAN in
this essay if you wanted to. However they are more complicated than the others and if you can talk
about other models instead I’d definitely go for that.
Example Essay:
Centralized procurement refers to a procurement strategy where an organization consolidates its
purchasing activities into a single, central department or unit. Instead of allowing individual
departments or divisions within the organization to independently manage their procurement
processes, centralized procurement involves the concentration of these activities under a unified
structure.
Key features of centralized procurement include:
1) Single Procurement Authority: In a centralized procurement system, there is a designated
procurement authority or department responsible for handling all purchasing decisions. This central
entity has the authority to negotiate contracts, select suppliers, and make procurement-related
decisions on behalf of the entire organization.
2) Streamlined Processes: Centralized procurement aims to standardize and streamline procurement
processes across the organization. This can include the establishment of uniform procurement
policies, procedures, and documentation to ensure consistency and efficiency.
3) Economies of Scale: By consolidating purchasing power, centralized procurement allows
organizations to leverage economies of scale. Bulk purchases, standardized contracts, and
negotiations with suppliers on a larger scale can lead to cost savings and more favourable terms.
4) Improved Coordination and Communication: Centralized procurement enhances coordination and
communication within the organization. With a centralized structure, there is better visibility into
overall procurement activities, allowing for improved collaboration, information sharing, and
strategic planning. Moreover, this centralized control helps manage risks, ensure transparency, and
monitor adherence to ethical and legal standards.
5) Consolidated Supplier Relationships: Centralized procurement enables the organization to
consolidate its relationships with suppliers. This can lead to stronger partnerships, better negotiation
positions, and improved collaboration with a select group of suppliers that meet the organization's
needs.
6) Strategic Decision-Making: Centralized procurement allows organizations to make strategic
decisions at a higher level. This includes aligning procurement strategies with overall organizational
goals, optimizing the supply chain, and contributing to broader business objectives.
An example of centralised procurement would be in a hotel chain with several hotels across the UK.
In a centralised procurement function there would be one team responsible for ordering everything
for all of the hotels, rather than allowing the individual hotels to buy things themselves. Premier Inn
is an example of a company that uses this structure- it allows them to buy stock in bulk and ensures
that all hotels have the same equipment so customers expectations are always met.
Centralized procurement is often contrasted with decentralized procurement, where individual
departments or business units manage their procurement independently (i.e. each hotel would buy
their own supplies). The choice between centralized and decentralized procurement depends on
various factors, including the size and structure of the organization, the nature of its operations, and
the specific goals it aims to achieve through its procurement processes.
Consortium Procurement Model:
The consortium procurement model is characterized by the collaboration of multiple organizations
forming a joint group (the consortium) to engage in collective buying activities. Typically composed
of entities from the same industry or sector, these organizations unite their resources, expertise, and
purchasing power to pursue shared procurement objectives. The consortium leverages this collective
strength to negotiate contracts, conduct bulk purchases, and benefit from economies of scale,
resulting in cost savings and increased operational efficiency. The UK University sector is an example
of Consortium activities- many universities come together to ‘group buy’ items as this brings about
many benefits.
The main benefit of this form of hybrid procurement model is the increased negotiating power and
leverage derived from combining the purchasing volumes of participating entities. This often results
in more favourable terms, competitive prices (through bulk purchases), and improved conditions
with suppliers. Additionally, consortium buying allows organizations to share resources, knowledge,
and expertise, fostering a collaborative environment that enhances overall procurement capabilities.
By working together, consortium members can collectively address challenges, negotiate
strategically, and navigate the procurement landscape more effectively.
However, consortium buying is not without its challenges. A potential disadvantage lies in the
complexity of managing a collaborative procurement structure, involving coordination among
diverse entities. Achieving consensus on procurement strategies, vendor selection, and contract
terms may require considerable effort and compromise. Additionally, individual organizational needs
and p
within the consortium may differ, posing challenges in aligning priorities. It is
essential to strike a balance between centralized decision-making and accommodating the specific
requirements of each consortium member. Furthermore, the success of consortium buying relies
heavily on effective communication and trust among participants. Any breakdown in communication
or lack of trust could hinder the collaborative process, impacting the overall efficiency and success of
the consortium's procurement endeavours.
Overall, while consortium buying offers notable advantages, its effectiveness is contingent on careful
management of collaborative dynamics and effective communication strategies.
Shared Services Procurement Model:
In the shared services procurement model, various departments or business units within a single
organization converge under a centralized procurement function. Rather than individual units
managing their procurement independently, a dedicated shared services centre is established to
provide procurement-related services across the organization. This model facilitates streamlined
processes, ensures consistency through standardized procedures, and capitalizes on economies of
scale.
One key benefit is the potential for cost savings through economies of scale. By centralizing
procurement, the organization can negotiate bulk purchases and standardized contracts, leading to
better terms and prices. This consolidation of purchasing power enables the organization to optimize
its resources and achieve overall cost efficiency. Additionally, centralized procurement allows for
streamlined processes, standardized procedures, and better control over procurement activities. It
promotes consistency, reduces redundancy, and ensures adherence to organizational policies and
compliance requirements.
However, there are also potential disadvantages to centralized procurement. One notable challenge
is the potential for reduced flexibility in meeting the unique needs of individual departments or
business units within the organization. Centralization may lead to standardized approaches that
might not be well-suited for all units, potentially impacting their specific requirements. Furthermore,
the centralization of decision-making can result in increased bureaucracy and longer decision-making
processes, potentially slowing down procurement activities. Additionally, there may be resistance
from decentralized units that are accustomed to managing their procurement independently. Striking
a balance between centralized control and accommodating the diverse needs of various units is
crucial for the success of centralized procurement.
In conclusion, both the consortium and shared services procurement models represent strategies to
enhance efficiency, realize cost savings, and optimize procurement processes. While the consortium
model involves collaboration with external entities, the shared services model centralizes
procurement functions within a single organization. The choice between these models depends on
the unique goals, structure, and requirements of the organizations involved, each offering distinct
advantages in the pursuit of effective procurement management.
Tutor Notes:
- This is from LO 3.3 p.161 onwards. There’s quite a bit of information on these hybrid models so
there’s many ways it can come up as a question. There are different types of consortium, which I
didn’t go into in the above essay because it wasn’t asked for as part of the question, but I’d
familiarise yourself with this. Also with the pros and cons of each model, and think about when an
organisation may choose this type of model.
part
below.
Explanation:
What to include in the essay:
- Definition of added value: the economic enhancement given to products or services before offering
them to customers. Examples may include a product which has additional features at no additional
cost to the customer or the provision of an extended warrantee.
- Description of four of the following with examples and s: providing better customer service levels,
risk management, cost control and reduction, relationship management, reputation management,
innovation, use of technology, streamlining processes, improving specifications, increasing
sustainability, improving quality, ordering processes such as bulk ordering, inventory management,
improving the product from the customer’s perspective (e.g. packaging, exclusivity), sustainability,
convenience, market development.
Example essay:
Added value in procurement refers to the enhancement or improvement in the economic worth,
quality, or utility of products or services before they are offered to customers or end-users. In the
context of procurement, the goal is to go beyond simply obtaining goods or services at the lowest
cost. Instead, procurement aims to contribute additional value to the organization through various
means. This essay explores the concept of added value and outlines four ways the Procurement
Department can contribute to organizational improvement.
Improving Specifications
Procurement can add value firstly by ensuring all critical items are procured against a specification,
and secondly by improving and regularly updating those specifications. For example, the
procurement department might be responsible for procuring light-bulbs for an office. Having an
effective specification for this purchase (lightbulbs must meet X safety standard and Y environmental
standard) would result in less maverick buying for the organisation and the procurement of a better-
quality product. Furthermore, regularly updating specifications ensures that purchases are made
against current safety standards and regulations (e.g. the use of low-energy lightbulbs). If
procurement don’t update specifications, then there is a risk that items are bought that don’t meet
the correct standards. Added value in this regard could also therefore be considered the removal of
risks of procuring the wrong item.
Stream-lining Processes
Procurement can add value by stream-lining processes such as requisitions and POs. This reduces the
time it takes to procure an item, thus saving the company money. Another process that could be
streamlined is the re-ordering process of regularly bought items. This could be automated when the
stock levels reach a certain level. For example if an organisation requires its staff to wear PPE, an
automatic request could be made once there are only 50 face masks left.
Managing Supplier Relationships
Having strong, positive relationships with suppliers is a source of added value as it means suppliers
value you as a buyer and are therefore more likely to help in situations which are adversely affecting
business. For example, if a manufacturer puts an order in for 300 items with their supplier but then
realises that they have made an error in the amount, if there is a strong relationship, the supplier
may allow the buyer to amend the order after the fact. If there is a poor relationship, the supplier
may not be as flexible. The flexibility in the supply chain is therefore a source of added value.
Improving Quality / Innovation
This involves adding value from the customer’s perspective. E.g. a customer may choose to purchase
a phone that has a longer battery life than others. Procurement’s role in this may be in completing a
Value Engineering exercise or procuring higher quality components or materials at the same price in
order to achieve this additional feature.
In conclusion, the Procurement Department plays a crucial role in organizational success by adding
value through improved specifications, streamlined processes, strong supplier relationships, and a
focus on quality and innovation. These strategies contribute to enhanced efficiency, reduced risks,
and increased customer satisfaction, making procurement an essential function for organizational
excellence.
Tutor Notes
- The question asks specifically to name 4 ways of adding value. You therefore won’t get any
additional points if you talk about 5 or 6, even though it may be tempting. Instead, focus your
response on providing more information on the 4 you have chosen and bulking out your answer with
examples. This demonstrates to the examiner that you fully understand the topic AND that you can
apply the theory to real situations.
- You could use real-life examples from your own organisation/ experience or you could give a
hypothetical situation such as a cake manufacturer. You could talk through how the procurement
department at the cake manufacturer can add value by doing the four things in your essay: by
amending the specification so the cakes are more tasty, by streamlining the process for ordering
flour, by managing the relationship with the company that fixes the machines when they break
down, and by introducing innovation such as using an e-procurement system to source raw materials
and the benefits that these will bring to the organisation.
- Added value is part of the syllabus for Learning Outcome 1.2 starting from p.19 but I’m gonna be
honest, I think the new study guide is a bit crap on this part of the syllabus. The section starts talking
about the 5 rights of procurement and I think that makes things very confusing for students. The 5
rights and added value are linked subjects, but they’re not the same. Getting the rights right, CAN
lead to sources of added value, but added value is value that is IN ADDITION to what is expected. So,
when you have a question on added value, focus on stuff that’s listed under 1.1.4 ‘other sources of
added value’ on p.35 rather than talking about the 5 rights of procurement. My list at the top is more
exhaustive than the one in the study guide.
- If you’re looking to be really clever you can quote Michael Porter on ‘what is added value?’. Michael
Porter looks at this from a customer perspective - ‘added value’ refers to the addition of greater
value (either by reducing the cost to produce it, or by adding something that customers are willing to
pay more for). These could be; marketing / design, customer service, maintenance, delivery etc. This
comes up at Level 5 / 6.
part
below.
Explanation:
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 criteri
a. 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 this stuff). 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
part
below.
Explanation:
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 Act 2010, 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 are
a. 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
part
below.
Explanation:
How to approach this
question:
- The Sourcing Cycle is the first half of the CIPS Procurement Cycle and includes these steps:
1) Define Business Need
2) Market Analysis + Make vs Buy
3) Develop Strategy and Plan
4) Pre-Procurement Market Testing
5) Develop Documents and Specification
6) Supplier Selection
7) Issue Tender
8) Bid Evaluation
9) Contract Award and Implementation
Your response should detail 5 of these. It is a good idea to pick the ones you know most about and
where there is more to write about. You won’t get any extra points for naming more than 5 so focus
on getting as much detail down about 5, rather than explaining more of them.
Essay Plan
Introduction – explain what the sourcing cycle is – the stages of the procurement cycle before a
contract is signed. It describes the steps an organisation will take to source/ procures goods or
services.
Paragraph 1 – Define the business need
· How is the need identified? E.g. by end user, stores department, ERP system.
· Procurement should challenge this – is it really necessary? Suggest alternatives – this could be a key
source of added value
· Put together business case / requisition / project initiation document
· What type of purchase? Straight rebuy, modified rebuy, new purchase
· Decide on what type of specification would be best - Conformance vs performance specification
· This stage may include early supplier involvement
Paragraph 2 – Market Analysis and Make vs Buy Decision
· Create an Analysis by segmenting the market by buyer, product, distribution channel, geography,
customer market etc.
· Make vs Buy - use Carter’s Matrix to decide whether the organisation should make vs buy.
· Also consider outsourcing at this stage
Paragraph 3 – Documents and Specification
· Draft documents. These may include a RFQ or ITT, a specification and a proposed form of contract
· Specification may be conformance or performance based
· A contract sets out the roles, rights, responsibilities and obligations of the parties and shows
intention to enter into ‘legal relations’
· This stage defines the ‘offer’ which becomes binding once other party accepts
· Documentation may also include proposed KPIs and SLAs
Paragraph 4 – Supplier Selection
· For a new purchase, supplier selection is very important - investigation should be proportionate to
the value of the procurement. For rebuys or low-risk purchases you could use the same supplier or a
list of pre-approved suppliers.
· You can locate potential suppliers by; catalogues, websites, trade registers, market exchanges and
review sites, trade or industry press, fairs and conferences, networking and recommendations/
referrals.
· You can shortlist suppliers by sending out a pre-qualification questionnaire. This adds value by
reducing wasted time / costs / risks to entering into a contract with the wrong supplier.
· Other criteria for supplier selection include using Carter’s 10 Cs (competency, consistency,
capability, control, cost, cash, clean, communication, culture, commitment), the supplier’s financial
standing (e.g. liquidity and gearing),
and considering their CSR policy.
Paragraph 5 – Issue Tender
· Competitive bidding should only be done when there’s sufficient time and resources available,
there’s sufficient suppliers in the marketplace, they’re keen to win business (ie that there’s appetite
for competition) and there is a strong specification
· Best practice is to issue tenders electronically as it ensures equal treatment of suppliers and
transparency
· Consider open vs closed procurement processes
· Use a cross-functional team – particularly when marking responses
Conclusion – you could mention here that different sourcing activities may require more or less effort
at each of the stages e.g. procuring a new item may require more market analysis than a re-buy.
Tutor Notes:
- If you want to add in extra details, you could think about ways procurement can add value at each
stage
- In the old syllabus, CIPS were a bit obsessed with Michael Porter. In the Market Analysis bit you
could talk about using Porter’s 5 forces (buyer and supplier power, threat of new entrants, threat of
substitutions, supplier rivalry) and Porter’s 3 generic strategies for competing (cost leadership,
differentiation, niche segment). This has been removed from the study guide so it’s not essential to
know this for this module, but if you’ve seen it before it’s a nice one to throw in.
- You could also mention that there are differences between the public and private sector
procurement at the different stages. E.g. Public Sector requires open competitions for contracts of a
certain value and must follow the rules set out in Public Contract Regulations – the private sector
doesn’t have such strict regulations so there is much more flexibility in how tenders are completed.
Also in the public sector, the evaluation criteria needs to be agreed beforehand and presented in the
ITT- not the same for the private sector.
- Study guide p.71
part
below.
Explanation:
How to approach this question
- For the first part of the question you should look to give a definition of the public sector, think about
it’s characteristics and give so examples e.g. local government, hospitals, libraries.
- For the second part try to explain 4-5 objectives. Try to remain as broad as you can – think about
objectives that all public sector organisations have in common rather than anything very specific to
one organisation, what the question is looking for is the higher level, more broad aims.
Example Essay
A public sector organization, is a branch of government responsible for providing a wide range of
services and functions to citizens and communities. It is funded by taxpayers' money and operates
under governmental authority at various levels, including federal, state, and local governments.
Public sector organizations can encompass government departments, agencies, authorities, and
public enterprises. The main objectives of these organizations are multifaceted, aimed at serving the
public interest and ensuring the efficient functioning of society. Examples include hospitals, schools
and libraries. In this essay, we will explore the primary objectives of public sector organizations:
improving services, achieving value for money, supporting communities and social value, and
promoting equality, diversity, and inclusion (EDI).
Improving Services:
One of the central objectives of public sector organizations is to enhance the quality and accessibility
of services provided to the public. These services can range from healthcare and education to
transportation and public safety. The focus is on improving the well-being of citizens by ensuring that
essential services are accessible, efficient, and responsive to evolving societal needs. For example,
public healthcare systems aim to deliver high-quality medical services to all citizens, striving to
reduce health disparities and provide equitable care.
Value for Money:
Public sector organizations are entrusted with the responsible and efficient use of public funds.
Achieving value for money is a critical objective, ensuring that taxpayer money is spent wisely and
that resources are allocated efficiently. Government agencies are tasked with optimizing budgets,
reducing waste, and delivering services in a cost-effective manner. For instance, public infrastructure
projects must be designed and executed to maximize benefits while minimizing costs and delays.
Supporting Communities and Social Value:
Public sector organizations play a pivotal role in supporting communities and generating social value.
This objective involves initiatives and policies aimed at fostering community well-being, economic
development, and social cohesion. It includes activities such as urban planning, affordable housing
initiatives, and community development programs. By focusing on supporting communities, public
sector organizations contribute to the overall betterment of society, creating opportunities and
improving the quality of life for residents. In the UK it is a legal requirement for all large public sector
contracts to consider Social Value, in line with the Social Value Act 2012.
Equality, Diversity, and Inclusion (EDI):
Promoting equality, diversity, and inclusion is another fundamental objective of public sector
organizations. These organizations are tasked with ensuring that all citizens are treated fairly and
have equal access to opportunities and services. This objective encompasses anti-discrimination
policies, diversity hiring practices, and programs that address societal inequalities. Public sector
entities strive to create environments where individuals of diverse backgrounds can thrive and
participate fully in public life, regardless of race, gender, age, disability, or other characteristics.
In conclusion, public sector organizations serve as key agents in addressing societal needs and
promoting the common good. Their objectives encompass improving services, achieving value for
money, supporting communities and social value, and promoting equality, diversity, and inclusion
(EDI). By pursuing these objectives, public sector organizations contribute to the welfare and
development of society, ensuring that public resources are utilized efficiently and equitably. They
play a vital role in shaping the overall well-being and progress of their respective communities and
nations.
Tutor Notes
- The study guide talks about the main objective of the public sector as being ‘to improve services’.
This is true, but in reality, the public sector may be the only people providing that service. They may
be providing a service that the private sector can’t or won’t because it’s simply not profitable. An
example is the Forestry Commission which looks at protecting forests and conducting research on
forests. No private sector organisation is going to do that because there’s simply no money in it.
- With a lot of public sector organisations there are competing private sector organisations, just look
at medical care and the rise of private health insurance. Same with transport. This essay doesn’t ask
you to talk about this, and it is outside of the scope of the study guide but it’s an interesting
observation: traditionally the aim of the public sector was to serve the public, nowadays it’s actually
competing with private sector organisations to do this!
- Social Value Act for anyone who’s not familiar: Social Value Act: information and resources - GOV.UK
part
below.
Explanation:
The knowledge to remember:
.
Essay Plan :
Remember to include examples for each of the six categories of spend. This is specifically asked for in
the question so it’s important to include as many examples as you can. To do this you could take an
example organisation such as a cake manufacturer and explain which of their purchases would fall
into each category and why.
Introduction – explain why procurement categorises spend
- Direct – these are items that are incorporated into the final goods (the cakes) so would include raw
materials such as flour, eggs, sugar etc
- Indirect – these are items that the company needs, but don’t go into the end product. For example,
cleaning products and MRO supplies for the machines
- Capital Expenditure- these are large one-off purchases, such as buying a new piece of equipment
such as a giant oven to cook the cakes.
- Operational Expenditure – these are purchases that are required to ensure the business can
function day-to-day. They may include PPE for the workers in the factory and cleaning equipment
- Stock items – these are items procured in advance and held in inventory until they are needed. In a
cake manufacturing factory this could be PPE for staff such as hairnets and gloves. The organisation
will buy these in bulk and keep them in a stock cupboard, using these as and when they are required
- Non- stock items - items that are not stored and used right away. An example would be eggs- these
will need to be put directly into the cakes as they would go off if bought in advance.
Conclusion – the categories are not mutually exclusive – an item can be direct and operational, or
indirect and stock. Different companies may use different systems to classify items of spend.
Example Introduction and Conclusion
Introduction
Procurement categorizes spend to efficiently manage resources and make strategic decisions. Three
primary ways of categorizing procurement spend include distinguishing between direct and indirect
spend, classifying expenditures as capital or operational, and categorizing items as stock or non-
stock. These distinctions aid organizations in optimizing their procurement strategies for better
resource allocation.
Conclusion:
In conclusion, categorizing procurement spend into direct vs. indirect, capital vs. operational, and
stock vs. non-stock items is essential for strategic resource management. While these categories
provide a structured framework, they are not mutually exclusive, as an item can fall into multiple
categories. For example, an item may be both direct and operational or indirect and stock. The
flexibility of these categories allows organizations to tailor their procurement strategies based on
their specific needs, ensuring efficient resource allocation and effective supply chain management.
Different companies may adopt varying categorization approaches depending on their industry, size,
and operational requirements.
Tutor notes:
- Because you’ve got 6 categories of spend to talk about you’re only going to need 3-4 sentences for
each. Providing you’ve said the category, explained what it is and given one example, you’ll
absolutely fly through this type of question
- You could also mention that it is useful to use categories of spend as this helps with budgeting.
Different categories may also have different processes to follow for procuring the item (this could
form part of your introduction or conclusion).
- This subject is LO 1.3.2 it’s quite spread out in the text book but the main info is on p.49
- Note- different companies/ industries classify items of spend differently. Particularly packaging and
salaries. Some say they’re direct costs and some say they’re indirect costs. Honestly, it’s a hotly
debated subject and I don’t think there is a right or wrong. I’d just avoid those two examples if you
can and stick to ones that aren’t as contentious like eggs and PPE.
part
below.
Explanation:
- 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.
part
below.
Explanation:
How to approach this question
- I’d use clear headings with numbers for this one. It asks you for a definition and 5 factors. Number
them. Makes it easy for you to write and easy for the examiner to mark.
- Don’t go over 5 – you won’t get any extra points for this. So spend your time giving examples and
explaining the 5 well, rather than naming more than 5.
Example Essay
As the new Head of Procurement at Alpha Ltd, Sarah faces the urgent task of replacing a critical piece
of machinery in the company's Birmingham factory. Recognizing the complexity of the decision,
Sarah contemplates utilizing the Whole Life Costing approach to ensure a comprehensive evaluation
that goes beyond initial expenses. This essay explores the concept of Whole Life Costing and delves
into five essential factors Sarah should consider when procuring new machinery.
Definition:
Whole Life Costing (WLC) is a procurement approach that considers the total cost associated with an
asset throughout its entire lifecycle. Unlike traditional procurement methods that focus primarily on
the initial purchase price, WLC evaluates all costs incurred from acquisition to disposal. This includes
operational, maintenance, and disposal costs, providing a holistic perspective on the true financial
impact of an asset over time.
Factors to Consider in Machinery Procurement
1) Initial Purchase Price:
While WLC looks beyond the initial cost, the purchase price remains a critical factor. Sarah should
balance the upfront expense with the long-term costs to ensure the initial investment aligns with the
overall financial strategy.
2) Operational Costs:
Sarah needs to analyze the ongoing operational costs associated with the new machinery. This
includes energy consumption, routine maintenance, and potential repair expenses. Opting for
energy-efficient and reliable equipment can contribute to substantial operational savings over the
machine's lifespan, even though this may result in a higher up-front purchase price
3) Training and Integration:
The cost of training employees to operate and maintain the new machinery is a significant
consideration. Sarah should assess how easily the equipment integrates into existing workflows and
whether additional training programs are required, impacting both immediate and long-term costs.
4) Downtime and Productivity:
Evaluating the potential downtime and its impact on productivity is crucial. Sarah should assess the
reliability and historical performance of the machinery to gauge its potential contribution to
sustained production levels and minimized disruptions, impacting the overall operational efficiency.
5) Technology Upgrades and Adaptability:
Sarah should consider the machinery's adaptability to technological advancements and potential
upgrades. Investing in equipment that allows for seamless integration with future technologies
ensures that Alpha Ltd remains competitive and resilient in a rapidly evolving industry landscape.
In conclusion, adopting a Whole Life Costing approach empowers Sarah to make informed decisions
that align with Alpha Ltd's strategic goals. By considering factors beyond the initial purchase price,
such as operational costs, training, downtime, and technology adaptability, Sarah ensures that the
replacement machinery not only meets immediate production needs but proves to be a cost-
effective and efficient asset throughout its entire lifecycle. The WLC approach safeguards against
unforeseen financial burdens, fostering sustainable and informed procurement practices in the
dynamic manufacturing environment.
Tutor Notes
- Whole Life Costing is on p.28
- Total Life Cycle Costs, Total Cost of Ownership and Life Cycle Costs are all practically the same thing.
The book says they’re slightly different, but don’t get yourself bogged down in trying to remember
the differences. Honestly, in the real world, people use this language interchangeably.
- Other factors you could have chosen to talk about include commissioning costs and disposal costs
- Don’t worry if you feel CIPS breezed through this as a topic, they did. It’s explained much better in
L4M7. You can read more about it here: Whole Life Costing - What is Whole Life Costing | CIPS and
here Whole-Life Cost: What it Means, How it Works (investopedia.com)
Source context
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