L4M1 Practice Questions

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

(www.gov.uk)

part

below.

Explanation:

The knowledge to remember:

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https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/CIPS_L4M1/page_12_img_2.jpg

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.

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)