L5M4 Lesson Plan

Advanced Diploma in
Procurement and Supply

Module (L5M4)
Advanced Contract and Financial
Management
Leading global excellence in procurement and supply

Learning outcomes
Further reading
Session introduction
Activities
Case study, questions, etc
Session summary
CIPS Global Standard for Procurement and

Supply
Segments: 6.7, 6.8, 7.6, 8.5
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or transmitted in any form or by any means, in whole or in part, without the prior written permission of 1
CIPS.

Module Content Overview
This is a core module in the Advanced Diploma.
Module purpose: On completion of this module, learners will be able to develop measures to ensure and
improve contract performance as they assess the concept and use of strategic sourcing and also consider
financial aspects that may impact procurement and supply activity.
Module aim: In any organisation, a significant element of the procurement and supply function is based
around the contracting process. Those involved in the formulation and management of contracts with
external suppliers must therefore have a clear understanding of the strategic nature of contractual
performance measures in procurement and supply. Financial management refers to the efficient and effective
management of money (funds) to accomplish organisational objectives. This module is designed for those
working in the procurement and supply field, with responsibility for contracting elements of the procurement
and supply function who must also have a strategic awareness of the impact of financial aspects of their
discipline.
Final overall knowledge and skills: the holder of the Advanced Diploma will demonstrate:
Knowledge Descriptor (the holder….) Skills Descriptor (the holder will….)

Has practical, theoretical or technological knowledge Determine, adapt and use appropriate methods,
and understanding of a subject or field of work to cognitive and practical skills to address broadly
find ways forward in broadly defined, complex defined, complex problems.
contexts.
Use relevant research or development to inform
Can analyse, interpret and evaluate relevant actions.
information, concepts and ideas.
Evaluate actions, methods and results.
Is aware of the nature and scope of the area of study
or work.
Understands different perspectives, approaches or

schools of thought and the reasoning behind them.
CIPS.

Module Learning Time
In arriving at a final number of learning hours, CIPS applies the TQT Criteria1 (equal to 10 x credit value
rounded to nearest whole number) and split learning hours for each module into:
 Guided Learning Hours (GLH): which CIPS define as a measure of the amount of input time required
to achieve the qualification. This includes lectures, tutorials and practicals, as well as supervised study
in, for example, learning centres and workshops. GLH also includes the time required for learners to
complete external assessment under examination or supervised conditions.
 Self-Study Requirement (SSR): which CIPS define as other required learning as directed by tutors will
include private study, preparation for assessment and undertaking assessment when not under
supervision, such as preparatory reading, revision and independent research and wider reading of the
subject areas.
For this module:
 12 Credits
 Module Learning Time = 120 hours
 GLH = 50 hours
 SSR = 70 hours
 Assessment = 3 hours
Assessment
 Constructed Response Exam – 3 hours

 Pass mark – 50%
1
Ofqual: Total Qualification Time criteria Condition E7 available at: https://www.gov.uk/government/publications/total-
qualification-time-criteria
CIPS.

Learning outcomes, assessment criteria and
indicative content
Learning outcomes help to define the scope, style and depth of learning within a module. Delivery
organisations, tutors and learners can see where development should be taking place and the areas and
disciplines that should be actively researched and/or reviewed during the associated study. The student will
be assessed against each learning outcome during the final assessment.
Assessment criteria are the key areas that will be assessed on the module. Learners and delivery
organisations and tutors should have these in mind during study and CIPS assessors will utilise them during
the final writing and marking of assessments.
Indicative content is an indication of the key areas that should be covered during the modular learning. This
should not be regarded as an exhaustive list and delivery organisations and tutors are encouraged to include
more content by way of regional cases and/or examples. Similarly, learners should not see this as a final
listing and should be encouraged to develop their knowledge through further reading around the indicative
areas of content.
Module Content Overview

Learning outcomes, assessment criteria and indicative content
Understand and apply tools and techniques that can be used to measure and
1.0 Session Chapter
develop contract performance in procurement and supply
1.1 Assess the use of Key Performance Indicators (KPIs)
 Cost 1 1
 Quality 1 1
• Delivery 1 1
• Safety 1 1
1.2 Evaluate methods of measuring and improving supply chain performance
 Collate and analyse data 1 1
 Measure supplier innovation against agreed matrix 1 1
 Measure time to market against agreed timescales 1 1
 Create e-systems integration across the organisation and its supplier
1 1
network
 Cost and benefits of investments measurement 1 1
 Ensure a balance between qualitative and quantitative measures of
1 1
performance
 Measure return on investment 1 1
1.3 Examine approaches available for supplier development
 Knowledge and technology transfer 2 1
 Collaborative product/service development 2 1
 Continuous improvement reviews and strategies 2 1
 Identify opportunities to use technology 2 1
CIPS.

1.4 Assess innovative measures to improve the supply chain
 Cross-functional working 2 1
 Simultaneous engineering 2 1
 Early supplier involvement 2 1
 Supplier forums and associations 2 1
2.0 Understand and apply the concept of strategic sourcing Session Chapter
2.1 Assess the market factors that influence strategic sourcing
 Industry dynamics 3 2
 Pricing behaviour 3 2
 Financial data on suppliers 3 2
 Market demand and supply factors 3 2
 Business motivations, cost margins and working practices of key suppliers 3 2
 Internal stakeholder involvement 3 2
Examine the assessment of sourcing options for strategic supplies of
2.2
products and/or services
 Contract type and duration 3 2
 Competitive vs. non-competitive sourcing 3 2
 Number of suppliers and vetting strategies 3 2
 The use of e-sourcing 4 2
 Competition 4 2
 Direct negotiation 4 2
 Joint proposition improvement 4 2
Analyse a strategic assessment plan for a key supplier using modelling and
2.3
analytical techniques
 Capacity and capability 4 2
 Planning 4 2
 Quality control systems 4 2
 Security 4 2
 Technical expertise 4 2
 Reputation and time established 4 2
 Investment plans 4 2
 Trading with competitors 4 2
 Financial reports 4 2
 Analysing potential sales 4 2
 Future expansion opportunities – partnership potential 4 2
3.0 Understand and apply financial techniques that affect supply chains Session Chapter
3.1 Analyse how costs and finance can impact on supply chains 5 3
 The financial objectives of different organisations (e.g. value for money,
5 3
maximising shareholder wealth and providing a surplus)
 The costs of materials, labour and overheads 5 3
 Funding working capital and credit insurance 5 3
 Project funding 5 3
 Medium and long term financing options 5 3
 Corporate financing decisions in investment, finance and dividends 5 3
CIPS.

Critically assess methods for managing the volatility of currencies in supply
3.2
chains
 Fixed and floating exchange rates 6 3
 Demand and supply factors in foreign exchange and the reasons for
6 3
exchange rate volatility
 Spot, forward and derivative instruments in foreign exchange 6 3
 Services provided by the banking sector in foreign exchange 6 3
3.3 Analyse methods for managing the volatility of commodities in supply chains
 Demand and supply factors in commodities 6 3
 The differentiation of commodities 6 3
 Soft and hard commodity markets 6 3
 Speculation in commodity markets 6 3
 The use of spot, forward, futures and hedging in the buying and selling of
6 3
commodities
 The use of a Contract for Difference (CFD) in the buying and selling of
6 3
commodities
Analyse and apply financial and performance measures that can affect the
4.0 Session Chapter
supply chain
Assess financial measures that can be applied to measuring the performance
4.1
of the supply chain
 The measurement of costs, timescales, processing, quality and satisfaction 7 4
 Financial measures such as profitability, return on investment, sales
7 4
growth, cash flow
 The use of balanced scorecard methodologies 8 4
4.2 Examine the impact of stakeholder feedback on the supply chain strategy
 Articulating the supply chain strategy 8 4
 Determining measurable outcomes of success 8 4
 Devising metrics of performance including feedback from 3rd parties and
8 4
suppliers, and other stakeholders
 Reporting structures and processes 8 4
Analyse approaches to benchmarking that can be applied to measuring the
4.3
performance of the supply chain
 The use of benchmarking in supply chains 9 4
 Comparisons of business unit, competitors or other industry players 9 4
 Gap analysis and performance improvement 9 4
Final module recap and discussion Session Chapter
10 1,2,3,4
CIPS.

Advanced Diploma in Procurement and Supply
Module L5M4 – Advanced Contract and Financial Management
Session 1
Understand and apply tools and techniques that can be
Assessment Criteria
used to measure and develop contract performance in
1.1, 1.2
procurement and supply
Understand and apply tools and techniques that can be used to measure and develop
contract performance in procurement and supply
 Assess the use of Key Performance Indicators (KPIs)
 Evaluate methods of measuring and improving supply chain performance
CIPS Global Standard for Procurement and Supply
Segments: 6.7, 6.8, 7.6, 8.5
Assess the use of Key Performance Indicators (KPIs)

 It is critical for organisations to understand what their customers or stakeholders
need and what they should be doing to ensure this happens
 Translating needs into KPIs allows organisations to measure how successful they are
 KPIs can be defined as financial and non-financial metrics used to reflect the critical
success factors (CSF) of an organisation or contract (CIPS)
Evaluate methods of measuring and improving supply chain performance

 There are both advantages and disadvantages to monitoring and measuring supplier
performance
o The advantages outweigh the disadvantages
 Whether a supplier is able to perform or exceed their contractual obligations can be
monitored through
o Analysing the suppliers
o Measuring performance
o Managing the supplier
 Supplier monitoring requires a set of metrics to quantify the efficiency and
effectiveness of a supplier’s actions
 Monitoring supplier performance is a key aspect of procurement and supply
management, but is often under-resourced and neglected
CIPS.

Assess the use of Key Performance Indicators (KPIs):
 How to set KPIs

o In the context of contract management, critical success factors (CSFs) should
be considered
o KPIs need to develop from CSFs, which then need to be aligned to corporate
strategy
 Developing KPIs
o Identify CSFs
o Identify measures of success/improvement for each CSF
o Develop and agree KPIs with key stakeholders
o SMART KPIs
o SMARTER KPIs
o Scoring and weighting of KPIs
o Checklist for creating KPIs
 Other characteristics of KPIs
o Eckerson (2009) characteristics of effective KPIs
 The purpose of KPIs
o 4 CPs (Neely, 1998)
 Check position
 Communicate position
 Confirm priorities
 Compel progress
 Notable KPIs
o Quality
o Cost
o Delivery
o Safety
 Metrics
o Supply chain operations reference (SCOR) model
 Key process area metrics
 Plan
 Source
 Make
 Deliver
 Return
o Crucial components of metrics
 Translate financial objectives and targets into effective measures of
operational performance
 Translate operational performance into accurate predictions of
future earnings or sales
 Engineer behaviour across the supply chain that supports the
organisation’s overall business strategy
 SLAs and KPIs
o SLAs are a contractual document that sets out the expected service level
and service credit regime within a contract for services
o The KPIs specified in the SLA will be used to measure and monitor service
performance levels
CIPS.

 Service credits
o Apply where service performance level is below the required level
o May be in the form of financial recompense or a credit offset against future
payments due to a supplier
o An incentive rather than a punishment
 KPIs and supplier ratings
o Supplier ratings can be used to evaluate the performance of an existing
supplier
o Not usually suitable for assessing a supplier’s future capabilities
Cost (cover each of the following using examples to illustrate advantages and disadvantages
and their typical uses – use locally based examples wherever possible and where each would
be typically used or appropriate and their characteristics):
 Cost-based metrics
o Cost reduction targets, including
 Historic cost baseline
 Total cost of ownership (TCO)
 Advantages
 Challenges
 Examples of cost metrics and KPIs
 Total price performance score
Quality (cover each of the following using examples to illustrate advantages and
disadvantages and their typical uses – use locally based examples wherever possible and
where each would be typically used or appropriate and their characteristics):
 Supplier’s inability to deliver the required quality will lead to problems in the long
and short-term
 5 major approaches to defining quality (Garvin, 1984)
o Transcendent approach
o User-based approach
o Product-based approach
o Manufacturing-based approach
o Value-based approach
 Service quality and SERVQUAL model
o Developed to overcome the problem of assessing service quality
(Parasuraman, Zeithaml and Berry, 1985)
o Established the gap between expected service and actual service
o RATER framework
 Reliability
 Assurance
 Tangibles
 Empathy
 Responsiveness
o Quality KPIs
 Examples
o Parts per million (PPM)
 Rejected PPM
CIPS.

Delivery (cover each of the following using examples to illustrate advantages and
 Delivery can relate to service delivery, product delivery or on-time logistics
 Examples of delivery measures
Safety (cover each of the following using examples to illustrate advantages and
 Safety is a top objective in any organisation
 A company may be prosecuted if it fails to maintain an adequate health and safety
framework
 If an organisation’s health and safety performance is poor, its reputation could be
damaged
 Examples of safety measurements
 Safety performance index (SPI)
Evaluate methods of measuring and improving supply chain performance:

 Relationship management
o Good practice for both buyer and supplier to jointly measure combined
performance towards joint goals
o Gordon’s (2005) 7 steps for the development of an effective supplier
performance management system
o Gordon’s 5 reasons in support of the business case for measuring supplier
performance
 Increase performance visibility
 Uncover and remove hidden waste and cost drivers in the supply
chain
 Leverage the supply chain
 Align buyer and supplier business practices
 Mitigate risk
Collate and analyse data (cover each of the following using examples to illustrate
advantages and disadvantages and their typical uses – use locally based examples wherever
possible and where each would be typically used or appropriate and their characteristics):
 Feedback mechanisms that allow organisations to collect data on suppliers and
compare their performance, including
o Feedback from internal and external customers and other stakeholders
o Performance information
o Budgetary control
o Formal performance reviews or appraisals
o Contract management
o Regular meetings between buyer and supplier representatives
o Project management
o Consultants to monitor compliance with standards
o Technical specialists to monitor supplier performance
CIPS.

 Supplier rating
o Supplier performance evaluation form
o Factor rating method
o Measuring quality
 Examples of improved performance as a result of sharing data with suppliers
Measure supplier innovation against agreed matrix (cover each of the following using
examples to illustrate advantages and disadvantages and their typical uses – use locally
based examples wherever possible and where each would be typically used or appropriate
and their characteristics):
 Firms need to innovate to survive
 Innovation can be seen as a form of competitive advantage
 Types of innovation
o Examples
 Classification of innovation
o Incremental
o Radical
o Discontinuous
 Innovation capability
o Ability to
 Develop new products to satisfy existing market needs
 Apply appropriate processes in the production of new products
 Develop and adopt new products and processes to satisfy future
market needs
 Respond to technological opportunities created by competitors
o Assessing potential supplier’s potential for innovation requires evidence of
continuous improvement and managerial and technical competence
o Example supplier innovation measures
 Innovation capabilities and new product development (NPD)
o Black, grey and white box classification system
 Innovation audits
o Assesses organisations in areas related to innovation capability
o Example methods
o Innovation assessment tools, including
 IMP3rove
 5 innovation management areas
 Pentathlon framework (Goffin)
 5 aspects of innovation management
 Tidd et al (2005) innovation audit
 Technological innovation capabilities (TIC) framework (Bjorkdahl and Holmen, 2015)
o 7 dimensions
 Dimensions of technological innovation capabilities
CIPS.

Measure time to market (TTM) against agreed timescales (cover each of the following using
 TTM is the timeframe between the generation of an idea and that product’s first
emergence on the market
 TTM metric
 First mover advantage
 Using the total TTM in supply chain performance measurement
o TTM measurement through
 Financial perspective
 Buyer perspective
 Internal business perspective
 Innovation and learning perspective
Create e-systems integration across the organisation and its supplier network (cover each
of the following using examples to illustrate advantages and disadvantages and their typical
uses – use locally based examples wherever possible and where each would be typically
used or appropriate and their characteristics):
 Systems
o E-system – any electronic system and internet or extranet-based site
providing access to data
o Closed systems
o Key elements of a system
 Inputs
 Transformation processes
 Outputs
 Feedback
 Systems integration
o 2 main types (Gulledge, 2006)
 Big I
 Little i
o B2B connectivity
o Characteristics for B2B over Big I and little I (Gulledge, 2006)
 Most organisations require internal business integration to some degree, including
o ERP systems
o Organisations will need to be externally integrated with their customers and
suppliers, including
 B2B connectivity
 Levels of integration
o 4 stages of supply chain integration (Stevens, 1989)
o Steps to supply chain integration
 Wisner, Leong & Tan (2012) 9 step model to achieve supply chain
integration
CIPS.

oSupply chain processes for integration
 Bowersox, Closs & Cooper (2002) 8 key processes for supply chain
integration
 Customer relationship management (CRM)
 Customer service management
 Demand management
 Order fulfilment
 Manufacturing flow management
 Supplier relationship management
 Product development and commercialisation
 Returns management
 Internal integration
o Challenges to integration
 Examples
 EDI and supplier system integration
o Benefits of using EDI
o Limitations of using EDI
Cost and benefits of investments measurement (cover each of the following using examples
to illustrate advantages and disadvantages and their typical uses – use locally based
examples wherever possible and where each would be typically used or appropriate and
their characteristics):
 Captured in a business case’s cost-benefit analysis using return on investment (ROI)
payback or net present value (NPV)
Ensure a balance between qualitative and quantitative measures of performance (cover

each of the following using examples to illustrate advantages and disadvantages and their
typical uses – use locally based examples wherever possible and where each would be
typically used or appropriate and their characteristics):
 Quantitative vs qualitative measures
 Supplier development and the need for balance of measures
o May be needed to improve the performance of a supply base or its future
capabilities
 Balanced scorecards
o Performance measures relevant to balanced scorecards
 Lagging measures
 Leading measures
o Key ideas incorporated into balanced scorecards
CIPS.

Measure return on investment (cover each of the following using examples to illustrate
 ROI
o A financial ratio which measures the benefit obtained from an investment
o ROI equation
 ROI at an organisational level
o Measures the relationship between an organisation’s profits and the
investment in assets it makes to generate those profits
o Different ratios for measuring ROI, including
 Return on assets (ROA)
 Return on equity (ROE)
o DuPont formula
 ROI at a departmental level
 ROI at a project level
 Measures of ROI in supplier performance management
 ROI and supplier development
 ROI vs TCO
 Common issues with the use of basic ROI calculations
 Advantages of ROI
 Disadvantages of ROI
See final case study for the module

 Use this to pull together all of the key elements discussed within sessions 1 to 9 of
this module, highlighting associated assessment criteria
Offer contextual case studies relevant to the region and industrial focus of the area
 Give students the opportunity to apply knowledge to areas of practical interest
relevant to their international region
 Help students to cement ideas and concepts through practical application of ideas,
theories and models
See short case studies within the associated Chapter of the CIPS Study Guide
 Use these to highlight key learning against assessment criteria
Student Exercises
 Use these to highlight key learning against associated learning outcomes for the
module
Students should leave this session with an overall understanding of the different tools and
techniques that can be used to measure and develop contract performance in the context
of procurement and supply. The students should have a detailed knowledge of the use of
KPIs and how supply chain performance can be measured and improved. They should also
understand the importance of systems integration and finally, how and why ROI is
calculated
CIPS.

Session 2
Understand and apply tools and techniques that can be
Assessment Criteria
used to measure and develop contract performance in
1.3, 1.4
procurement and supply
Understand and apply tools and techniques that can be used to measure and develop
contract performance in procurement and supply
 Examine approaches available for supplier development
 Assess innovative measures to improve the supply chain
Segments: 6.7, 6.8, 7.6, 8.5
Examine approaches available for supplier development

 There are various approaches that can be adopted available for implementation of
supplier development, including
o Knowledge and technology transfer development
o Collaborative product/service development
o Continuous improvement reviews and strategies
o The supplier development review
o Supplier capability assessments
o Identifying opportunities to use technology
 Supplier development describes efforts by manufacturer to increase the number of
viable suppliers and to improve their performance (Leenders, 1966)
 Supplier development has its roots in the Japanese car industry in the 1950s
 Supplier development can include
o Appraising the performance of a supplier
o Raising the agreed supplier performance level
o Providing incentives and recognition for increased performance
o Putting a supplier training plan in place and providing training
o Tangible assistance to suppliers
o Assistance to suppliers in the form of personnel exchange
 4 supplier development strategies (Krause et al, 2007)
o Competitive pressure
o Evaluation and certification systems
o Incentives
o Direct involvement
CIPS.

 Steps for supplier development
o Prepare
o Develop
o Monitor
 Partnering is the common term used to describe the development process
Assess innovative measures to improve the supply chain

 Measures that can be used to improve supply chains can include
o Cross-functional working
o Simultaneous engineering
o ESI
o Supplier forums and associations
 All these methods require co-operation between suppliers and buyers, often on a
one-to-one basis
Examine approaches available for supplier development:
Knowledge and technology transfer (cover each of the following using examples to illustrate
 Knowledge and technology transfer are similar concepts, and both are used to
increase a supplier’s performance and capability
 Knowledge can be categorised as
o Explicit
o Tacit
 Knowledge transfer
o Takes 2 forms (Kotabe, Martin and Domoto, 2003)
 Simple technical exchanges
 Technology transfer associated with higher-level capabilities
o Linear relationship between data, information and knowledge creation
o The development of knowledge pyramid (Ackoff, 1989)
o Knowledge transfer activities
 Production related
 Problem solving assistance related
 Quality related
 Process control related
 Others
o Barriers to knowledge transfer
 Technology transfer
o The passage of technology information from one organisation (donor) to
another (receiver)
o Formal technology transfers
 Examples
o Technology transfer mechanisms
 Examples
 Technology transfer can be an important tool in gaining competitive advantage
CIPS.

Collaborative product/service development (cover each of the following using examples to
illustrate advantages and disadvantages and their typical uses – use locally based examples
wherever possible and where each would be typically used or appropriate and their
characteristics):
 Demand for products with advanced technology is high
 Collaborative development helps organisations deal with key challenges
 Examples of collaborative product/service development
 Early supplier involvement (ESI)
 Collaborative product development (CPD)
 New product development process and ESI
o There are many models for new product development
 Typical stages of supplier involvement
o Earlier
o Later
 The level of supplier responsibility
o Varies according to the level of supplier involvement
 None
 White box
 Grey box
 Black box
 Potential advantages of ESI and CPD
 Risks of ESI and CPD
Continuous improvement reviews and strategies (cover each of the following using
 Continuous improvement is the ongoing improvement of products, services or
processes
 A commitment to continuous improvement can be built into a long-term contract,
with targets and performance measures periodically reviewed and updated
 Methods for continuous improvement
o Formal or informal
o PDCA
 Plan
 Do
 Check
 Act
o Benchmarking and collaboration
 The supplier development review
o Supplier performance should be formally reviewed
o There are many terms for performance reviews
o Purpose
 Meeting targets
 Identify areas for support
 6 steps to improve supplier’s performance
 Processes
 Improvement activities
 Continuous improvement of the supply base
 Key responsibilities
CIPS.

Supplier capability assessments (cover each of the following using examples to illustrate
 Supply base reduction – not every supplier in the supply base can be involved in
supplier development
o Benefits
 Performance capability matrix (Sarkar and Mohapatra, 2006)
o Ranks suppliers using
 Capability factors
 Performance factors
o Highest ranking suppliers are most likely to be selected for supplier
development and collaborative relationships
 Supplier selection criteria (Calvi et al, 2010)
o Potential direct benefits
o Project success factors
 Project-relevant supplier capabilities
 Management capability (top and middle) to support
development activities
 General level of supplier commitment
 Quality of the buyer/supplier relationship
 Buyer’s support capability and availability of resources
o Strategic factors
 Comparison of supplier assessment categories and criteria
o Most conventional criteria
 Quality
 Cost
 Time
o Carter’s (1995) 10 Cs
o Lysons and Farrington (2010)
o Monczka et al (2011)
 Technology road maps (TRM)
o A planning tool supporting strategic and long-term planning by matching
current operational goals and long-term goals with specific technology
systems
o Essential for organisations involved in developing new products
o A platform for the development and transfer of specific technology
o Must address (Sedgwick and Robinson, 2013)
 Where do we want to go?
 Where are we now?
 How can we get there?
 TRMs and supplier development
o Potential suppliers will need to be evaluated using a supplier appraisal
o A 2nd assessment is undertaken to ensure alignment between the supplier’s
and buyer’s objectives and technology
o A road map allows an organisation to understand, influence and manage the
development time of new technologies
o May be shared with specific suppliers under a non-disclosure agreement
o Questions to ask when considering suppliers for joint new product
development
CIPS.

Identify opportunities to use technology (cover each of the following using examples to
characteristics):
 Manufacturing technology
o Categories
 Hardware
 Software
o Technology and automation in the supply chain including
 Tracking goods
 Transaction processing
 Planning support
 Decision support
 Automation in handling and across operations
 Information technology
o Supply chain IT enablers
 Electronic data interchange (EDI)
 Bar codes
 Radio frequency identification (RFID)
 The Internet
o Enables integration in 4 key areas
 Information sharing
 Collaborative planning
 Workflow co-ordination
 Adoption of new models and technologies
 Challenges in new technology implementation (Forbes, 2018)
o Disruptive
o Benefits and ROI have to be demonstrated at every level
o Requires change management
o Identifying relevant data from the old/existing system
 Specific technologies
o ERP
 Used in performance management
 Benefits of ERP
o Cloud computing and cloud-based management
o Extranets
 Advantages
 Disadvantages
o Collaborative planning, forecasting and replenishment (CPFR)
 Strategy and planning
 Demand and supply management
 Execution
 Analysis
o CPFR technology
 CPFR solutions
 Establishes a common process for use between 2 trading partners or
across a marketplace
CIPS.

Assess innovative measures to improve the supply chain:
Cross-functional working (cover each of the following using examples to illustrate

 Usually used in sourcing, new product development and commodity management
(Leenders et al, 2002)
 Reasons for using cross-functional teams
 Characteristics of cross-functional teams
 Matrix type structures
o Representatives from different business functions making up the project
team
 Benefits of cross-functional teamwork
 Successful application
o Steps to successful application
o Tips for successful application
 Potential advantages
 Potential disadvantages
Simultaneous engineering (cover each of the following using examples to illustrate

 Also known as ‘concurrent engineering’
 About performing activities at the same time rather than sequentially
 Traditional sequential development
 The ‘over the wall’ approach
 Processes and structures required (Minguela-Rata, 2011)
o New product development teams
o Concurrent workflow
o Early involvement
 Key success factors (Moges, 2007)
o People
o Process
o Tools and technology
 7 steps of implementing simultaneous engineering
 Examples
Early supplier involvement (ESI) (cover each of the following using examples to illustrate
 A form of vertical integration
 Varies levels of ESI
o Increased dependency
o Decreased flexibility
o Risk of loss of information
CIPS.

 Problems and risks of supplier involvement
 Lessons on ESI (Handfield et al, 2003)
 Fundamental success factors
o Supplier selection
o Supplier relationship development
o Internal capabilities of buyer
Supplier forums and associations (cover each of the following using examples to illustrate
 A supplier forum does not have the formal structure of a supplier association
 Supplier forums are usually meetings that bring together suppliers to share best
practice, develop new ideas, problem solve and develop continuous improvement
 Kyoryoka Kai
o Japanese term for supplier association or co-operative association
o Purpose of supplier associations (CIPS, 2013)
o Aims and objectives of Kyoryoka Kai (Hines, 2008)
o Problems with supplier associations
o Ways to overcome supplier association issues

theories and models
Student Exercises
module
Students should leave this session with an overall understanding of the different
approaches available for supplier development. They should be familiar with the benefits
of each and what the disadvantages might be. They should also understand the different
measures that are used to promote innovation, including cross-functional working,
simultaneous engineering, ESI and supplier forums or association. The students should
know both the advantages and potential disadvantages of each
CIPS.

Session 3
Assessment Criteria
Understand and apply the concept of strategic sourcing
2.1, 2.2
 Assess the market factors that influence strategic sourcing
 Examine the assessment of sourcing options for strategic supplies of products
and/or services
Segments: 6.7, 6.8, 7.6, 8.5
Assess the market factors that influence strategic sourcing

 Strategic sourcing is arguably the most significant aspect of an organisation’s supply
management function
 Areas of strategic sourcing to consider
o Influencing market factors
o Sourcing options for strategic supplies of products and/or services
o Strategic assessment plan for a key supplier
 Approaches to sourcing
o Reactive
o Tactical or operational
o Strategic
 Elements of strategic sourcing (Kocabasoglu and Suresh, 2006)
o Elevation of purchasing function to a strategic level
o Effective cross-functional communication and support within an
organisation
o Information sharing with key suppliers
o Development of key suppliers
 There can be considered to be 4 stages of sourcing (Parniangtong, 2016)
 There is much written about strategic sourcing, including
o Engel (2007) essential elements of sourcing models
 Identify the targeted spend area
 Create the sourcing team
 Develop a team strategy and communication plan
 Gather market information by issuing RFIs
 Develop a supplier portfolio by reducing number of suppliers and
issuing RFQs
 Develop a future state
 Negotiate, evaluate, commit, agree
 SRM
 Any strategic initiative needs to consider external and internal influences
CIPS.

Examine the assessment of sourcing options for strategic supplies of products and/or
services
 There are a variety of sourcing options
 Using a variety of contract types and lengths could achieve lower prices
 A non-competitive, collaborative approach to market or a joint proposition might
help to achieve an organisation’s needs
 Using a competitive approach, assisted by e-sourcing or direct negotiation should
also be considered
Assess the market factors that influence strategic sourcing:
Industry dynamics (cover each of the following using examples to illustrate advantages and
 Buyers need to understand industry dynamics and the processes through which
industries change and evolve in order to undertake effective strategic sourcing
 Full external analysis might include
o STEEPLE analysis – macro factors
o Porter’s Five Forces analysis – industry dynamics
 Industry structure changes over time; buyers and suppliers can become more or less
powerful
 How to undertake industry analysis
o Porter’s Five Forces
 The power of buyers
 The threat of new entrants
 The threat of substitutes
 Competition among existing market players
 The power of buyers and suppliers
o Using and applying Porter’s Five Forces
 Key steps
 Use with STEEPLE/STEEPLED analysis
 Buyers will use Porter’s Five Forces to examine a market from a
supplier’s perspective and create a strategy to reduce that supplier’s
power
o Types of industry and differences between them
o Influences on market dynamics (STEEPLED)
 Socio-cultural
 Technological
 Economic
 Environmental
 Political
 Legal
 Ethical
 Demographic
CIPS.

Pricing behaviour (cover each of the following using examples to illustrate advantages and
 Price elasticity
o Concerns the relative relationship between price and demand
 Factors affecting price
o Value perceived by customers (skimming process)
o Production costs
o Competition and other market considerations
o The strategy and objectives of an organisation
 Cost-based pricing
o Process of setting prices that reflect the costs of production, distribution and
sale of a product, with a mark-up percentage
o Cost-plus pricing
o Break-even pricing
o Target profit pricing
 Customer value-based pricing
 Competition-based pricing
 O’Brien’s (2015) price model
o 6 different pricing approaches
 Greed
 Value
 Budget
 Cost
 Market
 Target
 Companies selling to consumers often use the following pricing strategies (Knight et
al, 2009)
o Skimming
o Penetration pricing
o Psychological pricing
o Cost-plus pricing
o Loss leader pricing
 Economy pricing
 Premium pricing
 Sticky prices
Financial data on suppliers (cover each of the following using examples to illustrate
 Potential suppliers should be financially appraised at an early stage of the sourcing
process
 Areas to consider in supplier financial appraisal
o Profits
o Cash flow issues
o Ratio analysis
o Debt
o Equity (share) capital
CIPS.

 Financial due diligence process includes ratio analysis to assess
o Profitability
o Liquidity
o Gearing
o Investment
 Objectives of financial ratio analysis
 Documents to inform financial ratio analysis
o Statement of comprehensive income (profit and loss statement)
o Cash flow forecast
o Statement of financial position
 Profitability ratios
o Gross profit margin
o Net profit margin
o EBITDA
o Return on assets
o Return on equity
o Return on capital
 Liquidity ratios
o Current ratios
o Acid test or quick ratio
 Gearing ratio
 Return on investment (ROI) ratio
 Analysis of results of the ratios
 Limitations of ratio analysis
 Why financial data is useful
o Helps with making the right and informed strategic sourcing decisions
 Sources of financial data
o Income statement
o Statement of financial position (balance sheet)
o Cash flow statement
 Legal requirements for publishing an organisation’s financial statements
 Credit rating companies
 Other sources of financial information
Market demand and supply factors (cover each of the following using examples to illustrate
 Changes in demand and supply factors can affect an organisation, its suppliers and
customers
 Trends in the market
 The importance of understanding capacity and capability for formulating a buying
strategy for a category of goods or services, or an individual procurement
 The importance of understanding the market structure
 Factors that drive supply and demand – Porter’s Five Forces
 Examples of ways to affect demand
 STEEPLED analysis to identify key drivers of change, trends, issues and the resulting
opportunities and threats
CIPS.

Business motivations, cost margins and working practices of key suppliers (cover each of
the following using examples to illustrate advantages and disadvantages and their typical
 Business motivations
 Supplier preferencing/perception matrix
o Establishes whether the supplier views the buyer as
 Core
 Development
 Nuisance
 Exploitable
 Cost margins
o 3 key margins
 Gross
 Net
 EBITDA
o How cost margins influence strategic sourcing
 Working practices of key suppliers
Internal stakeholder involvement (cover each of the following using examples to illustrate
 RACI model
o Responsible
o Accountable
o Consulted
o Informed
 Create a map/matrix/grid
o Mendelow (1991) stakeholder power/interest matrix
 Keep satisfied – high power/low interest
 Manage closely – high power/high interest
 Monitor – low power/low interest
 Keep informed – low power/high interest
o Stakeholders may move between different boxes/quadrants
o There is a need for regular monitoring and reviewing of stakeholder
mapping
Examine the assessment of sourcing options for strategic supplies of products and/or
services:
CIPS.

Contract type and duration (cover each of the following using examples to illustrate
 Types of contracts
o A type of purchase will influence the type of contract used, for example
 The new NEC4 – a family of contracts
 Option A – priced contract with activity schedule, and lump
sum price for works
 Option B – priced contract with bill of quantities
 Option C – target contract with activity schedule
 Option D – target contract with bill of quantities
 Option E – cost reimbursable contract
 Option F – management contract
 A generic list of pricing arrangements
o Firm fixed price (FFP)
o Fixed price economic price adjustment (FPEPA)
o Fixed price incentive (FPI)
o Cost-plus award fee (CPAF)
o Cost-plus incentive fee (CPIF)
o Time and materials (T&M)
o Cost-plus fixed fee (CPFF)
o Heads of term
o Grants
o Multi-party contracts
o Public sector contracts
 Duration
o Spot
o Short term
 Advantages
 Disadvantages
o Long term
 Advantages
 Disadvantages
 Lowering contract costs
 Factors to consider when selecting types of contract in relation to price
Competitive vs. non-competitive sourcing (cover each of the following using examples to
characteristics):
 Competitive procurement involves opening the procurement process to bids and
tenders in order to obtain the best value through supplier competition
 Non-competitive (sole-source or single-source) procurement occurs where the
buyer either selects the company it wishes to buy from or restricts the bidding
process to certain suppliers
 Circumstances when competitive sourcing is not required or practical
CIPS.

Number of suppliers and vetting strategies (cover each of the following using examples to
characteristics):
 Number of suppliers
o Supply base optimisation or rationalisation
o Supply chain tiering
o Single sourcing advantages
o Multiple sourcing advantages
o Use of Kraljic matrix to aid sourcing decisions
 Non-critical – arm’s-length
 Leverage – transactional
 Strategic – collaborative
 Bottleneck – closer tactical
 Vetting strategies
o For strategic sourcing to be successful, the selection of suppliers – including
vetting – requires careful consideration
o Ensures that a potential supplier will be able to perform any contract that is
awarded to the required standard
o Adds value by avoiding the wasted cost, time, effort and potential
embarrassment of awarding business to a supplier who lacks capacity or
capability
o It is incumbent upon the procurement organisation to conduct and ensure
proper supplier due diligence
o Types of research when vetting potential suppliers
 Technical capability
 Financial stability
 Management and quality systems
 Business terms
 Current customers
 Policies on CSR and ethical sourcing
 Site visits

theories and models
Student Exercises
module
CIPS.

Students should leave this session with an overall understanding of the market factors
that influence strategic sourcing. They should be familiar with the importance of
understanding industry dynamics and how pricing behaviours and market data are used to
assess suppliers. ESI should be understood and how this can help enhance supplier
relationships as well as benefit the development of products. The students should also
know the different types of contracts that an organisation can pursue and how the most
appropriate contract might be identified. Finally, they should be familiar with when (and
when not) competitive tendering should be used and how potential suppliers might be
vetted to assess suitability
CIPS.

Session 4
Understand and apply the concept of strategic Assessment Criteria
sourcing 2.2, 2.3
 Examine the assessment of sourcing options for strategic supplies of products and/or
services
 Analyse a strategic assessment plan for a key supplier using modelling and analytical
techniques
Segments: 6.7, 6.8, 7.6, 8.5
Examine the assessment of sourcing options for strategic supplies of products and/or services
 There are a variety of sourcing options
 Using a variety of contract types and lengths could achieve lower process
 A non-competitive, collaborative approach to market or a joint proposition might help
to achieve an organisation’s needs
 Using a competitive approach, assisted by e-sourcing or direct negotiation should also
be considered
Analyse a strategic assessment plan for a key supplier using modelling and analytical
techniques
 As part of supplier evaluation, suppliers are assessed against the buyer’s pre-defined
strategic needs using modelling and analytical techniques to ensure that the buyer’s
needs are met
 Supplier evaluation is usually associated with new suppliers although it can also be
conducted with existing suppliers
 If strategic sourcing is to be successful the selection of suppliers requires careful
consideration
Examine the assessment of sourcing options for strategic supplies of products and/or services:
The use of e-sourcing (cover each of the following using examples to illustrate advantages and
disadvantages and their typical uses – use locally based examples wherever possible and where
each would be typically used or appropriate and their characteristics):
 Refers to internet-enabled applications and decision support tools that facilitate
interactions between buyers and suppliers through the use of online negotiations,
online auctions, reverse auctions and similar tools
 There has been a major change in the e-sourcing field since 2000 due to advances in
technology
CIPS.

 e-sourcing and e-procurement are at the heart of the e-purchasing cycle
o 6 core processes of e-sourcing
 Business intelligence
 Configuration
 Supplier search
 Supplier authentication
 Product authentication
 Evaluation
 Successful e-sourcing
 Potential advantages of e-sourcing
 Potential disadvantages of e-sourcing
Competition (cover each of the following using examples to illustrate advantages and
 Reasons for competition
 Conditions for competitive bidding and tendering
 Features of the competition approach
 Benefits of the competition approach
Direct negotiation (cover each of the following using examples to illustrate advantages and
 Discussing requirements with one supplier or a small group of suppliers, aiming to
negotiate a lower price
 ‘Should cost analysis’
 Total cost of ownership (TCO)
o Selection of suppliers using TCO
o Benefits of using TCO in negotiations
 Features of direct negotiation
 Benefits of direct negotiation
 Disadvantages of direct negotiation
Joint proposition improvement (cover each of the following using examples to illustrate
 A proposition for a buyer and supplier to work collaboratively in order to improve a
situation for their mutual benefit
 Considerations for joint working
 Benefits of joint propositions
 Risks from joint working
 Performance metrics to promote joint working
 Alternative options to joint working
o Restructuring relationships with suppliers
o Improving the product specification
 Risk and pain/gain share arrangements
CIPS.

Analyse a strategic assessment plan for a key supplier using modelling and analytical
techniques:
 Supplier selection models
o Carter’s 10 Cs
 Developed to evaluate risks of procuring goods or services from a
particular supplier or contractor
 Provides an indication of the potential risk or value associated with any
supplier
 The 10 Cs
 Competency
 Capacity
 Commitment to quality
 Consistency of performance
 Cost
 Cash and finance
 Communication
 Control of internal processes
 CSR
 Culture
o Comparison of different models
 Lysons and Farrington (2012)
 Monczka et al (2011)
 Carter’s 10 Cs
 Other modelling and analytical techniques
o The strategic assessment plan is used to pre-qualify or reduce the pool of
potential suppliers
o There are several approaches that can be used to assess the suitability of a key
supplier
 These typically involve weighting of the assessment criteria
o Examples of supplier evaluation
 Supplier selection
o Private sector
 4 phases of supplier selection (De Boer et al, 2001)
 Definition of problem
 Formulation of criteria
 Qualification of suitable supplier (pre-qualification)
 Final selection
 Monckza et al (1998) supplier evaluation and selection process
o Public sector
 Supplier selection
 Contract awarding
 Supplier evaluation
 Supplier appraisal
 Supplier approval
 Supplier rating
o CIPS Procurement Cycle
CIPS.

o Techniques for assessing supplier performance include
 Weighted evaluation criteria
 TCO
 Cost-based techniques (total cost of acquisition)
 Supplier performance index (SPI) (Monczka et al, 2010)
 Araz and Ozkarahan (2005) suggested supplier selection techniques,
including
 TCO
 Mathematical programming techniques
o Multiple criteria decision-making (MCDM) models
 Multiple attributes decision-making (MADM)
 Analytical hierarchy process (AHP)
 Advantages of MCDM models
 Disadvantages of MCDM models
 Artificial intelligence methods
 Linear weighted models
 MCDM methods, such as AHP
 Outranking techniques
 Data envelopment analysis (DEA)
Capacity and capability (cover each of the following using examples to illustrate advantages and
 Capability
o Refers to a supplier’s current and future potential that can be used to the
buyer’s future advantage in the longer term
o Capability factors
 Capacity
o The amount of resource available to the supplier
o For some projects, a key part of the supplier’s capacity will be externally
sourced
o Factors to consider when assessing capacity
o Capacity = available hours x cycle time
 Subcontracting
o If a potential supplier plans to subcontract part of the contract, the
subcontractors will need to complete the buyer’s standard selection
questionnaire
Planning (cover each of the following using examples to illustrate advantages and disadvantages
and their typical uses – use locally based examples wherever possible and where each would be
 Planning and control systems relate to systems controlling an organisation’s workflow
 Ways to assess supplier’s planning
 Planning can also refer to advanced quality planning (AQP)
CIPS.

Quality control systems (cover each of the following using examples to illustrate advantages
and disadvantages and their typical uses – use locally based examples wherever possible and
 Ways to assess quality control systems and processes
o Purchasing process
o Inspection process
o Product handling process
o Control of records (process cards, test results etc)
o Quality assurance
o Miscellaneous
Security (cover each of the following using examples to illustrate advantages and disadvantages
and their typical uses – use locally based examples wherever possible and where each would be
 Assessment of a supplier’s security will be affected by the nature of a contract
o Security of information
o Physical security
o Financial security
o Continuity of supply and disaster recovery
 ISO 27001:2013 – international standard for security management
Technical expertise (cover each of the following using examples to illustrate advantages and
 If a supplier has experience in producing similar goods or services to those required by
the buyer then it can be assumed that it has the relevant technical expertise
 Technical expertise also depends on a supplier’s equipment, machinery and manpower
Reputation and time established (cover each of the following using examples to illustrate
 Assessing gaps between reputation and expectation can be challenging, as it is usually
subjective
 Importance of supplier reputation
Investment plans (cover each of the following using examples to illustrate advantages and
 Assesses a supplier’s plans for capital investment to take the business forward
 Technology road maps
Trading with competitors (cover each of the following using examples to illustrate advantages
 Can influence how important a buyer’s account is to a supplier
 Economies of scale
CIPS.

Financial reports (cover each of the following using examples to illustrate advantages and
 Published accounts and supplier credit rating reports, to assess
o Total revenue
o Profitability
o Credit rating
o Assets, capital and infrastructure
o Stability (liquidity and gearing ratios)
Analysing potential sales (cover each of the following using examples to illustrate advantages
 Opportunities to generate greater sales growth when working with suppliers in a long-
term partnership
Future expansion opportunities – partnership potential (cover each of the following using
examples to illustrate advantages and disadvantages and their typical uses – use locally based
examples wherever possible and where each would be typically used or appropriate and their
characteristics):
 Suppliers may wish to expand sales opportunities by purchasing more capacity and
capability
 Having a long-term relationship with a supplier based on trust and commitment will
help both sides grow and drive greater sales opportunities

 Use this to pull together all of the key elements discussed within sessions 1 to 9 of this
module, highlighting associated assessment criteria
 Give students the opportunity to apply knowledge to areas of practical interest relevant
to their international region
theories and models
Student Exercises
 Use these to highlight key learning against associated learning outcomes for the module
Students should leave this session with an overall understanding of how e-sourcing has
evolved, and the importance of joint working practices should be understood. They should
also know how buyers use strategic assessment plans for key suppliers, using the range of
modelling and analytical techniques. The students should be familiar with the different
assessment criteria that might be used and how these help an organisation evaluate whether
potential suppliers are suitable to contract or partner with
CIPS.

Session 5
Understand and apply financial techniques that affect Assessment Criteria
supply chains 3.1
Understand and apply financial techniques that affect supply chains

 Analyse how costs and finance can impact on supply chains
Segments: 6.7, 6.8, 7.6, 8.5
Analyse how costs and finance can impact on supply chains

 Finance is needed to fund working capital and to enable investment in capital assets
or projects
 There are many sources of finance and there are also different financial objectives
for organisations in different sectors
Analyse how costs and finance can impact on supply chains:
The financial objectives of different organisations (e.g. value for money, maximising
shareholder wealth and providing a surplus) (cover each of the following using examples to
characteristics):
 The financial objectives of organisations in different sectors
o Public sector
 Obtaining value for money
o Private sector
 Maximising shareholder wealth
o Third sector
 Generating a surplus
 Value for money
o The optimal use of existing resources to achieve the desired outcome
o Not only about buying at the lowest price
o NAO criteria to assess how much of government spending represents good
value for money
 Economy
 Efficiency
 Effectiveness
CIPS.

 Maximising shareholder wealth
o Maximising the flow of dividends to the shareholders
o A long-term process that requires long-term perspective
o Options to increase private-sector company value include
 Investing in new projects
 Maximising profits from existing products and services
 Adding value through process
 Controlling costs
o Variables which affect shareholder wealth
 Size and value of cash flow
 Timing of cash flow
 Level of risk associated with cash flow
o Profit maximisation vs wealth maximisation
 Profit maximisation
 How much money the company can make in the short term
 May not ultimately achieve investors’ objectives
 Risky, short-term investments in profit-orientated ventures
can generate impressive returns for investors who are
focused on the short-term and who can take the risk
 Wealth maximisation
 A long-term approach which refers to the total value of a
company
 Key variables
o Timing
o Cash flow
o Risk
 May be more appealing to investors
 Triple bottom line
 Providing a surplus
o Third sector organisations do not seek profit or wealth maximisation, but
are typically set up to achieve societal goals
 May require some surplus to remain financially sustainable
 Characterised through their reinvestment of any surpluses
generated
o Hybrid organisations (Alter, 2007)
The costs of materials, labour and overheads (cover each of the following using examples to
characteristics):
 Types of costs
o Fixed, variable, semi-variable and step costs
 Fixed costs
 Variable costs
 Semi-variable costs
 Step costs
CIPS.

o Direct and indirect costs
 Direct costs
 Indirect costs
o Opportunity costs
o Planning
o Decision-making
o Control
o Accounting for overhead costs
o Allocating indirect costs to cost centres
o Apportioning service-centre costs across production centres
o Absorbing costs into products and services
Funding working capital and credit insurance (cover each of the following using examples to
characteristics):
 Companies needs sufficient working capital in order to finance their operating
expenditure
 A fine balance needs to be struck between liquidity and profitability
o Return on capital employed (ROCE)
 Working capital and the requirement for working capital
o Operating cycle of working capital
o Working capital requirement (WCR)
o Working capital policy
 Management of stock
o Methods for stock optimisation
 Establishing robust stock-purchase procedures
 Implementing a system for the appropriate location and storage of
stock
 Using accurate and time-bound systems to record, control and
physically check stock
 Effective monitoring of stock turnover, and the use of appropriate
ratios
 Implementing effective stock management and reorder systems
o Examples of stock management and reorder systems
 Kanban
 Just in time (JIT)
 Vendor-managed inventory (VMI)
 Material requirements planning/enterprise resource planning
(MRP/ERP)
 ABC categorisation, using Pareto analysis
 Management of debtors and credit management
o For management to be effective, policies must be in place governing
 The choice of customers to whom credit will be extended
 How sales are made
 The trading terms governing sales
 The system for invoicing sales
 The means of settlement
o Trade-receivable days
o Creditor days
CIPS.

 Payment policy
 Operating cycle performance
 Overtrading
o When a business enters into commitments that it cannot meet on its
available short-term resources
o Risks of overtrading
 Methods to improve short-term cash flow
 Methods to improve long-term cash flow
 Cash flow management
o Maximising ROCE
 Factoring
o An advance made against a company’s trade receivables
 Credit insurance
o Covers the risk of not being paid for sold or dispatched goods
o Trade credit insurance
o Credit limits
o Types of credit insurance policies
Project funding (cover each of the following using examples to illustrate advantages and
 Involves investing money in long-term infrastructure or services
 Money invested is used to set up a project and will be repaid when the project
begins to generate cash flow
 Different types of financial structures
o Non-recourse or limited recourse
 Public-private partnerships (PPPs)
 Key elements and features of project finance
o Large infrastructure projects
o Long-term
o Involves special purpose vehicle (SPV)
o Project sponsor not liable for debts
o Repayment is from future cash flows generated from the project
o Used extensively by many governments
 Typical project-financed sectors
o Energy
o Oil
o Mining
o Highways
o Telecommunications
 Sources of project financing
 Seniority of debt
 Offtake agreements
 Private finance initiatives (PFIs)
CIPS.

 Risks with financing large, long-term projects
o Credit risk
o Settlement risk
o Market risk
o Portfolio concentration
o Liquidity risk
o Operational risk
o Business risk
 Advantages of project finance
o Non-recourse/limited recourse financing
o Off-balance sheet financing
o Leveraged debt
o Avoidance of restrictive covenants
o Favourable tax treatment
o Favourable financing terms
o Political risk diversification
o Risk sharing
o Limitation of collateral to project assets
o Lenders typically participate in a workout rather than a repossession
Medium and long term financing options (cover each of the following using examples to
characteristics):
 Short-term financing
o <1 year
 Medium-term financing
o 1-5 years
 Long-term financing]
o 5-20 years
 Sources of finance
o Internal finance sources
o External finance sources
 Decision factors for length and source of finance
 Shares
o Long-term and external source
o Ordinary or preference shares
o Rights issue
o Limited company
o PLC
o Advantages of raising finance via a rights issue
o Disadvantages of raising finance via a rights issue
 Loans
o External source
o Increases a company’s gearing
o Advantages of loans
o Disadvantages of loans
CIPS.

 Debenture
o Advantages of debentures
o Disadvantages of debentures
 Sale and leaseback
o Raises money by selling business assets to a financial institution
Corporate financing decisions in investment, finance and dividends (cover each of the
following using examples to illustrate advantages and disadvantages and their typical uses –
use locally based examples wherever possible and where each would be typically used or
appropriate and their characteristics):
 Decisions in financial management need to be made with regard to investments,
finance and dividends
o These 3 areas are inter-related
 Investment decisions
o Capital budgeting decisions (long-term)
o Working capital decision (short-term)
 Finance decisions
o Internal sources
o External sources
 Dividends (reward) decisions
o Distributions from a company’s profits amongst its shareholders,
proportional to the size of shareholding
o Constant dividends
o Types of dividend policies
 Zero dividend policy
 Progressive dividend policies
 Fixed percentage dividend policy

theories and models
Student Exercises
module
CIPS.

Students should leave this session with an overall understanding of the different methods
available for financing an organisation. This should include a good awareness of the
different financial objectives that organisations might have and in particular how project
funding might be secured. They should know the different options for financing in the
medium and long-term and finally, what the different corporate financing decisions are
with regards to investment, finance and dividends
CIPS.

Session 6
Understand and apply financial techniques that Assessment Criteria
affect supply chains 3.2, 3.3
Understand and apply financial techniques that affect supply chains
 Critically assess methods for managing the volatility of currencies in supply chains
 Analyse methods for managing the volatility of commodities in supply chains
Segments: 6.7, 6.8, 7.6, 8.5
Critically assess methods for managing the volatility of currencies in supply chains
 Very few organisations will trade only within their domestic market or remain
unaffected by movements in exchange rates
 Foreign exchange is the exchange of one currency for another
 The ability to convert currencies is essential to international trading, as well as to the
payment or receipt of payment from suppliers and customers
 An understanding of how exchange rates are determined, and of how to hedge against
rate volatility, is essential for any procurement professional engaged in international
procurement or global sourcing
 There are 3 major risks resulting from changes to international trade and exchange rates
o Transaction risk
o Translation risk
o Economic risk
Analyse methods for managing the volatility of commodities in supply chains

 Commodities are the building blocks of tradeable products
 Commodities are interchangeable with other products of the same type and can be used
as they are, or to make other products
 Price and availability of a commodity is crucially important to an organisation’s supply
chain and its profitability
 In the context of supply chains, a commodity is typically a raw material or natural
product
 Commodities can be
o Hard – materials or metals that are mined or extracted, i.e. gold or oil
o Soft – agricultural goods that are grown, i.e. beef
 Commodities are traded on commodity exchanges
CIPS.

Critically assess methods for managing the volatility of currencies in supply chains:
Fixed and floating exchange rates (cover each of the following using examples to illustrate
 Exchange rates can be fixed, or they can float
 Most developing nations have a floating exchange rate which is determined by the
money markets
o Exchange rate mechanism (ERM) is an example of when the UK attempted to fix
the value of sterling within a narrow band in 1996
o China effectively fixed its currency against the US dollar between 1994 and 2005
 Managed floating exchange rate
 Countries can fix exchange rates by buying and selling on the open market
 The equilibrium price is where demand and supply are equal
Demand and supply factors in foreign exchange and the reasons for exchange rate volatility
(cover each of the following using examples to illustrate advantages and disadvantages and their
typical uses – use locally based examples wherever possible and where each would be typically
 Relative interest rates
 Economic growth
 Inflation
 Confidence in the economy/currency
 Balance of payments (the deficit or surplus of the current account)
Spot, forward and derivative instruments in foreign exchange (cover each of the following
using examples to illustrate advantages and disadvantages and their typical uses – use locally
based examples wherever possible and where each would be typically used or appropriate and
 The foreign exchange market uses various trading instruments, the main ones being the
various currencies of different countries
 The foreign exchange market is not centralised or overseen by a professional body
 Spot transactions
o An exchange of currencies, securities or commodities at the prevailing market
rate (spot price/rate)
o Supply and demand dictate the market rate
o Spot market
 Cash or physical market
 Derivative instruments
o Value is based on the performance of a specific asset, i.e. gold or bonds
o Foreign exchange derivatives
 Forward contracts
 A commitment to sell or buy an asset at a specified price on an
agreed future date
 Protect buyers from fluctuations in the currency price
 Private agreements between parties
 Over-the-counter transactions (OTC)
 Outright forward contract
CIPS.

Forward rates
o Spot rate and interest rate differential (IRD)
 Advantages of forward contracts
 Disadvantages of forward contracts
 Future contracts
 Share similarities to forward contracts, although differ by being
o Bought and sold on a currency exchange
o Standardised and traded in minimum lot sizes
 Foreign exchange futures are also known as currency futures or
Forex futures
o Futures contracts on a specific underlying asset: the
currency exchange rate
o Standardised contracts to buy or sell a specific amount
of a specified currency, at a future set date, for a
predetermined price
o ‘Ticks’ and ‘pips’
o Foreign exchange contracts are traded on several
exchanges worldwide
o Examples of currency futures exchanges
 CME Group
 Tokyo Financial Exchange
 Brazilian Mercantile and Futures Exchange
 Intercontinental Exchange (ICE)
o Advantages of using futures
o Disadvantages of using futures
 Options
 Currency options operate in a similar way to commodity options
o Give a buyer the right (not obligation) to buy or sell
currency at the strike rate or strike agreed price
 Categories
o ‘Call’
o ‘Put’
 Advantages of options
 Disadvantages of options
 Swaps
 Foreign exchange currency swaps are a very popular OTC
derivative
 An agreement where 2 parties exchange the principal and
interest in different currencies
 One party borrows one currency from, and simultaneously lends
another to, the 2nd party
 3 major variants of a currency swap
o Fixed/fixed
o Fixed/floating
o Floating/floating
 Advantages of swaps
 Disadvantages of swaps
CIPS.

Services provided by the banking sector in foreign exchange (cover each of the following using
examples to illustrate advantages and disadvantages and their typical uses – use locally based
examples wherever possible and where each would be typically used or appropriate and their
characteristics):
 Services include
o Making international payments
o Receiving international payments
o Foreign currency accounts
o Spot purchase facility in most popular currencies
o Forward contracts
o Options
o Online trading platforms
o Market and economic insights
o Tailored products
 The banking sector can provide market advice and tailored products and services in
relation to foreign exchange
o Examples
Analyse methods for managing the volatility of commodities in supply chains:
Demand and supply factors in commodities (cover each of the following using examples to
characteristics):
 Certain commodities are only found or produced in specific parts of the world
 Volatility of commodity prices is due to
o Poor weather
o Production glut, immediate or future supply exceeding demand
o Oversupply, current supply and retained inventory exceeding demand
o Reduction in demand
o Changes in prices of growing/extracting the commodity
o Political instability
o Investor behaviour patterns
 The supply of a perishable commodity is relatively inflexible, not responding easily to
changes in demand
 Where a commodity is durable and will allow stockpiling, supply is fairly elastic
 Commodities are usually sold via futures contracts on regulated exchanges rather than
on the spot market
o Backwardation
o Contango
The differentiation of commodities (cover each of the following using examples to illustrate
 Requirements for trading as a commodity
o Products must be easy to grade
o Products must be storable
o Multiple buyers and sellers of the product
o Products must be fungible (homogeneity)
o There must be price volatility
CIPS.

Soft and hard commodity markets (cover each of the following using examples to illustrate
 Hard commodity markets
o Metals
o Energy
 Soft commodity markets
o Livestock/meat
o Agricultural
Speculation in commodity markets (cover each of the following using examples to illustrate
 Speculators help to provide market liquidity
 Speculation is different to hedging
 Investors who speculate specifically take on risk in an attempt to make a profit by
buying or selling futures
 Irrational exuberance
 Defining support and resistance
o Support
 The lowest price level that a commodity is expected to reach before the
low price makes it attractive to buyers again, and the demand causes
the price to rise
o Resistance
 The highest price that the commodity is anticipated to reach before the
high price means that sellers are more likely to sell and buyers are less
likely to want, which in turn causes the price to reduce
o Restrictions are imposed on individual traders to help provide stability in the
commodity markets
The use of spot, forward, futures and hedging in the buying and selling of commodities (cover
each of the following using examples to illustrate advantages and disadvantages and their
 Spot market
o Access to the commodity market depends on whether the spot transaction is
carried out over an exchange or as an OTC transaction
 Future contracts
o Influenced by expectations regarding future process, storage costs, weather
predictions etc
o Time spread
o Benefits of new futures contracts
 Hedging
o The use of futures contracts in hedging
o The use of options in hedging
o Commodity markets bring together buyers, sellers and speculators
 This enables a spot price and futures price to be set, making hedging
and speculating possible
CIPS.

The use of a Contract for Difference (CFD) in the buying and selling of commodities
(cover each of the following using examples to illustrate advantages and disadvantages and their
 A CFD is a popular form of derivative trading
 CFD trading allows for speculation on the rising or falling prices of fast-moving financial
markets (instruments)
 An agreement between 2 parties to exchange the difference between the opening price
and closing price of a contract
 The value of the CFD depends on the value of the actual asset, there is no physical
delivery
 CFDs are not sold on commodity exchanges, but are typically available through brokers
 Trading in CFDs carries significant risks

 Use this to pull together all of the key elements discussed within sessions 1 to 9 of this
module, highlighting associated assessment criteria
 Give students the opportunity to apply knowledge to areas of practical interest relevant
to their international region
theories and models
Student Exercises
 Use these to highlight key learning against associated learning outcomes for the module
Students should leave this session with an overall understanding of what causes volatility in
exchange markets and the impact this has for procurement and supply chain management.
They should know the difference between soft and hard commodity markets, as well as the
different types of contracts and markets used to buy and sell commodities. The key terms
relating to currency exchange should be clearly understood and what methods can be used to
try to manage volatility from a commodity perspective
CIPS.

Session 7
Analyse and apply financial and performance Assessment Criteria
measures that can affect the supply chain 4.1
Analyse and apply financial and performance measures that can affect the supply chain
 Assess financial measures that can be applied to measuring the performance of
the supply chain
Segments: 6.7, 6.8, 7.6, 8.5
Assess financial measures that can be applied to measuring the performance of the supply
chain
 An accurate measurement of performance enables a procurement professional to
o Identify potential cost savings in the supply chain
o Evaluate areas of performance improvement that will help the organisation
to achieve competitive advantage
 Financial measures are used to assess the performance of the supply chain
 The procurement professional is responsible for
o Designing, developing and implementing performance measurement
processes
o Ensuring decisions can be made regarding the input, transformation and
output of the procurement and supply chain process
 There is not one single measure for the performance of a supply chain that will
capture complete performance (Beamon, 1996)
 There are 3 types of interrelated measures (Beamon, 1996)
o Flexibility
o Outputs
o Resources
chain:
The measurement of costs, timescales, processing, quality and satisfaction (cover each of
the following using examples to illustrate advantages and disadvantages and their typical
 When considering measures of supply chain performance, an understanding of the
overall business strategy and key strategic priorities are required
 Different organisations will emphasise different performance objectives
CIPS.

 Costs
o Cost performance measures
o Supply chains cost
 Labour
 Materials
 Management
 Transportation
o Supply chain cost classifications
o Supply Chain Operations Reference model (SCOR)
 Helps to manage supply chain decision-making relating to business
processes needed to satisfy customer demands
 Explains processes to identify areas for improvement
 SCOR processes
 Plan
 Source
 Make
 Deliver
 Return
 Enables an organisation to detail costs within the supply chain for
each stage of the core supply chain processes
 Costs measured under SCOR
 Overall value at risk (VaR)
 Total cost to serve
 Costs of goods sold (COGS)
 Return on fixed supply chain fixed assets
 Provides an in-depth understanding of supply chain costs and why
they might exist
 Focuses on activity-based costing
 Timescales
o Timescale performance measures
 Perfect order
 Measures the number of orders shipped/delivered to
customers without any issues
 Perfect order KPIs include
o On-time delivery
o In-full delivery
o Number of orders that are delivered with an
accurate record of the order included with the
delivery
o Damage-free delivery
 On time, in full (OTIF)
 Lead time/order cycle time
 Cash-to-cash cycle time (C2C)
 Inventory days of supply
 New product development time (NPD)
CIPS.

 Processing
o Key processes involved in the end-to-end supply chain
o Process measures evaluate
 How well actors in the supply chain are following recommended
processes
 Whether the process itself is delivering the desired outcome
 Takt time
 The rate of production required to fulfil customer demand
 Production time minus customer demand
 Customer demand
 Amount of units required by customer divided by time
period
o Value stream mapping
o Process cycle efficiency
o Process capability measures
 Supply chains need to be dependable and predictable, with product
flow uninterrupted
 Tools
 Six Sigma
 DMAIC
 5 ‘Whys’
 Value stream mapping
 Kaizen
 The process capability index
 Uses
o Process variability
o Process specifications
 Used to compare the output of an in-control process to the
process specification
 Comparison is on the specification width and the process
width
 In-control processes
 Measured using process spread
 Falls within the range of upper and lower specification limits
 Capability process measures in a supply chain
 Process capability (Cp)
 Process capability index (Cpk)
o Statistical process control (SPC)
 Used in the production process to prevent defects happening
through measurement and control
 Benefits of SPC directly contribute to supply chain efficiency
and effectiveness
 Reductions in process variability
o Reductions in wastage
o Improved productivity
o Cost efficiency
o Ability to develop process change in real time
o Informed decision-making
CIPS.

 Xbar and range charts
 Indicators of non-random behaviour
 Quality
o Measures of quality
 Cost of quality (COQ)
 Customer complaint resolution
 Parts per million (PPM)
 Delivery dependability
o Manufacturing-related quality
o Supplier-related quality
o Customer-related quality
 Service quality
o Differences between goods and services
 Intangibility
 Inseparability
 Heterogeneity (or variability)
 Perishability
 Ownership
o SERVQUAL
 Gap model or the model of service quality
 5 SERVQUAL quality measures
 Reliability
 Assurance
 Tangibles
 Empathy
 Responsiveness
 Measures the expectation and perception of each of the dimensions
 7 point Likert scale to rate responses
 p-values
 Benefits of SERVQUAL
 Satisfaction
o Total quality management (TQM)
 Achieving customer satisfaction through continuous improvement
and focusing on customer needs
o General themes that influence customer satisfaction (Zeithaml et al, 2003)
 Recovery
 Coping
 Adaptability
 Spontaneity
o Perceived quality vs customer levels of satisfaction
o Not limited to transactions at a single organisational level
o European Performance Satisfaction Index (EPSI) model
 Measures customer loyalty
 Developed from the European Customer Satisfaction Index (ECSI)
o Drivers of customer satisfaction
o Perceived quality
 Hardware
 Software
CIPS.

Financial measures such as profitability, return on investment, sales growth, cash flow
(cover each of the following using examples to illustrate advantages and disadvantages and
their typical uses – use locally based examples wherever possible and where each would be
 Profitability
o Degree to which a business is able to make a profit
o Income statement
o Operating profit
 EBIT
 Summary of accounting terms
o Profitability ratios
 Gross profit percentage
 Net profit ratio
 Return on investment
o Return on capital employed (ROCE)
 Examines the amount of profit made in relation to the long term
capital used by organisations
 Calculated from data from a company’s balance sheet
o Return on investment (ROI)
 Considers the return (profit) in relation to the benefit the
organisation receives from the investment (expenditure)
 Investor ratios
 Dividend yield
 Earnings per share (EPS)
 Sales growth
o It is generally expected that a successful organisation will have increasing
sales year on year
o Revenues should grow in line with the rate of growth in the market in which
the business operates
o Growth is crucial for the long-term survival of an organisation
 Top-line growth (sales revenue)
 Bottom line growth (increased profits)
 Cash flow
o Statement of cash flows
o Current ratios
o Proactive supply chain activities to manage cash flow
 Payment terms
 Prompt payment discounts
CIPS.

theories and models
Student Exercises
module
Students should leave this session with an overall understanding of the different financial
measures that can be used to measure performance within supply chains. The
measurement of costs, time, process, quality and satisfaction should be understood and
how financial measures such as profitability, ROI, sales growth and cash flow are
considered and applied
CIPS.

Session 8
Analyse and apply financial and performance measures Assessment Criteria
that can affect the supply chain 4.1, 4.2
 Assess financial measures that can be applied to measuring the performance of
the supply chain
 Examine the impact of stakeholder feedback on the supply chain strategy
Segments: 6.7, 6.8, 7.6, 8.5
chain
 An accurate measurement of performance enables a procurement professional to
o Identify potential cost savings in the supply chain
o Evaluate areas of performance improvement that will help the organisation
to achieve competitive advantage
 Financial measures are used to assess the performance of the supply chain
 The procurement professional is responsible for
o Designing, developing and implementing performance measurement
processes
o Ensuring decisions can be made regarding the input, transformation and
output of the procurement and supply chain process
 There is not one single measure for the performance of a supply chain that will
capture complete performance (Beamon, 1996)
 There are 3 types of interrelated measures (Beamon, 1996)
o Flexibility
o Outputs
o Resources
Examine the impact of stakeholder feedback on the supply chain strategy

 Supply chain strategy should be designed to ensure that the procurement and
supply functions are operating effectively and efficiently while contributing to the
overall business strategy
 All stakeholder groups must be considered when building a supply chain strategy
CIPS.

chain:
The use of balanced scorecard methodologies (cover each of the following using examples
 The balanced scorecard concept was developed by Kaplan and Norton in 1992
 A management system and a measurement system
 Seeks to overcome the problem of assessing company performance using just
financial measures
o Also incorporates
 Customer satisfaction
 Market share
 Time to market for new products
 Not dissimilar to key risk indicators (KRIs)
 4 perspectives of the scorecard
o Financial
o Learning growth
o Customer
o Internal business process
 Objectives need to be developed for each perspective
 A maximum of 20 measures is generally accepted as sufficient
 Limitations to the method
 Variations
o Add procurement and supply measures to each of the 4 perspectives
o Add a 5th perspective – supply chain and/or sustainability of operations
o Include external processes
o Amend perspectives to suit strategic priorities
o Combination of some or all of the above options
 Options
o Option 1 (Bhagwat and Sharma, 2007) – day-to-day supply chain
performance
o Option 2 (Cousins et al, 2008) – specific purchasing scorecard
o Option 3 (Monczka et al, 2015) – with reference to operational excellence
o Balanced scorecard with external perspective added (Wisner et al, 2012)
 Environmental/sustainability issues
o Environmental scorecard
 Supplier balanced scorecards
o Systematic and integrated approach to explore different performance
measures of tangible and intangible assets within the global supply chain
 Procurement Journey Scotland Balanced Scorecard
 Performance Balanced Scorecard (CIPS Knowledge, 2016)
o 6 areas of a balanced scorecard
 Quality
 Cost
 Time
 Communication
 Management
 Aggregated supplier performance
CIPS.

Examine the impact of stakeholder feedback on the supply chain strategy:
Articulating the supply chain strategy (cover each of the following using examples to
characteristics):
 The content of the supply chain strategy results from a series of decisions that seek
to determine the long-term direction of the supply chain
 Supply chain strategy is considered a prerequisite for planning the long-range
management of the supply chain
 Organisational strategy
o Corporate strategy
o Business strategy
o Functional/supply chain strategy
o Criteria for a good supply chain strategy (Cohen and Roussel, 2005)
 Aligned with business strategy
 Aligned with customer needs
 Aligned with power position
 Adaptative
o Supply chain strategies are not generally published
o Research suggests that for many businesses supply chain strategies were
non-existent or poorly defined
o Procurement strategies
 Narrower focus than supply chain strategy
o How supply chain strategies contribute to the delivery of the overall
business strategy
 Vertical and horizontal alignment
o Vertical alignment considers
 Strategic importance of the supply chain
 Impact of supply chain effectiveness on long-term success of an
organisation
o Horizontal alignment ensures that internal functional processes are
supportive and integrated
 Categories of stakeholders
o Categories
 Internal
 Connected
 External
o Classification models
 Power/interest grid (Mendelow)
 Keep satisfied
 Keep informed
 Minimal effort
 Key players
CIPS.

 Types of stakeholder power and influence
o Expert power
o Network power
o Personality power
o Resource power
o Status power
 Stakeholder engagement plan
o How and when the supply chain strategy is communicated to stakeholders
o Criteria that a selected strategy must meet
 Suitable
 Acceptable
 Feasible
 Refined definition of the 6 stakeholder categories (Freemen, 1984)
o Owners
o Employees
o Managers
o Suppliers
o Customers
o Local community
Determining measurable outcomes of success (cover each of the following using examples
 Key to measuring the success of a project
 Outputs are deliverables from a project which influence outcomes
 Developing stakeholder metrics
o How to develop stakeholder metrics
o Examples of performance objectives
 Quality
 Speed
 Dependability
 Flexibility
 Cost
 Developing performance measurement
o Performance prism framework (Neely and Adams, 2001)
 Stakeholder satisfaction
 Investors
 Customers
 Employees
 Suppliers and joint venture partners
 Regulators
 Strategies
 Processes
 Capabilities
 Stakeholder contribution
o Strengths and weaknesses of the performance prism
CIPS.

Devising metrics of performance including feedback from 3rd parties and suppliers, and
other stakeholders (cover each of the following using examples to illustrate advantages and
 Performance metrics should be devised to hold all pertinent contributors to supply
chain performance to account
 Outputs, outcomes and benefits
 Use of data and technology in performance measures
 Determining the key measures of success
o Joint performance measures require all stakeholders to agree a formal
measurement tool to measure specified jointly established performance
goals
o Use of balanced scorecards
 Reporting framework
o Accountability 1000 (AA1000) framework
 Feedback mechanisms
o Complaints processes and procedures
o Communication responses
o Service standard monitoring
o Questionnaires and standard response forms
o Formal and informal feedback opportunities
 Feedback from 3rd parties
 Feedback from suppliers
o Supplier satisfaction is influenced through (Purushottam et al, 2012)
 Purchasing policy
 Payment policy
 Co-ordination policy
 Corporate reputation/image
o Factors that influence the buyer-supplier relationship (Damlin et al, 2012)
 Trust
 Power
 Transparency
 Communication
 Commitment
Reporting structures and processes (cover each of the following using examples to illustrate
 A system of strategic monitoring and control is required to capture stakeholder
feedback and performance metrics
 Stakeholder communication plans
o Identifies the type and frequency of communication required
o Content
o Aims
o Communication mechanism/methods
CIPS.

 Principles of integrated reporting frameworks (Naynar et al, 2018)
o Strategic focus and future orientation
o Connectivity of information
o Stakeholder relationships
o Materiality
o Conciseness
o Reliability and completeness
o Consistency and comparability
 External reporting
o Strategic Review (Companies Act)
o Governance Code
 Internal reporting

theories and models
Student Exercises
module
Students should leave this session with an overall understanding of the impact that
stakeholder feedback can have on supply chain strategy. The students should know how
to determine measurable outcomes of success and be able to devise metrics of
performance that can be used in their own work place. They should aware of the different
reporting structures and processes that can be used and be able to select which is the
most appropriate across a range of organisations, sectors and industries. Finally, balanced
scorecard methodologies should be explored and how these can be used to monitor and
measure performance in the procurement and supply chain context
CIPS.

Session 9
Analyse and apply financial and performance Assessment Criteria
measures that can affect the supply chain 4.3
 Analyse approaches to benchmarking that can be applied to measuring the
performance of the supply chain
Segments: 6.7, 6.8, 7.6, 8.5
Analyse approaches to benchmarking that can be applied to measuring the performance

of the supply chain
 Benchmarking can be understood as a systematic comparison of an organisation’s
methods or performance with those of other relevant organisations and industry
peers
 This provides insights to help an organisation better assess its own methods or
performance and act to improve either
 Common features of benchmarking
o Identifying
o Measuring
o Comparing
o Learning
o Improving
 Benchmarking does not involve simply adopting the same methods, policies and
procedures as those of a more successful competitor
 It is a tool for continuous improvement
 Benchmarking is a commonly used tool for measuring the performance of the supply
chain
Analyse approaches to benchmarking that can be applied to measuring the performance

of the supply chain:
The use of benchmarking in supply chains (cover each of the following using examples to
characteristics):
 Can make a huge difference to an organisation’s competitive position
 Key benefits from benchmarking
o Helps contextualise an organisation’s performance against industry
standards
CIPS.

 Elements for benchmarking success
 Reasons for benchmarking failure
o Not being able to access data
o Errors in raw data
 Reasons why benchmarking efforts may fail to be optimised De Toro, 1995; Elmuti
and Kathawala, 1997)
o Lack of sponsorship
o Employee resistance
o Team issues
o Lack of long-term management commitment
o Focusing on the numbers
o Failure to position benchmarking within a larger strategy
o Failure to understand organisational mission, goals and objectives
o Unnecessary site visits
o Failure to monitor progress
o Failure to view benchmarking as an ongoing process
 Comparison of benchmarking models, stages and steps
o Bain (2018)
 Plan
 Collect data
 Analyse
 Adapt
o Oakland (2014)
 Plan
 Collect data
 Analyse
 Adapt
 Review
o Constructing Excellence
 Plan
 Analyse
 Action
 Review
 The benchmarking improvement wheel
o Plan-do-check-act cycle
 Supply Chain Operations Reference (SCOR) model
o Addresses 5 supply chain performance attributes
 Reliability
 Responsiveness
 Flexibility
 Costs
 Asset management efficiency
o 3 levels of analysis
 Level 1 - organisation and hierarchical structure
 Level 2 – process level
 Level 3 – diagnostic level
o SCOR hierarchical reference model in practice
 Metric decomposition or root-causing
CIPS.

o
6 key processes in the SCOR model
 Plan
 Source
 Make
 Deliver
 Return
 Enable
o Used to facilitate the description of supply chains of differing complexity
o Benefits of using the SCOR model
 Increased speed of system implementation
 Improved business agility
 Accelerated business process effectiveness
 Improved inventory turns
 Support for organisational learning goals
 Improved overall operational performance
o Issues with the SCOR model
 Different perspectives on the importance of the different metrics
 Current performance issues may go unresolved
 Big issues may be missed
 Consumes precious resources
 Time consuming
 USA-centric so can be difficult to implement in different cultural
contexts
o Other benefits identified through empirical research
 Better financial results (Rigby, 2001)
 Improved operational performance and business performance (Voss
et al, 1997)
 Capacity for change in strategic thinking and action (Drew, 1997)
 Benchmarking effort return matrix
 Problems with benchmarking supply chains (Wong and Wong, 2008)
o The literature fails to view the supply chain as a whole entity
o The importance of collaborative relationships in joint decision-making is not
usually considered
o The SCOR model has some limitations, i.e. it does not address change
management
Comparisons of business unit, competitors or other industry players (cover each of the
following using examples to illustrate advantages and disadvantages and their typical uses –
use locally based examples wherever possible and where each would be typically used or
appropriate and their characteristics):
 Comparison of business units
o Internal benchmarking
 Advantages
 Promotes a culture of continuous improvement
 Communication is easy
 Intra-organisational shared data will be more compatible
 Confidentiality and restricted data access does not apply
 Data collection is low cost and requires less time
 Information and lessons will typically employ the same
systems and culture already in place
CIPS.


Disadvantages
 Can foster mediocrity
 Can create complacency
 Limits options for growth
 Actual improvement in performance might be quite low
 Can create unhealthy competition between business units
 Internal bias may result in the wrong measures being
adopted
 Does not yield best-in-class comparisons
 Comparison of competitors
o External benchmarking
 Advantages
 Organisations can compare like processes
 Spurs competition and growth
 Enables better understanding of competitors
 Opens doors to possible future partnerships
 A useful tool for planning and setting goals
 Enables organisations to assess different approaches to
similar regulatory issues
 Disadvantages
 Difficult legal issues
 Relatively low performance improvement
 Data may be limited by trade secrets
 Competitors may provide misleading or incomplete
information
 Direct competitors may see no value in taking part
 Competitors may occupy a certain market position due to a
specific USP
 Data shared with competitors could enable them to
capitalise on any weaknesses
 May be difficult to identify emerging competitors
o Selection of external benchmarking partners involves
 Direct approach
 Benchmarking club
 Database benchmarking
 Comparison of other industry players
o Functional or generic benchmarking
 Problems with benchmarking
Gap analysis and performance improvement (cover each of the following using examples to
characteristics):
 Gap analysis
o The analysis phase of benchmarking identifies the gaps
o The difference between the benchmarked measurement and the actual
measurement of current performance
CIPS.

o
Includes graphical methods
 Spider diagrams
 Radar diagrams
 Z charts
 Performance improvement
o Developing a performance measurement system
 Requires
 Top management support
 Organisational buy-in
 Sufficient resources
 Appropriate data collection
 6 steps to develop a performance management system (Monczka et
al, 2015)
 Step 1 – determine the areas to measure
 Step 2 – establish performance measures
 Step 3 – establish standards for comparison
 Step 4 – monitoring
 Step 5 – evaluation
 Step 6 – implement improvements
 4 steps to implementing a performance management system in the
supply chain (Cohen and Roussel, 2005)
 Step 1 – set supply chain strategy objectives
 Step 2 – choose supporting metrics and targets
 Step 3 – identify supporting initiatives
 Step 4 – implement the programmes

theories and models
Student Exercises
module
CIPS.

Students should leave this session with an overall understanding of the use of
benchmarking within supply chains and how different organisations, competitors or
industry players compare themselves against each other. They should also be familiar with
the use of gap analysis and how performance improvements might be achieved
CIPS.

Session 10
Assessment Criteria
Final module recap and discussion All assessment criteria
for module
All learning outcomes for the module as discussed in sessions 1 to 9
CIPS Module Study Guide for Module L5M4 – Chapters 1, 2, 3 and 4

Segments: 6.7, 6.8, 7.6, 8.5
In any organisation, a significant element of the procurement and supply function is based
around the contracting process. Those involved in the formulation and management of
contracts with external suppliers must therefore have a clear understanding of the
strategic nature of contractual performance measures in procurement and supply.
Financial management refers to the efficient and effective management of money (funds)
to accomplish organisational objectives. This module is designed for those working in the
procurement and supply field, with responsibility for contracting elements of the
procurement and supply function who must also have a strategic awareness of the impact
of financial aspects of their discipline
Discuss the final assessment
Format
 3 hour constructed response exam
 Pass mark = 50%
Content and question types

Use the sample questions provided for types and formats of questions
CIPS.

theories and models
Student Exercises
module
On completion of this module, learners will be able to develop measures to ensure and
improve contract performance as they assess the concept and use of strategic sourcing
and also consider financial aspects that may impact procurement and supply activity
CIPS.

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Advanced Diploma in

Procurement and Supply

Leading global excellence in procurement and supply

Case study, questions, etc

CIPS Global Standard for Procurement and

Leading global excellence in procurement and supply

Knowledge Descriptor (the holder….) Skills Descriptor (the holder will….)

Understands different perspectives, approaches or

Leading global excellence in procurement and supply

For this module:

 Constructed Response Exam – 3 hours

Leading global excellence in procurement and supply

Module Content Overview

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

CIPS Global Standard for Procurement and Supply

Segments: 6.7, 6.8, 7.6, 8.5

Assess the use of Key Performance Indicators (KPIs)

Evaluate methods of measuring and improving supply chain performance

Leading global excellence in procurement and supply

 How to set KPIs

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Evaluate methods of measuring and improving supply chain performance:

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Ensure a balance between qualitative and quantitative measures of performance (cover

Leading global excellence in procurement and supply

See final case study for the module

Leading global excellence in procurement and supply

CIPS Global Standard for Procurement and Supply

Segments: 6.7, 6.8, 7.6, 8.5

Examine approaches available for supplier development

Leading global excellence in procurement and supply

Assess innovative measures to improve the supply chain

Examine approaches available for supplier development:

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Cross-functional working (cover each of the following using examples to illustrate

Simultaneous engineering (cover each of the following using examples to illustrate

Leading global excellence in procurement and supply

See final case study for the module

Leading global excellence in procurement and supply

CIPS Global Standard for Procurement and Supply

Segments: 6.7, 6.8, 7.6, 8.5

Assess the market factors that influence strategic sourcing

Leading global excellence in procurement and supply

Assess the market factors that influence strategic sourcing:

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply

See final case study for the module

Leading global excellence in procurement and supply

Leading global excellence in procurement and supply