Unit content guide

RevisedcontentSeptember2009

Foundation diploma inpurchasing and supplyThe units that make up the award are:

• Effective negotiation in purchasing and supply• Developing contracts in purchasing and supply• Measuring purchasing performance• Managing purchasing and supply relationships• Purchasing contexts

The Chartered Institute ofPurchasing & Supply qualificationsladder has six levels of awards. Fordetails of the entry requirementsfor each level, please refer towww.cips.org

The CIPS Foundation diploma inpurchasing and supply is a Level 4higher level qualification. It has beenaccredited by the Office ofQualifications and ExaminationsRegulator (Ofqual) and appears onthe National Databaseof Accredited Qualifications,please refer towww.accreditedqualifications.org.uk

The Level 4 Foundation diploma inpurchasing and supply consists offive compulsory units.

Assessment for each unit is byexamination, or if you are a studentin the UK there is an option for eachunit. If your study centre has beenapproved you can choose either aclosed book examination or a work-based assessment.

If you wish to study for this award itis expected that you will undertake50 guided learning hours per unit, iea total of 250 guided hours. Thedefinition of guided learning hours is:

“A measure of the amount of inputtime required to achieve thequalification. This includeslectures, tutorials and practicals, aswell as supervised study in, forexample, learning centres andworkshops.”

You will find that study centres varyon the exact format for delivery ofthe study programme. AdditionallyCIPS would recommend that youalso commit 80 hours per unit of self-study, including wider readingof the subject areas and revision togive yourself the best chance ofsuccessful completion of theaward.

Below is a lists of the units, theirNDAQ reference numbers and CIPSreference codes which are used toidentify the units for examinationpurposes.

Introduction

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LEVEL 4 – FOUNDATION DIPLOMA IN PURCHASING AND SUPPLY NDAQ QUALIFICATION NUMBER 100/6112/5

Effective negotiation in purchasing and supplyDeveloping contracts in purchasing and supplyMeasuring purchasing performanceManaging purchasing and supply relationshipsPurchasing contexts

D/500/1708H/500/1709Y/500/1710D/500/1711H/500/1712

CIPS ref code L4-01CIPS ref code L4-02CIPS ref code L4-03CIPS ref code L4-04CIPS ref code L4-05

Foundation diploma in purchasing and supply

AssessmentAssessment is the way in whichCIPS will measure whether or not astudent is able to demonstrate theirknowledge, understanding andability to apply their learning in anygiven situation.

An assessment could be anexamination, assignment orproject.

Business essentialsCIPS have introduced a newconcept called ‘businessessentials’.

They are commonly occurringthemes through the CIPSqualifications, that do not warranta unit in their own right, but thatare important holistically to thelearning undertaken within CIPSqualifications.

They are areas of importance,innovation and some emergingthemes, such as:• Quality management• International issues• Business finance• Information management• External factors

Command wordsCommand words are generallyverbs that are used to indicate thelevel of learning undertaken. Theytend to be hierarchical in nature.

For example, at Level 3, acommand word will be‘demonstrate’ or ‘explain’, whereasa command word at Level 6 will be‘synthesise’, or ‘critically evaluate’.

These words reflect the level ofcomplexity of your learning andultimately your assessment at thatlevel.

Compulsory unitsThese are units that you must takeeither through CIPS or analternative awarding body thatconstitute necessary knowledgeand understanding to fulfil learningrequirements for CIPSqualifications.

If you have undertaken equivalentlearning or have equivalent relatedexperience to the compulsory unitsfrom somewhere else you mayeither be exempt from learning, orgain accreditation for prior learningor experience.

Entry levelThis is the point at which you willenter the CIPS qualifications ladder.This entry will be based upon pre-requisite knowledge,understanding and experience.

ExemptionsStudents who have successfullycompleted certain post-schoolstudies may apply for exemptionsfrom equivalent courses in theirprogramme of study. To earn anexemption from either levels ofqualifications or option units withinqualifications you should contactCIPS or see www.cips.org

Please note that gaining anexemption, does not mean that yougain an exit award at that level,rather that you bypass that level oflearning because of equivalentlearning and achievement gainedelsewhere.

Glossary of terms

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Foundation diploma in purchasing and supply

Exit awardAn exit award is in essence aqualification. CIPS have six exitawards in total. • Introductory certificate in

purchasing and supply • Certificate in purchasing and

supply• Foundation diploma in

purchasing and supply• Advanced diploma in purchasing

and supply• Graduate diploma in purchasing

and supply• Executive diploma in purchasing

and supply

For each qualification you study,you will receive a certificate ofachievement confirming your exitaward.

Indicative contentThe knowledge required in order tofulfil the learning objectives andachieve the learning outcomes – inother words what you need toknow.

Integrative unitsIntegrative units are intended tohelp students see connectionsbetween all aspects of theirlearning within a particular level ofqualification. For the purpose ofCIPS qualifications, awards atlevels 3 and 6 will have anintegrative unit.

Learning objectivesDetermines the level of learningyou must undertake in order toachieve the learning outcomes.

LevelThe level determines thecomplexity of learning, the depth oflearning and the comparison oflearning with other qualifications.CIPS has qualifications at levels2 to 7. The levels are as follows:

• Level 2Introductory Level – this is forsomebody new to thepurchasing and supplyprofession and often in a juniorcapacity

• Level 3Junior technical – alsopotentially new to learning

• Level 4Operational/juniormanager/new to the profession

• Level 5Manager/specialist role

• Level 6Senior managers/specialistprofessional

• Level 7Postgraduate strategic leader

The levels are determined byOfqual, who are the Governmentregulator for education, and enablea clear understanding nationally ofthe level of a person’s learning andability in that field.

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National QualificationsFrameworkThis framework is a governmentframework, where qualificationsthat are approved by Government,as being fit for purpose, andmeeting the quality criteria, arelisted. Qualifications listed withinthis framework are monitoredagainst a variety of measures toensure quality of qualification,associated procedures and delivery.

OfqualOfqual is the Government regulatorfor professional bodies such asCIPS, and act as the caretaker ofqualifications included in theNational Qualifications Framework.

Optional unitsThese are units where you havechoice and opportunity tospecialise in an area of interest.There is an opportunity to selecttwo optional units at advanceddiploma and two optional units atgraduate diploma.

Qualifications ladderThis ladder represents thehierarchical nature of CIPSqualifications. The ladder has sixsteps within it. It starts with anIntroductory Certificate through tothe Graduate Diploma.

Each step of the ladder isrepresented by qualification withan ‘exit award’.

Statements of practiceA goal for attainment, whichindicates what you need to knowand be able to do to complete yourstudies in a particular subject area.

Each unit has six to seven learningoutcomes which outline what youwill achieve as a result of yourlearning in that particular unit.

StudentMember who is studying a CIPSqualification.

UnitA segment of learning within theCIPS qualifications, which has avalue in terms of hours of learning.Each unit is individual, has its owntitle, rationale and content.A unit will also have anassessment attached to it in orderto demonstrate achievement andconclusion of the learning.

WeightingsWeightings are allocated to eachunit, to determine how the learningcan be sensibly split.

Each unit has a content weightingof 100%. Within each unit, eachsubject area is given a weightingeg 20% or 25%.

This weighting indicates the levelof input and learning required bythe deliverer and the learner inorder to complete the subject area.However, the weightings do notnecessarily reflect the marks thatmay be allocated to a question inthat subject area of the unit.

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BATNA • Best alternative to anegotiated agreementA negotiation technique that is themeasure of the balance of power ina negotiation, for example if otherparties need you in order to reachtheir objectives, your BATNA isstrong; your negotiatingcircumstances are strong. If youwant to buy a new car and thesame model is for sale at severalcar dealers, you have a strongBATNA because you can benefitfrom their competition for yourbusiness.

BOOT • Build own operatetransferA project methodology that ensuresthe transfer of a project back to theparty granting the concession,either with or without cost.

BCA • Benefit cost analysisA formal process used to helpappraise, or assess, the case for aproject or proposal often forms partof a business case.

CAPEX • Capital expenditureFunds used by an organisation toeither purchase a new asset orupgrade an existing one, usuallyhigh in value.

CLAN • Centre led actionNetworkA system used to structureprocurement, central co-ordinationwith buying hubs integrated intobuying units.

CSR • Corporate socialresponsibilityCSR means the commitment tosystematic consideration of theenvironmental, social and culturalaspects of an organisation’soperations. This includes the keyissues of sustainability, humanrights, labour and communityrelations, as well as supplier andcustomer relations beyond legalobligations; the objective being tocreate long-term business valueand contribute to improving thesocial conditions of people affectedby an organisation’s operations.

EU • European union The European Union was created in1992 following the signing of theMaastricht Treaty. Its aim is tocreate an environment for the freemovement of goods, services,labour and capital across themember states. There is also anemphasis on the abolition of trustsand cartels, and the developmentof joint and reciprocal policies onlabour, social welfare, agriculture,transport and foreign trade

FMCG • Fast moving consumerGoodsProducts that have a quick shelfturnover, at relatively low cost andgenerally little financial investmentto purchase.

ICT • Information,communications technologyThis is a broad subject concernedwith technology and other aspectsof managing and processinginformation, especially in largeorganisations

Incoterms • Internationalconsignment delivery termsThere are 13 Incoterms developedwhich are intended to makeinternational trade easier and helptraders in different countries tounderstand one another. Using theterm enables those reading them tounderstand who is responsible forrisk, transport and costs as well asother issues.

M&A • Merger & acquisitionRefers to the aspect of corporatefinance strategy and managementdealing with the merging andacquiring of different companies aswell as other assets.

Acronym guide

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Foundation diploma in purchasing and supply

MRO • Maintenance, repair &operationsProducts that repair any sort ofmechanical or electrical device orproducts purchased that form partof a routine preventativemaintenance plan.

NHS • National health service Founded in 1948, this organisationprovides the majority of healthcarein the UK. NHS services are largely“free at the point of delivery,” paidfor by taxes. Employing well overone million people, the NHS is thelargest employer in Europe and oneof the largest employers in theworld.

OPEX • OperationalexpenditureFunds used to purchase day-to-dayoperating goods and services.

PESTLE • Political, economic,social, technological, legal,environmentalAn analytical tool that aidsorganisations developing strategiesby helping them understand theexternal environment in which theyoperate now and in the future.

PFI • Private finance initiativeAn agreement that promotespartnership between both privateand public sectors which, enablesutilisation of a wide variety ofassets and services available in theprivate sector. The objective is toimprove the quality and quantity ofpublic sector capital products, andalso to provide more efficientpublic services.

PPA • Post project appraisalAn appraisal process that takesplace after the project is complete.The aim is to identify key aspectsthat enable the transfer of learning.For example, budget planning.

PPP • Public privatepartnershipA PPP refers to any alliancebetween public bodies, localauthorities or central government,and private companies. PPPstypically involve the jointownership of a special purposevehicle established under companylaw.

P2P • Purchase to payA seamless process enabled bytechnology designed to speed upthe process from point of order topayment.

ROI • Return on investmentThe analysis undertaken tounderstand the financial return onan investment.

SMEs • Small and mediumsized enterprisesA small firm is an independentbusiness, managed by its owner orpart-owners and with less than 50employees. A medium sizedcompany must meet thresholds forannual turnover and have fewerthan 250 employees.

SSU • Shared services unitAn SSU is an increasingly popularapproach where various commonactivities are managed by a singlebusiness unit for the wholeorganisation. Some of the functionscommonly found within an SSU arepayroll, human resource reporting,IT, financial analysis/ accountspayable and procurement.

SWOT • Strengths,weaknesses, opportunities,threatsThis is a strategic planning toolused to evaluate the strengths,weaknesses, opportunities, andthreats involved in a project or in abusiness venture or in any othersituation requiring a decision.

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The third sectorVoluntary and communityorganisations such as charities andalso social enterprises (socialenterprises have social orenvironmental purposes as central towhat they do. They are profit makingbut rather than maximisingshareholder value their main aim is togenerate profit to further their socialand environmental goals. Examplesof social enterprises are The BigIssue and the fair-trade chocolatecompany Divine Chocolate.

TUPE • Transfer of undertakings(protection of employment)Legislation that aims to ensure thatan employee whose company istaken over has his existing conditionsrespected by his new employer. Theyalso apply in some cases for worktransferred to contractors. Thisincludes hours of work, pay, pensionentitlement and so on.

VAE portal • Value addedelectronic portalsThe term as loosely defined tobasically cover anything that can beclassed as adding value, so forexample an intranet portal with anElectronic Requisitioning capabilitycan be classed as a VAE portal as theelectronic requisition can beseamlessly transformed in to apurchase order.

COMPULSORY UNIT

UNIT CHARACTERISTICSThis unit is designed to providestudents with the ability to apply avariety of theories relating tonegotiation in respect ofpreparation, planning andparticipating in the negotiationprocess.

Students will undertake activitiessuch as cost and market analysis,using information to support theplanning of negotiation withsuppliers to achieve value formoney (VFM). Students shouldalso apply their knowledge ofvarious legal implications affectingnegotiations.

Negotiating is often a finelybalanced activity which alsoinvolves managing a range ofcomplex relationships, andstudents should be prepared tomanage effectively thoserelationships, avoiding conflictwhile maintaining the balance ofpower.

By the end of this unit, studentsshould be able to plan and preparehow to undertake negotiations, andalso to understand how they wouldbe able to assess effectiveness.

STATEMENTS OF PRACTICEOn completion of this unit, studentswill be able to:

• Plan and prepare fornegotiations

• Apply a range of negotiationtheories in order to achieve setoutcomes

• Differentiate between a rangeof persuasion tools andtechniques

• Explain the different approachesrequired when negotiating indifferent settings

• Understand how to analysenegotiation performance

Effective negotiation in purchasing and supply

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Foundation diploma in purchasing and supply

LEARNING OBJECTIVES ANDINDICATIVE CONTENT:

1.0 PLANNING ANDPREPARING FORNEGOTIATIONS(Weighting 25%)

1.1 Analyse the differentphases of negotiation:• Preparation• Open• Test• Move• Agree• Finalise the deal.

1.2 Identify and evaluateinformation required tounderstand the supplierorganisation: • Supplier information (supply,

demand, timings, costings,budgets, readiness, capacity,account managementstructure)

• Competitor information, forexample suppliercompetitors

• Oligopoly/monopoly/duopoly.

1.3 Analyse market informationto support negotiation:• PESTLE• SWOT• Supply and Demand

1.4 Assess any legalinformation andimplications for thepurchase and supply ofgoods that might impactupon negotiations• Sale of Goods Act• Caveat emptor• Negotiating terms and

conditions• Penalties and damages• Unfair Contract Terms Act.

1.5 Undertake a riskassessment of conditionsthat might impact on thenegotiation process• Win-lose, win-win and win

perceived win• Generating variables and

alternatives• Risk assessment matrix.

2.0 FINANCIAL TOOLS FORNEGOTIATIONS(Weighting 25%)

2.1 Identify and calculateelements of fixed andvariable costs associatedwith supply• Fixed costs• Variable costs• Suppliers’ perspectives on

fixed and variable costs• Open-book costing.

2.2 Identify and calculatedirect, indirect andstandard costs• Difference between direct

and indirect costs• Standard costs• Actual costs• Budget costs.

2.3 Identify total costs andmargins• What total costs are• What is meant by

‘margins’• Suppliers’ margins versus

market pricing.

2.4 Undertake a break-evenanalysis• How to demonstrate

break-even througheconomic charts

• Modelling using break-even

• Suppliers’ perspectives onbreak-even

• Buyers’ perspectives onbreak-even.

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3.0 THE NEGOTIATIONPROCESS(Weighting 25%)

3.1 Determine the objectivesand strategies fornegotiation meetings• Integrative versus

distributive negotiation• Negotiation strategies• Developing ranges and

targets• Best alternative to a

negotiated agreement(BATNA).

3.2 Identify and explain thekey elements of effectivelymanaged, resourced andtimed negotiations• Opportunities for

conditioning• Room layout/surroundings• Psychology surrounding

away or at home• The supplier’s position.

3.3 Establish the bargainingposition of the supplier• Parameters for negotiation

terms and conditions(purchaser or supplier)

• Who is attending themeeting, why and the level ofauthority they hold

• Positions and interests• Power base• Strength of the purchaser

versus the supplier• Size of the organisation.

3.4 Evaluate a range ofpersuasion methods andtactics used in negotiation • Threat, emotion, logic,

compromise and bargaining• Tactics • Creating negotiation leverage• The psychology of

concessions.

3.5 Explain how to follow upnegotiations and finalise thedeal• Informal and formal

ratification• How to evaluate the

negotiation process andrecommend improvements

• The importance of reviewingthe ongoing relationship,including requirements andnecessities, to re-negotiate atappropriate intervals.

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4.0 UNDERSTAND EFFECTIVEBEHAVIOUR FORNEGOTIATION(Weighting 25%)

4.1 Evaluate the relativeimportance of verbal andnon-verbalcommunications innegotiation situations• Reducing the potential for

conflict• Sales influencing tools• The other person’s

perspective• Body language• Behavioural techniques.

4.2 Identify and explain howto apply the attributes of agood negotiator toeffective negotiations• Interpersonal sensitivity• Characteristics of a skilled

negotiator• The emotionally intelligent

negotiator• How to improve

negotiation capabilities.

4.3 Evaluate the effect ofeffective listening andquestioning skills in thenegotiation process• Different types of

questions• Effective listening• Timing of questions.

4.4 Analyse and explaindifferent negotiationpractices in internationalcultures• Culture and negotiation• Body language• Barriers to international

negotiation.

4.5 Analyse and explain thefeatures of effectivenegotiation by telephoneand email• Factors effecting telephone

negotiation• Factors effecting email

negotiation• Good practice when

negotiating bytelephone/email.

4.6 Identify and evaluate thekey features of effectivenegotiation with internalcustomers across theorganisation• Listening to the internal

customer’s perspective• Rapport building

techniques• Dealing with difficult

customers• Concessions and the

impact on purchasing.

4.7 Evaluate personaleffectiveness innegotiations in differentcontexts• Reflecting on performance• Feedback mechanisms• Looking ahead to

improvement anddevelopment.

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COMPULSORY UNIT

UNIT CHARACTERISTICSThis unit is designed to helpstudents to gain an appreciation ofthe legal and commercial issues ofcontractual arrangements enteredinto between organisations. Theunit provides an underpinningknowledge of the legalities of theformation of contracts as well asthe key ingredients of anycommercial arrangement - aspecification, the contractual termsand relevant key performanceindicators.

Students will be able todifferentiate between a range ofcontractual terms and apply them,demonstrating an understanding ofhow they affect both direct andindirect expenditures. Studentswill also be able to describe andapply processes used for tenderingfrom external suppliers through tocontract award.

STATEMENTS OF PRACTICEOn completion of this unit, studentswill be able to:

• Explain the use of specifications,performance measures andcontract terms for procurementsof products and services fromsuppliers

• Discuss a range of legal aspectsin relation to the contractingprocess

• Understand and apply thelegalities linked to the formationof contracts

• Explain the impact of bothimplied and express terms incontracts

• Differentiate the remedies forbreaches of contracts; and draftterms to cover such risks

• Appraise and discuss the legaland relationship issues arisingthrough the use of tenderingprocedures, including e-tendering, and the application ofEU procurement directives

• Discuss the practices that canbe adopted for contract reviewand award.

Developing contracts in purchasing and supply

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Foundation diploma in purchasing and supply

LEARNING OBJECTIVES ANDINDICATIVE COMMENT

1.0 THE DEVELOPMENT OFCOMMERCIALAGREEMENTS(Weighting 20%)

1.1 Analyse the role of theprocurement function insetting up agreements forpurchased goods andservices• Categories of expenditures

on goods and services• The types of products and

services that are typicallypurchased byorganisations, such aspurchases for resale

• Capital equipment, sub-contracted work, facilities,informationcommunicationstechnology (ICT) andmaintenance, repair andoperations (MRO) items.

1.2 Define the requirement forthe procurement of goods,services and works• The five rights of

purchasing• Achieving a balance

between the objectives:right time versus right cost

• The use of specifications,performance measures andcontractual terms in supplyagreements.

1.3 Analyse and describe theimpact of specificationson achieving value formoney• The functions of a

specification• The types of specification• Choosing the most

appropriate type ofspecification for thepurchase decision.

1.4 Define how and when toapply key performanceindicators in agreements• The development of

performance measuresthat can be applied tocommercial agreements

• Examples of performancemeasures

• Developing targets forsupplier performance.

2.0 THE FORMATION OFCONTRACTS(Weighting 25%)

2.1 Analyse the legalrequirements for theformation of a contract• Offer• Acceptance• Consideration• Intention to create legal

relations• Capacity• The contractual promise• The distinction between

framework agreementsand call-off contracts.

2.2 Evaluate the legalities andcommercialconsiderations linked tothe battle of the forms• The exchange of suppliers’

and purchasers’ terms inthe contract formationprocess

• Counter-offers andacceptance

• Precedent set by case lawon contract formation

• The creation of e-contracts.

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2.3 Identify and evaluate thelegal aspects relating tothe formation of contractsin international trade• International law• The Vienna Convention

1980 ( Uniform Law forInternational Sale of Goods(1980))

• The choice of applicablelaw and jurisdiction

• Arbitration• The use of INCOTERMS.

2.4 Identify standard modelform contracts and explaintheir uses andapplications• The use of model form

contracts• Examples of model form

contracts such as CIPS, theNew Engineering Contract,Joint Contracts Tribunal.

3.0 CONTRACTUAL TERMS(Weighting 35%)

3.1 Analyse the effectivenessof a supply agreement• Contractual obligations• Contract termination.

3.2 Define and describedifferent contract termsand explain their impacton any breach of contract• Conditions• Warranties• Innominate terms.

3.3 Define and apply keylegislation relating tocontracts• Implied terms in Sale of

Goods Act 1979 (asamended)

• Implied terms in Supply ofGoods and Services Act1982

• Unfair Contract Terms Act1977

• Contracts (Rights of ThirdParties) Act 1999.

3.4 Analyse standard contractterms for indemnities• Intellectual property rights• Insurances• Accidents and damage• Third parties.

3.5 Analyse and describe theuse of a range of expresscontractual terms• Liquidated damages• Guarantees• Passing of property• Sub-contracting and

assignment• Payment• Transfer of undertakings

and protection ofemployment regulations

• Confidentiality.

3.6 Analyse the use and thecontent of contractualterms for purchased goodsand services• Purchasers’ and suppliers’

standard contracts• The differences between

purchasers’ and suppliers’terms.

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3.7 Analyse and explain howthe provision foramendments, change,review and renewal maybe incorporated incontracts• Contract duration• Dispute resolution• Default and termination

clauses• Variation and change

control• Contract renewal.

4.0 LETTING CONTRACTS(Weighting 20%)

4.1 Analyse the stages of theprocurement processunderlining the tenderingprocess• The stages of the

procurement process• The principles of tendering• The use of pre-qualification

and evaluation criteria• Post-tender negotiation• Contract award• Contract transition

arrangements.

4.2 Identify and describerelevant European Union(EU) procurementdirectives• The objectives of the EU

procurement directives• Supplies, services, works

and compliance• Coverage of the directives -

the thresholds• The consolidated

procurement directive• Open, restricted,

negotiated and competitivedialogue procedures

• Award criteria• Debriefing.

4.3 Analyse and explain thelegal issues associatedwith e-tendering• Supplier databases• Electronic tender systems• Electronic notice systems.

4.4 Describe how to reviewthe outcomes of contractsand explain how torespond to problems• Contract management• Contract review• Improving the contracting

process.

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COMPULSORY UNIT

UNIT CHARACTERISTICSThis unit is designed to helpstudents to measure theeffectiveness of the supply chainand its contribution to thecompetitiveness of theorganisation.

By the end of this unit, studentswill be able to apply a range ofmeasurement techniques in orderto monitor the performance ofsuppliers at organisational,functional and individual levels,how they perform financially versustarget, compliance tocontract/specification, andpotential risks that they maypresent. Students will alsounderstand how the performanceof purchasing departments andindividual buyers can be measuredand how targets for improvementcan be formulated.

STATEMENTS OF PRACTICEOn completion of this unit studentsshould be able to:

• Explain how measuringperformance in supply chainactivities fits into the overallmanagement process of anorganisation

• Evaluate the benefits ofimplementing a well-structuredapproach to measuringorganisational, functional andindividual performance

• Categorise types of performancemeasures that are available tosupply chain managers

• Appraise measures that can beused to improve supplierperformance

• Employ accounting techniquesand ratios to measure supplier’sefficiency

• Evaluate targets as a means ofimproving the performance ofthe purchasing function andindividual buyers.

Measuring purchasing performance

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Foundation diploma in purchasing and supply

LEARNING OBJECTIVES ANDINDICATIVE CONTENT

1.0 MEASURING THEPERFORMANCE OF THEPURCHASING ANDSUPPLY FUNCTION(Weighting 40%)

1.1 Evaluate the role andimportance of measuringperformance:• Its relationship to the

organisation’smanagement decision-making process

• Its link to the organisation’smission and strategicgoals/objectives

• The contribution made tothe process of continuousimprovement andcontinuity of supply

• The importance ofperformance measurementfor control purposes

• Its role in the purchasingmanagement process

• The advantages anddisadvantages ofperformance measurementfor the purchasing function.

1.2 Explain the benefits ofvalue-added solutions• Savings resulting from

improved performance• Reducing inventory costs

and administration• Extending payment and

warranty terms• Using consignment stock• Improving operational

efficiency.

1.3 Identify and explain theinformation required toperform purchasingactivities and how tomeasure purchasingperformance• Departmental versus

strategic goals of theorganisation

• Resource requirements• Costing, pricing, inventory

management• Supplier/vendor

information• Product/service

specifications.

1.4 Analyse the types andcategories of keyperformance measuresavailable to organisationsincluding:• Contributions to

profitability - savings,service and inventory

• Basic workload control• Infrastructure and

competency.

1.5 Analyse and explain themethods that anorganisation’s purchasingand supply function canuse to manage and reduceinventory costs• Economy: achieving best

value for money. Managingthe cost of the supplyoperation

• Efficiency: use ofappropriate inventorymanagementsystems/techniques.

• Effectiveness: level ofservice provided by theinventory function to itsend users.

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1.6 Analyse and explain howthe use of informationtechnology may help in theacquisition of purchaseand supply performancedata• The use of appropriate

management informationsystems to collect data forstock control and costs

• Databases forrecording/storingsupplier/vendorinformation

• Stockmovement/monitoringsystems, including point-of-sale data capture anddelivery details

• Statistical database forquality monitoringpurposes.

2.0 MEASURING THEPERFORMANCE OF THESUPPLIER(Weighting 30%)

2.1 Analyse key areasassociated with supplierselection • The key stages in the

buying process• The variables considered

when making thepurchasing decision.

2.2 Explain the importance ofmeasuring a supplier’sperformance anddistinguish from supplierappraisal• Supplier appraisal:

assessment of suppliercapability to controlquality, quantity and price

• Supplier performance:comparison against astandard, performance onprevious orders andagainst other supplier’sperformances.

2.3 Evaluate the impact ofsupplier performance onan organisation’s qualityand productivity• Good suppliers allow an

organisation to performefficiently and effectively.

• Issue of right-first-time-every-time.

• Lower costs of operation• Poor suppliers adversely

affect performance. Knock-on effect of sub-standardgoods and services, plusuntimely deliveries all addcost to an organisation.

2.4 Analyse and explain arange of measures whichmay be used to developsustained improvement ofsupplier performance: • Carter’s model of

performancemeasurement, thebalanced scorecard(Kaplan and Norton 1996),Plan–Do–Check–Act(PDCA) cycle (Shewhart1939, Deming 1986)

• vendor rating calculations.

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2.5 Evaluate the importance ofclose and frequent buyer-supplier communicationand of its importance forsupplier performance• Demand-supply chain

relationships• Inter-organisational

partnering and long-termcommitment

• Benefits relating toworking together: costreduction, joint product andservice development, jointperformance measurementand appraisal.

2.6 Employ appropriatefinancial and accountingtools to assessorganisational efficiency• Cash flow analysis• Use of appropriate ratios –

activity ratio, liquidity ratio,working capital – to assessorganisational efficiency

• Identification of supplierfraud.

2.7 Analyse the use ofperformance measurementas a tool for supplierrelationship development• Measurement as a

motivating factor for bothparties

• Mutual opportunities tocreate understanding toimprove performance

• Positive approach torelationship building andcontinuous improvement

• Identification ofweaknesses and problems.

2.8 Analyse qualitativesupplier performancemeasures• Research and development

activity• Conformance to

international industrystandards and benchmarks

• Cultural adaptation.

2.9 Describe ways ofmeasuring supplierachievement of servicelevels:• Cost of initial purchasing

measure• On-going levels of

performance in carryingout the service: quality,after-sales service, price,consistency ofperformance.

3.0 MEASURING THEPERFORMANCE OF THEBUYER(Weighting 30%)

3.1 Define and explain thebenefits of a well-managed and structuredapproach to measuring anindividual’s performanceincluding:• Investors in People (IIP)

guidelines and structure• Performance against target

assessments• Planning for improvements• Using personality profiling

to ensure that purchasingstaff are appropriate totheir role.

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3.2 Explain how appraisal andevaluation techniques canbe employed to measureand improve performance:• Periodic reviews• Informal and formal

appraisals.

3.3 Analyse and explain howindividual components ofa purchasing role link tothe overall objectives ofthe organisation• Contribution of individuals

to an organisation’sprofitability

• Management of basicworkload

• Development ofpurchasing infrastructure.

3.4 Analyse and explain howan individual’s knowledge,expertise and skills canbe developed to thebenefit of both thatindividual and theorganisation• Individual benefits: level of

responsibility, jobsatisfaction, careerprogression, skillsdevelopment

• Organisational benefits:better-trained workforce

• Improved productivity andprofitability

• Competitive advantages.

3.5 Evaluate and explain theuse of a range oftechniques to analyse thetraining needs ofindividual buyers: • Job profiles• Key objectives• Performance measures• Appraisals.

3.6 Explain how to measureindividual performanceagainst pre-set targets• Cost reduction• Profitability• Productivity.

3.7 Compare the relativeperformance measures ofthe buyer with those ofhis/her respectivesuppliers• Key measures of supplier

performance: competency,commitment, capacity,control

• Key measures of buyerperformance: skill andknowledge, pluscontribution to anorganisation’s

• goals and targets.

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COMPULSORY UNIT

UNIT CHARACTERISTICSThis unit is designed to enablestudents to focus on developingand managing effectiverelationships, old and new, withinthe supply chain.

Students will be able to review anddevelop existing relationships andidentify opportunities forestablishing new relationships thatwill enhance the performance ofthe supply chain, while exploringthe benefits and risks ofestablishing such relationships.

By the end of this unit, studentswill be able to apply a range oftools and techniques to managerelationships, and explain how toexploit opportunities in order tomaximise the effectiveness of thesupply chain.

STATEMENTS OF PRACTICEOn completion of this unit, studentswill be able to:

• Review the effectiveness ofexisting relationships andidentify potential areas forgrowth and diversification in thesupply chain

• Examine supply chains andappraise key relationships andgrowth opportunities

• Apply a range of techniques forsupplier selection andassessment, for the provision ofgoods and services

• Appraise procedures to supportthe outsourcing of services

• Explain the use of a range ofinterpersonal andcommunication techniquesrequired to develop personaleffectiveness in relationships

• Identify supply chain problemsand propose resolutions

• Explain how to monitor andreview supply chain relationshipeffectiveness

Managing purchasing and supply relationships

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Foundation diploma in purchasing and supply

LEARNING OBJECTIVES ANDINDICATIVE CONTENT

1.0 THE CONTEXT OFRELATIONSHIPS INSUPPLY CHAINMANAGEMENT(Weighting 30%)

1.1 Classify and describe therange of relationships thatmay exist within supplychains• Definition of relationships

in the context of supply• Overview of internal and

external relationships.

1.2 Evaluate the contributionof appropriate and well-managed relationships inachieving co-operationand collaborationbetween buyers andsuppliers• The relationship spectrum• Adversarial• Arm’s length• Transactional• Closer tactical• Single sourced• Strategic alliance• Partnership• Co-destiny.

1.3 Evaluate or analyse thechallenges in managingeffectively the relationshipsbetween purchasers andsuppliers:• Supply positioning model• Supplier preferencing model• The reasons for changing the

way in which a relationshipoperates

• Managing risk in commercialrelationships

• Buyer and supplier behaviourin relationships

• Market management matrix.

1.4 Define the natural life cycleof supply relationships andanalyse the position ofspecific relationships intheir life cycle• The concept of the

relationship life cycle• The stages of the relationship

life cycle• Linking the relationship life

cycle to the relationshipspectrum

• Understanding your positionin the relationship life cycle.

1.4 Differentiate between leanand agile supplyphilosophies on supplierrelationships• Traditional supply philosophy• Lean supply philosophy• Agile supply philosophy.

1.6 Analyse and explain thecorporate socialresponsibility (CSR) andethical, technological,legal and environmentalconstraints on relationshipdevelopment• Component parts of CSR• The case for CSR• The case against CSR• CSR and supplier

development.

1.7 Evaluate the relationshipbetween internal andexternal stakeholders inthe supply chain andpropose ways ofmaintaining objectivitywithin the relationships• Ways of maintaining

objectivity in relationships• Services versus

manufacturing supplychain relationships

• Technical specialistsversus purchasingspecialists.

1.8 Evaluate the role of cultureand relationship valueswithin supply networks• Organisational culture• Relationship values and

behaviours• Managing buyer and

supplier perspectives onvalues and behaviours.

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2.0 ASSESSING ANDSELECTING SUPPLIERS(Weighting 25%)

2.1 Formulate objectives forrelationships withsuppliers• The impact of internal and

external stakeholders onsupplier selection

• The impact of internalsuppliers on supplierselection

• The external supplier’sview of the selectionprocess

• Manufacturing and servicesupply chains

• Upstream and downstreamsupply chain activities.

2.2 Evaluate and applytechniques for supplierappraisal and selection• Supplier appraisal

techniques• Vendor rating• Supplier auditing.

2.3 Evaluate the effectivenessof the assessment process• Supplier appraisal

deliverables• Measuring the supplier

appraisal process• Effect of supplier appraisal

upon relationshipdevelopment

• Supplier appraisal in thecontext of the relationshipcycle.

2.4 Evaluate the constraintson supplier selectionwithin the public sector• Legislation affecting

supplier selection• Supplier selection routes

available to the publicsector

• The buyer’s perspective onselection legislation

• The supplier’s perspectiveon selection legislation.

2.5 Analyse the role ofreciprocal trading inpurchasing relationships• Definition of reciprocal

trading• Examples of organisations’

policies on reciprocaltrading

• Managing reciprocaltrading in the selectionprocess

• The impact of reciprocaltrading on relationshipsduring and after theselection process.

2.6 Analyse and explain howto mitigate against thepotential risks of a changeof supply source• Risks of change• Cost of change• Mitigation of risk and cost• Communication and

stakeholder management.

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3.0 MANAGINGOUTSOURCEDRELATIONSHIPS(Weighting 15%)

3.1 Develop and applyprocedures forundertaking anoutsourcing exercise andmaintaining effectiveoutsourced relationships• The definition of and

difference between servicecontracts, sub-contracting,outsourcing andinsourcing

• The outsourcing decision-making process

• The outsourcing process• Legal implications of

outsourcing.

3.2 Explain how performanceshould be managed inoutsourcing exercises• Managing the outsourcing

contract• Establishing and

implementing performancemeasures

• Monitoring performancemeasures

• Understanding why someorganisations areinsourcing.

3.3 Evaluate the impact ofoutsourcing onrelationships betweencustomers and providers• Outsourcing relationships

and the relationshipspectrum

• Outsourcing relationshipsand partnerships

• How to manage change inan outsourced relationship.

4.0 DEVELOPING ANDMANAGINGRELATIONSHIPS WITHSUPPLIERS(Weighting 30%)

4.1 Identify the causes ofconflict in supplyrelationships and selectappropriate methods fortheir resolution• The positive and negative

roles of conflict• Conflict factors• Conflict factors related to

the types of relationshipsin the relationshipspectrum

• Stakeholder managementand conflict.

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4.2 Evaluate the impact ofboth power anddependency on themanagement supplierrelationships• Power versus dependency• Relationship issues

resulting from power anddependency

• Managing power anddependency.

4.3 Analyse the role oftransparentcommunications betweenpurchasers and suppliersin the effectivemanagement of supplyrelationships• Stakeholder

communication• Communication tools and

techniques in the contextof supplier management

• Transparency: open-bookcosting.

4.4 Appraise the use ofe-purchasing on supplyrelationships• E-purchasing and the

relationship spectrum• E-purchasing and supply

situations• Appropriateness of e-tools

and their effect onrelationships

• Suppliers’ perspective ofe-purchasing

• Stakeholders’ perspectiveof e-purchasing.

4.5 Appraise the relationshipaspects of internationalsupply contracts• Factors affecting

international supplycontracts

• Managing risk ininternational relationships

• Factors affectingperformance measurementand ongoing monitoring

• International supplierdevelopment.

4.6 Evaluate a range oftechniques to developstronger relationshipsbetween purchasers andsuppliers• Supplier development• Supplier development

opportunities• Supplier development

versus supplierrelationships

• The stakeholder andsupplier development.

4.7 Explain a range oftechniques for managingmulti-tiered supplyrelationships• Performance measures and

their impact on thedifferent parties within thesupply chain, that ismanufacturers, retailers,service providers

• The importance ofmeasuring relationshipdevelopment across thesupply chain

• Difficulties involved inmeasuring performanceacross the supply chain

• The buyer and supplierperspectives onperformancemeasurement.

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4.8 Evaluate a range ofmeasurement tools toassess the performance ofsuppliers and the strengthof relationships betweenpurchasers and suppliers• Executive sponsorship• Account management• Continuous improvement

programmes• Service level agreements• Key performance indicators• Relationship assessment

tools• Feedback mechanisms.

4.9 Review the circumstancesin which supplyrelationships end, andselect appropriatemethods for theirtermination and, whereappropriate, determineways of retrieving andretaining the relationship• Resolving disputes• Using the contract to

terminate a relationship• Maintaining a supply

relationship post-conflict• Ways of retrieving and

retaining the relationships.

4.10 Analyse the relationshipchallenges of multi-national suppliers in thecontext of a global supplychain• Barriers to successful

ongoing relationshipmanagement

• Multinationalorganisations as customersin local and national supplychains

• Multinationalorganisations as suppliersin local and national supplychains

• The positive impact ofmultinational organisationsin developing economies.

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COMPULSORY UNIT

UNIT CHARACTERISTICSThis unit is designed to consolidatethe learning from all four units inthe CIPS Foundation diploma inpurchasing and supply. This unit isdesigned to enable students toapply the fundamental principles ofpurchasing and supply in a varietyof different contexts, including arange of private sectororganisations, including multi-nationals and small/medium sizedenterprises (SMEs), plus the publicsector; national and localgovernment; the NHS; and the thirdsector. Students will be able toconsider the procurement cycle asit applies to a diverse range topurchased products and servicesincluding raw materials,commodities, components, utilitiesand services, both domestically andin an international context.

This unit will tackle the differentchallenges faced by a wide rangeof organisations and sectors asthey strive to achieve value formoney (VFM), good quality,effectiveness and competitivenesswithin the broader supply chain.

Successful students will be able toapply sound principles ofpurchasing and supplymanagement to a diverse range ofsectors and organisations utilisingknowledge from across all of level4, and will be able to employ anddevelop transferable best practicewhere appropriate.

STATEMENTS OF PRACTICEOn completion of this unit, studentswill be able to:

• Identify the procurement cycleas it applies to a variety ofdifferent organisations andcontexts

• Recognise the transferability ofthe fundamental principles ofpurchasing and supplymanagement

• Appraise the need for differentapproaches to purchasing indiffering organisations andcontexts

• Recognise good practiceprocurement processes andconsider how they can beadapted and transferred to othercontexts

• Compare the diverse legal andregulatory environments inwhich procurement activitytakes place

• Discuss the ethical implicationsof purchasing in differentcontexts

• Evaluate centralised versusdecentralised purchasingstructures

• Explain how to implementrequisitioning and call-off to endusers in decentralised valueadded electronic-portals (VAEs).

Purchasing contexts

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Foundation diploma in purchasing and supply

LEARNING OBJECTIVES ANDINDICATIVE CONTENT

1.0 UNDERSTANDINGDIVERSEORGANISATIONS,CONTEXTS ANDSITUATIONS(Weighting 50%)

1.1 Evaluate the differentobjectives of public,private and third sectororganisations and thedifferent environments inwhich they operate• Ownership and control• Sources of finance,

financial structures andgovernance

• Resource issues • Legal and regulatory

environments• Contrasting business

objectives• Importance of corporate

social responsibility.

1.2 Appraise the differenttypes of private sectororganisations and thediffering demands thatthey place on thosemanaging the provision ofgoods and services • Different forms, including

limited companies, plcsand limited liabilitypartnerships

• Formation and cessation ofprivate sector firms

• Regulation of privatesector and impact onpurchasing

• Impact of profit motive onpurchasing activities

• Transactional activity suchas mergers andacquisitions (M&A)together with the role ofthe CompetitionCommission

• Specific types of privatesector organisations andinfluences on purchasingfunction:• Manufacturing• Engineering• Fast moving consumer

goods (FMCG)• Retail• Technology• Services.

1.3 Review the different typesof public sectororganisations and explainthe variety of approachestaken to the purchase andsupply of goods andservices• Different types of public

sector organisation, suchas central government,local government andgovernment agencies

• Regulation of public sectorand impact on purchasing

• Concept of best value,balancing conflictingobjectives and priorities

• Multiple forms ofstakeholder and theirinfluences.

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1.4 Review the different typesof third sectororganisations• Different types of third

sector organisations• Regulation of voluntary

and not-for-profitorganisations and impacton purchasing

• Importance of corporatesocial responsibility (CSR).

1.5 Evaluate the context of thepurchasing function anddifferent purchasingsituations• Purchasing as a discrete

organisational functionwithin the supply chain

• Relationship between thepurchaser and a supplymarket

• The various functionalmodels for purchasing:centralised, decentralised,centre-led action network(CLAN), leadbuyer/business partneringand matrix structure

• Typical division of rolesand responsibilities withinpurchasing

• The part-time purchaser• Customers of the

purchasing function• Merits of internal versus

external outsourcing ofsupply

• Role of a shared servicesunit (SSU) and how it canbe measured foreffectiveness

• Merits of consortiumbuying with otherindependent organisations.

2.0 RECOGNISING THE NEEDFOR DIFFERENTAPPROACHES TOPURCHASING DIFFERENTTYPES OF GOODS ANDSERVICES(Weighting 50%)

2.1 Analyse and explaindifferent types of productand customerrequirements• The difference between

customers and consumers• Contribution of purchasing

to customer satisfaction• How customer feedback is

collated and used• The contrast/difference

between consumerproducts and industrialproducts

• Key requirements in goodsfor resale

• Regulatory framework forprotection of consumers

• Impact of corporate socialresponsibility (CSR) onconsumer confidence.

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2.2 Identify and explain differentmethods of purchasing• Classification of supply

chains, tiered supply,managed services and therole of an agent

• The purchasing cycle, its keystages and its relativetransferability

• Importance of cross-functional teams, varyingcross-functional requirementsand the impact of this onpurchases

• Methods of purchase:• Spot-buying and one-off

purchases• Low value orders including

use of purchasing-cards• Typical purchase-to-pay

(P2P) methods• Long-term supply

relationships• Framework agreements and

call-off arrangements• Projects: how scoped,

purchased and paid for• Merits of competitive

tendering: the key stages,appraisal and evaluation oftenders, and merits of e-tendering

• Good practice and itsapplication to purchasingincluding benchmarking• Consumables• Call-off orders.

2.3 Analyse and explaindifferent ways ofpurchasing raw materialsand commodities• The key differences

between direct andindirect purchasing

• Methods of purchasingraw materials andcommodity items and keyconsiderations; financeand the futures markets

• Contribution of purchasingto the bottom-line

• Purchasing for stock• Purchasing for production• Key considerations when

purchasing perishableitems.

2.4 Analyse the differencesbetween purchasingservices as opposed topurchasing goods• Key differences between a

product and a service• A range of services: legal,

professional, humanresources, advertising andmedia, facilitiesmanagement, IT,maintenance repair, andoperations (MRO) andfinance

• Key requirements whenspecifying a service to bepurchased

• Operation and merits ofmanaged services

• Managing service levelagreements.

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2.5 Analyse and explainpurchasing and financingcapital expenditure items• Key differences between

operational and capitalexpenditure

• A range of CapitalExpenditure (CAPEX) items

• Financing considerations;benefit/cost analysis(BCA), investment, returnon investment (ROI), break-even, post-projectappraisal (PPA) and whole-life costing

• Public and private fundinginitiatives; private financialinitiative (PFI), publicprivate partnership (PPP),build-own-operate-transfer(BOOT)

• A simple budgeting cycle• Economic factors of

financing includinginflation and interest rates.

2.6 Analyse and evaluate thedrivers for internationalpurchasing, factors andorganisations that affectinternational trade and theimpact on the purchasingfunction• Key drivers for

globalisation andstandardisation

• The organisations whichaffect international tradeincluding the World TradeOrganisation, WorldBank, InternationalChamber of Commerce andEuropean Union

• International trade zones,tariffs and internationaltrading agreements

• Modes of transport andshipping regulations

• Incoterms• Reasons for sourcing

internationally, includingmarket expansion andcompetitiveness

• Key considerations whensourcing from anothercountry

• Impact of internationalstandards

• Relative merits of off-shoring.

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