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| Section | Objectives |
|---|---|
| Topic 1: Understand and analyse the added value that can be achieved through procurement and supply chain management | - Describe the categories of spend that an organisation may purchase
|
| Topic 2: Understand and analyse the need for compliance with requirements when undertaking procurement activities in different sectors | - Analyse the impact of the third sector on procurement and supply
|
| Topic 3: Understand and analyse aspects of organisational infrastructure that shape the scope of procurement and supply chain functions | - Analyse the impact of organisational policies and procedures on procurement and supply
|
| Topic 4: Understand and analyse the key steps when procuring goods or services | - Explain each stage of the CIPS Procurement Cycle
|
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NEW QUESTION # 42
Explain, with examples, the three different ways one can categorise procurement spend: direct vs indirect, capital expenditure vs operational expenditure and stock vs non-stock items. (25 points)
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
The knowledge to remember:
A table with text on it Description automatically generated
Essay Plan :
Remember to include examples for each of the six categories of spend. This is specifically asked for in the question so it's important to include as many examples as you can. To do this you could take an example organisation such as a cake manufacturer and explain which of their purchases would fall into each category and why.
Introduction - explain why procurement categorises spend
- Direct - these are items that are incorporated into the final goods (the cakes) so would include raw materials such as flour, eggs, sugar etc
- Indirect - these are items that the company needs, but don't go into the end product. For example, cleaning products and MRO supplies for the machines
- Capital Expenditure- these are large one-off purchases, such as buying a new piece of equipment such as a giant oven to cook the cakes.
- Operational Expenditure - these are purchases that are required to ensure the business can function day-to- day. They may include PPE for the workers in the factory and cleaning equipment
- Stock items - these are items procured in advance and held in inventory until they are needed. In a cake manufacturing factory this could be PPE for staff such as hairnets and gloves. The organisation will buy these in bulk and keep them in a stock cupboard, using these as and when they are required
- Non- stock items - items that are not stored and used right away. An example would be eggs- these will need to be put directly into the cakes as they would go off if bought in advance.
Conclusion - the categories are not mutually exclusive - an item can be direct and operational, or indirect and stock. Different companies may use different systems to classify items of spend.
Example Introduction and Conclusion
Introduction
Procurement categorizes spend to efficiently manage resources and make strategic decisions. Three primary ways of categorizing procurement spend include distinguishing between direct and indirect spend, classifying expenditures as capital or operational, and categorizing items as stock or non-stock. These distinctions aid organizations in optimizing their procurement strategies for better resource allocation.
Conclusion:
In conclusion, categorizing procurement spend into direct vs. indirect, capital vs. operational, and stock vs.
non-stock items is essential for strategic resource management. While these categories provide a structured framework, they are not mutually exclusive, as an item can fall into multiple categories. For example, an item may be both direct and operational or indirect and stock. The flexibility of these categories allows organizations to tailor their procurement strategies based on their specific needs, ensuring efficient resource allocation and effective supply chain management. Different companies may adopt varying categorization approaches depending on their industry, size, and operational requirements.
Tutor notes:
- Because you've got 6 categories of spend to talk about you're only going to need 3-4 sentences for each.
Providing you've said the category, explained what it is and given one example, you'll absolutely fly through this type of question
- You could also mention that it is useful to use categories of spend as this helps with budgeting. Different categories may also have different processes to follow for procuring the item (this could form part of your introduction or conclusion).
- This subject is LO 1.3.2 it's quite spread out in the text book but the main info is on p.49
- Note- different companies/ industries classify items of spend differently. Particularly packaging and salaries.
Some say they're direct costs and some say they're indirect costs. Honestly, it's a hotly debated subject and I don't think there is a right or wrong. I'd just avoid those two examples if you can and stick to ones that aren't as contentious like eggs and PPE.
NEW QUESTION # 43
Sarah is thinking of setting up a charity in the UK which will look after animals that have been abandoned. What regulations and governing bodies should Sarah be aware of when setting up her charity? (25 Points)
Answer:
Explanation:
See the solution in Explanation part below
Explanation:
How to approach this question
- Your essay should mention at least one regulation and one governing body particular to the charity section and I would recommend these be the Charities Act 2011 and the Charities Commission.
- If you don't know a lot about the sector you can bring up more generalised regulations and governing bodies, such as financial conduct and the Equalities Act, but make sure it's relevant to Sarah. Her charity is a small, local one, so things like Modern Slavery Act will not be appropriate to talk about.
Example Essay
When setting up a charity in the UK, particularly one focused on animal welfare, there are several regulations and governing bodies that Sarah should be aware of. These ensure that the charity operates legally, ethically, and effectively.
A charity's purpose involves raising awareness and helping someone or something, in Sarah's case this will be local animals and potentially their owners. A charity has to satisfy two aspects: The benefit aspect and The public aspect. In the UK, both aspects are regulated by the Charities Act 2011.
To satisfy a benefit aspect, a charity must: have a purpose that must be beneficial to the community it works in - this must be in a way that is identifiable and capable of being proved by evidence. For Sarah this would be showing that her charity helps animals, potentially by taking them in off the street or removing them from dangerous homes and caring for them.
To satisfy a public aspect, a charity must benefit the public in general, or a sufficient section of the public. In Sarah's case the public benefit may be in removing stray dogs and cats from the streets where they can transport diseases and potentially attack people. Most charities strive to satisfy both aspects but in some cases this is not possible.
All charities are regulated. Because charities are funded by donations from the public, businesses and sometimes from government, their conduct is regulated closely. Key regulatory bodies that Sarah will have to engage with include:
1. Charity Commission for England and Wales:
* As the primary regulator for charities in England and Wales, the Charity Commission oversees the registration and regulation of charities. Sarah's organization must meet the legal definition of a charity and apply for registration if its income is over £5,000 per year.
* The Commission ensures compliance with the Charities Act, offering guidance on charity governance, financial management, and reporting.
2. HM Revenue and Customs (HMRC):
* Charities can apply to HMRC for recognition as a charity for tax purposes. This status allows for tax reliefs and exemptions, including Gift Aid on donations.
* HMRC ensures compliance with tax obligations and scrutinizes the use of charity funds.
3. Data Protection:
* Under the General Data Protection Regulation (GDPR) and the Data Protection Act 2018, any charity handling personal data must ensure its protection and comply with data privacy laws.
4. Health and Safety Executive (HSE):
* The HSE provides guidelines for workplace safety, which are important if the charity has employees or volunteers.
In conclusion there are many regulations and bodies that Sarah should be aware of when setting up her charity. Sarah should consider seeking legal advice or consulting with charity advisory services to ensure full compliance with all relevant laws and regulations. Additionally, staying informed about changes in charity law and animal welfare legislation would be beneficial to the smooth operation of her charity.
Tutor Notes
- With case study questions you're not expected to know anything about the specific topic, in this case Animal Charities. If it happens to be something you know about, you can bring in some of your own knowledge, but this isn't a requirement to get a good score. You're not expected to know, for example about the Animal Welfare Act 2006, but if you happen to do so, it could be a nice little thing to add in. Just don't focus your essay on it. However you can make some sensible guesses on what Sarah will be doing, for example I talked about removing stray animals from the street.
- Charities comes up in LO 4.4 p.232
NEW QUESTION # 44
Describe regulation that govern the Public Sectors and explain how this may impact upon procurement activities (25 marks).
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
How to approach this question
- You do need to know some legislation for public sector here. This may be difficult if you don't work in the Public Sector. If you're struggling with this, you could also talk about general legislation that governs all types of organisations such as the Equalities Act and Modern Slavery Act.
- This is also a tough question if you're not British. CIPS is a UK based organisation and the syllabus therefore only talks about British legislation. If you're in a different country you could talk about the legislation in your own country, providing the question doesn't specifically mention UK Law.
- Either way I would recommend knowing a couple of pieces of British Legislation. You don't need to be an expert but just state what they are and what the purpose is should be enough to get you a pass.
Example essay
The public sector, which encompasses various governmental and state-owned enterprises, plays a pivotal role in the governance and provision of essential services. This sector operates under a strict framework of regulations and policies, ensuring that its operations are fair, transparent, and accountable. Among the most critical aspects of these operations is procurement, the process through which the public sector acquires goods, services, and works. This essay will explain key regulations governing the public sector, focusing on the Public Contracts Regulations (PCR) 2015, Late Payment Regulations 2016, Equalities Act2010, and Public Services (Social Value) Act 2012, and explores how these regulations impact procurement activities.
The Public Contracts Regulations (PCR) 2015
The PCR 2015 plays a foundational role in public sector procurement in the UK. It sets out the procedures for procuring contracts, aiming to ensure fairness and transparency in the process. The regulations mandate that all procurement processes must be conducted in a manner that prevents discrimination and allows equal access to potential contractors, regardless of their size or location. For example, the open tendering process under PCR 2015 has enabled a more diverse range of companies, including small and medium-sized enterprises, to participate in government contracts, enhancing competition and innovation. The four 'pillars' of the PCR are derived from EU Procurement Directives and are: non-discrimination, free movement of goods, equality of treatment and transparency.
Late Payment Regulations 2013
The Late Payment Regulations 2013 address a critical aspect of procurement: the timely payment for goods and services. This regulation ensures that public sector organizations pay their suppliers within a stipulated time frame, significantly impacting the financial stability of these suppliers. For instance, the regulation has been particularly beneficial for small businesses that rely on prompt payments to maintain cash flow. The introduction of these regulations has improved the trust between public sector entities and their suppliers, leading to more efficient procurement processes.
Equalities Act 2010
The Equalities Act 2010 is another crucial piece of legislation impacting public sector procurement. This Act prohibits discrimination in the workplace and in the provision of services, extending its influence to the procurement process. Public sector entities must ensure that their procurement decisions do not discriminate against any group and that they promote equality. For instance, when a public sector organization issues a tender, it must ensure that the selection criteria do not unfairly disadvantage any potential supplier based on irrelevant characteristics. This approach not only fosters a more inclusive procurement environment but also helps to tap into a wider talent and supplier pool, enhancing the quality and effectiveness of public services.
Public Services (Social Value) Act 2012
The Public Services (Social Value) Act 2012 marks a significant shift in how procurement is approached in the public sector. This Act requires public sector organizations to consider how the services they procure can improve the economic, social, and environmental well-being of their area. This means that when a public sector entity procures goods or services, it must consider factors beyond just the price and quality. For example, a local government might prioritize suppliers who can demonstrate a commitment to environmental sustainability or who offer employment opportunities to local residents. This approach to procurement encourages a more holistic view of value for money, factoring in the wider impact of procurement decisions on society.
Public Accountability and Freedom of Information Requests
In addition to these specific regulations, the concept of public accountability and the mechanism of Freedom of Information requests play a crucial role in the public sector, especially in procurement activities. Public accountability ensures that entities are answerable to the public and their actions are transparent. Freedom of Information requests enable individuals and organizations to access information held by public authorities, which includes details of procurement decisions and contracts. This transparency is critical in ensuring that procurement activities are conducted ethically and responsibly, deterring corruption and mismanagement.
In conclusion, the regulation of the public sector, particularly in the realm of procurement, are complex.
Regulations such as the PCR 2015, Late Payment Regulations 2016, Equalities Act 2010, and the Public Services (Social Value) Act 2012, along with the principles of public accountability and transparency, ensure that procurement activities are conducted in a fair, transparent, and socially responsible manner. These regulations not only safeguard the interests of suppliers, especially smaller businesses, but also ensure that the public sector remains a model of integrity and efficiency and that taxpayers' money is well spent.
Tutor Notes
- Okay this is important: The PCR 2015 regulations are being rescinded in 2024. They're based on EU Law and the UK has left the EU. I know we left a while ago now but it's taken us a long time to address the issue and figure out what we want to do about it. There was also a pandemic that got in the way of people making any decisions in parliament that weren't to do with Covid. The PCR 2015 will be replaced in late 2024 with new 'British' rather than European rules.
- At the time of writing this (December 2023) we don't 100% know what the new rules are going to look like and if you're taking this exam from November 2024 onwards, I recommend doing a bit of research into the new regulations.
- Now the complicated bit- the CIPS syllabus is valid from 2024-2028 and doesn't address that legislation is changing. I therefore don't really know what they're going to expect when students are taking this exam and the study guide information is out of date. If you're not working in the Public Sector, how are you to know the legislation has changed?
- My advice is this- briefly learn PCR 2015- the four pillars in particular, and when the new legislation comes out, have a quick google and see if these pillars are still the same. The regs aren't going to change THAT much - things like transparency and equal treatment are still going to be really important, but there may be some slight language changes. Plus, if you're able to mention in an essay that there's new legislation, it's going to make you sound super clever.
- LO 4.2 p.211
NEW QUESTION # 45
Explain, with examples, the three different ways one can categorise procurement spend: direct vs indirect, capital expenditure vs operational expenditure and stock vs non-stock items. (25 points)
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
The knowledge to remember:
A table with text on it Description automatically generated
Essay Plan :
Remember to include examples for each of the six categories of spend. This is specifically asked for in the question so it's important to include as many examples as you can. To do this you could take an example organisation such as a cake manufacturer and explain which of their purchases would fall into each category and why.
Introduction - explain why procurement categorises spend
- Direct - these are items that are incorporated into the final goods (the cakes) so would include raw materials such as flour, eggs, sugar etc
- Indirect - these are items that the company needs, but don't go into the end product. For example, cleaning products and MRO supplies for the machines
- Capital Expenditure- these are large one-off purchases, such as buying a new piece of equipment such as a giant oven to cook the cakes.
- Operational Expenditure - these are purchases that are required to ensure the business can function day-to- day. They may include PPE for the workers in the factory and cleaning equipment
- Stock items - these are items procured in advance and held in inventory until they are needed. In a cake manufacturing factory this could be PPE for staff such as hairnets and gloves. The organisation will buy these in bulk and keep them in a stock cupboard, using these as and when they are required
- Non- stock items - items that are not stored and used right away. An example would be eggs- these will need to be put directly into the cakes as they would go off if bought in advance.
Conclusion - the categories are not mutually exclusive - an item can be direct and operational, or indirect and stock. Different companies may use different systems to classify items of spend.
Example Introduction and Conclusion
Introduction
Procurement categorizes spend to efficiently manage resources and make strategic decisions. Three primary ways of categorizing procurement spend include distinguishing between direct and indirect spend, classifying expenditures as capital or operational, and categorizing items as stock or non-stock. These distinctions aid organizations in optimizing their procurement strategies for better resource allocation.
Conclusion:
In conclusion, categorizing procurement spend into direct vs. indirect, capital vs. operational, and stock vs.
non-stock items is essential for strategic resource management. While these categories provide a structured framework, they are not mutually exclusive, as an item can fall into multiple categories. For example, an item may be both direct and operational or indirect and stock. The flexibility of these categories allows organizations to tailor their procurement strategies based on their specific needs, ensuring efficient resource allocation and effective supply chain management. Different companies may adopt varying categorization approaches depending on their industry, size, and operational requirements.
Tutor notes:
- Because you've got 6 categories of spend to talk about you're only going to need 3-4 sentences for each.
Providing you've said the category, explained what it is and given one example, you'll absolutely fly through this type of question
- You could also mention that it is useful to use categories of spend as this helps with budgeting. Different categories may also have different processes to follow for procuring the item (this could form part of your introduction or conclusion).
- This subject is LO 1.3.2 it's quite spread out in the text book but the main info is on p.49
- Note- different companies/ industries classify items of spend differently. Particularly packaging and salaries.
Some say they're direct costs and some say they're indirect costs. Honestly, it's a hotly debated subject and I don't think there is a right or wrong. I'd just avoid those two examples if you can and stick to ones that aren't as contentious like eggs and PPE.
NEW QUESTION # 46
Explain FIVE possible factors that influence procurement
activities in third sector (not-for-profit) organisations that
Parvinder should research. (25 marks)
Parvinder Kaur works for a leading procurement consultancy, NHB. Her
clients are based all around the world with a diverse range of products and services. Parvinder specialises in providing procurement advice within the public sector but she also has two major clients in the private sector.
Before beginning procurement consultancy services with a new client,
parvinder likes to research the organisation and the sector in Which it operates so that she can understand the type of challenges that the organisation may face. This work, ahead of the first meeting, has meant that Parvinder has built an excellent reputation for analysing a business quickly. It also means she has been able to establish insight into the aspects which may have a significant impact on the success of the procurement function in her clients.
NHB has recently won a significant contract to provide procurement
consultancy service to a large third sector (not-for-profit) organisation.
This is an important new client for NHB and the board is keen to assign Parvinder as the key account manager, even though this is a new area for her. Parvinder is happy to take on the additional work as she is keen to develop a greater understanding of this sector.
Answer:
Explanation:
See the solution in Explanation part below
Explanation:
Procurement in third sector (not-for-profit) organisations operates under distinct influences compared to public or private sectors. Understanding these factors is crucial for Parvinder to provide effective consultancy tailored to the sector's unique challenges and requirements. Below are five key factors that influence procurement activities in third sector organisations:
1. Funding Sources and Financial Constraints
Third sector organisations typically rely on donations, grants, fundraising, and government funding rather than sales revenue. This creates tight budgetary controls and unpredictability in funding availability.
Impact on Procurement:
Procurement activities must align closely with available funds, often requiring careful prioritisation, cost-effectiveness, and compliance with funders' conditions. Parvinder should research how the organisation manages fluctuating budgets and whether there are restrictions on how funds can be spent.
2. Regulatory and Compliance Requirements
Not-for-profit organisations are often subject to specific regulatory frameworks and reporting standards, including charity laws, governance codes, and donor-imposed conditions.
Impact on Procurement:
These regulations impact supplier selection, contract management, and transparency obligations. Procurement must ensure compliance with these rules to maintain legitimacy, donor confidence, and avoid legal penalties. Parvinder should assess the regulatory environment affecting procurement processes.
3. Social and Ethical Considerations
Third sector organisations frequently have missions linked to social good, environmental sustainability, and ethical practices. Procurement decisions are influenced by these values and stakeholder expectations.
Impact on Procurement:
Procurement must prioritise suppliers who meet ethical standards, support local communities, and minimize environmental impact. This may limit supplier options but aligns procurement with organisational values and public image. Parvinder should evaluate the organisation's sustainability and CSR policies.
4. Stakeholder Involvement and Governance
Procurement decisions in not-for-profits often involve multiple stakeholders, including trustees, donors, beneficiaries, and volunteers, making the governance structure complex.
Impact on Procurement:
This can lengthen decision-making processes, require additional approvals, and demand higher transparency and accountability. Parvinder should investigate who the key stakeholders are and how procurement decisions are governed and communicated.
5. Market and Supplier Availability
Depending on the organisation's geographic location, niche requirements, and mission, there may be limited availability of suitable suppliers, especially those compliant with social and ethical standards.
Impact on Procurement:
Limited supplier choice can increase costs and procurement risk. Procurement strategies may need to focus on supplier development, collaboration, or partnerships to meet organisational needs. Parvinder should research supplier markets and potential supply chain risks.
Conclusion:
To effectively advise the new third sector client, Parvinder must research and understand the impact of funding limitations, regulatory compliance, ethical imperatives, stakeholder complexity, and supplier availability on procurement activities. Recognising these factors will enable her to tailor procurement strategies that support the organisation's mission, ensure transparency, and optimise resource use-key to delivering value in the not-for-profit environment.
NEW QUESTION # 47
......
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