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| Section | Objectives |
|---|---|
| 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
|
| 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
|
| Understand and analyse the key steps when procuring goods or services | - Analyse each stage of the CIPS Procurement Cycle in relation to adding value
|
| Understand and analyse the need for compliance with requirements when undertaking procurement activities in different sectors | - Analyse the impact of the public sector on procurement and supply
|
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NEW QUESTION # 21
(a) Outline FIVE procedures that could be included in the
procurement policy manual. (15 marks)
(b) Analyse how TWO Of these procedures can positively
influence procurement activities and organisational outcomes
for BetaCo. (10 marks)
BetaCo Inc.
BetaCo Inc. is a medium-sized electronics design and manufacturing
company that sells audio equipment to event management customers for
use in stadiums and festivals. BetaCo has significantly increased its sales over the last five years and is now looking to establish more contracts with new customers. BetaCo Inc. is aware that new customers will require it to have robust procurement processes in place that minimise organisational risk.
Currently, all procurement activities are dealt with by BetaCo's small, customer-orientated project teams. Each project team makes its own procurement decisions with limited central oversight and does not follow standardised processes. This type of activity has resulted in BetaCo frequently encountering overspending on projects, and senior management is concerned that there is a lack of control over what products and services the project teams buy. In addition, suppliers regularly complain that their invoices are not paid on time, which has caused issues for future purchases.
To address these challenges, BetaCo has decided to create a centralised procurement and supply management department. BetaCo has recently appointed Pat Kennedy as its procurement and supply manager. BetaCo has also recruited three senior buyers, five buyers and two assistant buyers, who will join the company in the next few months.
Pat's first task is to establish a procurement policy manual. The manual will contain a set of procedures that can be followed by the new procurement team and it will control the company's procurement activities to ensure that the issues BetaCo is facing are effectively managed.
Answer:
Explanation:
See the solution in Explanation part below
Explanation:
(a) Five Procedures to Include in BetaCo's Procurement Policy Manual
Purchase Requisition and Approval Procedure
All procurement requests must be formally submitted through standardized purchase requisition forms and approved by designated authorities before any purchase action is taken.
This ensures control over spending and adherence to budgets.
Supplier Selection and Evaluation Procedure
A structured process to identify, assess, and approve suppliers based on criteria such as quality, reliability, price, and compliance with BetaCo's standards.
Supplier performance should be regularly reviewed to maintain quality and reliability.
Purchase Order (PO) Management Procedure
Clear guidelines on raising, issuing, and tracking purchase orders to suppliers, ensuring orders are placed only after necessary approvals and conform to agreed terms.
Purchase orders serve as formal contracts protecting both BetaCo and suppliers.
Invoice Processing and Payment Procedure
Defines steps for receiving, verifying, and authorizing supplier invoices, followed by timely payment according to agreed payment terms.
This avoids late payments and maintains good supplier relationships.
Conflict of Interest and Ethics Compliance Procedure
Policies requiring employees to declare any conflicts of interest and adhere to ethical standards in procurement activities to ensure transparency and fairness.
This prevents fraud, corruption, and protects BetaCo's reputation.
(b) Analysis of How TWO Procedures Positively Influence Procurement Activities and Organisational Outcomes for BetaCo
1. Purchase Requisition and Approval Procedure
Positive Influence on Procurement Activities:
Introducing a formal purchase requisition and approval procedure provides BetaCo with much-needed control and oversight over spending, addressing the current issue of overspending by project teams. It ensures that all procurement requests are validated against project budgets and company policies before any purchase commitment is made.
Impact on Organisational Outcomes:
This procedure supports financial discipline and accountability, reducing uncontrolled expenditures and improving cost management. It also creates a clear audit trail for procurement decisions, helping senior management monitor and enforce compliance, thus reducing organisational risk.
2. Invoice Processing and Payment Procedure
Positive Influence on Procurement Activities:
By implementing a standardized invoice verification and timely payment procedure, BetaCo can resolve the existing problem of late payments to suppliers. This ensures invoices are matched to purchase orders and delivery notes, approved promptly, and paid within agreed terms.
Impact on Organisational Outcomes:
Timely payments strengthen supplier relationships, enhancing trust and reliability in supply continuity, which is critical for BetaCo's growing customer base and production needs. It also helps avoid disputes or disruptions caused by delayed payments, contributing to smoother operations and better supplier cooperation.
Conclusion:
For BetaCo, incorporating structured procurement procedures into the policy manual is essential for centralising control, improving transparency, and reducing risks associated with decentralized procurement activities. Specifically, purchase requisition and approval alongside invoice processing procedures will directly address current challenges, leading to improved financial control, supplier relationships, and operational efficiency, ultimately supporting BetaCo's growth ambitions and reputation.
NEW QUESTION # 22
Explain the main differences between the Public Sector and the Private Sector (25 marks)
Answer:
Explanation:
See the solution in Explanation part below
Explanation:
Bottom of Form
Top of Form
- This is an open question. You could really talk about anything. Here's some ideas of content:
Example Essay
The public and private sectors, while both essential to a nation's economy, operate under different paradigms, primarily due to their distinct drivers, stakeholders, regulations, procurement aims, and supplier relationships.
Drivers
The most fundamental difference lies in their drivers. Private sector organizations are primarily profit-driven; their existence hinges on their ability to generate profits. This profit influences their strategies, operations, and overall objectives. Conversely, public sector organizations are not driven by profit. Funded by taxpayer money, their primary objective is to deliver services effectively and efficiently to the public. Their success is measured not in financial terms, but in how well they meet the service levels required by the citizens who finance them through taxes.
Stakeholders
The range and influence of stakeholders in the two sectors also differ markedly. In the public sector, the stakeholder base is much broader, encompassing every member of society who interacts with or benefits from public services like healthcare, policing, and road maintenance. However, these stakeholders typically have less power to influence policy or practices. In contrast, stakeholders in the private sector, such as shareholders and customers, often have a more significant influence on company policies and practices. The private sector's narrower stakeholder base allows for more direct impact and influence from these groups.
Regulations
Regulations in the public sector are generally more stringent than in the private sector. Public sector entities, governed by regulations like PCR 2015, must demonstrate sound procurement practices and are accountable to society at large. This contrasts with the private sector, where companies have more latitude in choosing suppliers and are not obliged to justify their decisions publicly. The private sector faces fewer regulatory constraints, allowing for more flexibility in business decisions.
Procurement Aims
Procurement in the public sector is guided by the principles of efficiency, economy, and effectiveness, often summarized as the '3 Es'. The focus is on achieving value for money, considering both quality and price. In contrast, private sector procurement is more diverse in its aims, reflecting the organization's specific goals, which could range from profit maximization to innovation or sustainability. The private sector's procurement decisions are more closely aligned with the organization's unique values and objectives.
Supplier Relationships
Finally, the nature of supplier relationships differs significantly between the two sectors. The public sector is mandated to maintain a certain distance from its suppliers, ensuring equal treatment and open competition, as dictated by regulations like the PCR. This contrasts with the private sector, where companies are free to develop closer, more strategic relationships with preferred suppliers. The private sector can engage in practices like partnerships and Early Supplier Involvement, which are typically not permissible in the public sector due to the need for impartiality and fairness.
In summary, while both sectors aim to deliver services or products effectively, the public sector's focus on service delivery for the public good, stringent regulations, broad stakeholder base, and specific procurement principles, sets it apart from the private sector's profit-driven, flexible, and more narrowly focused approach.
Tutor Notes
- At Level 4 the questions are usually explain or describe, so don't worry too much about doing an in depth 'compare and contrast' style of answer. They don't expect that level of detail here. Simply saying Public Sector does X and Private Sector does Y is all you need.
- I have mentioned PCR 2015 - if you're taking this exam in 2025 you may need to update this reference with the new regulations.
- LO 4.3 p.220 / p. 226
NEW QUESTION # 23
What is a Code of Ethics? What should an Ethical Policy Contain? What measures can an organisation take if there is a breach of their Ethical Policy? (25 points)
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
- Firstly give a short definition of Code of Ethics: a document that sets out moral principles or values about what is right and wrong.
- What an Ethical Policy should contain: Condition of workers, Environment, H+S, Discrimination, Gift / Bribery Policy, Whistleblowing, Confidentiality, Fair Dealings, Declaration of Conflict of Interests. You won' t have time to go into depth on all of these, so pick a few where you want to give an example.
- Measures to take if there is a breach: depending on what the breach is and who breached it this could include: education/ training, sanctions, blacklisting, reporting to authorities, publicise the issue, use a performance improvement plan, issue warnings, dismissal.
Example Essay:
A code of ethics is a formal document or set of principles that outlines the values, ethical standards, and expected conduct for individuals within an organization. It serves as a guide for employees and stakeholders, shaping their behaviour and decision-making to align with the organization's ethical framework. It may take the form of a Mission Statement, Core Values, Specific Guidelines or established reporting mechanisms. The purpose of the Code is to establish standards, promote integrity, mitigate risks and build trust- with both internal and external stakeholders.
A Code of Ethics may contain the following:
- Condition of workers - stating what the company will provide to the employees to make sure the environment is safe. This could include the physical environment but also hours worked, opportunities for breaks etc. Depending on the sector it could detail shift patterns, expectations regarding overtime and compensation.
- Environment - this section would discuss compliance with legislation regarding pollution, disposal of waste materials etc. Depending on the company's goals- they may have higher commitments to the environment than those imposed by the government. Additional commitments may include NetZero targets or the use of renewable sources of energy.
- H+S- Health and Safety. Ensuring that the working environment is free of hazards and that workers have the training and equipment they need to complete the work safely. E.g. PPE
- Discrimination- a promise not to discriminate based on any characteristic. Aligns with the Equalities Act.
Policy should include how the company would handle situations, for example if an employee reports an issue of discrimination or harassment. This may involve the use of a whistleblowing hotline or details on how to contact HR.
- Gift / Bribery Policy - this area of the code of conduct would explain whether the company allows staff members to receive gifts (e.g. from suppliers) and the processes to complete if they do (e.g. return the item, complete an internal document, donate the gift to charity). Different companies and industries will have different rules surrounding this, the Public Sector is much more likely to reject gifts from suppliers for example.
- Declaration of conflict of interests- this explains what staff should do if there is a conflict. For example if they are running a tender and their father owns one of the suppliers who is bidding for the work. The conflict of interest policy will explain what the person should do, how to report it and have mechanisms in place to ensure that nothing untoward could come of the situation. This may be having another member of staff mark the tender to ensure unbiasedness.
Measures to take in case of a breach
A response to a breach will depend on who breached the policy - whether this is an employee or a supplier. It will also depend on the severity of the breach.
Remedies for a supplier breach could include: education / training if the breach is minor. Supplier development if the relationship with the supplier is very important (for example if there are no other suppliers the buyer could turn to) and the breach is minor. If the breach is major such as fraud or misappropriation of funds, a buyer could look to issue sanctions, claim damages and dismiss the supplier. There could be options to claim liquidated damages if this is included in the contract. For very serious offenses the buyer may blacklist the supplier- never use them ever again and could also report the issue to the police if the breech is also criminal (e.g. modern slavery or fraud).
Remedies for an employee breach could include: for minor breaches training may be required, particularly if it was a junior member of the team and it was an innocent mistake like forgetting to fill out a form when they received a Gift. The employee could be carefully monitored and put on an Improvement Plan. If internal issues are found, such as several staff are breaching the Code of Ethics, senior management could look to review policies to make sure issues are being flagged and responded to in the best way. Employees who fail to follow the Ethical Policy, either through routinely failing to adhere to it or through a major breach could be dismissed from the organisation. There would need to be strong evidence of this.
In conclusion it is important for all organisations regardless of size of industry to have an Ethics Policy.
Sharing the code of ethics with staff is a fundamental step in embedding ethical principles into the organizational culture. Regular communication and training reinforce these principles, fostering a shared commitment to ethical behaviour across all levels of the organization.
Tutor Notes
- In an essay like this it's always a good example to use examples. They can be hypothetical - you don't have to know any company's Ethics policy off by heart. E.g. If a supplier breached a buyer's Ethical Policy by employing Child Labour in their factories, an appropriate measure for the buyer to take would be to cancel the contract and find another supplier. This is because not only is Child Labour illegal, the buyer will not want to be associated with this supplier as it will have negative repercussions on their image. The best response would therefore be to distance themselves from the supplier.
- Code of Ethics and an Ethics Policy are the same thing. Just different language. The terms can be used interchangeably
- Study guide p. 128
NEW QUESTION # 24
(a) Outline FIVE procedures that could be included in the
procurement policy manual. (15 marks)
(b) Analyse how TWO Of these procedures can positively
influence procurement activities and organisational outcomes
for BetaCo. (10 marks)
BetaCo Inc.
BetaCo Inc. is a medium-sized electronics design and manufacturing
company that sells audio equipment to event management customers for
use in stadiums and festivals. BetaCo has significantly increased its sales over the last five years and is now looking to establish more contracts with new customers. BetaCo Inc. is aware that new customers will require it to have robust procurement processes in place that minimise organisational risk.
Currently, all procurement activities are dealt with by BetaCo's small, customer-orientated project teams. Each project team makes its own procurement decisions with limited central oversight and does not follow standardised processes. This type of activity has resulted in BetaCo frequently encountering overspending on projects, and senior management is concerned that there is a lack of control over what products and services the project teams buy. In addition, suppliers regularly complain that their invoices are not paid on time, which has caused issues for future purchases.
To address these challenges, BetaCo has decided to create a centralised procurement and supply management department. BetaCo has recently appointed Pat Kennedy as its procurement and supply manager. BetaCo has also recruited three senior buyers, five buyers and two assistant buyers, who will join the company in the next few months.
Pat's first task is to establish a procurement policy manual. The manual will contain a set of procedures that can be followed by the new procurement team and it will control the company's procurement activities to ensure that the issues BetaCo is facing are effectively managed.
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
(a) Five Procedures to Include in BetaCo's Procurement Policy Manual
* Purchase Requisition and Approval Procedure
* All procurement requests must be formally submitted through standardized purchase requisition forms and approved by designated authorities before any purchase action is taken.
* This ensures control over spending and adherence to budgets.
* Supplier Selection and Evaluation Procedure
* A structured process to identify, assess, and approve suppliers based on criteria such as quality, reliability, price, and compliance with BetaCo's standards.
* Supplier performance should be regularly reviewed to maintain quality and reliability.
* Purchase Order (PO) Management Procedure
* Clear guidelines on raising, issuing, and tracking purchase orders to suppliers, ensuring orders are placed only after necessary approvals and conform to agreed terms.
* Purchase orders serve as formal contracts protecting both BetaCo and suppliers.
* Invoice Processing and Payment Procedure
* Defines steps for receiving, verifying, and authorizing supplier invoices, followed by timely payment according to agreed payment terms.
* This avoids late payments and maintains good supplier relationships.
* Conflict of Interest and Ethics Compliance Procedure
* Policies requiring employees to declare any conflicts of interest and adhere to ethical standards in procurement activities to ensure transparency and fairness.
* This prevents fraud, corruption, and protects BetaCo's reputation.
(b) Analysis of How TWO Procedures Positively Influence Procurement Activities and Organisational Outcomes for BetaCo
1. Purchase Requisition and Approval Procedure
* Positive Influence on Procurement Activities:Introducing a formal purchase requisition and approval procedure provides BetaCo with much-needed control and oversight over spending, addressing the current issue of overspending by project teams. It ensures that all procurement requests are validated against project budgets and company policies before any purchase commitment is made.
* Impact on Organisational Outcomes:This procedure supports financial discipline and accountability, reducing uncontrolled expenditures and improving cost management. It also creates a clear audit trail for procurement decisions, helping senior management monitor and enforce compliance, thus reducing organisational risk.
2. Invoice Processing and Payment Procedure
* Positive Influence on Procurement Activities:By implementing a standardized invoice verification and timely payment procedure, BetaCo can resolve the existing problem of late payments to suppliers.
This ensures invoices are matched to purchase orders and delivery notes, approved promptly, and paid within agreed terms.
* Impact on Organisational Outcomes:Timely payments strengthen supplier relationships, enhancing trust and reliability in supply continuity, which is critical for BetaCo's growing customer base and production needs. It also helps avoid disputes or disruptions caused by delayed payments, contributing to smoother operations and better supplier cooperation.
Conclusion:
For BetaCo, incorporating structured procurement procedures into the policy manual is essential for centralising control, improving transparency, and reducing risks associated with decentralized procurement activities. Specifically, purchase requisition and approval alongside invoice processing procedures will directly address current challenges, leading to improved financial control, supplier relationships, and operational efficiency, ultimately supporting BetaCo's growth ambitions and reputation.
NEW QUESTION # 25
Explain, with examples, the advantages of a Procurement Department using electronic systems (25 marks)
Answer:
Explanation:
See the solution in Explanation part below.
Explanation:
- Mention of some of the following benefits with at least one example provided against each; cost savings, time savings, more efficient, higher levels of transparency, easier to access historical records to inform upon decision making, mitigates risks such as fraudulent spending, easier to track spend against budgets, ensures compliance with regulations, provides 'real-time' information, paperless communications (so more environmentally friendly), assists in Supply Chain Management and integration with supply partners.
- I'd suggest 5 is a good amount to aim for
Example Essay
Procurement stands to gain numerous benefits from the adoption of electronic systems. These electronic tools and systems bring efficiency, accuracy, transparency, and cost-effectiveness to the procurement process. Here are several compelling reasons why procurement should leverage electronic systems:
Cost savings - the use of electronic tools saves organisations money. Although there is an initial cost outlay, over time the systems will save the organisation money. For example the use of e-procurement tools can save money by accessing a wider pool of suppliers. For example, when using an e-sourcing portal, a tender may reach a larger number of suppliers- this makes the tender more competitive thus driving down prices.
Compared to traditional methods such as phoning suppliers for prices, the use of electronic portals encourages suppliers to 'sharpen their pencils' and provide the best prices in order to win work. Money is also saved as communication is digital (so there is no costs for paper and postage).
Time savings - electronic tools automate a lot of processes which saves time. An example of this is e- requisitioning tools where orders can be placed automatically by a piece oftechnology when quantities of a material reach a certain level. For example, in a cake manufacturing organisation they may use an MRP system which calculates how many eggs are required per day. The machine knows that when the company only have 50 eggs left, a new order needs to be issued to the supplier. The MRP system (e-requisitioning system) therefore saves time as the Procurement department doesn't have to manually pick up the phone to place the order with the supplier- it is done automatically.
Access to higher levels of information - e-Procurement gives you centralised access to all your data. You can access the system to look at historical purchases with ease compared to having to dig through folders and filing cabinets. For example, an electronic PO system will hold details of all historical POs, this means if someone has a question about a PO that was raised 4 months ago, finding the information is much easier and quicker. Some systems may also be able to provide analytical data such as changes to spend over time, or which suppliers a buyer spends the most money with. This higher level of information can help inform upon future decision making. For example, if the organisation wishes to consolidate its supplier base it would look through historical data provided by the electronic system to find out which suppliers are used the least and remove these from the 'pre-approved supplier list'. This level of data might not be available in manual systems.
Better budget tracking - using electronic systems allows for real-time information to be collected which allows Procurement Managers to see where spend is compared to forecasts and budgets. An example of this is in the use of Pre-Payment Cards - rather than giving staff members petty cash to make transactions and having to chase this up and collect receipts and change, a pre-payment card usually comes with an online portal where a manager can see what has been purchased and the remaining budget on that card for the month.
A manager may be able to see for example that a member of staff has spend £300 of their allotted £500 monthly allowance.
Higher levels of transparency and control - using E-procurement tools allows an organisation to track who is ordering what. For example, an e-requisitioning tool may allow Procurement Assistants to make purchases up to £500 but set an automatic escalation if they try to buy something of higher value. This allows for Management to have greater levels of visibility and more control over spending. Another example of transparency and control is in the use of e-sourcing tools to run a competitive tender exercise. All communication between the buyer and suppliers is tracked on the system and award letters can be sent via the system too. This reduces the risk of information being lost.
Environmental benefits- the use of e-procurement tools means that there is less paperwork involved. For example, rather than creating a physical PO which needs to be signed by a manager, an electronic system can allow a manager to sign-off the purchase by clicking a button. This means there is no requirement for the document to be printed. This saves paper and thus has a positive on the environment. Using electronic systems may help an organisation achieve their environmental targets.
In conclusion there are numerous benefits for procurement to adopt e-procurement tools. Depending on the sector and requirements of each individualised company, some advantages may be more pertinent than others, but it is undeniable that technology is helping to shape the industry into a value adding function of organisations.
Tutor Notes
- With an essay like this you could use subheadings and number the advantages if you like. It's a good idea to do one advantage per paragraph and using formatting really helps the examiner to read your essay.
- study guide p.108
NEW QUESTION # 26
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