Exam L4M1 Topic 3 Question 10 Discussion

See the solution inExplanation partbelow.
Explanation:
How to approach this question:
- The Sourcing Cycle is the first half of the CIPS Procurement Cycle and includes these steps:
1) Define Business Need
2) Market Analysis + Make vs Buy
3) Develop Strategy and Plan
4) Pre-Procurement Market Testing
5) Develop Documents and Specification
6) Supplier Selection
7) Issue Tender
8) Bid Evaluation
9) Contract Award and Implementation
Your response should detail 5 of these. It is a good idea to pick the ones you know most about and where there is more to write about. You won't get any extra points for naming more than 5 so focus on getting as much detail down about 5, rather than explaining more of them.
Essay Plan
Introduction - explain what the sourcing cycle is - the stages of the procurement cycle before a contract is signed. It describes the steps an organisation will take to source/ procures goods or services.
Paragraph 1 - Define the business need
How is the need identified? E.g. by end user, stores department, ERP system.
Procurement should challenge this - is it really necessary? Suggest alternatives - this could be a key source of added value
Put together business case / requisition / project initiation document
What type of purchase? Straight rebuy, modified rebuy, new purchase
Decide on what type of specification would be best - Conformance vs performance specification
This stage may include early supplier involvement
Paragraph 2 - Market Analysis and Make vs Buy Decision
Create an Analysis by segmenting the market by buyer, product, distribution channel, geography, customer market etc.
Make vs Buy - use Carter's Matrix to decide whether the organisation should make vs buy.
Also consider outsourcing at this stage
Paragraph 3 - Documents and Specification
Draft documents. These may include a RFQ or ITT, a specification and a proposed form of contract
Specification may be conformance or performance based
A contract sets out the roles, rights, responsibilities and obligations of the parties and shows intention to enter into 'legal relations'
This stage defines the 'offer' which becomes binding once other party accepts
Documentation may also include proposed KPIs and SLAs
Paragraph 4 - Supplier Selection
For a new purchase, supplier selection is very important - investigation should be proportionate to the value of the procurement. For rebuys or low-risk purchases you could use the same supplier or a list of pre-approved suppliers.
You can locate potential suppliers by; catalogues, websites, trade registers, market exchanges and review sites, trade or industry press, fairs and conferences, networking and recommendations/ referrals.
You can shortlist suppliers by sending out a pre-qualification questionnaire. This adds value by reducing wasted time / costs / risks to entering into a contract with the wrong supplier.
Other criteria for supplier selection include using Carter's 10 Cs (competency, consistency, capability, control, cost, cash, clean, communication, culture, commitment), thesupplier's financial standing (e.g. liquidity and gearing), references and considering their CSR policy.
Paragraph 5 - Issue Tender
Competitive bidding should only be done when there's sufficient time and resources available, there's sufficient suppliers in the marketplace, they're keen to win business (ie that there's appetite for competition) and there is a strong specification
Best practice is to issue tenders electronically as it ensures equal treatment of suppliers and transparency
Consider open vs closed procurement processes
Use a cross-functional team - particularly when marking responses
Conclusion - you could mention here that different sourcing activities may require more or less effort at each of the stages e.g. procuring a new item may require more market analysis than a re-buy.
Tutor Notes:
- If you want to add in extra details, you could think about ways procurement can add value at each stage
- In the old syllabus, CIPS were a bit obsessed with Michael Porter. In the Market Analysis bit you could talk about using Porter's 5 forces (buyer and supplier power, threat of new entrants, threat of substitutions, supplier rivalry) and Porter's 3 generic strategies for competing (cost leadership, differentiation, niche segment). This has been removed from the study guide so it's not essential to know this for this module, but if you've seen it before it's a nice one to throw in.
- You could also mention that there are differences between the public and private sector procurement at the different stages. E.g. Public Sector requires open competitions for contracts of a certain value and must follow the rules set out in Public Contract Regulations - the private sector doesn't have such strict regulations so there is much more flexibility in how tenders are completed. Also in the public sector, the evaluation criteria needs to be agreed beforehand and presented in the ITT- not the same for the private sector.
- Study guide p.71