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CIPS Level 2 Unit: Introducing Procurement and Supply (L2M1)

The unit Introducing Procurement and Supply (L2M1) provides learners with a comprehensive understanding of procurement and supply chain processes. It explains the fundamental concepts, roles, and benefits of procurement and supply in different types of organizations. This unit covers key procurement terminology, supply chain components, sourcing processes, and ethical considerations in procurement. Learners will gain essential knowledge on how procurement impacts organizational efficiency and how to manage procurement processes effectively.

The unit is highly relevant for professionals aspiring to build a career in procurement and supply. It helps learners develop decision-making abilities, cost management strategies, and supply chain optimization techniques. By the end of this unit, learners will be able to apply procurement principles efficiently and contribute towards achieving value for money, sustainability, and ethical supply chain management.

Unit Objectives

The main objectives of learning CIPS Level 2 Unit: Introducing Procurement and Supply (L2M1) are:

• To provide learners with a strong foundation in procurement and supply chain management.
• To help learners understand procurement roles and how they impact organizational efficiency.
• To explain key procurement and supply terminologies and concepts.
• To introduce learners to sourcing processes, procurement ethics, and supply chain best practices.
• To develop learners` ability to identify procurement strategies that align with organizational goals.

Learning Outcomes

LO1 Understand the role of procurement and supply within organizations

Procurement and supply are essential functions within any organization, ensuring the timely availability of goods and services. Various terms are used to describe aspects of procurement and supply, including procurement, purchasing, buying, supply chain, materials management, distribution, logistics, and contract management. Each of these plays a crucial role in the movement and management of goods and services within an organization.

Procurement can be categorized into different types, such as capital and revenue purchases, as well as direct and indirect procurement. Capital purchases involve long-term investments, whereas revenue purchases include regular operational expenses. Additionally, procurement can be classified based on outsourcing and insourcing, where organizations either contract external suppliers or manage processes internally.

Organizations operate within three major economic sectors: the primary sector, which involves the extraction of raw materials; the secondary sector, which focuses on manufacturing and production; and the tertiary sector, which provides services. Procurement plays a critical role in all three sectors by ensuring the smooth flow of resources, reducing costs, and enhancing efficiency.

Procurement and supply functions contribute significantly to the cost structure of an organization. Effective procurement strategies help achieve value for money by balancing cost, quality, and sustainability. Procurement professionals play a vital role in supplier selection, contract negotiation, and cost control. Additionally, procurement teams ensure that organizational expenditures align with financial plans and compliance regulations.

A supply chain consists of multiple tiers, where raw materials pass through various stages before reaching the end consumer. This interconnected system includes suppliers, manufacturers, distributors, and retailers. Global supply chains add complexity, requiring organizations to manage procurement across different regions and regulatory environments. Understanding these components helps organizations optimize supply chain operations and reduce risks.

LO2 Understand the organizational impact of procurement and supply

Effective procurement has a direct impact on organizational efficiency and profitability. By implementing strategic procurement practices, organizations can create cost savings, improve operational efficiency, and achieve financial goals. Procurement contributes to budget monitoring by controlling expenditures and ensuring resources are allocated effectively. The concept of total cost of ownership (TCO) considers all costs associated with a product or service throughout its lifecycle, helping organizations make informed purchasing decisions.

Different organizations adopt various procurement structures based on their needs. A centralized procurement structure consolidates purchasing decisions within a single department, promoting cost efficiency and standardization. In contrast, a decentralized model allows individual departments to manage their own procurement needs, offering flexibility. Some organizations use a hybrid approach, known as lead buying, where specific categories are managed centrally while others remain decentralized.

A key principle in procurement is the "five rights"—ensuring that the right product or service is acquired at the right price, in the right quantity, at the right time, and from the right place. This approach enhances operational efficiency and supports value-for-money procurement.

LO3 Know how products and services are received from suppliers and delivered to customers

Organizations rely on external suppliers to fulfill their procurement needs. These suppliers provide raw materials, finished goods, and specialized services. In some cases, organizations choose to outsource certain functions to third-party providers, enabling them to focus on core business activities. Viewing suppliers as integral partners in the supply chain fosters collaboration and enhances efficiency.

Similarly, organizations deliver products and services to their customers, making customer satisfaction a priority. Understanding customer needs and expectations is essential for maintaining strong business relationships. Customers are also part of the supply chain, as their demand influences procurement and production decisions. By ensuring smooth delivery processes, organizations can build customer trust and improve service levels.

LO4 Know the stages of the sourcing process

The sourcing process consists of several key stages that ensure the procurement of high-quality goods and services. It begins with identifying organizational needs and defining specifications for the required products or services. This step is crucial in ensuring that procurement decisions align with business objectives.

Once requirements are established, organizations seek quotations from suppliers. Evaluating these quotations involves assessing cost, quality, and supplier reliability. After reviewing proposals, procurement professionals make recommendations for contract awards. Contract authorization follows, ensuring that agreements are legally binding and meet organizational standards.

The post-award stage includes order placement, performance monitoring, and supplier relationship management. Organizations must track supplier performance to ensure compliance with contractual terms. Additionally, reviewing procurement outcomes helps organizations improve future sourcing strategies. By following a structured sourcing process, businesses can minimize risks and enhance procurement efficiency.

LO5 Understand the need for the effective and efficient administration of purchases made with external suppliers

Efficient administration is essential for managing procurement processes effectively. Administration involves overseeing procurement activities, maintaining records, and ensuring compliance with organizational policies. Procurement teams must follow structured procedures when forming agreements with suppliers to ensure transparency and accountability.

The pre-contract stage involves creating requisitions, defining key performance indicators (KPIs), and drafting contract terms. This stage ensures that suppliers meet specific requirements and performance expectations. Organizations also conduct prequalification assessments to evaluate suppliers before awarding contracts.

In the post-award stage, administrative tasks include managing purchase orders, processing invoices, and handling delivery confirmations. Invoice matching ensures that payments align with agreed terms, reducing financial discrepancies. Additionally, addressing non-compliance issues promptly helps maintain smooth supplier relationships.

Approval processes are a fundamental aspect of procurement administration. Organizations implement approval hierarchies to authorize budgets, contracts, and purchase orders. The separation of duties ensures accountability and minimizes financial risks. Delegated authority levels define who has the power to approve procurement decisions, streamlining operations while maintaining control.

LO6 Know the importance of ethics and responsible procurement in organizations and supply chains

Ethical procurement is essential for maintaining transparency, integrity, and social responsibility within supply chains. Organizations follow ethical guidelines, such as the CIPS Code of Conduct, to ensure fair and responsible procurement practices. These guidelines promote accountability and help procurement professionals make ethical decisions.

Corporate governance plays a crucial role in ethical procurement. Organizations establish documented policies and procedures to regulate procurement activities. This includes setting clear ethical standards and ensuring compliance with legal requirements. Ethical procurement also involves social responsibility initiatives, such as supporting fair labor practices and sustainable sourcing.

One of the critical concerns in procurement is the risk of bonded and exploitative labor. Organizations must take proactive measures to identify and eliminate unethical practices in their supply chains. Implementing ethical codes of practice helps organizations build trustworthy supplier relationships and enhance brand reputation.

Assessment Criteria

LO1: Understand the role of procurement and supply within organizations

1.1 Identify the common terms that describe aspects of procurement and supply

This learning outcome introduces learners to key procurement and supply chain terminology such as:

• Procurement, purchasing, buying, supply chain, materials management, distribution, logistics, and contract management.
• Different procurement types: capital vs. revenue purchases, direct vs. indirect procurement, outsourcing vs. insourcing.
• The three sectors of economic activity: primary (raw materials), secondary (manufacturing), and tertiary (services).

1.2 Explain the roles and benefits of procurement and supply in organizations

Learners will understand:

• The cost impact of procurement on business operations.
• How procurement helps in value for money and sustainability.
• The role of procurement professionals in ensuring efficiency and compliance.
• The tiers of a supply chain and how procurement fits within them.

1.3 Define components of a supply chain

This section explains the structure of a supply chain, including:

• Customers, consumers, suppliers, and their suppliers.
• The global aspects of procurement and supply chains.
• Real-world examples of supply chains in action.

LO2: Understand the organizational impact of procurement and supply

2.1 Identify how effective procurement impacts organizational efficiency

Learners will explore:

• How procurement affects profitability and overall efficiency.
• Cost-saving strategies and budgeting techniques.
• Different procurement structures: centralized, decentralized, and lead buying models.
• The importance of total cost of ownership (TCO) and whole life costs.

2.2 Define the five rights of procurement and supply

The five rights of procurement are critical for ensuring efficiency:

• Right price, right quality, right time, right quantity, right place.
• Understanding value for money in procurement.

LO3: Know how products and services are received from suppliers and delivered to customers

3.1 Identify the delivery of products and services made by external suppliers

Learners will examine:

• The role of external suppliers in procurement.
• The concept of outsourcing and supplier partnerships.
• Viewing suppliers as a part of the overall supply chain.

3.2 Identify the delivery of products and services that organizations make to customers

This section covers:

• Product and service definitions.
• The role of customers in the supply chain.
• The importance of customer satisfaction in procurement.

LO4: Know the stages of the sourcing process

4.1 Indicate stages of a sourcing process

Learners will understand each step in the procurement process, including:

• Need identification, supplier selection, contract negotiation, order placement, and performance monitoring.
• The pre-award and post-award stages of sourcing.

LO5: Understand the need for effective and efficient administration of purchases made with external suppliers

5.1 Describe and explain effective and efficient administration

• Defining procurement administration.
• Reviewing the steps in forming agreements with suppliers.
• Understanding effectiveness and efficiency in procurement.

5.2 Describe the administration of the pre-contract stages of a sourcing process

• Creating requisitions and specifications.
• Using KPIs and contract terms to ensure supplier performance.
• Assessing quotations and tenders before contract finalization.

5.3 Describe the administration of the award and post-award stages of a sourcing process

• Managing order acknowledgments, delivery notes, and invoices.
• Handling invoice matching and non-compliance issues.

5.4 Explain the need for approvals in procurement administration

• Approval processes for budgets, contracts, and tenders.
• Understanding delegated authority levels.

LO6: Know the importance of ethics and responsible procurement in organizations and supply chains

6.1 Identify good ethical practices and procedures within procurement and supply

This outcome emphasizes:

• The CIPS Code of Conduct and its importance in procurement ethics.
• Corporate social responsibility (CSR) and sustainability in procurement.
• Ethical procurement practices to prevent bonded and exploitative labor.

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