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CIPS Level 4 Defining Business Need (L4M2)

The CIPS Level 4 Defining Business Need (L4M2) unit provides a comprehensive understanding of how procurement professionals develop business cases, analyze financial considerations, and apply market management principles. This unit is crucial for procurement specialists, as it explores the significance of cost estimation, pricing strategies, and financial budgeting in procurement decisions. It also emphasizes the role of specifications in ensuring the efficiency and effectiveness of procurement processes.

The knowledge gained from this unit enables procurement professionals to align procurement strategies with organizational objectives, manage supplier relationships effectively, and minimize risks through well-defined specifications.

Unit Objectives

The core objectives of the CIPS Level 4 Defining Business Need (L4M2) unit are as follows:

• To equip learners with the necessary skills to develop business cases for sourcing requirements from external suppliers.
• To enhance the understanding of cost estimation techniques, pricing strategies, and financial models for procurement activities.
• To provide knowledge of market management principles, competitive forces, and cost control mechanisms in procurement.
• To develop learners’ expertise in specification development, risk mitigation, and performance optimization in procurement and supply.

Learning Outcomes

The significant learning outcomes of the unit CIPS Level 4 Defining Business Need (L4M2) are demonstrated below:

LO1: Understand how to develop a business case for requirements to be sourced from external suppliers

This learning outcome focuses on analysing how business needs influence procurement and supply decisions, covering different types of purchases such as new purchases, modified rebuys, and straight rebuys. Learners will understand the role of procurement in developing a business case and the implications of business needs on purchasing decisions. Additionally, this outcome ensures that learners can estimate costs and prices for procurement activities by identifying market data sources, direct and indirect costs, and whole-life asset costs. Learners will also evaluate the criteria for developing a business case, including costs, benefits, competitor analysis, and stakeholder alignment. Furthermore, they will gain skills in interpreting financial budgets and cost models to effectively control procurement purchases.

LO2: Understand market management in procurement and supply

Learners will explore the considerations for procurement in different market sectors, including manufacturing, construction, retail, financial services, agriculture, and the service industry. This learning outcome focuses on analysing competitive forces that influence markets, such as the bargaining strength of suppliers and buyers, the availability of substitutes, and the threat of new entrants. Additionally, learners will compare direct and indirect costs, identifying reliable data sources to estimate cost breakdowns. By mastering this outcome, learners will develop the ability to prepare budgets, assess pricing variability, and make informed procurement decisions based on market conditions.

LO3: Understand the use of specifications in procurement and supply

This learning outcome highlights the importance of accurate and effective specifications in procurement. Learners will examine the different types of specifications, including conformance specifications (e.g., drawings, samples, technical standards) and performance specifications (e.g., output, outcome, and functional specifications). They will also explore the sources of information used to create specifications, such as external standards, internal expertise, sustainability considerations, and internet resources.

Additionally, learners will identify the key sections of procurement specifications, covering scope, definition, description of requirements, testing, change control mechanisms, and environmental, social, and governance criteria. The outcome also focuses on recognising risks associated with inadequate specifications (e.g., under- or over-specified needs) and implementing mitigation strategies such as monitoring and stakeholder reviews. Learners will also explore opportunities for enhancing specifications through standardisation, value analysis, and value engineering while guiding internal stakeholders on project and contract implementation.

Assessment Criteria

The assessment criteria for CIPS Level 4 Defining Business Need (L4M2) align with the learning outcomes and require learners to demonstrate:

LO1: Understand how to develop a business case for requirements to be sourced from external suppliers

This learning outcome focuses on how business needs influence procurement decisions and how cost estimation and financial analysis contribute to procurement planning.

1.1 Analyse how business needs influence procurement and supply decisions

• Different types of purchases, including new purchase, modified rebuy, and straight rebuy.
• The impact of business needs on procurement decisions, supplier selection, and purchasing strategies.
• The role of procurement professionals in developing a compelling business case that aligns with organizational goals.

1.2 Identify how costs and prices can be estimated for procurement activities

• Market data sources for cost estimation, including industry reports, supplier databases, and benchmarking studies.
• Identification of direct and indirect costs and their impact on procurement budgets.
• Techniques for estimating total procurement costs, including whole-life asset management.

1.3 Analyse the criteria that can be applied in the development of a business case

• Evaluation of key business case criteria, such as costs, benefits, competitor analysis, stakeholder requirements, and timescales.
• The strategic importance of aligning procurement decisions with organizational needs.

1.4 Interpretation of financial budgets and cost models for the control of purchases

• Understanding financial modelling, budgetary control mechanisms, and cost profiling techniques.
• Methods to measure budget performance and variance analysis in procurement planning.

LO2: Understand market management in procurement and supply

This learning outcome explores how procurement professionals navigate market dynamics and assess competitive forces in supplier selection.

2.1 Analyse the considerations for procurement and supply when working with different markets

• Procurement considerations for manufacturing, construction, retail, financial, agriculture, and service sectors.
• How industry-specific factors impact supplier relationships, procurement strategies, and risk management.

2.2 Compare the competitive forces that influence markets

• Analysis of supplier and buyer bargaining power and how they affect contract negotiations.
• The impact of market competition, availability of substitutes, and threat of new entrants on procurement strategies.

2.3 Contrast direct costs and indirect costs. Consider the types of data that can provide information on cost and price

• Sources of cost-related information, such as historical pricing data, supplier quotations, and industry benchmarks.
• The role of cost and price analysis in budget preparation and procurement cost control.

LO3: Understand the use of specifications in procurement and supply

This learning outcome focuses on the role of specifications in procurement processes and how they contribute to supplier selection and contract management.

3.1 Analyse the types of specifications used in procurement and supply, and sources of information that can be used to create them

• Sources of specification data, including external standards, sustainability requirements, and product specifications.
• Difference between conformance specifications (e.g., technical drawings, samples, brand requirements) and performance specifications (e.g., functional outcomes and operational efficiency).

3.2 Identify sections used in developing specifications supporting procurement and supply arrangements

• Essential specification components: scope, definition, description of requirements, testing, change control, and ESG (Environmental, Social, and Governance) criteria.

3.3 Identify the risks that can result from inadequate specifications and mitigation approaches

• Risks such as under-specification, over-specification, and scope creep, along with strategies for monitoring and review.

3.4 Identify opportunities to review and enhance specifications in the short and longer term

• Strategies such as standardization, value analysis, and value engineering to improve procurement outcomes.
• Providing expert guidance to stakeholders on specification improvements for procurement efficiency and cost reduction.

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