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CMI level 5 Advanced Contract and Financial Management (L5M4)

The CIPS Level 5 Advanced Contract and Financial Management (L5M4) unit provides an in-depth understanding of contract performance, financial evaluation, and strategic sourcing in procurement and supply. It explores key performance indicators (KPIs), supplier relationship management, ESG (Environmental, Social, and Governance) considerations, and strategic assessment of sourcing options.

This unit is essential for procurement professionals aiming to enhance contract efficiency, minimize risks, and optimize supplier relationships. It enables learners to develop analytical skills to evaluate contract performance, make data-driven decisions, and improve financial outcomes in supply chain management.

Unit Objectives

• Equip learners with practical tools and techniques to measure and improve contract performance.
• Develop an understanding of strategic sourcing and its role in procurement and supply chain management.
• Enable learners to assess supplier performance and implement continuous improvement strategies.
• Strengthen knowledge of financial analysis techniques to enhance contract and supplier evaluation.
• Provide insights into ESG considerations and their impact on procurement strategies.

Learning Outcomes

The significant learning outcomes of the unit CIPS Level 5 Advanced Contract and Financial Management (L5M4) are demonstrated below:

LO1: Understand and apply tools and techniques to measure and develop contract performance in procurement and supply

This learning outcome focuses on the evaluation of contract performance using key performance indicators (KPIs) and various measurement techniques. Learners will assess the effectiveness of supplier relationships and contract management based on cost, quality, delivery, safety, and Environmental, Social, and Governance (ESG) factors. They will also explore methods for data collection, analysis, and continuous improvement in contract performance. By mastering this outcome, learners will enhance their ability to manage supplier performance, apply strategic improvement measures, and integrate data-driven decision-making into procurement processes.

Key Topics Covered:

• Application of KPIs in contract performance management
• Methods for measuring and improving supplier performance
• Use of qualitative and quantitative data to assess contracts
• Assessing return on investment (ROI) for contract performance measures
• Opportunities for data systems integration across supply chains
• Strategies for supplier capability assessments and collaborative product development
• Enhancing ESG compliance and sustainability measures in supply chains

LO2: Understand and apply the concept of strategic sourcing

This learning outcome focuses on the strategic decision-making processes in procurement, including market analysis, supplier selection, and risk assessment. Learners will examine market dynamics, financial data analysis, and sourcing options to ensure the most effective procurement strategies. By achieving this learning outcome, learners will gain expertise in evaluating supplier capabilities, negotiating contract terms, and implementing sourcing strategies that align with business goals and ESG considerations.

Key Topics Covered:

• Industry dynamics, pricing behavior, and financial evaluation of suppliers
• Internal stakeholder involvement in sourcing decisions
• Contract types, competitive vs. non-competitive sourcing, and vetting strategies
• Direct negotiation, supply chain visibility, and competition regulations
• Strategic assessment planning using modeling and analytical techniques
• Evaluating supplier performance based on financial and operational data
• Sensitivity analysis, sales forecasts, and investment assessment for supplier selection

LO3: Understand and apply financial techniques that affect supply chains

This learning outcome emphasizes financial management principles in procurement and supply chain operations. Learners will explore funding options, exchange rate management, and financial risk mitigation strategies. By mastering this outcome, learners will develop the ability to assess financial implications, manage currency fluctuations, and apply financial tools to enhance procurement efficiency.

Key Topics Covered:

• Financial management and working capital funding in supply chains
• Project financing, cost of capital, and corporate financing options
• Managing currency volatility using exchange rate strategies
• Foreign exchange market operations, including spot, forward, and derivative instruments
• Commodity market dynamics, speculation, and hedging techniques

LO4: Analyse and apply financial and performance measures that can affect the supply chain

This learning outcome focuses on the use of financial metrics and performance indicators to evaluate and improve supply chain efficiency. Learners will develop skills in benchmarking, stakeholder feedback analysis, and financial performance assessment. By achieving this outcome, learners will be able to use financial measures like ROI, IRR, and NPV to assess procurement decisions and supply chain performance.

Key Topics Covered:

• Performance measures related to cost, time, quality, and customer satisfaction
• Financial efficiency metrics, including ROCE, cash flow, and stock turnover
• Assessment of supply chain risks and investment decisions using financial models
• Stakeholder feedback mechanisms for performance improvement
• Ethical considerations in data collection and benchmarking practices

Assessment Criteria

1.0 Understand and apply tools and techniques to measure and develop contract performance in procurement and supply

1.1 Assess the application of key performance indicators (KPIs) in delivering contract performance

• 1.1.1
• Effectiveness of supplier relationships
• 1.1.2
• Cost
• 1.1.3
• Quality
• 1.1.4
• Delivery
• 1.1.5
• Safety
• 1.1.6
• Environmental, Social, and Governance (ESG) considerations
• 1.1.7
• Product development

1.2 Evaluate methods of measuring and improving contract performance

• 1.2.1 Sources of data and analysis of data in relation to cost, quality, delivery, safety, and ESG (Environmental, Social, and Governance) considerations
• 1.2.2 Measures supporting the improvement of ESG (Environmental, Social and Governance) considerations
• 1.2.3 Measures supporting the improvement of innovation in procurement and supply
• 1.2.4 Measures assessing product development time to market
• 1.2.5 Role of qualitative and quantitative data to measure and improve contract performance
• 1.2.6 Calculate and analyse return on investment for the use of data in measuring contract performance
• 1.2.7 Assess opportunities for data systems integration across supply chains

1.3 Examine approaches available for supplier contract performance

• 1.3.1 Context and scope for supplier contract development
• 1.3.2 Supplier capability assessments
• 1.3.3 Learning, knowledge, and technology transfer between and across organisations
• 1.3.4 Collaborative product/service development: cross functional working, early supplier involvement, supplier networks, supplier co-ordination and supplier forums
• 1.3.5 Continuous improvement strategies, action plans, and reviews

1.4 Assess scope and developments to improve ESG (Environmental, Social, and Governance) considerations in supply chains

• 1.4.1 Environmental measures
• 1.4.2 Social and social value measures
• 1.4.3 Governance measures
• 1.4.4 New supply chain finance

2.0 Understand and apply the concept of strategic sourcing

2.1 Assess the market factors that influence strategic sourcing

• 2.1.1 Industry dynamics
• 2.1.2 Pricing behaviour
• 2.1.3 Financial data relating to suppliers
• 2.1.4 Market demand and supply factors
• 2.1.5 Business motivations, cost margins, and working practices of key suppliers
• 2.1.6 Internal stakeholder involvement
• 2.1.7 ESG (Environmental, Social, and Governance) considerations

2.2 Examine the assessment of sourcing options and trade-offs for strategic supply of products and/or services

• 2.2.1 Contract type and duration
• 2.2.2 Competitive vs. non-competitive sourcing
• 2.2.3 Number of suppliers and vetting strategies
• 2.2.4 Marketplace competition and the role of competition regulators
• 2.2.5 Direct negotiation
• 2.2.6 Joint proposition improvement
• 2.2.7 Supply chain visibility

2.3 Analyse a strategic assessment plan for a key supplier using modelling and analytical techniques

• 2.3.1 Capacity and capability
• 2.3.2 Planning
• 2.3.3 Quality control systems
• 2.3.4 Security
• 2.3.5 Technical expertise
• 2.3.6Reputation and time established
• 2.3.7 Trading with competitors
• 2.3.8 Future expansion opportunities – partnership potential
• 2.3.9 Sensitivity analysis and calculation of investment outcomes based on a range of assumptions
• 2.3.10 Supplier performance based on financial data: calculate percentage change in revenues, costs, and profits
• 2.3.11 Sales forecast data and calculation of variances when comparing sales forecast data with the wider market

3.0 Understand and apply financial techniques that affect supply chains

3.1 Analyse how finance can impact on supply chains

• 3.1.1 Role of financial management in supply chains
• 3.1.2 Options and risks of working capital funding and the role of credit insurance
• 3.1.3 Project funding options and assessment of cost of capital using weighted average cost of capital (WACC)
• 3.1.4 Medium and long-term financing options
• 3.1.5 Financing of investments, corporate financing options, and the role of dividends

3.2 Appraise methods for managing the volatility of currencies in supply chains

• 3.2.1 Calculation of changes in indices to inform cost analysis
• 3.2.2 Fixed and floating exchange rates
• 3.2.3 Demand and supply factors in foreign exchange and the reasons for exchange rate volatility
• 3.2.4 Spot, forward, and derivative instruments in foreign exchange
• 3.2.5 Services provided by the banking sector in foreign exchange

3.3 Analyse methods for managing the volatility of commodities

• 3.3.1 Types of commodities
• 3.3.2 Operation of commodity markets
• 3.3.3 Role of speculation in commodity markets
• 3.3.4 The operation of spot, forward, futures, and hedging in the buying and selling of commodities
• 3.3.5 The operation of Contract for Difference (CFD) in commodity markets

4.0 Analyse and apply financial and performance measures that can affect the supply chain

4.1 Assess financial measures that can be applied to the performance of the supply chain

• 4.1.1 Calculation and evaluation of performance measures linked to cost, time, quality, and customer satisfaction
• 4.1.2 Calculation and evaluation financial measures of efficiency (ROCE), cash flow, sales growth, investment (IRR and NPV), and variances over time
• 4.1.3 Assessment of measures: stock turn, share yield, and earnings per share
• 4.1.4 Use, interpretation, and limitations of balanced scorecards

4.2 Examine the impact of stakeholder feedback on the supply chain performance

• 4.2.1 Purpose of stakeholder feedback in developing supply chain performance
• 4.2.2 Devising metrics of performance including feedback from third parties and suppliers, and other stakeholders
• 4.2.3 Receiving feedback, reporting structures, and processes

4.3 Analyse approaches to benchmarking that can be applied to measuring supply chain performance

• 4.3.1Use and limitations of benchmarking in supply chains
• 4.3.2 Supplier involvement in performance improvement
• 4.3.3 Ethical approach the collection, storage, and use of benchmarking data 

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