CIPS Purchasing & Supply Management (P&SM) Model

This illustrates the generic P&SM processes and how they contribute to any organisation

EXTERNAL FACTORS & IMPACTS Economic Environment Technology Changes Social Environment/Green Environment Political Environment (Domestic and Wider) Legislation & Regulations Competitive Environment

RESOURCES Human Competences & skills Knowledge/ experience (org. level) Physical assets Finance Relationships & reputation Technology & Management Information

THE ORGANISATIONS VISION, MISSION, & An VALUES Organisations Vision, Mission & Values

STAKEHOLDERS Owners & shareholders Employees Partners Customers Suppliers

Management of the organisations external resources, maximisation of value and minimisation of risk including: Identification of business needs from P&SM function Positioning e.g. remit with support of CEO Governance structure e.g. procurement board Objectives & activities e.g. strategic sourcing strategy Capacity/capability management, ie, competencies & structure (e.g. centralised/devolved, CLAN, co-ordinated) Management of P&SMs customers/users/buyers needs including training, support, authorities and delegation Policies e.g. rationalisation, standardisation, value mgt, supplier development and CSR. Key processes supporting legislative framework, e.g. standing orders and procedures Technology for E, mgt information, knowledge mgt & systems e.g. purchase order processing systems Good practice e.g. tools, templates ts and cs Performance monitoring/benchmarking/continuous improvement Management of supply market

Management of efficient processes Inventory management Application of lean and agile principles as appropriate Management of plant and equipment Location of plant Virtual operations Collaborations

P&SM Strategy
Operations Strategy

Customer relationship management Service Levels Fulfilment Delivery Disposal

Distribution/ Dissemination Strategy

ICT provision management , and maintenance Training and support in ICT E commerce Innovation implementation Technical training Technical aspects of process transformation Strategy for obsolescence

Supply Chain Strategy

Finance Strategy Technical/ ICT Strategy
Developing and monitoring innovation Identifying product improvements Experimenting and testing Intellectual property rights

Financial structures e.g. budget allocation Forecasting, modelling and monitoring financial standing Credit and debit Currency movements and other global financial issues Provision of support to budget holders

An Organisations V Human Overall Resources Strategy Strategy

R&D Strategy

Recruitment (including internet), induction and retention of people Provision of induction, CPD Provision of support and guidance Change management Motivation, morale recognition and rewards Compliance with legal obligations

Marketing Strategy

Marketing mix e.g. product, price place, promotion people processes and physical evidence Integrated communications e.g. advertising, direct marketing, personal selling and PR to external and internal segmented targets Marketing routes Managing channels including internet

Process/Competence Analysis
Identify budget holders/end customers constituency mapping Evaluate competencies of people involved in P&SM Undertake activity-based costing Evaluate systems & procedures, extent of management information, controls Identify extent of bounded rationality Identify extent of opportunism Identify waste

Supply Base Analysis

Evaluate suppliers performance History of market trends Pareto/ABC analysis Supply positioning/portfolio analysis Supplier/customer preferencing Market analysis Identify supplier information asymmetry Identify and evaluate key suppliers isolating mechanisms

Spend Analysis (Historical & Future)

Who is buying what? From which suppliers? When/how often? On what terms? Identify and evaluate contracts in place Extent of post contract moral hazard Extent of asset specificity Critical asset analysis Forward expected usage of goods and services Trends in the market place Determine funding eg PPP/PFI

Strategic Sourcing Analysis

Supply/Value Stream Mapping

Map current supply/value streams both primary and secondary Vulnerability analysis Analysis of power dependency in supply/value streams Identify profit and gross margins in supply/value streams Map demand through supply system i.e. demand amplification mapping

Generate Options Political Analysis

Risk management inc CSR International relations Local politics Regulatory effects Use of brainstorming, SWOT, Porters 5 forces etc Business cases Sourcing options including Make/Buy, Outsourcing/Insourcing etc

Managing Direct Spend (e.g. the goods and services etc. that can be linked to production or service delivery) NB The points below are more common, but not exclusive, to Direct Spend.
Work with Operations to set policy on inventory Evaluate mapped supply chains Determine use of lean & agile as appropriate SCM e.g. pull systems, JIT. Plan requirements e.g. inventory control, master scheduling, master planning, production activity control Plan for value analysis and value engineering Contingency Plans for demand exceeding supply Now follow the same steps as listed in the right-hand Managing Indirect Spend box

Managing Indirect Spend (e.g. capital, services and supplies for running the organisation)
Identify categories of spend i.e. groupings of goods and services purchased Specify exact needs/working in cross functional teams Determine sourcing policies for categories of spend Make/buy decisions i.e. outsourcing Determine key suppliers for partnering as appropriate Determine who is responsible for categories and train and support them Determine appropriate methods, procedures, processes and policies for managing categories to minimise transaction costs, optimise value, minimise risk Generate charter i.e. infrastructure identifying roles and targets Agree sourcing plans Implement e.g. plan, do, check, & act

Proactive Demand Management

1. Identification of Need
Liaise with user/requisitioner Determine requirements i.e. produce specification Technical analysis e.g. generation of alternative solutions Demand Challenge i.e. deferred, diminish or delete Complexity reduction e.g. standardisation etc. Determine the budget Project set-up (including teams)

4. Evaluate/Select Suppliers
Check company profile Evaluate financial standing Determine capacity Assess quality procedures Evaluate track record and references Evaluate risk Evaluate their policies and attitude

Acquisition Pre-Contract

2. Procurement Plan
Pull together cross functional team as appropriate Determine make or buy Develop project plan

5. Receive/Evaluate Offers
Evaluation teams Use of weighted and ranked criteria Cost analysis/modelling Risk analysis Clarification and PTN (as appropriate) BFO, e auctions Whole life costing

3. Marketplace Solicitation/Development
Soft market testing Produce appropriate bid documentation e.g. ITT or RFQ RFI Advertise (eg OJEC etc) Identify suppliers Condition suppliers to accept requests Increase suppliers focus on buyer Create markets/reverse marketing if appropriate Contact suppliers Invite offers e.g. e tendering Encouragement of suppliers to enter new markets

6. Create the Contract/Relationship

Negotiate terms and conditions of contract Agree service levels, descriptions and schedules Let contract, including exit clauses Debrief unsuccessful suppliers Retain records

Contract/Relationship/Project Management
Communicate the contract Provide feedback from users Obtain feedback from suppliers Rate suppliers performance Aim for continual improvement Provide incentives as appropriate Monitor the performance of suppliers Develop suppliers and the relationship as appropriate Aim for continual improvement

Receipt of Product/Service
Check it meets the requirement Compliance with service level agreements Authorise payment

Acquisition Post Contract

Post Contract Lessons Management

Implement exit strategies Harness knowledge and experience Benchmark the experience Undertake post contract/project reviews Control & measure

Asset Management
Maintenance Disposal and recycling

Renew Contract &/or Relationship OR End Contract &/or Relationship

Key elements of strategies Key stages of strategic P&SM processes Key stages of tactical P&SM processes Key actions at each P&SM stage

CIPS February 2003