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

THE
ORGANISATION’S
RESOURCES VISION, MISSION, & STAKEHOLDERS
• Human
Competences & An VALUES
Organisation’s • Owners &
skills
• Knowledge/ Vision, Mission & shareholders
experience (org. • Employees
level) Values • Partners
• Physical assets • Customers
• Finance • Suppliers
• Relationships &
reputation
• Technology &
Management
Information
 Management of the organisation’s 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 • Management of efficient
• Governance structure e.g. procurement board processes
• Objectives & activities e.g. strategic sourcing strategy • Inventory management
• Capacity/capability management, ie, competencies & structure (e.g. • Application of lean and agile
centralised/devolved, CLAN, co-ordinated) principles as appropriate
• Management of P&SM’s customers/users/buyers needs including training, • Management of plant and
support, authorities and delegation equipment
• Policies e.g. rationalisation, standardisation, value mgt, supplier • Location of plant
development and CSR. • Virtual operations
• Key processes supporting legislative framework, e.g. standing orders and • Collaborations
procedures • ICT provision
• Technology for E, mgt information, knowledge mgt & systems management , and

•
e.g. purchase order processing systems
Good practice e.g. tools, templates t’s and c’s
P&SM maintenance
• Training and support in
• ICT
Performance monitoring/benchmarking/continuous
improvement Strategy • E commerce
• Management of supply market • Innovation
implementation
Distribution/ Operations • Technical training
Dissemination • Technical aspects of
• Customer relationship Strategy process transformation
Strategy • Strategy for
management
• Service Levels obsolescence
• Fulfilment Supply Chain Strategy
• Delivery
Technical/
• Disposal Finance ICT
Strategy • Developing and monitoring
Strategy innovation
• Financial structures e.g. budget
allocation An • Identifying product
• Forecasting, modelling and improvements
monitoring financial standing Organisation’s R&D • Experimenting and testing
• Credit and debit
V • Intellectual property rights
Strategy
• Currency movements and other
global financial issues
Human Overall
Resources
• Provision of support to budget
holders Strategy Strategy
Marketing
Strategy • Marketing mix e.g. product, price place,
• Recruitment (including internet), promotion people processes and physical
induction and retention of people evidence
• Provision of induction, CPD • Integrated communications e.g. advertising,
• Provision of support and guidance direct marketing, personal selling and PR – to
external and internal segmented targets
• Change management
• Marketing routes
• Motivation, morale recognition and
rewards • Managing channels including internet
• Compliance with legal obligations
Process/Competence Analysis
• Identify budget holders/end customers – Supply Base Analysis
“constituency mapping” • Evaluate suppliers’ performance
• Evaluate competencies of people involved in • History of market trends
P&SM • Pareto/ABC analysis
• Undertake activity-based costing • Supply positioning/portfolio analysis
• Evaluate systems & procedures, extent of • Supplier/customer preferencing
management information, controls • Market analysis
• Identify extent of bounded rationality • Identify supplier information asymmetry
• Identify extent of opportunism • Identify and evaluate key suppliers’
• Identify waste isolating mechanisms

Spend Analysis (Historical & Future)

• Who is buying what?
Strategic Supply/Value Stream Mapping
•
•
From which suppliers?
When/how often?
Sourcing • Map current supply/value streams – both
primary and secondary
•
•
On what terms?
Identify and evaluate contracts in place
Analysis • Vulnerability analysis
• Analysis of power dependency in
• Extent of post contract moral hazard supply/value streams
• Extent of asset specificity • Identify profit and gross margins in
• Critical asset analysis supply/value streams
• Forward expected usage of goods and services • Map demand through supply system i.e.
• Trends in the market place demand amplification mapping
• Determine funding eg PPP/PFI

Generate Options
“Political” Analysis • Use of brainstorming, SWOT, Porter’s 5
• Risk management inc CSR forces etc
• International relations • Business cases
• Local politics • Sourcing options including Make/Buy,
• Regulatory effects Outsourcing/Insourcing etc
 Managing Indirect Spend
(e.g. capital, services and supplies for
running the organisation)
Managing Direct Spend • Identify categories of spend i.e. groupings
(e.g. the goods and services etc. that can be of goods and services purchased
linked to production or service delivery) • Specify exact needs/working in cross
NB The points below are more common, but functional teams
not exclusive, to Direct Spend. • Determine sourcing policies for categories
• Work with Operations to set policy on inventory of spend
• Evaluate mapped supply chains Proactive • Make/buy decisions i.e. outsourcing
• Determine use of lean & agile as appropriate • Determine key suppliers for partnering as
SCM e.g. pull systems, JIT.
• Plan requirements e.g. inventory control, master
Demand appropriate
• Determine who is responsible for
scheduling, master planning, production activity
control
Management categories and train and support them
• Determine appropriate methods,
• Plan for value analysis and value engineering procedures, processes and policies for
• Contingency Plans for demand exceeding supply managing categories to minimise
• Now follow the same steps as listed in the transaction costs, optimise value, minimise
right-hand “Managing Indirect Spend” box risk
• Generate charter i.e. infrastructure
identifying roles and targets
• Agree sourcing plans
• Implement e.g. plan, do, check, & act
1. Identification of Need
• Liaise with user/requisitioner
• Determine requirements i.e. produce
specification
• Technical analysis e.g. generation of alternative 4. Evaluate/Select Suppliers
solutions • Check company profile
• Demand Challenge i.e. deferred, diminish or • Evaluate financial standing
delete • Determine capacity
• Complexity reduction e.g. standardisation etc. • Assess quality procedures
• Determine the budget • Evaluate track record and references
• Project set-up (including teams) • Evaluate risk
Acquisition • Evaluate their policies and attitude

Pre-Contract
2. Procurement Plan
5. Receive/Evaluate Offers
• Pull together cross functional team as
appropriate • Evaluation teams
• Determine make or buy • Use of weighted and ranked criteria
• Develop project plan • 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) 6. Create the Contract/Relationship
• Identify suppliers • Negotiate terms and conditions of contract
• Condition suppliers to accept requests • Agree service levels, descriptions and
• Increase suppliers’ focus on buyer schedules
• Create markets/reverse marketing if appropriate • Let contract, including exit clauses
• Contact suppliers • Debrief unsuccessful suppliers
• Invite offers e.g. e tendering • Retain records
• Encouragement of suppliers to enter new
markets
 Contract/Relationship/Project
Receipt of Product/Service
Management
• Check it meets the requirement
• Communicate the contract
• Compliance with service level
• Provide feedback from users
agreements
• Obtain feedback from suppliers
• Authorise payment
• Rate suppliers performance
•
•
Aim for continual improvement
Provide incentives as appropriate
Acquisition
•
•
Monitor the performance of suppliers
Develop suppliers and the relationship as
Post Post Contract “Lessons”
Management
appropriate
• Aim for continual improvement
Contract •
•
Implement exit strategies
Harness knowledge and experience
• Benchmark the experience
• Undertake post contract/project reviews
Asset Management • Control & measure
• Maintenance
• Disposal and recycling

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

Key elements of strategies Key stages of tactical P&SM processes © CIPS February 2003

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