L5M4 CONTRACT AND FINANCIAL - Learning outcomes

1.0 Understand and apply tools and techniques that can be used
to measure and develop contract performance in procurement and
supply
1.1 Assess the use of Key Performance Indicators (KPIs)
Cost
Quality
Delivery
Safety

1.2 Evaluate methods of measuring and improving supply chain

performance
Collate and analyse data
Measure supplier innovation against agreed matrix
Measure time to market against agreed timescales
Create e-systems integration across the organisation and its supplier
network
Cost and benefits of investments measurement
Ensure a balance between qualitative and quantitative measures of
performance
Measure return on investment

1.3 Examine approaches available for supplier development

Knowledge and technology transfer
Collaborative product/service development
Continuous improvement reviews and strategies
Supplier capability assessment
Identify opportunities to use technology

1.4 Assess innovative measures to improve the supply chain

Cross-functional working
Simultaneous engineering
Early supplier involvement
Supplier forums and associations

2.0 Understand and apply the concept of strategic sourcing

2.1 Assess the market factors that influence strategic sourcing
Industry dynamics
Pricing behaviour
Financial data on suppliers
Market demand and supply factors
Business motivations, cost margins and working practices of key
suppliers
Internal stakeholder involvement

2.2 Examine the assessment of sourcing options for strategic

supplies of products and/or services
Contract type and duration
Competitive vs. non-competitive sourcing
Number of suppliers and vetting strategies
The use of e-sourcing
Competition
Direct negotiation
Joint proposition improvement

2.3 Analyse a strategic assessment plan for a key supplier using

modelling and analytical techniques
Capacity and capability
Planning
Quality control systems
Security
Technical expertise
Reputation and time established
Investment plans
Trading with competitors
Financial reports
Analysing potential sales
Future expansion opportunities – partnership potential

3.0 Understand and apply financial techniques that affect supply

chains
3.1 Analyse how costs and finance can impact on supply chains
The financial objectives of different organisations (e.g. value for
money, maximising shareholder wealth and providing a surplus)
The costs of materials, labour and overheads
Funding working capital and credit insurance
Project funding
Medium and long term financing options

Corporate financing decisions in investment, finance and dividends

3.2 Critically assess methods for managing the volatility of

currencies in supply chains
Fixed and floating exchange rates
Demand and supply factors in foreign exchange and the reasons for
exchange rate volatility
Spot, forward and derivative instruments in foreign exchange
Services provided by the banking sector in foreign exchange

3.3 Analyse methods for managing the volatility of commodities in

supply chains
Demand and supply factors in commodities
The differentiation of commodities
Soft and hard commodity markets
Speculation in commodity markets
The use of spot, forward, futures and hedging in the buying and
selling of commodities
The use of a Contract for Difference (CFD) in the buying and selling
of commodities
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 measuring the
performance of the supply chain
The measurement of costs, timescales, processing, quality and
satisfaction
Financial measures such as profitability, return on investment, sales
growth, cash flow
The use of balanced scorecard methodologies

4.2 Examine the impact of stakeholder feedback on the supply

chain strategy
Articulating the supply chain strategy
Determining measurable outcomes of success
Devising metrics of performance including feedback from 3rd parties
and suppliers, and other stakeholders
Reporting structures and processes

4.3 Analyse approaches to benchmarking that can be applied to

measuring the performance of the supply chain
The use of benchmarking in supply chains

Comparisons of business unit, competitors or other industry players

Gap analysis and performance improvement
 CIPS L5M4 - Advanced Contract and Financial Management - Key Definitions
Learning
Outcome Word Definition
2 "As is" Analysis An analysis of the current situation
3.1 "Shell" company A non trading company used as a vehicle for financial manoeuvres or kept dormant for future use.
The process of making a solid physical object using a three-dimensional digital model, by adding layers or material to
1.3 3D Printing build up the desired shape
A simplistic segmentation approach based loosely on Pareto Analysis can be used to breakdown an organization's
1.3 ABC analysis total external spend based on value so its resources used to manage these expenditures can be prioritised
accordingly.
When items are grouped into categories in order of importance - A is most important B less important and C least
ABC Categorisation important
3.1
3.1 Accounts Payable Money that a company owes
1.2 Active external integration Integration focused on business process requirements across a supply chain.
1.2 Active internal integration Integration focused on open communication between inter-functional teams across an organisation
Activity-based costing A method of accounting where indirect costs are assigned to overhead activities and then assigned to products
4.1
4.1 Added value Product and service mix features which the customer values and is therefore prepared to pay extra for
Advanced quality planning (AQP) The methods and procedures used to build quality into a product before it goes into production
2.3
The multi-criteria programming made through the use of the analytic hierarchy process is a technique for decision
AHP making in complex environments in which many variables or criteria are considered in the prioritization and selection
2.3 of alternatives or projects.
3.2 Appreciate When the value of something increases over time.
2.2 Arm's length A type of customer - supplier relationship suitable for fulfilling transactional/routine requirements
Artificial Intelligence (AI) The theory and development of computer systems able to perform tasks normally requiring human intelligence
2.3
1.2 B2B Connectivity The passage of data (not business process logic) through pre-agreed implementation standards.
3.3 Backwardation The future price is lower than the expected spot price
2.1 Balance sheet A statement of assets, liabilities and equity (share capital) of a business at a specific date.
A widely used performance management tool that can be used both internally (for example, to monitor an individual's
1.2 Balanced Scorecard performance) and externally (for example, to monitor a supplier's performance in delivery a contract), that scorecard
usually focuses on four key performance areas (generally carrying equal weight).
The process of measuring and improving an organization's processes, procedures and policies by comparison with
Benchmarking competitors, other business units and /or functional areas, and industry best practice.
4.3
1.2 Big I The integration of all relevant activities into one system
2.2 Bill of quantities The amount of materials used ona project.
2.2 Bottleneck A specific stage in a process which slows down the flow of production and limits the overall output rate.
2.2 Bottleneck items Low value high risk items.
Bottom Line Net profit after tax. The reference to "bottom" describes the relative location of the net income figure on a company's
4.1 income statement

Build, operate and transfer Describes a form of project financing, in which the private or public sector gives a concession to a business entity to
(BOT) finance, design, construct, operate and main a facility, retaining all revenues generated by the project by typically
3.1 transferring the facility to the government at the end of the concession period.
Fluctuations in inventory due to changing consumer demand. Irregularity in ordering in the lower part of the supply
1.3 Bullwhip effect chain can manifest as larger variances higher up in the supply chain
The Justification for undertaking a project or programme. It evaluates the benefits, costs and risks of alternative
1.2 Business Case options and provides a rationale for the preferred solution
2.3 Case-based reasoning (CBR) Computer based decision making
3.1 Cash equivalent Any short term investment securities that have maturity periods of 90 days or less.
3.1 Cash flow The net amount of money being transferred into and out of a business.
2.1 Cash flow issues A business spends more money than it earns within a particular time period.
3.1 Cash flow return A cash flow return on investment is a valuation metric that acts as a proxy for a company's economic return
4.1 Cash-to-Cash cycle time (C2C) The number of days between paying for materials and getting paid for the product.
4.3 Change Management The process, tools and techniques used to manage change efforts within the organizational setting
1.2 Closed System A system that is not affected by external factors and does not influence them.
Collaborative Product
1.3 Development (CPD) Cooperation between different organisations on the development of a product

3.3 Commodities exchange An exchange where various commodities and derivatives products are traded.
3.3 Commodity Indices The value of a particular commodity at a point in time, eg steel, oil, wheat, etc
A pricing method in which a seller uses prices of competing products as a benchmark instead of considering its own
2.1 Competition-based pricing costs or the customer demand.

Competitive benchmarking Method of comparing a set of criteria against a number of business competitors, used to measure performance
4.3
3.1 Constant dividend Where a dividend is always paid
3.3 Contango The future price is higher than the expected spot price
1.3 Continuous Improvement The ongoing improvement of products, services or processes
2.3 Contract Awarding Method used to evaluate proposals and award the relevant contract
1 Cost The amount of money used to make a product or deliver a service
A term used primarily in cost accounting to describe something to which costs are assigned. Common examples of
Cost object cost objects are product lines, geographic territories, customers or departments, or anything for which management
3.1 would like to quantify cost.
 THe materials, labour and other costs directly related to the goods or services provided. In a non-manufacturing
Cost of Sales organization is the difference between the opening stock and the purchases less any closing stock.
4.1
2.2 Cost reimbursable contract A contract in which the supplier can charge the buyer for all the costs associated with that project.
1 Cost-Based Metrics Measurements of organisational performance using cost.
The process of setting prices that reflect the costs of production, distribution and sale of the product, with a markup
2.1 Cost-based pricing percentage to cover the effort and risk involved.
2.2 Cost-plus award fee (CPAF) A type of contract that allows financial incentives based on defined objectives
2.2 Cost-plus fixed fee (CPFF) A type of contract where the contractor is paid an agreed fixed fee
2.2 Cost-plus incentive fee (CPIF) A type of contract where the initial fee can be changed so the costs can be kept low.
2.1 Cost-plus pricing The cost price of an item plus an agreed margin
1 Critical Success Factor (CSF) Those areas that are essential for a contract to be successful.
A contract that gives the right (but not the obligation) to buy or sell a given amount of a particular currency at a
Currency options specified exchange rate on or before a specified date
3.2
3.2 Currency swap An agreement where two parties exchange the principal and interest in different currencies
3.1 Current (Liquidity) ratio The ratio of liquid assets to liabilities
3.1 Current Ratio Ratio of current assets to current liabilities
Customer Relationship
1.2 Management (CRM) The process of managing an organization's interaction with its customer
1.2 Customer Service Management The process of managing the way assistance and advice are given to customers.
2.1 Customer value-based pricing A price based on the buyer's perception of value.
1.2 Cycle time The period needed to complete one cycle of an operation
1.3 Data Words, numbers, dates, etc ... without context
2.1 Debt Money borrowed from lenders
1.2 Demand Management The process of the planning for the demand for products and services
3.2 Depreciation The amount that the asset value has been reduced by during the accounting period
Essentially a contract between two or more parties based on an asset, or a number of assets, the value of which asset
Derivative determines the value of the derivative
3.2
3.1 Direct costs Costs that can be associated with single product or service
2.3 Disaster recovery Restoring the essential systems to allow business critical processes to take place following a major incident.
2.2 Dual Sourcing Using two suppliers for a product or service
1.2 DuPont Formula A tool to assess the ROI and profitability of an organisation
The process through which employees of the buyer organization access supplier online catalogues, select items, make
e-Procurement purchases and communicate directly with suppliers online.
2.2
1.2 E-System Any electronic system and internet or extranet-based site providing access to data
1.3 EAN/UCC Standards An internationally recognised bar code system for products
1.3 Early supplier involvement (ESI) Cooperation between buyer and supplier early in the product development process

EBITDA The actual profit from trading operations, undistorted by finance costs, taxation, depreciation and other write-downs.
3.1
The computer to computer exchange of business transactions (including purchase orders and invoices), in a standard
1.2 Electronic Data Interchange (EDI) format, with standard content.

Enterprise Resource Planning A single management system of integrated applications used to streamline processes across a business or
1.2 (ERP) Systems organisation.
3.2 Equilibrium price A state where the demand and supply of a product are equally balanced
The amount of shareholders' funds and retained earnings is the difference between the value of the assets and the
2.1 Equity value of liabilities
2.1 Equity (share) capital The risk capital invested by the owners of an organization that is not paid back to investors
3.1 Equity per share A company's equity divided by its total number of shares
3.2 Euro Project The attempt to iterate all currencies across Europe to the euro
European Performance
Satisfaction Index (EPSI) Model A statistical model that can be used to measure employee and customer satisfaction
4.1
1.3 Exception Condition A notification of an unusual or unexpected occurrence in a programme or system
Exchange rate mechanism (ERM) This was set up to try and stabilise exchange rates across Europe
3.2
4.1 Expectation score The score you allocate prior to experiencing the service
4.3 External benchmarking This is when the organisations compare their performance with that of external organisations
A method of scoring supplier performance (using a predetermined scale) against a range of criteria, for example,
1.2 Factor Rating Method price, quality and delivery criteria might be weighted reflecting the buyer's priorities.
3.1 Factoring A form of invoice finance (financing against receivables)
1.3 File Transfer protocol (FTP) A computer network that enables the transfer of computer files between client and server
2.2 Firm fixed price (FFP) A type or variety of a fixed price contract
1.2 First Mover Advantage The advantage enjoyed by the first major entrant to a particular market segment.
2.3 Five rights The right quantity, the right quality, at the right time, from the right place at the right price
3.1 Fixed costs Costs that do not change
Fixed price economic price
adjustment (FPEPA) A type of contract where the buyer pays the seller a fixed price stipulated in the contract.
2.2
2.2 Fixed price incentive (FPI) A type of fixed price contract which allows the adjustment of price and profit
An arrangement where both parties exchange currencies and pay each other a fixed interest rate based on the
Fixed/fixed currency swap principal amount.
3.2
3.2 Forward contract An agreement obtained by a bank for a company to buy or sell an asset at a specified price on a future date
3.2 Forward rate Dealing with a future financial transaction
 When organisations compare functions, such as purchasing and supply, finance, personnel et with similar functions in
Functional benchmarking other possibly dissimilar organisations
4.3
3.3 Fungible Indistinguishable from other assets of the same type, and therefore substitutable
A private agreement between two companies not known to each other to buy or sell an asset at a specified price on a
Future Contract future date
3.2
4.1 Gap score The difference between perception and expectation score
A technique of dividing a project into phases separated by 'gates'. Projects proceed to the next phase if agreed criteria
1.2 Gate Review have been met.
2.1 Gearing A measure of how the business is being funded, based on its ratio of debt to equity.
2.3 Gearing Ratio Describes how a business is funded. Gearing is typically calculated as the ratio of debt to equity.
4.3 Generic benchmarking This Is similar to functional benchmarking by compares individual processes rather than whole function
Goal and multi-objective
programming Computer programming objectives
2.3
4.1 Gross profit Amount of money remaining after cost of sales have been deducted from turnover
4.1 Gross profit margin A calculation of profit left after cost of goods sold is deducted.
4.1 Gross profit percentage Gross profit divide revenue x 100
1.2 Hard Measures Financial outcome information resulting from past decisions
1.1 Health & Safety The health, safety and welfare of management, employees and contractors
3.2 Hedge People invest in hedges as a risk avoidance method, to manage and protect valuable assets.
1.2 Hidden Waste Inefficiency in the supply chain
1.1 Historic Cost Baseline The actual cost at a past point in time when the KPI was first established
House of quality/quality
function deployment (QFD) A technique used to ensure that the eventual design of a product or service actually meets the needs of its customers
4.1
A mixture of private sector and nonprofit sector company, which has sustainability as its main objective, alongside
Hybrid Costs good financial management
3.1
This charts process control within a width of upper and lower control limits based on the process specification. An in-
In-control process control process is operating within these limits
4.1
2.1 Income Statement Financial statement that reports a company's financial performance over a period of time.
3.1 Indirect costs Costs that affect multiple services and so cannot be traced to one
2.1 Industry A group of establishments engaged in the same or similar kinds of production activity
1.3 Information A collection of words, numbers, dates, etc, put into context and thereby given meaning
1.2 innovation Audit An assessment of an organisation's capability to innovate.
1.2 Innovation Capability A company's ability to be competitive through systematic innovation.
Bringing together different areas and techniques of benchmarking analysis. It provides a holistic examination of the
Integrated benchmarking benchmarking process and different approaches to benchmarking.
4.3
 Intelligent supplier relationship
management system (ISRMS) A computer based supplier relationship system
2.3
3.2 Interest Rate differential (IRD) Working out the difference between the interest rates of two currencies
2.2 Interim payments Partial payments which together add up to the total contract value
The comparison of internal operations within the same company, with a view to raising the performance of the
Internal benchmarking company as a whole to the same level as the top performer.
4.3
The number of days' stock remaining, based on current usage rates. It is calculated as follows (average cost divide
Inventory days Cost of goods sold) x 30
4.1
Excessive confidence in stock valuations. The phrase was coined by Alan Greenspan and is interpreted as a warning
Irrational exuberance that the market may be overvalued.
3.3
2.3 ISO 9001 An international standard for quality management
3.1 Just in Time (JIT) When goods are delivered when needed (not in advance)
3.1 Kanban An inventory control system
1.1 Key Performance Indicators (KPI) Financial and nonfinancial metrics used to reflect the critical success factors of an organisation or contract.

Key Risk Indicators (KRIs) Measures and metrics that relate to a specific risk and demonstrate a change in the likelihood or consequence of the
4.1 risk occurring
1.3 Knowledge The ability to understand information and then form judgements and opinions and make predictions
1.3 Kraljic Matrix Tool used to segment an organization's supplier base by mapping supply items against risk and profitability
1.2 Lagging measures The results of actions that have already been taken
Lead time The measurement of how long it takes to deliver an order to a customer once the purchase order has been received.
2.3
1.2 Leading measures Operational measures that drive the organization's future performance.
Leverage items
2.2 High-value, low risk products, which represent a high proportion of the profit and for which there are many suppliers.
A five -or-seven point rating sale which is used in fixed choice response formats (such as questionnaires) to measure
Likert scale attitudes or opinions.
4.1
Limited companies are legal entities and can be owned by multiple people; the owners are not personally liable for
Limited (Ltd) financial losses.
3.1
A type of loan in which the lender has limited or no claim against the borrower if the collateral is insufficient to repay
Limited recourse the debt
3.1
The methods include raking, generalised regression estimation (GREG), logistic regression modelling, and
Linear weighting techniques combinations of weighting cell methods with these methods. The main purpose of weighting adjustments is to reduce
2.3 the bias in the survey estimates that nonresponse and noncoverage can cause.
A solvency measure to determine whether an organization is able to meet its liabilities (short-term debts) when they
2.1 Liquidity come due form etnet current assets.
1.2 Little i The networking of multiple interfaced systems.
Selling at below cost in order to generate sales. This is done with the aim of increasing the volume of sales in order to
2.1 Loss leader pricing cover the losses.
1.1 Lost time incidents (LTI) The number of lost time incidents to date
4.1 Lower specification limit The lowest limit of process deviation allowed in a specification
An exchange rate that changes frequently; central banks tend to intervene, to try to prevent too much currency
Managed floating exchange rate fluctuation.
3.2
Management Contract A contract in which an organisation hands over responsibility for a work function to a third party in return for a fee.
2.2
Manufacturing Flow The business activities necessary to move goods through production and to manage manufacturing flexibility across
1.2 Management the supply chain.

1.1 Manufacturing-Based Approach The view that quality of a product that precisely meets specifications

Material requirements
planning / enterprise resource Two different systems that work out how many materials/components are needed for manufacturing a product
3.1 planning (MRP/ERP) systems
2.3 Material rework costs The costs associated with modifying products to make them work
4.1 Maverick spend Procurement made outside of contract agreements
Memorandum of understanding
(MOU) A document outlining the agreement that two or more parties have reached.
2.2
1.1 Metrics A measure of how well a project is performing

mixed-integer programming A mixed-integer programming problem is one in which some of the decisions variables are constrained to be integer
(MIP) values that is whole numbers at the optimal solution. Using integer variables increase the scope of uefl optimisation
2.3 problems that can be defined and solved.
2.2 Multi-Sourcing Purchasing from more than one supplier
3.1 Net asset value The difference between an entity's assets and its liabilities
The value, for example, of a project or investment, over time but with future cash flowers converted into today's
1.2 Net Present Value (NPV) value (as an aid to decision-making)
The profit of the organization after all operating costs, taxes, interest and depreciation have been subtracted from the
1.2 Net Profit total revenue of the organisation.
4.1 Net profit ratio Net profit divide Revenue x 100
New Product Development The process of bringing a new product to market through idea generation, screening, concept testing, full evaluation,
1.2 (NPD) etc.
3.1 Non-recourse Describes a debt secured by collateral such as property
1.2 Novation Use imaginative methods to find new ways to solve problems, fulfil requirements or open up new opportunities.
 An agreement between a producer (supplier) and a customer (buyer) to purchase or sell portions of the producer's
Offtake Agreement future production
3.1
2.1 Oligopoly A market structure in which a few firms dominate
Online trading platform Software used to place and receive orders for financial products allowing traders to trade at different locations
3.2
3.1 Operating cycle Time required for a business to receive cash, make goods, sell goods and make cash.
The profitability of the organization before accounting for interest and tax deduction. This is calculated by subtracting
Operating profit the operating expenses form the gross profit
3.1
2.3 Operating time The time the machine or process is in operation.
3.1 Opportunity costs Costs resulting from not choosing another options.
1.2 Order Fulfillment The process of receiving, processing and delivering orders to customers while minimising costs.
Original equipment An organization that produces parts and equipment that are used by another manufacturer in the manufacturer's
2.2 manufacturer finished product
On-time Delivery In Full = the percentage of orders that are shipped on time and in full, meaning the customer gets
1.1 OTIF everything they ordered, on the day they expected to receive it.
2.3 Outranking techniques Techniques for scoring suppliers
A forward currency contract under which a predetermined amount of currency is traded at a specific exchange rate on
Outright forward contract a specified future date
3.2
over-the-counter transaction This is dealt with directly between two parties, such as retail traders and customers. such transactions are not made
3.2 OTC) on a formal exchange but instead via a dealer network.
3.1 Overhead costs Costs of running a business that are not linked to actually producing a product, eg renting an office.
3.1 Overtrading Entering into higher levels of business than the company can handle
2.2 Pain/gain share mechanism The customer and the supplier share the financial risks and the benefis.
3.1 Pareto Analysis Decision-making strategy based on the 80/20 rule.
1.2 Payback The period of time needed to recover the cost of an investment
Initially a low price is set to attract a large proportion of the market. When the market share has been established the
2.1 Penetration pricing price can then be increased.
4.1 Perception score How you rated each area after experiencing the service
4.1 Perfect order The percentage of orders that are error-free
1.2 Performance Visibility Insight (through measurement) into an organisation's performance.
3.1 Plc A Public limited company, where shares are traded on a recognised exchange.
1.3 Poka-yoke A process that is implemented to eliminate mistakes or defects in products caused by the operators of equipment

Shares that entitle the holder of a fixed dividend, the payment of which takes priority over that of ordinary share
Preference shares dividends
3.1
3.2 Premium The price the buyer pays for the right to buy/sell currency at a specified rate before the expiration date
 A pricing strategy in which a marketer sets a relatively high initial price for a new product or service then lowers the
2.1 Price Skimming price over time.
3.1 Prime cost Cost of creating a product in terms of material and labour
3.2 Principal A specific amount of money that is borrowed or invested
3.1 Private finance initiatives (PFIs) A way of financing public sector projects through the private sector.]
4.1 Process capability index A stat calculation of the supply chain process to produce a product within specified limits
1.2 Process Metric A measure of how well a process is performed.
The documented process method which explains how process formulas were used to create output data from process
Process specifications input. This can be used to regulate material flow through the supply chain
4.1
4.1 Process Variability Random instability which is inherent in a process where there is a deviation from the standard process
4.1 Process width The range of expected variation in a process.
Procurement & Supply
1.2 Management Ensuring efficiency in the process of getting the goods you need

4.2 Procurement Strategy Particular actions planned to ensure the procurement policy of the organization i delivered
Product Development and
1.2 Commercialisation The process of bringing a new product to market together with customers and suppliers.
1.1 Product-Based Approach The view that quality is precise and measurable
3.1 Production cost Prime cost plus overhead cost
A calculation of financial gain. The difference between the total revenue earned by an organisation and the costs of
2.1 Profit producing the goods sold. The term earnings is also used to describe profits.
3.1 Profit Margin How much money can be made on an item (profit as a percentage of price)
2.1 Profitability The organization's revenues minus its total costs.
4.1 Profitability ratios Ratios that measure the profitability of an organisation
3.1 Progressive dividend policy Where the dividend is expected to rise at least in line with increases in earnings per share
3.1 Project finance Money raised to support a particular project
3.1 Project Sponsor The company sponsoring a project
1.2 Promise time The date the supplier originally quoted. Sometimes referred to as the original promise date
The price is set to have a positive image and psychological impact eg the practise in retail of using "odd" pricing such
2.1 Psychological pricing as £9.99.

Public Limited Company (Plc) A company with shares that can be purchased by the public and which has allotted share capital with a nominal value
4.1 of at least £50,000. Shares are usually traded on a stock exchange such as the London Stock Exchange in the UK
Public-private partnerships
(PPPs) Long term contracts between a private company and government entity
3.1
1.2 Qualitative measures "Soft" data including descriptions, opinions and views.
1.2 Quantitative measure "Hard" data that can be expressed as a number or other term of quantity
4.1 Ramp-up readiness The ability to increase supply chain capability creation especially relating to new product development
A framework around which the SERVQUAL measures are based (Reliability, Assurance, Tangibles, Empathy and
1.1 RATER Framework Responsiveness)
2.1 Ratio analysis An indication of an organization's current financial performance.
1.2 Relationship Management The monitoring of relationships between an organisation and its external suppliers.
3.1 Repeated distribution method Allocating costs to each department by percentage
3.1 Return on Capital (ROC) Ratio used to calculate the money made against the money spent
3.1 Return on Capital (ROCE) A ratio that determines a company's profitability by its efficiency.
A measure of the relationship between an organisation's profit and the investment in assets it makes to generate
1.2 Return on Investment (ROI) those profit.
A measurement which assesses the size of an investment relative to a company's working capital position versus the
Return on working capital revenue generated from a supply chain
4.1
1.2 Returns Management The process that manages product returns within the organisation and across key members of is supply chain.
3.1 Rights Issue An offer to existing shareholders to buy new shares in company
1.1 Safety Performance Index (SPI) A calculation based on time lost and total man-hours worked.
Transaction in which one sells an asset and leases it back for the long term; therefore one continues to be able to use
Sale and leaseback the asset but no longer owns it.
3.1
Sales growth This can be termed top-line growth. It is the amount by which a company's sales have grown from
4.1 the previous year
4.1 Sales mix The sale of different products with their different costs and prices.
A management tool used to address, improve, and communicate supply chain management decisions within a
1.1 SCOR company and with suppliers and customers of a company.
2.3 Scrap labour costs The human costs involved in making parts which cannot be used
3.1 Semi-variable costs Costs Made up of both fixed and variable costs
Seniority of debt Seniority and refer to either debt or preferred stock. Senior debt must be repaid before any other debt is repaid
3.1
1.1 Service Credits Compensation given by a supplier to a buyer when service fails below the required level.
4.1 Service encounter The interaction between a service provider and a customer
1.1 SERVQUAL A method of analysing customer perceptions of service quality.
2.1 Shareholder An individual or organization that legally owns part (a share) of a business
2.2 Should cost analysis Analysis based on the purchaser's estimate of what the product should cost.
1.1 SLA (Service Level Agreement) A contractual document, which sets out the expected service level and service credit regime in a contract for services
1.1 SMART Specific, Measurable, Achievable, Relevant and Time bound.
1.2 Soft Measures Operational measures of eg customer satisfaction and internal process improvement
2.2 Sole-source procurement Procurement without a competitive process, in which only one supplier can meet the needs of the buyer
2 Sourcing Board A group of relevant stakeholders formed to advise on the selection of suppliers
A separate entity created for a specific and narrow objective SPVs are typically used by companies to isolate the firm
Special purchase vehicle (SPV) from financial risk
3.1
4.1 Specification width The range of expected variation in a process.
Speculating Making a financial transaction that poses a risk of losing high value, but is done to try and secure a high profit.
3.3
3.2 Spot A contract of buying or selling a commodity, security or currency for immediate settlement
3.2 Spot market A public financial market where currencies are traded for immediate delivery
4.2 Stakeholder Management The identification, analysis, planning and implementation of a plan to engage with a project's stakeholders
Stakeholders People, organisations or agencies which have a legitimate interest in the success of the organisation and its
4.1 operational system
Statistical process control (SPC) A scientific, data-driven methodology for supply chain process quality analysis and continuous improvement efforts
4.1
3.1 Step costs Costs that change at points rather than increasing steadily
3.1 Step method Allocating service costs to departments from the greatest to the smallest cots
2.1 Sticky Prices Prices that stick, i.e they stay the same.
3.1 Stockouts Where no products are available to fulfil demand.
2.2 Strategic items High value high risk items, which require a large spend and carry a particular risk

A strike price (sometimes strike rate) is the price constructed when a contract is first drawn up which tells the investor
Strike Price the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity.
3.2
4.1 Sunk cost A supply chain cost that has been incurred by the organisation and cannot be recovered.
Assessment of a potential supplier's ability to control quality, delivery, quantity, price and all other factors to be
Supplier Appraisal embodied in a contract.
2.3
2.3 Supplier Approval The placing of a supplier on an approved list of suppliers following a process of supplier appraisal.
2.3 Supplier Evaluation Assessment of new or existing suppliers against set criteria
1.1 Supplier Rating Measuring the performance of an existing supplier.
A system of quantitative and/or quantitative reports or other metrics used to determine and quantify how a supplier
1.2 Supplier Rating System has performed against agreed measures.
Supplier Relationship
1.2 Management The process of strategic and proactive management of relationships between an organisation and its suppliers.

Reports used to track a suppliers achievement of, or progress towards targets or goals, which can include quantitative
1.1 Supplier Scorecard and qualitative data.

Supplier Selection Process of selecting a supplier to acquire the necessary materials to support the products/services of an organisation
2.3
2.2 Supply base optimisation Having the right number of suppliers for your business
4.1 Supply Chain Cost All the relevant costs in an organization's supply chain
1.2 Supply Chain Integration The coordination of common processes throughout the supply chain

Supply Chain Operations A management tool that can be used to help manage supply chain decision-making relating to business processes
Reference model (SCOR) needed to satisfy customer demands and explain supply chain processes to identify areas for improvement
4.1
Supply chain strategy
4.2 A formal, written plan detailing the vision of the organisation with regard to its supply over a multi-year period
1.2 System A set of interconnected inputs, processes, outputs, feedback and goals
1.2 Systems integration The process of assembling a number of subsystems into one system
3.2 Tailored products Something made or prepared to fulfil specific needs
4.1 Takt time The rate of production required to fulfil customer demand
The supplier and the customer agree on a certain fixed, lump sum price, the target price and then the supplier tries to
Target Contract execute the contract at or below that price.
2.2
A planning tool supporting strategic and long-term planning by matching current operational goals and long term
1.3 Technology Roadmap (TRM) goals with specific technology systems
4.1 Throughput time The total time required to process a product or service within an organisation
2.2 Tier 1 supplier A supplier who supplies the original equipment manufacturer (OEM)
2.2 Time and materials (T&M) An arrangement where the contractor is paid on the basis of actual cost of direct labour and materials
1.2 Time to Market (TTM) The timeframe between the generation of an idea for a product and that product's first emergence on the market.
1.2 Total Asset Turnover A measure of an organisation's ability to produce sales efficiently
1.1 Total Cost of Ownership (TCO) An estimate used to help buyers to determine the costs, both direct and indirect, of a product or a service.
Total Quality Management A management approach linked to organisational culture and attitudes, which aims to gain complete customer
4.1 (TQM) satisfaction
3.1 Trade payables Amounts owed for goods and services to a company from a supplier also referred to as trade creditors
3.1 Trade receivables Amounts billed for goods and services by a business to its customers - also referred to as debtors
1.1 Transcendent Approach The view that equates quality with excellence
3.1 Triple Bottom Line This means making a profit, caring for people and looking after the planet. (Profit, People and Planet)
4.1 Upper specification limit The maximum limit of process deviation allowed in a specification
1.1 User-Based Approach the making of a product that is fit for purpose and use

A measure of the risk of loss in the supply chain, given a particular probability. VaR is the combined probability of risk
Value at Risk events multiplied by the monetary effect of any events that can affect core supply chain functions
4.1
A description of the set of processes and activities that add value to raw materials in order to turn them into a viable
1.1 Value Chain product to sell to customers.
3.1 Value for money Advantageous price for an organization or customer to spend ona fit for purpose product or service
A lean management method of analysing all steps in a business process to deliver most value and remove
1.3 Value Stream Mapping (VSM) inefficiencies
1.1 Value-Based Approach A development of the manufacturing-based approach that incorporates both cost and price.
3.1 Variable costs Costs that change in proportion to the output of the business
Vendor Managed Inventory
(VMI) When the supplier takes control of orders for a company, automatically renewing orders
3.1
The total cost of an asset over its whole life, including, for example, its purchase price and costs relating to servicing
1.1 Whole-Life Cost repairs, consumables, disposal and other end of life costs
3.1 Without recourse If the payment fails, the endorser will not be held responsible
Capital available to a business used in its day to day trading operations, calculated as the current assets minus the
Working Capital current liabilities
3.1
3.1 Working Capital Policy Refers to the level of investment in current assets for attaining a company's targeted sales
Working Capital Requirement
(WCR) Funds that a company must keep available in order to pay its obligation
3.1
3
4
 CIPS L5M4 - Advanced
Contract and Financial
Management - Key
Definitions

Business
LO Model/Theorist

1.1 Eckerson (2009)

1.1 Neely’s Four CPs of

measurements 1998
Dolan, 2004 regarding
continuous
1.1 improvements relating
to cost

Garvin (1984)
identified five major
1.1 approaches to how
quality is defined;

1.1 Hiles (1993) defined

an SLA

Gordon 2005 Steps for

development of an
1.2 effective supplier
performance
management system

Wisner, Leong & Tan’s

1.2 supply chain
integration model:
Steps to supply chain
integration

Bowersox, Closs and

Cooper 2002 8 key
processes for supply
1.2 chain integration

Krause et al - Supplier
Development
1.3 Strategies

Supplier Development
has been summarised
by Handfield et al
1.3 2000 in ten steps
 Performance
Capability Matrix by
Sarkar and Mohapatra
1.3 2006

Jacobs 2007 categories

technologies used in
manufacturing as
hardware systems and
1.3 software systems.

AT Kearney 2013 key

areas where
technology is used in
1.3 Supply Chain;

Kocabasoglu and
Suresh (2006) identify
four key elements of
2 strategic sourcing

Parniangtong 2016
suggests four distinct
stages of strategic
2 sourcing
2.1 STEEPLE

2.1 Porter's 5 Forces

2.1 Kraljic Matrix

2.1 RACI model

2.1 Mendelow's Matrix

2.3 Carters 10 C’s

The Hybrid
3.1 organisation model

Beamon types of
4 financial measures
Elrod et all Supply
4 metrics
Supply Chain costs -
4.1 Lambert et al
 Supply Chain Costs
4.1 Shapiro
Supply Chain costs -
Pettersson and
4.1 Segerstedt
4.1 SCOR
Categories of
4.2 stakeholders

Striteska and Spickova

4.2 Prism Performance
 Description

On KPI@s - characteristics on effective KPIs: Sparse, Drilliable, Simple, Actionable,

Owned, Referenced, Correlated, Balanced, Aligned and Validated.

KPIs in performance measurements as per Neely’s Four CPs of measurements 1998: 1.

Check position. 2. Communicate Position. 3. Confirm Priorities. 4. Compel Progress.
This is so via: 1. Supplier partnership initiatives. 2. Performance against cost reduction
targets
3. Cost reduction recommendations submitted by the supplier.

1. transcendent approach. 2. user-based approach. 3. product-based approach. 4.

manufacturing-based approach. 5. value based approach.

Hiles (1993) defined an SLA as “An agreement between the provider of a service and its
users, which quantifies the min. quality of service which meets business needs.”

1. align supplier performance goals with organisational goals. 2. Determine an evaluation

approach. 3. Develop a method to collect information about supplier. 4. Design and
develop a robust assessment system. 5. Deploy a supplier performance assessment
system. 6. Give feedback to suppliers on their performance. 7. Produce results from
measuring supplier performance. Gordon gave a further five:
a. Increase performance visibility. b. Uncover and remove hidden waste and cost drivers
in the supply chain. c. Leverage the supply base. d. Align customer and supplier business
practices. e. Mitigate risk.

Step 1 identifies critical supply chain partners

Step 2 and 3 develop supply chain strategies
Step 4 concerns the development of internal process performance measures
Step 5 & 6 are about improving internal processes and measures
Step 7 & 8 - improving external processes
Step 9 is to annually re evaluate the model to ensure changes can be made.

1. Customer relationship management (CRM). 2. Customer service management. 3.

Demand management. 4. Order fulfilment. 5. Manufacturing flow management.6.
Supplier relationship management. 7. Product development and commercialisation. 8.
Returns management.

1. Competitive pressure. 2. Evaluatinand certification systems. 3. Incentives. 4. Direct

involvement.

1. Identify critical commodities for development. 2. Identify critical suppliers for

development. 3. Form cross-functional commodity team. 4. Initiative communication with
suppliers management. 5. Provide Joint resources. 6. Develop agreements. 7. Identify
opportunities and probability for improvements. 8. Identify critical performance areas . 9.
reward and recognition. 10. Systematically institute ongoing continuous improvements.
Capability factors and Performance factors.

Hardware. 1. Numerical controlled machines. 2. Machining centres. 3.

Industrial robots. 4. Automated materials handling AMH inc. automated
guided vehicle AGV systems. Software. 1. CAD - Computer Aided
Design. 2. CAPP. - computer aided process planning. 3. CAM - Computer
Aided Manufacturing.

1. Tracking goods. 2. Transaction processing. 3. Planning support. 4. Decision support. 5.

Automation in handling and across operations.

1. Elevation of purchasing function to a strategic level. 2. Effective cross-functional

communication and support within an organisation. 3. Information sharing with key
suppliers and 4. Development of ey suppliers.

1. Expenditure category analysis - review of spending. 2. Category strategy formulation -

assessing the strategic implications of expenditure categories and procurement options.
3. Supplier strategy formulation - determining how suppliers should select and maintain
solid relationships with suppliers. 4. Fact-based negotiation - a systematic approach for
business negotiations
Social, Technology, Ethical, Environment, Political, Legal and Economic
1. Competitive rivalry, 2. buyer power, 3 Supplier power, 4. Threat of new entrant. 5.
Threat of substitution

The Kraljic Matrix can be defined as a purchasing portfolio classification method whose
main objective is to identify the strategic weight of various purchasing families, both
internally and externally, to help you adapt your purchasing strategies.
Stakeholder - who is Responsible, Accountable, Consulted and who needs to be
Informed?
Mendelow's Matrix is a tool that may be used by an organisation to
consider the attitude of their stakeholders at the start of a project or when
they are setting out strategic objectives.
Competency, Capacity, Commitment, Consistency, Cost, Cash and finance,
Communication
Control of internal process, CSR AND Culture

1. Non Profit. 2. For profit organisation. 3. Hybrid Organization.

Beamon suggested that there are three types of interrelated measures: flexibility, outputs
and resources.
Elrod et al documented that supply chain metrics seek to evaluate the supply chain as a
whole, instead of focusing on individual suppliers.

Inventory holding, physical flow, Transaction and Information

Acquisition costs, for example raw material. Inbound transportation and Facility
investment.

Manufacturing, Administration, warehouse and Distribution.

Supply Chain Operations Reference Model
Freeman Identified six stakeholder categories using this narrow definition:
Owners, Employees, Mangers, Suppliers, Customers and Local Communities

Strong points: (1) Reflects new stakeholders who are usually neglected when
forming performance measures. (2) Considers the stakeholders contribution to
performance. (3) Ensures that the performance measures have a strong
foundation. Weak points (1) Offers little about how the performance measures
are going to be implemented. (2) Some measures are not effective in practice. (3)
Short of logic among the measures, no sufficient link between the results and
rivers. (4) No consideration is given to the existing performance management
system (PMS) that companies may have in place.
 CIPS L5M4 - Advanced Contract and Financial Management - Key FORMULAS
Learning FORMULA
Outcome
1.2 ROI - Net Profit / total invested capital x 100
1.2 ROI at a departmental level - department's net operating income / average operating assets of the department
1.2 ROI at a project level - ROI = net benefits / total costs x 100
1.2 ROI = gain from the investment - cost of investment / cost of investment

2 Profitability ratios
2 Gross profit margin = gross profit divided by sales revenue x 100
2 Net profit margin = net profit divide by sales revenue x 100
2 Current Ratio = Total current assets divided by current liabilities
2 Acid test ratio / quick ratio / liquid capital ratio = total current assets minus stock (inventory) divided by current liabilities.
2 Gearing Ratio = long-term debt plus short term debt plus bank overdraft divided by shareholders equity OR
Long-term debt divided by shareholders equity.
2 ROI ratio = Net income divided by total assets
Operating cycle performance formula: Formula: Operating cycle (days) = stock days + debtor days - creditors
days.
3 Working
Also canCapital Requirement
be calculated as;(WCR) = current
Operating assets
cycle divided
(%) by liabilities
= working capital requirements divide by sales x 100
3
3 Formula - ROCE financial ratio. ROCE (%) earnings before interest and tax (EBIT) divided by capital employed x 100

4.1 Calculate the value at Risk : VaR = The probability of the event x The financial impact of risk event.
4.1 Total
Total Supply
Supply Chain
Chain VaaR
costs to= VaR Planproducts
deliver + VaR Source + VaRto
& services Make + VaR Deliver
customers Cost of +goods
VaR Return
sold = Estimated average cost for eac process X
4.1 Transaction volume
4.1 Cost
OTIF of
(Ongoods
Timesold (COGS)
In Full) = Beginning
- Formula: inventory
On time, in full +(%)
Direct procurement
= Numbers costs -OTIF
of deliveries End inventory
divide by Total number of deliveries x 100
4.1
4.1 Lead time = Number of days between customer order and delivery
4.1 Cash to Cash
Processes cycle timeet=all
- Krajewski days inventory
states that allonprocesses
hand + days
havesales outstanding
inputs minus
and outputs andDays payables
include both outstanding
external and internal customers as
4.1 well as external and internal suppliers.
4.1 Cost effective Ratio = Value of benefit received divided by ost of the benefit
4.1 Calculating for total productivity of the supply chain. Total productivity = Total output divided by Total inputs
4.1 Takt time = Production time available minus customer demand
4.1 Customer
Productiondemand formula.
time available Customer
formula. demandtime
Production = Amount of units
available required
= Total by customer
production divided
time minus Breaksby Time
minus Period. activities minus
Maintenance
4.1 shift changeover minus clean-down time
4.1 Process
Quality -Cycle
RATER Efficiency
model. =(reliability,
Value added time divided
Assurance, by LeadEmpathy
Tangibles, Time and Responsiveness)
4.1
4.1 Profitability. Profit = Revenue minus Costs
4.1 Income Statement. Gross profit = Revenue minus Cost of Sales
4.1 Operating profit - Profitability ratios
4.1 Gross profit percentage. Gross profit percentage = Gross profit divided by Turnover x 100
4.1 Net profit margin. Net profit ratio = Net profit before tax divided by Net Sales x 100
4.1 ROCE (Return On Capital Employed). Return on capital employed (ROCE) = Operating profit plus Capital employed.
4.1 Capital Employed.
Return On Capital
Investment employed
(ROI). = Total
Return on assets minus
Investment (ROI) =Current liabilities
(Current value of investment minus Cost of investment) divide by Cost of
4.1 Investment
4.1 Dividend yield formula. Dividend yield = (Dividend paid divided Share price) x 100
4.1 Sales growth percentage = (Current year net sales minus Previous year net sales) divided by Prior year net sales x 100
4.2 Formula for stakeholder influence - Stakeholder influence = Stakeholder power multiply by Stakeholder interest