Summary of CIPS L2M2 Procurement and Supply Operations

L2M2 Procurement and Supply Operations
Contents
L2M2 Procurement and Supply Operations ................................................................................ 1
1. Types of organizations and how they operate ................................................................... 3
1.1 Identify the types of business organizations.................................................................... 3
Public, private and third sector organizations ................................................................... 3
Production and service organizations................................................................................... 3
1.2 Describe how organizations operate .................................................................................. 4
People, objectives and structure in organizations ........................................................... 4
The formal and informal organization .................................................................................. 6
1.3 identify the key operating functions within organizations ........................................ 7
Differentiation and integration in organizations ................................................................... 7
Typical functions in organizations .............................................................................................. 7
Differentiating procurement and supply .................................................................................. 8
2. The components of contractual agreements ...................................................................... 9
2.1 Identify types of contracts ....................................................................................................... 9
Spot purchases ............................................................................................................................... 9
Term contracts ............................................................................................................................... 9
Alternatives to spot purchases and term contracts ...................................................... 10
2.2 Identify the kind of pricing arrangements applied in commercial contracts ... 11
2.3 Define the different documents that compose a contract for the purchase or
supply of goods or services ......................................................................................................... 12
Defining contracts and agreements .................................................................................... 12
The use of tendering and quotations .................................................................................. 13
The documents that comprise a contract ......................................................................... 14
Contracts for the supply of goods or services ................................................................. 15
3. Sources of information on suppliers and customers .................................................... 15
3.1 Explain the use of Internet to locate details about suppliers and customers .. 15
The use of Internet search engines to locate details about suppliers &
customers ...................................................................................................................................... 15
The types of information presented by suppliers and customers on their
websites ......................................................................................................................................... 15
B2B and B2C e-commerce ....................................................................................................... 16

, 3.2 Explain the use of credit rating agencies ........................................................................ 16
The role of credit rating agencies and credit rating scores ....................................... 16
The publications on individual organizations and markets ...................................... 16
The use of credit rating scores .............................................................................................. 17
3.3 Describe systems used in procurement and supply................................................... 17
Systems for purchase ordering ............................................................................................. 17
Capturing data on expenditure ............................................................................................. 18
The use of portal sites to locate suppliers or customers ............................................ 18
Examples of supplier database systems ............................................................................ 18
4. Pricing methods used for the purchasing of goods or services ................................ 19
4.1 Explain the advantages and disadvantages of a range of pricing methods . 19
Fixed pricing ................................................................................................................................. 19
Lump sum pricing ...................................................................................................................... 19
Schedule of rates ......................................................................................................................... 20
Cost-reimbursable or Cost-plus pricing arrangement ................................................. 20
Variable pricing ........................................................................................................................... 21
Target pricing .............................................................................................................................. 21
Risk and reward pricing .......................................................................................................... 22

,1. Types of organizations and how they operate
1.1 Identify the types of business organizations
Public, private and third sector organizations
Public sector: owned and run by government. Provide services to serve the people.
Hospitals, schools, military, emergency services, and municipal services.
Private sector: owned by individuals/enterprise. Aim to make profit.
Supermarkets, retailers, and manufacturers.
 Sole trader – simplest form of private business. Owned by 1 person.
o Electricians, plumbers, artists, freelancers, writers
 Partnerships – org. shared between 2 or more individuals
 Private limited companies (Ltd) – most common, liability falls on the
business & not the person who owns it. Less than 50 shareholders.
o Franchises, business consultants, IKEA, YouTube
 Public limited companies (Plc) - owned by public shareholders of stock
market. (Sky, Tesco, Facebook, McDonald’s)
Third sector organizations (TSOs): businesses not in public or private sectors.
Voluntary, community organizations, charities, non-for profit org.
Independent of government, and aim to improve the social and welfare of society
and not to make profit. (WWF, Amnesty International, Greenpeace)




Production and service organizations
Production organizations: provide physical product (tangible) books, computers
Services organizations: provide a service (intangible) insurance, electricity

,1.2 Describe how organizations operate

People, objectives and structure in organizations
Motivating people in organizations
 Maslow’s hierarchy of needs: basic needs must be met before achieving the
next level of needs.
 Herzberg’s theory: motivating people in their teams and workplace
o Motivation factors. Challenging work, recognition, involvement
o Hygiene factors. Working conditions, relationships, company policy




People in teams
 Belbin theory: good teams have different personality types in them and
with that comes different strengths and weaknesses.

,  Tuckman’s 4 stage team development
o Forming
o Storming
o Norming
o Performing
Stakeholders




 Keep satisfied: investors, shareholders interested in good ROI.
 Manage closely: government.
 Minimum effort: small customers or suppliers.
 Keep informed: environmental organizations.
Objectives in organizations
 Survival
 Growth
 Increased profit
Mission statement: short purpose statement of an organization.
Vision statement: a statement describing the future desired state of an org.
Tools for setting objectives:
 SMART (smart, measurable, achievable, relevant, time-bound)
 STEEPLE (social, technological, economic, environmental, political, legal,
ethical) – used to consider outside factors that could affect goals & objectives.

Objectives for individuals: according to Herzberg & Maslow, objectives increase
people’s motivation. SMART. Needs Buy-in from individuals.
 Hard skills: learn to use a computer, professional qualification.

,  Soft skills: team working, good communication.
Culture – something shared between and created from various factors/habits.
Objectives need to fit into the organization’s culture.
Can be affected by (stories, power, routines, structure)
Organizational structure
 Flat structure: few levels of mgmt. workers able to make more decisions.
 Tall structure: Pyramid. Everyone report to manager. More competition.
Charles Handy 4 types of organizational cultures
 Task culture: specialized teams formed to achieve targets & solve problems.
 Power culture: power given to few people at the top. Fast decision-making.
 Role culture: specific responsibilities given based on interests & skills.
 Person culture: employees believe they’re more important than the org.

The formal and informal organization
Formal organizations: structured, planned and well organized operations.
 Farms, schools, training centers, doctors’ surgeries.
 Can be public, private, or third sectors. Set up for long term.
Informal organizations: less structured, formed by like-minded people.
 Online forum, sports clubs. Created to fulfill social needs. Have fewer rules.