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 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 Proactive
• Determine use of lean & agile as appropriate
SCM e.g. pull systems, JIT.
• Plan requirements e.g. inventory control, master
Demand
scheduling, master planning, production activity
control
Management
• 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
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