SUMMARY 3 - L4M4 v2 2

Module purpose
On completion of this module, learners will be able to explain the options and associated
processes available for sourcing with external suppliers. They will also examine the legal and ethical
impact and the implications of corporate social responsibility, on the final sourcing decision.
Module aim(s)
In any organisation, a significant element of procurement and supply activity is based around
decisions to internally conduct activity or to source from an external supplier. Hence, the selection
of the correct external suppliers is a vital contributor to overall organisational success. This module
enables personnel with roles in procurement and supply to formulate selection criteria and sourcing
strategies to ensure that the organisation will make the correct choice of external suppliers. It
explains options for sourcing, and examines the key processes that can be applied to the analysis of
potential external suppliers and to ensure the development of ethically and socially responsible
sourcing agreements.
Learning outcomes, assessment criteria and indicative content
1.0 Understand options for sourcing requirements from suppliers
1.1 Identify the sourcing process in relation to procurement
• Definitions of sourcing and outsourcing
• Make or buy decisions
• Strategic and tactical sourcing costs and benefits of outsourcing
• Outsourcing non-core and core work or services
• Supplier pre-qualification or criteria for supplier appraisal
• Vendor or supplier performance management
• Risks in outsourcing
• The market development and growth of outsourcing
• Regulations affecting employees terms of employment
1.2 Differentiate between approaches to the sourcing of requirements from suppliers

• Single, dual and multiple sourcing arrangements
• The use of tendering: open, restricted and negotiated approaches to tendering
• Direct negotiations with suppliers
• Intra company trading and transfer pricing arrangement
• Implications of international sourcing
1.3 Define selection criteria that can be commonly applied when sourcing requirements from external
suppliers
• Typical selection criteria such as; quality assurance, environmental and sustainability, technical
• capabilities, systems capabilities, labour standards, financial capabilities and credit rating agencies
• The importance of supplier financial stability and due diligence checks
• Ratio analysis to make conclusions on profitability, liquidity, gearing and investment
• The limitations of ratio analysis
1.4 Define award criteria that can be commonly applied when sourcing requirements from external suppliers
•Typical award criteria such as; price, total life cycle costs, technical merit, added value solutions, systems and
resources
• Balancing commercial and technical award criteria
2.0 Understand the key processes that can be applied to the analysis of potential external suppliers
2.1 Analyse commonly used sources of information on market data that can impact on the sourcing of
requirements from external suppliers
• Compiling data on expenditures on suppliers
• Indices that measure economic data
• Secondary data on markets and suppliers
• Commodity pricing
• Analysing potential sales
• Financial reports and supplier financial stability
• The role of credit rating agencies
2.2 Identify the key processes used for obtaining quotations and tenders
• Advertising requirements
• Requests for information or quotations
• The operation of tendering
• Formalised arrangements for tendering
• Decision criteria for dispensing with tendering
2.3 Identify the criteria that can be commonly applied to the assessment of quotations or tenders
• Assessment of suppliers proposals

• The use of weighted points systems for assessment
• Recommending sources of supply
• Financial statements such as the profit and loss, balance sheet and cash flow statements
• Measures and ratios of profitability, liquidity, gearing and investment
• Added value
2.4 Analyse how electronic systems can be used to help the sourcing of requirements from external suppliers
• •E-requisitioning and purchase ordering systems
• •E-catalogues on intranets and the internet
• •The use of e-auctions and reverse auctions
• •E-tendering systems
3.0 Understand compliance issues when sourcing from suppliers

3.1 Compare the key legislative, regulatory and organisational requirements when sourcing in the not-
for-profit, private and public sectors
• The use of competitive tendering processes
• The impact of timescales on tendering processes
• Procedures for contract award
• Regulatory bodies that impact on the private sector
• Regulations that impact on product and safety standards
3.2 Compare the key legislative, regulatory and organisational requirements when sourcing from
international suppliers
• Documentation relating to imports
• Import duties and tariffs
• Payment mechanisms
• The use of INCOTERMS
• Customs control and clearance
• Currency regulations
• Applicable law
4.0 Understand ethical and responsible sourcing

4.1 Describe the impact of international ethical standards on procurement and supply
• Bribery
• Corruption
• Fraud
• Human rights
• Modern slavery
4.2 Identify practices that support ethical procurement

• Application of the CIPS Code of Conduct
• Ethical codes of practice
• Prequalification and assessment criteria
• Due diligence on suppliers and risk assessment
• Supporting information on ethical practices in supplier quotations and tenders
• Contractual clauses
• Supplier monitoring
• KPIs
4.3 Compare the use of audits and other feedback mechanisms to evaluate ethical standards in the workplace
• •Monitor supplier performance
• •Encourage dialogue with suppliers on improvements to process
• •Recommend remedial actions where appropriate
• •Identify and address potential conflicts of interest
4.4 Contrast processes and practices that the organisation could adopt to meet the requirements of Corporate
Social Responsibility (CSR)
• The triple bottom line – profit, people and planet
• Adopt sustainable practices, standards and specifications in the supply chain
• Consider the social impact of the organisation’s behaviours
• Design procurement processes to deliver social outcomes as well as, or as an alternative to, normal
economic measures of value
• Expand reporting frameworks to include ecological and social performance
• Define organisational value for money to include social outcomes - use of local labour, participation of
disadvantaged groups
Contents
1.0 Understand options for sourcing requirements from suppliers ....................................................... 6
1.1 Identify the sourcing process in relation to procurement ............................................................ 6
• Supplier pre-qualification or criteria for supplier appraisal ........................................................ 11
• Vendor or supplier performance management ........................................................................... 11
• Single, dual and multiple sourcing arrangements ........................................................................ 15
• Direct negotiations with suppliers ................................................................................................. 20
• Intra company trading and transfer pricing arrangement ............................................................. 21
• Implications of international sourcing see local sourcing ............................................................ 21
1.3 Define selection criteria that can be commonly applied when sourcing requirements from
external suppliers .............................................................................................................................. 22
1.4 Define award criteria that can be commonly applied when sourcing requirements from
2.0 Understand the key processes that can be applied to the analysis of potential external suppliers
.............................................................................................................................................................. 30
2.1 Analyse commonly used sources of information on market data that can impact on the
sourcing of requirements from external suppliers ........................................................................... 30
2.2 Identify the key processes used for obtaining quotations and tenders ..................................... 36
2.3 Identify the criteria that can be commonly applied to the assessment of quotations or tenders
.......................................................................................................................................................... 39
2.4 Analyse how electronic systems can be used to help the sourcing of requirements from
3.0 Understand compliance issues when sourcing from suppliers....................................................... 46
3.1 Compare the key legislative, regulatory and organisational requirements when sourcing in the
not- for-profit, private and public sectors ........................................................................................ 46
3.2 Compare the key legislative, regulatory and organisational requirements when sourcing from
international suppliers ...................................................................................................................... 54
4.0 Understand ethical and responsible sourcing ................................................................................ 60
4.4Contrast processes and practices that the organisation could adopt to meet the requirements
of Corporate Social Responsibility (CSR) ........................................................................................... 69
Learning outcomes, assessment criteria and indicative content
1.0 Understand options for sourcing requirements from suppliers
1.1 Identify the sourcing process in relation to procurement

• Outsourcing non-core and core work or services
• Regulations affecting employees terms of employment
What is sourcing?
Sourcing is a critical activity used at both tactical and strategic levels. It is concerned with
what needs to be purchased, why, when and where. The concept is created to help supply
chain managers and practitioners to improve, develop and implement strategic sourcing
strategies.
“This is the process of identifying, selection and development of suppliers”. Lysons &
Farrington 2010
“location ,acquisition and management of all the vital inputs required for an organisation to
operate. This includes raw materials, component parts, products, labour in all its forms,
location and services" (Hinkelman, 2008:578).CIPS knowledge brief
Outsourcing
Outsourcing is "the process of contracting with the most suitable expert third party service
provider" (CIPS: Outsourcing).
It is the operational transfer of one or more business processes from an origin company to an
external provider who then becomes accountable for the outcome of the agreed tasks (Cooke
& Budhwar, 2009).
“The strategic contracting

out of major work
previously carried out in
house to an external
service provider”
Outsourcing to a foreign
country (usually low cost) is
called 'offshoring' (here the
provider can be external or
affiliated to the firm) and
to nearby countries is
known as 'nearshoring'. Transfers to an external, international provider are referred to as
'offshore outsourcing' (Olsen, 2006).CIPS PoP 2012
Organisations sometimes confuse outsourcing and offshoring. Outsourcing always requires
the involvement of a third party whereas offshoring does not necessarily. Moreover,
offshoring always involves a foreign location, whereas outsourcing can be done in the
home country of operation -CIPS knowledge –Outsourcing

Make or buy analysis -
FACTORS SUPPORTING MAKING/DOING FACTORS SUPPORTING BUYING IN
Opportunity to extract value from Quantities required are too small for
otherwise idle capacity and resources economic production
Potential for lead time reduction Avoid costs of specialist machinery and
Cost of work is known in advance labour
Desire to exert direct control over Reduced inventory costs
production and/or quality Financial risk shared with supply chain
Protection of confidentiality and Access to contractor’s specialist
intellectual property research, expertise, technology,
Less supply risk and supplier risk patents, designs and so on
Desire to maintain a stable workforce Augmented production capacity
Desire to maintain a stable workforce
Factors in make Buy

• Whether the item required by the organisation is strategically important or 'core' to the
business.
• The relative cost of making the product in-house, compared to the cost of buying it in.
• The potential differences in quality or timescales.
• The availability of in-house competencies and production capacity and how easily they can
be acquired or expanded and whether they will be available in the future.
• The availability of external suppliers, who are able to fulfil the organisation's needs.
• The assessed risks of sub-contracting work to the external supply chain, in terms of loss of
control, loss of in-house knowledge and skills and the risk of passing on confidential
information and intellectual property.
• Human resource impacts, in terms of a decision to buy in leading to redundancies or a
decision to make/do resulting in additional recruitment and possible training costs.
• Opportunity cost issues, such as using in-house production capacity to make the items
needed, when such capacity might be used to make potentially more profitable items.
• Potential CSR issues of outsourcing to suppliers with poor labour records.
Strategic sourcing
Strategic sourcing is concerned with top-level, longer-term decisions relating to high
profit/high supply risk strategic items and low profit/high supply risk bottleneck items. It is
also concerned with the formulation of long-term purchasing policies relating to core
competences, strategic make-or-buy decisions, thin supplier base, partnership sourcing,
reciprocal and infra-company trading, globalisation and counter trade, the purchase of
capital equipment and ethical issues.
‘The process of creating a value adding (or optional mix) of supply relationships to provide
a competitive advantage’.
CIPS definition:
‘satisfying business needs from markets via the proactive and planned analysis of supply
markets and the selection of suppliers with the objective of delivering solutions to meet pre-
determined and agreed business needs’.
Tactical and operational sourcing

Tactical and operational sourcing is concerned with lower level decisions relating to high
profit/low risk non-critical items. It is also concerned with short-term adaptive decisions as
to how and from where specific supplier requirements are to be met. Thus, suggestions may
be made to top management regarding temporary tactical deviations from strategic
decisions. Although strategically it may have been decided to buy rather than to make a
certain component, this decision may be tactically reversed in conditions of manufacturing
for stock work or supplier failure.
Sourcing information can be considered under three headings:
•sourcing information
•sourcing strategies and tactics
•sourcing decisions
Costs of Outsourcing
Cost Explanation
Planning and sourcing Preparing & analysing business case
Identifying potential supplier
Supplier selection
Negotiation & contracting
Contractual price Actual costs/sums payed- although could be a
saving on in house
Failure costs Costs if supplier fails to perform- loss of goodwill,
sales, rework and compensation
Performance Costs Changes to systems and processes( eg integration
&performance monitoring)
Transitional and learning curve issues
Communication costs
Contract performance and relationship
management costs
Hidden costs Cost of procurement staff helping you implement
Costs from vagueness or ambiguity in specification
Costs of over specifying
Opportunity cost of lost skills experience and
knowledge
Others?
Benefits of outsourcing
Some advantages offered by outsourcing cited in the literature (Chalos, 1995), and
(McCarthy, 1996) are:
• Higher level of flexibility, with less restriction from the rules existing in the company.
• Increased responsiveness to customers’ needs. Customer feedback can be transferred to
suppliers with no need to go through company policy and bureaucracy.
• Providing special services to the customers through outsourcing without the need to hire
special skill workers.
• Liability and risk reduction. Outsourcing can reduce many sources of risk and potential
liability faced by manufacturers like: safety, EEO, ADA, workers' compensation, etc.
• Reduction of capital investment and labour requirements.
• Lower capital risk.
• Access to the innovations and developments of more specialized suppliers.
• Reduction of cost because of the supplier’s economies of scale on raw material, labour,
and overhead.
• greater focus of resources on high value-added activities and core business.
CIPS
• Supports organisational rationalisation and downsizing
• Allows focused investment of managerial, staff and other resources on the
organisation’s core activities and competencies
• Accesses and leverages the specialist expertise, technology and resources of contractors
• Access to economies of scale
• Adds competitive performance incentives
• Leverages collaborative supply relationships, and can support synergies (2 + 2 = 5)
• Cost certainty for activities where demand and costs are uncertain or fluctuating
• Outsourcing non- core and core work or services
Managed services is increasing used instead of outsourcing to refer to the practice of

delegating a task to an outside supplier rather than performing in house. In the construction
industry it is common for a single main contractor to be appointed and who identify,
commission and manage subcontractors.
THE IMPORTANCE OF STRATEGIC OUTSOURCING

The value chain in manufacturing companies includes the following activities: research &
development, product design, process design, production, marketing, and distribution. The
proper use of outsourcing can reduce costs, improve returns, and help a company focus on
its core competencies.
Core Competency Check

Prahalad and Hamel coined the term “core competencies” in their article The Core
Competence of the Corporation. The term “core’ means key, critical, or fundamental.
“competence” is the capability, skill, or ability. Core competencies tend to be a central set of
corporate skills involving activities that are based on knowledge and experience rather than
assets. Core competencies distinguish a company from its competitors. They are activities
that offer long-term competitive advantage and must be invested in, controlled, and
protected. Thus, for a firm to keep its competitive advantage, the core activity(ies) should be
kept in-house. As a result, the first step in this outsourcing model is to determine if the
activity in question is a core competency of the firm.
The core competency check asks a series of questions that are essential to defining a core
competency:
• Does activity need highly specialized design and manufacturing skills?
• Does activity have a high impact on what customers perceive as the most important
product attributes?
• Does activity provide potential access to a wide variety of possible future markets?
• Is activity difficult for competitors to imitate?
‘Core competences are the skills and abilities by which resources are deployed through
an organisation’s activities and processes such as to achieve competitive advantage in
ways that others cannot imitate or obtain.’ Johnson & Scholes
“The set of competencies that differentiate one organization from another”-
Outsourcing matrix- VERY VERY important
A company may find it beneficial to outsource work that:
•Requires specialist expertise - this can be cheaper to outsource than to recruit into the
company or to train within the company. For example, it may be cheaper for a car
manufacturer to outsource the making of car windows than produce them in company.
•Requires major investment - outsourcing work like this can reduce the amount of
investment needed. For example, work which requires modernisation in order to be
effective could be outsourced to a third party that already has the capability to do the work.
•Requires less strategic control – companies which decide to focus more on their core
activities in order to improve performance can outsource work which they do not consider
critical. For example, a procurement department in a large company may need to
concentrate on core negotiation and vendor selection rather than less significant issues such
as delivery of materials in a timely fashion. Outsourcing more minor areas would provide the
necessary time.
•Is deemed non-critical – some work that takes place in companies, while important, will
have little impact on the customer if there is a short-term failing and are not strategically
important e.g. many companies outsource their office cleaning. These can be outsourced in
order to reduce costs and free up management time.
Additional Reasons
• Activities where value for money is offered by outsourcing in relation to services
offered.
• Activities which are resource intensive
• Are relatively discrete
• Depend upon specialist competences
• Fluctuating demand and work patterns
Factors to Consider When Outsourcing

• Whether the component is strategically important to the business;
• How the costs of producing in-house stack up against buying from a supplier;
• the availability of competencies in-house and in the outside marketplace;
• the available capacity in-house and in the outside marketplace;
• the risks involved in devolving production activities to the external supply chain, such
as risks to confidential information and to intellectual property;
• and the effects on the workforce, such as the possibility of redundancies.
Pre-qualification describes the evaluation of potential bidders, before tenders are invited,
against a list of criteria to ensure that only bidders which meet defined standards are eligible
to bid, which can reduce the cycle time of the procurement process.
The selection stage, often known as the "pre-qualification stage", involves an examination of
the suitability and capability of the potential suppliers to perform the contract that will be
awarded at the end of the competition. The criteria used for selection must be appropriate,
relevant and proportionate to the particular procurement. The selection process should be a
"backward-looking, not forward-looking" process. That is, the criteria for selection must
concentrate on the general suitability and capability of the supplier for the project, as
opposed to the specific means by which the supplier would perform the contract.
Benefits of pre-qualifying suppliers:
•pre-qualification is a part of pre-contract supplier appraisal

•it enables purchasers to identify the most suitable suppliers to invite to tender for
contracts
•the main purpose of the pre-qualification questionnaire (PQQ) is to reduce the number of
suppliers to invite to tender to a manageable amount.
See also page 21 “Typical selection criteria such as; quality assurance, environmental and
sustainability, technical”l

Appraisal – the assessment of potential suppliers, prior to contract award
Vendor rating – the assessment of a supplier’s performance in fulfilling a contract after its
award
Supplier development – the activities carried out both before and after contract award; aim
to assist a supplier in providing a service/product we need
Supplier management – benefits
• The company incurs lower costs by developing a small core group of trusted
suppliers
• Quality and other problems can be ironed out progressively
• Goodwill developed with positive relationships may earn preferential treatment or
flexibility from suppliers in the event of emergencies
• Suppliers may be more motivated to give their best performance – and to add value
through innovation, flexibility, commitment to continuous improvement and so on
• Motivated suppliers may be willing to co-invest
• There is less risk of supplier failure or poor performance
Supplier performance evaluation
• Help identify the highest-quality and best-performing suppliers
• Suggest how relationships with suppliers can (or need to be) enhanced to improve
their performance
• Help ensure that suppliers live up to what was promised in their contracts
• Provide suppliers with an incentive to maintain and/or continuously improve
performance levels
• Significantly improve supplier performance
KPIs for supplier performance

SUCCESS FACTORS SAMPLE KPIS
Price Basic purchase price (and/or price compared with other suppliers)
Whole lifecycle cost of ownership (and/or comparison with other
suppliers)
Value and percentage cost reductions (and/or number of cost
reduction initiatives proposed or implemented)
Quality/compliance Reject, error or wastage rates (or service failures)
Number of customer complaints
Adherence to quality standards (eg ISO 9000) and/or environmental
and CSR standards and policies
Delivery Frequency of late, incorrect or incomplete delivery
Percentage of on time in full – OTIF – deliveries
Service/relationship Competence, congeniality and co-operation of account managers

Promptness in dealing with enquiries and problems
Adherence to agreements on after-sales service
Financial stability Ability to meet financial commitments and claims

Ability to maintain quality and delivery
Innovation capability Number of innovations proposed or implemented (and/or

investment in research & development)
Willingness to collaborate in cross-organisational innovation teams
Technology leverage/ Proportion of transactions carried out electronically
compatibility Number of technology breakdowns
Overall performance Benchmarking against other suppliers

Commitment to continuous improvement (eg number of suggestions
proposed or implemented)
Disadvantages/Problems
Loss of control and/or loss of in-house expertise; employee relations issues, such as TUPE;
difficulties in ensuring and measuring service quality; and the ‘permanence’ of the
outsourcing decision.
• Potentially higher cost of services (including contractor profit margin), contracting

and management
• Difficulty of ensuring service quality and consistency and corporate social
responsibility
• Potential loss of in-house expertise, knowledge, contacts or technologies in the
service area
• Potential loss of control over key areas of performance and risk: over-dependence
on suppliers
• Added distance from the customer or end-user, by having an intermediary service
provider
• Risks of ‘lock in’ to an incompatible or under-performing relationship: cultural or
ethical incompatibility; relationship management difficulties; contractor inflexibility,
conflict of interest, complacency or loss of client focus
• Risks of loss of control over confidential data and intellectual property
• Ethical and employee relations issues of transfer or cessation of activities
• Potential risks, costs and difficulties of in-sourcing if the outsource arrangement fails
Some of the risks associated with outsourcing cited in literature (Friedman,1991), and
(Raistrick, 1993) are:
• Lack of control on the quality of the product/service provided by the suppliers.
• Inability to meet fluctuations in demand for the product/service that has been
outsourced.
• Loss of control over suppliers. Possibility of suppliers becoming a competitor for
the firm themselves or assisting the firm’s competitors.
• Negative effect on employees' morale.
• Loss of critical skills or developing the wrong skills.
• Loss of cross-functional skills.
Making a success of outsourcing (Zenz)
Why does it go wrong?

• The organisation fails to distinguish correctly between core and non-core
activities
• The organisation fails to identify and select a suitable supplier
• The organisation has unrealistic expectations of the outsource provider
• The outsourcing contract contains inadequate or inappropriate terms and
conditions
• The contract does not contain well defined key performance indicators or
service levels
• The organisation lacks management skills to control supplier performance and
relationships
• The organisation gradually surrenders control of performance to the contractor
Key drivers.
1. Cost savings can be the main driver of an outsourcing project. But each outsourcing initiative
within any one company – has a mix of other drivers, prioritised differently in each case.
2. Beyond cost savings, a second major theme is access to capabilities – whether human
talent, process excellence, or sheer physical resources.
3. A third major theme is strategic benefit – freeing up one’s own resources, improving
flexibility, gaining access to capital, access to new markets, or changing the rules of
competition in an industry
Drivers of Outsourcing - CIPS

• Quality drivers
• Cost drivers
• Business focus drivers
• Financial drivers- free up capital
• Relationship drivers- min conflict & divergence of interest by clarifying responsibility for
shared services.
• Human resource drivers- the need to acquire skills or expertise-quicker than in house
recruitment or development
Deloitte 2008 Strategic Outsourcing for success
• Regulations affecting employees’ terms of employment
Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

TUPE applies when there is a "relevant transfer" from one employer to another. This can
include a business sale or a merger, and this can be in the public or the private sector.
What do you need to do to comply with TUPE?

(1) Outgoing employer must inform and consult with staff
(2) Outgoing employer must provide employee liability information to incoming employer
• Employers involved in a business transfer must inform appropriate representatives of the

affected employees of the transfer and any measures proposed, and must consult on any
proposed measures.
• The new employers must take over the contracts of employment of all employees
• They cannot dismiss employees because of the transfer unless there is a sound economic,
technical or organisational (ETO) reason entailing changes in the workforce
• If a dismissal on ETO grounds takes place immediately before the transfer, any liability
remains with the transferor
• The new employers take over and are bound to honour all rights and obligations arising from
the employment contracts, except some provisions for old age and invalidity, and the pre-
existing debts to employees of an insolvent transferor
The Trades Union and Labour Relations (Consolidation) Act 1992 (TULCRA) places a duty upon
the employer to consult with representatives of employees to be affected by redundancy.
Employment Rights Act 1996
The ERA set out the rights of employees in situations such as dismissal, unfair dismissal, parental
leave, and redundancy.
1.2 Differentiate between approaches to the sourcing of requirements from suppliers

• Implications of international sourcing
Single sourcing decisions are usually made at strategic and top management level where
purchasing and supply managers need to determine whether and how much value single
source relationships add (Leenders et al., 2002).
Single sourcing may be considered appropriate where:

• The total requirement is too small to justify splitting orders among several suppliers
• One supplier is so far ahead of others in terms of reputation, quality, price etc that it
would make no sense to use anyone else
• Expensive set-up costs (eg tooling or systems integration) are required to enable supply
• The requirement is subject to supply risk, or in short supply
Outline the FIVE risks … having a narrow supply base
• Over-dependence on a few suppliers, in the event of supplier failure (eg
financial collapse or reputational damage)
• Supply disruption (eg due to strikes, technology breakdown or natural
disaster affecting the supply or its suppliers)
• The loss of preferred suppliers' goodwill and co-operation
• Preferred suppliers growing complacent (because of the stability of the
relationship and the buyers comparative dependence), and ceasing to offer
competitive value
• Being 'locked in' to long-term relationship and co-investment with suppliers
who turn out to be performing or incompatible with the culture, ethics or
objectives of the buying organisation
• Missing out on seeking or utilising new or more competitive suppliers in the
wider supply mark
Advantages of Multiple
•One advantage of multiple sourcing is that if there are supply shortages or
disruptions
•Another advantage of multi-sourcing is that as circumstances change - for both
buyer and supplier -suppliers may become more or less compatible with the
buying organisation, and more or less competitive in terms of their offering.
Increasing the range of pre-qualified potential suppliers enables the buyer to be
more opportunistic: taking advantage of the best available price, trading terms,
quality, innovation and flexibility on offer at any given time.
•Such a policy is also likely to keep the supplier base competitive, as each
supplier knows that it is competing for contracts with a number of other sources
of supply.
Disadvantages
•They can lead to unnecessarily high procurement costs. A large supplier base
usually means more small orders and higher transaction and administration
costs: giving larger orders to fewer suppliers, on the other hand, would secure
volume discounts and other savings (eg through systems integration with key
suppliers)
•They fail to exploit the value-adding and competitive potential of concentrating
on more collaborative relationships with fewer suppliers (eg continuous
improvement over time, co-investment in innovation and quality, better
communication and integration and so on)
•They can lead to waste, by retaining suppliers who cannot (or can no longer)
meet the firm's requirements, or are otherwise not often used - and perhaps by
increasing stock variety and proliferation, where different suppliers have slightly
different products (so that ordering from multiple suppliers works against
standardisation, variety reduction and inventory reduction)
Dual or Multiple sourcing may be appropriate:
• To protect the buying firm during times of shortages, strikes, and other
emergencies.
• To maintain competition and provide a back-up source. To meet local content
requirements for international manufacturing locations. To meet customer's
volume requirements.
• To avoid lethargy or complacency on the part of a single-source supplier.
When the customer is a small player in the market for a specific item.
When the technology path is uncertain. In areas where suppliers tend to
leapfrog each other technologically.
Partnership Sourcing- Defined by Partnership Sourcing Ltd (PSL):
A commitment to both customers and suppliers, regardless of size, to a long term

relationship based on clear, mutually agreed objectives to strive for world class capabilities
Key drivers for establishing partnerships identified by CIPS include:
• Drive for lower acquisition costs

• Reduced supplier base
• Shorter product life cycles
• Concentration on core business
• Pressures towards lean supply
Key characteristics of partnership sourcing

• Cultural compatibility between the partners
• A high level of trust, knowledge sharing and openness
• Mutual acceptance of the concept of win-win within the supply chain
• Relevant expertise, resources or competencies in complementary areas
• Clear joint objectives and meaningful performance measures
• The use of cross-functional teams to enhance co-ordination, process focus and
continuous improvement
• A total quality management philosophy
• A high degree of systems integration
Beneficial where:
• Where customer has a high spend with the supplier
• Where the customer faces high risk
• Where the product supplied is technically complex
• Where the product supplied is vital to the buyer’s organisation and is technically
complex (high hassle)
• For the supply of a new product or service where a new supplier may be
required
• Where the supply market for the product is fast changing
• In a restricted supply market (few competent and reliable suppliers
Problems
• How to terminate a partnership
• Domination by the customer or over-dependence by the supplier
• Confidentiality – where partners are also suppliers to
competitors
• Complacency – losing sight of market trends/developments
• Attitudes – people will need retraining to adjust
• Contractual – where forecasts may have to be modified due to falling sales or
recession
Advantages
In the public sector they call this contract award procedures.

1.The open procedure-This is where all interested suppliers are asked to return tenders by a
set date. These are then evaluated and the contract is awarded. This procedure is often used
by local councils.
The practicality of the Open Procedure will depend upon the number of tenders received
and the nature of the evaluation criteria. If the Organisation receives a large number of
tenders, the evaluation of them is likely to be time consuming.
2.The restricted procedure-This is a 2-stage process. In the first stage, interested suppliers
are asked to fill out a questionnaire and a short-list is drawn up. In the second stage, the
shortlisted suppliers are invited to respond to an Invitation to Tender (ITT). The tenders are
then evaluated and the contract awarded.
The Restricted Procedure should be used for procurements where market analysis has
shown a large number of bidders are likely to be interested in participating. In this case it is
beneficial to use this procedure where the number of bidders can be reduced at the
selection stage based on their capacity, capability and experience to perform the contract.
3.The competitive dialogue procedure-This procedure is used for more complex

procurements. This procedure is often used for complex contracts such as large
infrastructure projects where the public authority cannot define the technical specifications
at the start.
After the publication of the contract notice, interested businesses have 37 days to request
participation. The public authority must invite at least 3 candidates to a dialogue in which
the final technical, legal and economic aspects are defined. After this dialogue candidates
submit their final tenders
Competitive Dialogue may be highly beneficial for organisations in circumstances where
greater flexibility is needed, e.g .for highly complex and risky projects where bidders will
have a major role in defining the solution or where Open or Restricted Procedure may not
deliver the expected outcomes. Competitive Dialogue allows organisations to negotiate
proposed solutions with bidders, and this may help to open up cross-border markets by
encouraging bidders to discuss possible solutions.
The Organisation must allow any bidders to submit a request to participate in response to a
contract notice within the time limit set.
4. Negotiated procedure
In a negotiated procedure the public authority invites at least 3 businesses with whom it will
negotiate the terms of the contract.
Most contracting authorities can use this procedure only in a limited number of cases, for
example for supplies intended exclusively for research or testing purposes. The contracting
authorities in sectors such as water, energy, transport or postal services may use it as a
standard procedure.
The time limit to receive requests to participate is 37 days from the publication of the
contract notice. This can be reduced to 15 days in extremely urgent cases, or 10 days if the
notice is sent electronically.
Under certain conditions this procedure can be chosen even without publication of a
contract notice, for example:
• where no tenders were submitted in an open or restricted procedure

• in extremely urgent cases
• in cases where, for technical reasons, the contract can be carried out only by a single
business
Benefits of competitive tendering as :
• value optimisation/maximisation arising from comparing alternative sources;
the buyer’s leverage due to supplier competition;
• risk mitigation due to the robust supplier prequalification/selection processes;
• predetermination of negotiation strategy, contract terms & conditions;
• requirements for vendor vetting to identify the best out of the alternative
suppliers; objectivity and fairness;
• acquisition of knowledge on the wider supply market conditions.
Advantages of the Open procedure Disadvantages of the Open procedure
• Increased competition due to the • Resource implications of a potentially

potentially high volume of responses lengthy tender evaluation (due to a high
• Organisations of all sizes have the volume of responses)
opportunity to submit a tender, increasing • Increases the risk of challenge (more
the responses and time
• opportunity for a number of innovative invested/transaction costs
proposals/solutions • in preparing a tender as opposed to a
• Advantageous for simple and Selection Questionnaire)
straightforward requirements (e.g. • Poor quality bids (due to the fact there
stationery) is an increased chance of being
• Providing full tender documentation (at unsuccessful and a limited timescale)
the outset) enables candidates to make an • No opportunity to discuss / refine bids
• informed decision as to whether they can
satisfy the requirements, or choose to
• discount themselves from the competition
• Overall timescale reduced (no pre-
qualification stage)
Advantages of the Restricted procedure Disadvantages of the Restricted procedure
• Restricts the number of organisations • Speculative SQ’s being submitted due to

invited to tender (making the tender the fact that the full tender
evaluation more manageable) documentation may be unavailable at
• Enables a detailed Selection assessment the Selection stage
(i.e. Stage one of the procedure) • Increased timescales
• Helps improve the quality of bids (due to • Added resource cost and potentially
the fact there is an increased chance of a unnecessary burden for suppliers
bidder being successful and the (making the contract opportunity
contracting authority has selected their appear unattractive to some)
shortlist of “pre-qualified” suppliers) • No opportunity to discuss / refine bids
Advantages of the Competitive Dialogue Disadvantages of the Competitive
procedure Dialogue procedure
• Restricts the number of organisations • Increased timescales
invited to tender (making the tender • Added resource cost and potentially
evaluation more manageable) high burden for both suppliers
• Allows for more market innovation (making the contract opportunity
• Enables a best fit solution to be developed appear unattractive to some) and
through detailed dialogue Council
• Use of process has to be justified
Disadvantages of the Competitive

Advantages of the Competitive Procedure with Procedure
Negotiation
• Can cut straight to award if negotiation is • Can’t negotiate detailed final terms
not required following initial bids with winning bidder once selected
FIVE CRITERIA FOR THE USE OF COMPETITIVE BIDDING
1. The value of the procurement should be high enough to justify the expense of the
process
2. The specifications must be clear and the potential suppliers must have a clear idea
of the costs involved in fulfilling the contract
3. There must be an adequate number of potential suppliers in the market
4. The potential suppliers must be both technically qualified and keen to win the
business
5. There must be sufficient time available for the procedure to be carried out
FOUR SITUATIONS IN WHICH COMPETITIVE BIDDING SHOULD NOT BE USED

1. It is impossible to estimate production costs accurately
2. Price is not the only or most important criterion in the award of the contract
3. Changes to specification are likely as the contract progresses
4. Special tooling or set-up costs are major factors in the requirement
Direct negotiation with suppliers

• To obtain a fair and reasonable (or advantageous) price for the quantity and quality
of goods specified
• To get the supplier to perform the contract on time
• To exert some control over the manner in which the contract is performed
• To persuade the supplier to give maximum co-operation to the buyer’s company
• To develratio
• op a sound and continuing relationship with competent suppliers
Intra-company trading applies to large enterprises and conglomerates where the possibility arises of
buying certain materials from a member of the group. This policy may be justified on the grounds that it
ensures the utilisation and profitability of the supplying undertaking and the profitability of the group as
whole. It may also be resorted to in times of recession to help supplying subsidiaries cover their fixed
costs.
Policy statements should give general and specific guidance to the procurement function regarding the
basis on which intra-company trading should be conducted. General guidance may be expressed in a
policy statement such as the following:
Company policy is to support internal suppliers to the fullest extent and to develop product and service
quality to the same high standards as those available in the external market.
Specific guidance may direct buyers to:
• purchase specified items exclusively from group members regardless of price
• obtain quotations from group members that are evaluated against those from external suppliers
with the order being placed with the most competitive source, whether internal or external.
Difficulties can arise where Intra-company trading involves import or export considerations.
Transfer prices are almost inevitably needed whenever a business is divided into more than one
department or division. Usually, goods or services will flow between the divisions and each will report its
performance separately. The accounting system will usually record goods or services leaving one
department and entering the next, and some monetary value must be used to record this. That monetary
value is the transfer price. The transfer price negotiated between the divisions, or imposed by head office,
can have a profound, but perhaps arbitrary, effect on the reported performance and subsequent decisions
made.
PRACTICAL APPROACHES TO TRANSFER PRICE FIXING
In order to address these concerns, some common practical approaches to transfer price fixing exist:
1 Variable cost- A transfer price set equal to the variable cost of the transferring division produces very
good economic decisions.
2 Full cost/full cost plus/variable cost plus/market price
• Implications of international sourcing see local sourcing
BENEFITS OF INTERNATIONAL SOURCING DRAWBACKS OF INTERNATIONAL SOURCING
• Availability of required materials and/or • Exchange rate risk, currency management

skills: increased supply capacity and issues etc
competitiveness • High sourcing and transaction costs (risk
• Competitive price and cost savings (scale management, tariff and non-tariff barriers)
economies, low labour costs) • Cost savings and lower standards may
• Less onerous constraints and costs re create sustainability, compliance and
environmental and labour compliance reputational risk
• Leverages ICT systems (eg for virtual • Different legal frameworks, time zones,
organisation, e-sourcing) standards, language and culture
• International trade (arguably) promotes • Additional risks: political, transport (lead
development, prosperity, international times, exposure), payment, supplier
relations etc standards monitoring
• Public sector: compulsory to advertise • Environmental impacts of
contracts within the EU transport/haulage (especially by air
freight)
1.3 Define selection criteria that can be commonly applied when sourcing
capabilities, systems capabilities, labour standards, financial capabilities and credit rating
agencies
•The importance of supplier financial stability and due diligence checks
capabilities, systems capabilities, labour standards, financial capabilities and credit rating
agencies
The distinction between selection and award criteria is crucially important. Selection criteria
are focussed on "the bidder" and award criteria is focussed on "the bid" and purchasers
must maintain a clear distinction between both throughout the procurement process. This
means that issues/questions which are appropriate to the selection criteria must be
addressed at the selection stage and cannot form part of the award stage (even if they were
omitted from the selection stage in error) and vice versa.
The selection stage, often known as the "pre-qualification stage", involves an examination of
the suitability and capability of the potential suppliers to perform the contract that will be
awarded at the end of the competition. The criteria used for selection must be appropriate,
relevant and proportionate to the particular procurement. The selection process should be a
"backward-looking, not forward-looking" process. That is, the criteria for selection must
concentrate on the general suitability and capability of the supplier for the project, as
opposed to the specific means by which the supplier would perform the contract.
Criteria used for supplier selection:

• Focus on whether or not prospective suppliers are suitable, acceptable and capable
of fulfilling requirements
• Are primarily evaluative: how suitable, acceptable and capable is each supplier - and is it
suitable, acceptable and capable enough for the buyer's needs?
• May focus beyond any particular or immediate requirement, to the ongoing future
supply needs of the organisation.
Reasons for disqualification

• The personal situation of the supplier
• Financial capacity
• Technical capacity
• Professional qualifications
Typical criteria for supplier selection or pre-qualification. Remember that these are only generic
examples. Organisations will formulate specific criteria to suit:
•Their own strategic priorities (eg for innovation, corporate social responsibility, quality
leadership or supply chain integration)
•Particular process requirements (eg for reverse logistics capability, late customisation
and agile supply, lean or cost-efficient supply, or IT systems compatibility)
•Any identified risk factors in the sourcing situation (eg international delivery problems,
very low quality and engineering tolerances, high regulatory intervention or reputational
risk arising from ethics-aware consumers)
•Different types of procurement (eg prioritising price, or quality, or speed of delivery,
according to the nature of business need)
•Different supply relationships (eg more rigorous criteria on issues such as financial
stability,
•Compatibility and corporate social responsibility for ongoing, long-term supplier
partnerships than for one-off, short-term price-driven transactions).
If you are asked to recommend and/or justify selection criteria for a sourcing
requirement in an exam case study, remember to take such variables into account - as
far as possible from the data given.
Eight perspectives for supplier selection- Although in 2012 book has bas been
Lysons Farrington increased to 10 facets!
1. Finance 1.Finance
2. Production capacity and facilitie 2.Insurance
3. Human resources 3.Productive capacity
4. Quality 4.Quality
5. Performance 5.Health and safety
6. Environmental and ethical 6.Environmental management
considerations 7.Existing contracts
7. IT development and leverage
8.Organisational structure and key personnel
8. Organisation structure
9.Sub-contracting
10.Procurement capability and supply chain
management
•The importance of supplier financial stability and due diligence checks
Why Financially Appraise?

• They want to deal with suppliers who are financially stable: whose financial position
is healthy. A supplier in financial difficulties cannot be counted on to fulfil a major
supply contract - let alone maintain a continuous, secure stream of supply within a
long-term supply partnership.
• Buyers should seek to obtain prices which are fair to their own organisations and
also fair to their suppliers.
Public Sector Guidance

The objectives of undertaking supplier financial assessment as part of a procurement
exercise are to :
• Assess the risk to public sector business and/or public money which would result if a
potential provider bidding for a contract were to go out of business during the life
of the contract, or have inadequate financial resources to perform the
contract; and
• When justified, eliminate from a procurement any potential provider whose current
financial capacity would pose an unacceptable risk to business and/or public
money
The importance of financial stability should be fairly clear. Dobler and Burt cite three
nightmare scenario that can arise if dealing with a financially weak supplier.
• You need to insist on maintaining quality, but the supplier is forced to cut
costs.
• You have a financial claim against the supplier, but it does not have
sufficient working capital to meet it.
• You need to insist on speedy delivery to meet a promised delivery date, but
the supplier cannot afford to pay overtime.
Ratio analysis can provide a more detailed analysis of a key suppliers financial performance
and the potential impact on future relationship development There are many ratios which
can be analysed.
Ratios tend to fall into fiver categories: profitability, liquidity, efficiency , gearingand
investment.
Each of these categories deals with issues such as the following:
Profitability: the quality of an organisation’s profitability, i.e. size and validity of income
Liquidity: indicate the firm's ability to meet its maturing short-term obligations
Activity/efficiency ratios indicates how effectively the firm manages resources at its disposal
to generate sales- stock turnover, debtors collection ratio, creditors payment period, fixed
asset turnover.
Investment: investors’ rate of return, proportions of share capital, earnings per share
Gearing- This relates to an organisation’s ability to meet its long-term debts
Profit measures the difference between income and expenditure. It is an absolute measure.
Profitability takes the profit and compares it to the size of the firm. It is a comparative
measure and helps us to compare firms of different size.
Thus profitability ratios divide the profit by something that will tell us how big the firm is. In
this way, a company that makes twice as much profit because it is double the size of another
firm will end up with the same ratio.
Two ways of measuring the size of a firm are:
• its capital employed
• its sales revenue
The capital employed in a business is the loan capital plus shareholders' funds. Operating
profit and net profit are considered to be the best measures of a firm’s profit, so these are
the measures that are used in profitability ratios. In the formulae below, net profit is used.
Gross Profit Gross profit/Revenue x 100
Net profit Net profit before tax /sales revenue X100
ROCE PBIT or Operating profit/average capital employed x 100
Liquidity ratios – use information from the balance sheet
Liquidity ratios measure the overall state of indebtedness of an organisation by the extent to
which it has the ability to convert its non-cash assets into cash . As we know a firm has to
have sufficient liquidity. In other words they have to be able to meet their day to day
payments. It is no good having your money tied up or invested so that you haven’t enough
to meet your bills! Current assets and liabilities are an important part of this liquidity and so
to measure the firm’s liquidity situation we can work out a ratio. It is called the CURRENT
RATIO.
Current Ratio = Current Assets / Current Liabilities
In most circumstances, though this is industry specific, it can be expected that current assets
will be in excess of current liabilities (in which case, the current assets ratio will be at least 1
to 1ideal 1.5-2.0:1). If this is not the case, the entity may not have sufficient liquid resources
to meet its immediate financial commitments
Acid Test Ratio = (Current Assets- Stocks) / Current Liabilities
Ideally this figure should also be above 1 for the firm to be comfortable. That would mean
that they can meet all their liabilities without having to sell any of their stock. This would
make potential investors feel more comfortable about their liquidity. If the figure is far
below 1 they may begin to get worried about the firm’s ability to meet its debts.
Liquidity short term and long term
Current Current assets/current liabilities
Acid/quick Current assets-stock/ current liabilities
Medium and long Long term loans/Equity

term solvency
(gearing)
Note equity=ordinary shares and reserves=net
worth
Gearing
This relates to an organisation’s ability to meet its long-term debts. There are two methods
of calculating Gearing:
Method 1 – sometimes called the debt equity ratio
= Long term Loans( i.e. non-current liabilities) ÷Equity ( shareholders funds)
Or method 2
Long term loans ÷ Capital Employed (Long term loans + Equity)
Gearing focuses on the capital structure of the business – that means the proportion of
finance that is provided by debt relative to the finance provided by equity (or shareholders).
The gearing ratio is also concerned with liquidity. However, it focuses on the long-term
financial stability of a business.
Gearing measures the proportion of assets invested in a business that are financed by long-
term borrowing.
High gearing= High Risk

In theory, the higher the level of borrowing (gearing) the higher are the risks to a business,
since the payment of interest and repayment of debts are not "optional" in the same way as
dividends.
Long term loans are non-current liabilities - i.e. they are not due for complete re-payment
in current period!!
Investor Ratios
Shareholder ratios
Dividends per share Dividends announced during period
Number of shares in issued
Dividend Yield Dividend per share/ x 100
Market value of shares
Earning per share (EPS) Earnings available to ordinary shareholders/
Number of ordinary shares in issue
Dividend Cover Net earnings per share
Net dividends per share

P/E Market value of shares
EPS
Return on shareholder funds Earnings (profits after interest tax & pref shares)/
Ordinary share capital + reserves (i.e. bottom bit on

balance sheet less any pref share capital)
Ratios may highlight significant trends, but they do not in themselves provide reasons for the trends.
To do this effectively, the interested party may need more information and a deeper insight into the
affairs of the business. Often this may be difficult to obtain, because the amount of information
available is limited unless the user is a manager within the organisation.
History problem-Another problem is the date at which the accounts are drawn up. Accurate
information can only be obtained with any degree of certainty from up-to-date figures. Furthermore,
seasonal variations in the particular trade should be taken into account.
Accounting is not an exact science! Despite efforts by the accountancy profession to standardise
accounting practice there is still room for a variety of methods in particular cases. This may affect
the comparability of different accounts. Often known as the “apples and pears” problem.
the two-year problem - comparing only two years where one may be a typical, i.e. especially good or
especially bad, and unlikely to be repeated,
the snapshot problem - using figures from a balance sheet will only tell you what the situation was
on one particular day, the day of the financial year end, these figures can be atypical as they can
have been massaged the best possible view of the Organisation,
the history problem - information needs to be -date. If historic costs have been used in asset ion,
the value of assets may be out-dated, particularly for land and buildings. Ratios are invariably
calculated from past data so they will only analyse how an Organisation has performed. They may
be used indicate what might happen in the future, but they are not crystal balls
1.4 Define award criteria that can be commonly applied when sourcing
•Typical award criteria such as; price, total life cycle costs, technical merit, added value solutions,
systems and resources
• Balancing commercial and technical award criteria
Criteria used for contract award:
• Focus on which supplier or bid - out of an available pre-qualified shortlist - is the
'best' or 'winning' option for the specific requirement
• Are primarily comparative: which of the shortlisted options represents a better
solution or better value than the others?
• Focus on the immediate requirement: the placing of a particular contract.
Contract award decisions are therefore generally taken on the basis of a few objective,
quantifiable (numerical) criteria - such as price or best value - which can be directly,
unambiguously and consistently compared from one quotation or bid to another.
However, this presents a risk, because the lowest-price or best-value bid may not represent
the most innovative, reliable or easily-implemented solution - and the supplier may (or may
not) turn out to be technically or organisationally capable of fulfilling the buyer's
requirements to the required standard.
Good criteria will ensure that responses from suppliers clearly address the most critical
aspects of the specification and allow the evaluation panel to make a fair and equal
comparison of the bids received. Award criteria must ensure the possibility of effective
competition and be accompanied by specifications that allow the information provided by
bidders to be verified during their award criteria assessment. Some examples of award
criteria are given below:
• Quality/Technical Merit - Is the product or service proposed fit for purpose? How
well does it perform?
• Design, functional characteristics and aesthetics - How should the product look and
feel? How easy is it to use?
• Sustainable Procurement - e.g. social, economic and environmental considerations
• Community Benefits – Consideration of community benefit requirements required
for contracts valued equal to or greater than £4M, recommended for use below this
threshold.
• Fair Work practices
• Innovation, where appropriate - e.g. new or novel concept?
• Maintenance, ongoing technical support or after sales service - What support is
required and available?
• Delivery or period of completion - the guaranteed turnaround time from order to
delivery or provision of service
• Price - The whole life cost including the initial purchase price, operating costs,
consumables and disposal costs. How cost effective will the goods/service prove to
be?
• Life Cycle Costing – this may be considered for use where additional environmental
costs can be attributed to the products or services that you are purchasing such as
the cost of carbon emissions from machinery being bought
• Labels – does the product or service you seek have specific social or environmental
characteristics that would be verified by a label such as Fairtrade (please note that
equivalent labels or other proof must also be accepted)?
• Test reports and certification may be requested – note that equivalents from other
member states must be accepted.
• Organisations may also evaluate the organisation, qualification and experience of
staff where the quality of staff assigned can have a significant impact on the level of
performance of the contract. However, where this option is taken, such matters
must not also be assessed at the selection stage of the procurement process.
Source: https://www.procurementjourney.scot/route-3/route-3-develop-documents-
selection-award-and-exclusion-criteria-award-criteria
Actions that the buyer could take to improve the balance between technical/quality and
commercial requirements might include:
• Putting in place a sourcing strategy which is jointly agreed between the design,
production and procurement functions.
• Encouraging the aggregation of requirements in order to increase visibility of
requirements and negotiation effectiveness and develop supplier relationships.
• Looking for standardisation opportunities within specifications or encouraging
conformance specifications.
• Pre-qualification of suppliers against a range of sourcing criteria, to more effectively
deal with urgent requirements.
• Other appropriate actions should also be allowed.
Example Matrix for the evaluation of tenders ( for contract award) based on the best price-quality
ratio-
this is called a weighted evaluation matrix- where the criteria are weighted according to their
importance!
Source: PUBLIC PROCUREMENT GUIDANCE FOR PRACTITIONERS September 2018 European
Commission
https://ec.europa.eu/regional_policy/sources/docgener/guides/public_procurement/2018/guida
nce_public_procurement_2018_en.pdf
2.0 Understand the key processes that can be applied to the analysis of
potential external suppliers
2.1 Analyse commonly used sources of information on market data that can impact
on the sourcing of requirements from external suppliers
• Compiling data on expenditures on suppliers

• Financial reports and supplier financial stability
• The role of credit rating agencies
•Compiling data on expenditures on suppliers
Purchasing research
‘the systematic gathering, recording, and analysing of data about problems relating to the
purchasing of goods and services’ Fearon
Areas
• Demand analysis
• Vendor analysis
• Supply market analysis
Factors in the external purchasing environment
• Emerging economic opportunities and threats

• Changes in social values, preferences and expectations
• Technological developments
• The trend towards globalised supply markets
• Constant amendments and additions to the law and regulation of business activities
Economic indices
• Stock market indices track the performance of selected companies in different stock
markets
• Specialised indices exist to track the performance of specific sectors of the market
• Some indices have multiple versions
• Specialist indices also exist for other performance management criteria
• Specialist agencies such as Thomson Reuters have developed indices for a range of
decision-support applications
• The Small Business Lending Index (SBLI) by Thomson Reuters/PayNet, is an indicator
of economic trends and market ‘signals’
• Commodities indices, or commodity price indices, track the weighted average of
selected commodity prices, and are designed to be representative of a broad
commodity asset class or a subset of commodities
• The Consumer Price Index (CPI) tracks variations in prices for a range of consumer
goods and services over time, in a particular geographic location
Sources of financial information on suppliers

Financial information about suppliers can be obtained from various sources.
• Their published financial statements and accounts: balance sheet, profit and loss
account and cash flow statements
• Secondary data on markets and suppliers: for example, analysis of financial statements
and results in the business or trade press (and their websites); or published or bespoke
financial reports by research agencies such as Dun & Bradstreet or DataMonitor
• Credit rating companies, which, for a fee, will provide information on the credit status
of a supplier. Such information is available via a number of websites, eg
www.experian.com, or www.dnb.com (the website of Dun & Bradstreet). The financial
director of the firm may be able to access such reports on behalf of the procurement
function.
• Networking with other buyers who use the same suppliers.
• Direct discussion with the supplier regarding its financial position – particularly
important with more strategic suppliers.
• Inviting the supplier's financial director to make a presentation on its current and
predicted financial position to procurement and finance managers. This may only be
worth doing for major or strategic suppliers - and a prospective (or current) strategic
supplier should not decline the invitation!
• Companies House - The source for any public or private limited company accounts in
the UK (England, Scotland and Wales. N Ireland is separate - see below). The Web-
check feature allows for a free summary, but full accounts are charged.
The Institute of Chartered Accountants of England & Wales (ICAEW) - Knowledge
Guide to International Company Registrations - Company Filings & Registries
worldwide including summarised filing requirements by country.
Demand analysis
• Demand for the final product
• Demand for purchased finished items
• The inventory policy of the organisation
• The service level required
• Market conditions
• Supply-side factors
Demand analysis – estimating the likely usage of products and services in the period
ahead in order to source the ‘right quantity’ to meet the organisation’s requirements.
• Demand for the final product- for dependant demand items

• Demand for purchased finished items- for independent items
• Supply side factors such as MOQ
Supply market analysis – appraising general supply conditions within the market. e.g.
market structure and stability, product differentiation, technological developments,
availability and risk of shortages; market prices, price trends; environmental factors.
External structure
• Industrial branch, horizontal relationship
• Industrial column or supply chain
• Materials flow:
• Diverging materials flow
• Linear materials flow
• Converging materials flow
The structure of supply markets
• The number of buyers in the market
• The number of suppliers in the market
• Methods of pricing in the market
• The degree of product differentiation in the market
• Technological developments in the market
Supply market research involves collecting, analysing and evaluating data on

markets and suppliers in order to optimise an organisation’s supply base. As part of
this process, the buyer at PEC will need to gather data from a range of primary and
secondary sources such as:
• Direct supplier communication with existing or potential new suppliers

• Marketing literature from suppliers
• On-line sources and other networking
• Local and global trade organisations and professional bodies
• Trade fairs, exhibitions and conferences
• Specialist publications and other media
• Other appropriate sources should also be accepted.
Primary data
• Communication with suppliers

• The buyer’s database of suppliers and market data
• The marketing communications of suppliers
• Online market exchanges, auction sites and supplier/buyer forums
• Advisory and information services
• Commissioned reports and analyses from specialist purchasing consultancies
• Trade fairs, exhibitions and conferences
Informal networking and information exchange with colleagues, other purchasing
professionals, suppliers and other stakeholders
Secondary data
• Websites published listings- Kelly’s or compass trade directory
• Financial and trade industry press
• Published economic indices
• Chamber of commerce
• published market analysis such as mintell reports- economic & labour
market review
A natural product produced ONLY in some parts of the world.

Used, as raw materials businesses need to incorporate into their products. They can be semi-
processed. Soft and hard commodities (i.e. metals and coffee). For an item to be traded it
must be of a standard grade, it must be storable and also transportable.
Volatile prices- can be because of bad weather, droughts, glut or oversupply. Political
instability, government interference, strikes etc.
Prices usually vary widely in commodity markets, not only in the short run but also in the
long run. In the short run there are frequent changes in supply because of varying climatic
conditions (for agricultural products) and because of political and other events on the
international scene and in individual countries (such as strikes). As a rule, price changes do
not give rise in the short run to substantial changes in the supply of or demand for primary
goods (low elasticity of supply and demand).
Buyers can reduce companies exposure to price movements (i.e. reduce uncertainty not
speculate) by ‘hedging’ which involves buying or selling on the futures market. A perfect
hedge would be where any loss/profit on your physical transactions are exactly matched by
your loss/profit on your futures transactions; therefore, you neither gain nor loose. You can
also take out an option to buy or sell on the futures market and depending which way the
market moves you can exercise your option or let it lapse. You will, however, have paid out
up-front for the right to an option. Commodity markets bring together buyers and sellers as
well as speculators. This enables a market and futures price to be set and makes possible
hedging. (And speculating).
Examples of commodity markets are: LME- London Metal Exchange ( Copper, Aluminium
etc) LIFFE- London Investment & Financial Futures Exchange(Cocoa, sugar, wheat as well as
GOV bonds, equities) Nymex- New York Mineral Exchange.
Demand analysis – estimating the likely usage of products and services in the period ahead
in order to source the ‘right quantity’ to meet the organisation’s requirements. e.g. a
production facility must estimate demand for materials, components and consumables.
Some items will be dependent on demand for the final product and others will be
independent.
• Demand for the final product- for dependant demand items
• Demand for purchased finished items- for independent items
• Supply side factors such as MOQ
•Financial reports and supplier financial stability
Examples of the kind of thing you might be looking for include signs that an organisation:
Financial
• Is not making much profit, is experiencing falling profit margins, or is making a loss
• Is not managing its cash flow, or is experiencing a strong cash ‘drain’ from the
business
• Has more loan capital (borrowed from lenders) than share capital (invested by
owners)
Additional non-financial signs of financial difficulty

• Rapid deterioration in delivery and quality performance
• Senior managers leaving the business within a short period of time
• Changes in the auditors and bankers of the firm
• Adverse press reports
• Very slow responses to requests for information
• Problems in the supply chain (and/or changes in subcontractors)
• Chasing payment before it is due
A more comprehensive list is provided by OGC
Financial warning signals may include:

• cash draining from the business
• falling profit margins
• increasing overdraft with static turnover
• major reductions in staffing
• increasing employment with static turnover
• increasing debtor and creditor days
• larger increases in creditors than debtors
• increasing stocks, slower stock turnover
• deteriorating liquidity
• over-reliance on short term debt
• high gearing
• heavy write-offs of foreign or subsidiary holdings
• late filing of accounts
• qualified accounts
• County Court Judgements (CCJs)
• poor credit ratings
• unusual accounting policies
• changing auditors and bankers
• debt rating downgrades/alerts
• investment bank prospect reports
• adverse press report
OGC (2001) -Supplier financial appraisal guidance
In the context of the EC rules, financial appraisal is a selection (not an award) criterion and is
designed to identify the financial risks to be assessed alongside other relevant qualitative
and quantitative factors that can be grounds for selecting a candidate to tender or
negotiate.
•The role of credit rating agencies
Financial data and credit ratings from specialist on-line database providers are useful
snapshot indicators but should not be used as a substitute for detailed examination of the
candidate’s financial statements- OGC
Their rating reports take account of a company’s corporate strategy, operating position,
financial management and general prospects, and should be noted by the Authority
Credit reporting and risk management agencies may offer a menu of services to businesses
wishing to access credit and financial information about other businesses (such as suppliers).
Dun and Bradstreet, for example, offer:
• Business Information Reports on a named company, giving a
comprehensive business credit check ,including: a business summary, payment
history and organisation chart; industry trends and public report/return filings;
financial statements; and a credit limit recommendation (on the basis of credit
worthiness) and D&B credit rating
• Comprehensive Insights Reports on a named company, for a complete
business credit check and financial insights, including: business summary
payment history and organisation chart; public report/ return filings; industry
comparisons; financial statements; credit limit recommendation; D&B credit
rating; and commercial credit and financial stress scores
• Credit Evaluator Reports on a named company: a summary credit
report, usually used to support business credit decisions, including report
monitoring, credit limit recommendation and industry payment
benchmarks.
Credit reports may also be obtained from:

• bankers or credit references
• credit reports provided by such agencies as Dun and Bradstreet.
Important information provided by Dun and Bradstreet
Supplier Evaluation Reports include:
• Sales – gives a picture of the firm’s financial size in terms of sales/revenue volume
• Financial profile – evaluates how the enterprise is doing financially compared to
its industry. To understand the profitability and solvency of a supplier five key
financial ratios are calculated which provide industry benchmarks against a peer
group of suppliers
• Supplier risk score – an evaluation of the risk involved in dealing with a supplier.
This presents an at-a-glance 1-9 rating based on financial, public records and
operational information with 1 being the lowest and 9 being the highest risk. This
predictive score helps purchasing to understand the general financial status of a
supplier and benchmark the supplier against others.
2.2 Identify the key processes used for obtaining quotations and tenders
The opportunity may be advertised in a range of ways, but will, at least include the
following:
▪ E-tendering portal
▪ OJEU (Official Journal of the European Union) notice if required
▪ Other websites
▪ Trade publications
▪ Other social media forums e.g. Twitter
The new advertising and process requirements at a glance
Contract value Advertising requirements
£0-24,999 No advertising requirements
£25,000* to EU threshold Advertise on Contracts Finder
Above threshold: Goods and
services: £172,514Works: Advertise on OJEU and on Contracts Finder
£4,322,012
Above threshold: Schedule 3

Advertise on OJEU and on Contracts Finder
Services: £625,050

Request for Information ( RFI): This is a standard business process, whose purpose is to
collect written information about the capabilities of various suppliers. Normally it follows a
format that can be used for comparative purposes.
Request For Proposal (RFP): A request for proposal typically includes background on the
issuing organisation and its line of business. The request sets out specifications describing
the solution it seeks and evaluation criteria disclosing how proposals are graded. Requests
for proposals may include a statement of work describing tasks to be performed by the
winning bidder and a timeline for providing finished work.
Request for Quotation ( RFQ): A request for quote (RFQ) is a type of procurement
solicitation in which a company asks outside vendors to offer a quote for the completion of a
specific task or project. An RFQ is usually the initial step for submitting an RFP, in which the
bidders are asked to offer a more comprehensive price quote. However, RFQs may be
submitted as an attachment to an RFP. An RFQ is typically used when products and services
are standard or off-the-shelf, which allows the soliciting company to compare the various
bids easily.
An RFQ should contain the following information:

• The contact details of the purchaser
• A reference number to use in reply, and date by which to reply
• The quantity and description of goods or services required
• The required place and date of delivery
• The buyer’s standard (and any special) terms and conditions of purchase
• Terms of payment

A best-practice tender procedure

1. Preparation of detailed specifications and draft contract documents
2. Decision on whether to use open or selective/restricted tendering
3. Determination of a realistic timetable for the tender process
4. Advertisement of the requirement, tender procedures to be followed, and
timetables for expression of interest (in a selective tender) or submission of bids (in
an open tender)
5. Sending out of Pre-Qualification Questionnaires
6. Issue of invitation to tender (ITT) and tender documentation
7. Specifications, and other tender documents
8. Submission of completed tenders or bids by potential suppliers, within the deadline
specified
9. Opening of tenders on the appointed date, in the presence of appointed officers
10. Logging of received tenders
11. Analysis of each tender, with a view to selecting the ‘best offer’
12. Post-tender clarification, verification of supplier information, and/or negotiation,
where required
13. Award of the contract, and advertisement or notification of the award
14. ‘De-briefing’: the giving of feedback, on request, to unsuccessful tenderers
Stages of the tender process
• Advertising the requirement

• Selection Stage / Pre Qualification Questionnaire (PQQ)
• Evaluation of selection Stage / PQQ
• Invitation to Tender (ITT)
• Evaluation of the tender submissions
• Award of contract
FIVE CRITERIA FOR THE USE OF COMPETITIVE BIDDING
1. The value of the procurement should be high enough to justify the expense of the
process
2. The specifications must be clear and the potential suppliers must have a clear idea
of the costs involved in fulfilling the contract
3. There must be an adequate number of potential suppliers in the market
4. The potential suppliers must be both technically qualified and keen to win the
business
5. There must be sufficient time available for the procedure to be carried out
FOUR SITUATIONS IN WHICH COMPETITIVE BIDDING SHOULD NOT BE USED
1. It is impossible to estimate production costs accurately

2. Price is not the only or most important criterion in the award of the contract
3. Changes to specification are likely as the contract progresses
4. Special tooling or set-up costs are major factors in the requirement
When to Use
Open procedure Restricted use Dialogue Innovation

partnership
When requirements It is anticipated that The requirement is Product or service
are typically a large number of complex or not fully not available in the
straightforward, with suppliers will definable. market
a relatively simple respond to the
Selection and Award advertised Contract
process; Notice;
or
and It is anticipated The requirements
that only a small are typically
number of complex, with a
organisations will relatively detailed
respond to the Selection and Award
advertised Contract evaluation process.
Notice.
2.3 Identify the criteria that can be commonly applied to the assessment of
quotations or tenders
• Measures and ratios of profitability, liquidity, gearing and investment
• Added value

A checklist for analysing tenders

1. Establish a routine for receiving and opening tenders, ensuring security
2. Set out clearly the responsibilities of the departments involved
3. Establish objective award criteria, as set out in the initial invitation to tender
4. Establish a cross-functional team for the appraisal of each tender
5. Establish a standardised format for logging and reporting on tenders
6. Check that the tenders received comply with the award criteria
7. Check the arithmetical accuracy of each tender
8. Eliminate suppliers whose total quoted price is above the lowest two or three quotes by a
specified percentage (say 20%)
9. Evaluate the tenders in accordance with predetermined checklists for technical,
contractual and financial details
10. Prepare a report on each tender for submission to the project or procurement manager
Weighted points system
Allocation of weightings to award criteria

The criteria chosen should be allotted weightings to reflect what is most important in any
particular procurement. Weightings may be exact percentages or a specified range, where
this is appropriate in view of the subject matter. The criteria and weightings must be
disclosed in the contract documents .Each broad criterion should ideally be broken down to
set out what it is that the public body is looking for to ensure consistent scoring is applied.
Example evaluation criteria showing weightings and ranges:
Quality: 60% made up Cost: 40%, made up of:
of:
Technical [30%] Contract price [20%]
merit OR OR
[20- [20-
30%] 30%]
Mobilisation [20%] Contract management costs [10%]
plan OR OR
[20- [5-
30%] 10%]
Business [5%] Contracting authority's [10%]
continuity/ OR [5- contributions (for example, OR
agility 10%] contractor's use of authority [5-
assets) 10%]
Service [5%]
improvement OR [5-
10%]
Use of a scoring model to evaluate price

Turning prices into scores can be challenging. A number of approaches may be used to
evaluate the financial element of a tender, but in no case should a simple aggregation be
used as this almost always distorts the price scores.A scoring model (no matter how simple)
to create some sort of comparable figure across bids should always be used. The two most
common methods of evaluating price are to:
Award 100% to the cheapest bid, then compare that lowest figure as a percentage of the
other bids. (See the following two worked examples.)
Disclose a threshold price to bidders, which scores zero, and all bids under that threshold are
scored comparatively, inverting the model below. For example, if the threshold is £100, a bid
of £60 would score 40 (as £60 is 40% of £100) and a bid of £70, 30. Bids above the threshold
would be non compliant, or would incur minus marks.
Outsourcing contract
Formula:
(Lowest price / price you are evaluating) x 100 = price score for that bidder
Bids
The bids are based on a fixed price per annum.
You have three bids:
Bidder A: £1.2 million.
Bidder B: £950,000.
Bidder C: £1.5 million.
Scores
Following the above formula, the results are:
Bidder B: 100% (as it is the lowest bid).
Bidder A: 79% ((950,000 / 1.2 million) x 100).
Bidder C: 63% ((950,000 / 1.5 million) x 100).
Domiciliary care contract
Formula:
(Lowest price / price you are evaluating) x 100 = price score for that bidder
Bids
The bids are based on hourly rates with no fixed or estimated number of hours
required and therefore no overall price. However, the same formula can be
used by applying it to the hourly rate quoted.
You have three bids:
Bidder A: £16.
Bidder B: £18.
Bidder C: £17.50.
Scores
Following the above formula, the results are:
Bidder A: 100% (as it is the lowest bid).
Bidder C: 91.4% ((16 / 17.50) x 100).
Bidder B: 88.8% ((16 / 18) x 100).
Note that the difference between the bids in the domiciliary care contract is very small and
therefore the pricing evaluation for that contract will have very little impact on the outcome.
Source http://uk.practicallaw.com/2-386-8761?service=publicsector
Example Matrix for the evaluation of tenders ( for contract

award) based on the best price-quality ratio-
this is called a weighted evaluation matrix- where the criteria
are weighted according to their importance!
Source: PUBLIC PROCUREMENT GUIDANCE FOR PRACTITIONERS September 2018 European

Commission
https://ec.europa.eu/regional_policy/sources/docgener/guides/public_procurement/2018/guida
nce_public_procurement_2018_en.pdf
A balance sheet provides detailed information about a company’s assets, liabilities and
shareholders’ equity. Assets are things that a company owns that have value. Assets
include physical property, such as plants, trucks, equipment and inventory. It also
includes things that can’t be touched but nevertheless exist and have value, such as
trademarks and patents. And cash itself is an asset. So are investments a company
makes. Liabilities are amounts of money that a company owes to others. This can
include all kinds of obligations, like money borrowed from a bank to launch a new
product, rent for use of a building, money owed to suppliers for materials, payroll a
company owes to its employees, environmental clean-up costs, or taxes owed to the
government. Liabilities also include obligations to provide goods or services to
customers in the future. Shareholders’ equity is sometimes called capital or net worth.
It’s the money that would be left if a company sold all of its assets and paid off all of its
liabilities. This leftover money belongs to the shareholders, or the owners, of the
company.
The Balance Sheet shows long/short-term assets and liabilities which should give a
picture of the value/size of a supplier’s business.
A comparison of assets with liabilities will reveal the suppliers’ liquidity/solvency –ability
to meet financial obligations and continue trading - in the short term (current or quick
ratio) and long term (gearing ratio). The balance sheet data can also be used in
assessing the suppliers’ management capability by calculating efficiency and working
capital ratios (asset turnover; stock turnover; debt collection/payment period); and
supplier attractiveness/optimism by calculating investment ratios (dividend per share,
earnings per share, P/E ratio etc.).
Income statement/The Profit and Loss Account shows income/revenue, expenditure

and the resultant profit/loss – a reflection of the supplier’s financial success and trading
proficiency (by calculating profitability ratios). A supplier that is not generating sufficient
profit to fund its operations would be too risky to engage. Profitability ratios would also
help in negotiating lower prices with a supplier who shows high profits as this provides
greater flexibility. It is important to look at trend data over a number of years to
determine explanations for the profitability as figures of a single financial year are less
indicative of reality.
What to look for in the P&L
The function of the P&L is to provide information on the company's performance,
particularly its profitability.
Is the business thriving?
Pretty obvious really, and the answer doesn't have to be complicated either.
Look at the sales figures for the last few years - are they rising?
Look at the profit figures for each year, and work out the profit margin - is it getting
better or worse?
How volatile are pre-tax profits likely to be?
High fixed overheads and high borrowings can produce volatility in profits, because a
drop in sales or an increase in the cost of borrowing will eat directly into the bottom
line.
How safe is the dividend?
If a company is paying out most of its earnings in dividends, any drop in earnings is likely
to provoke a dividend cut. Calculate the dividend cover.
Was growth organic or by acquisition?
Is the company making a good return on capital employed (ROCE)?
How does the company compare to its competitors?
The Cash Flow Statement is a useful supplementary statement since profitability is not
does not always equal to liquidity. A weak cash (in/out) position will financially
destabilise a supplier (regardless of its Profit and Loss Statement). The Cash Flow
Statement will give an indication of a supplier’s cash position and ability to support day-
to-day operations.
Cash flow statements report a company’s inflows and outflows of cash. This is important
because a company needs to have enough cash on hand to pay its expenses and
purchase assets. While an income statement can tell you whether a company made a
profit, a cash flow statement can tell you whether the company generated cash. A cash
flow statement shows changes over time rather than absolute dollar amounts at a point
in time. It uses and reorders the information from a company’s balance sheet and
income statement. The bottom line of the cash flow statement shows the net increase
or decrease in cash for the period. Generally, cash flow statements are divided into
three main parts. Each part reviews the cash flow from one of three types of activities:
(1) operating activities;
(2) investing activities; and
(3) financing activities.
This is a repeated content item- See 1.3 for notes
2.4 Analyse how electronic systems can be used to help the sourcing of
•E-requisitioning and purchase ordering systems

•E-catalogues on intranets and the internet
•The use of e-auctions and reverse auctions
•E-tendering systems
The impact of information and communications technology (ICT)

• Dramatically increasing the speed of communication and information processing
• Offering wider access to knowledge and information, especially from global sources
• Facilitating 24-hour, 7-day, global business
• Supporting paperless communications, business transactions and service delivery
• Creating ‘virtual’ relationships, teams and organisations, by making location
irrelevant to the process
Major types of e-sourcing tools

• E-catalogues
• Supplier portals and market exchanges
• Online supplier evaluation data
• E-auctions
• E-tendering
E-catalogues: these can be viewed online or downloaded by purchasers. This can speed up
the location of potential suppliers as well as suitable products or services.
Supplier portals and market exchanges: sites where multiple buyers/sellers share
information about requirements and offerings. Again, this can speed up the process of
supplier selection.
E-tendering: involves using e-RFQs and specifications posted online or e-mailed to potential
suppliers. Bids can be received and evaluated electronically, speeding up tendering and
sourcing considerably.
Electronic tendering (eTendering) uses a secure portal to conduct the entire tendering
process electronically. This involves every step in the tender process from expression of
interest through to contract award. This form of tendering requires organisations to register
an interest online, at which point they will be able to access all tender information and
questionnaire(s). Organisations are required to complete and submit their tender
submission online, by a specified date and time. Evaluation will be against pre-set criteria
and will either be completed automatically by the portal, or by a panel of officers where
automatic scoring is not achievable e.g. for a lengthy written response.Electronic tendering
can be used when following any type of tendering procedure, and if appropriate, could also
involve the use of an electronic reverse auction (eAuction).
E-auctions, using the buyer’s or seller’s website, or third party auction sites: suppliers offer
goods online, and potential buyers bid competitively. Bids are ‘open’ so buyers may raise
their offers competitively during the auction. At the end of the bidding period, the highest
bid wins.
Reverse auction: here the buyer specifies its requirements, and suppliers submit
competitive quotes. Bids are open, so suppliers may lower their prices competitively during
the auction. The lowest bid compliant with the specification wins.
http://cipsintelligence.cips.org/video/mEfz369XXrg
Online supplier evaluation data: (e.g.) third party reports, customer feedback, registers and
directories of approved or accredited suppliers, benchmarking reports, market intelligence
tools, etc. Thus, supplier appraisal (visits, etc.) would be speeded up considerably.
Advantages of e-sourcing in the public sector
BENEFIT EXPLANATION
Process Reducing time and effort spent on tendering and contract

efficiencies management; reduced paperwork; fewer human errors
Compliance Eg with the provisions of the Efficiency Review and the

National Procurement Strategy for Local Government
Cost savings Reducing the direct costs of tendering (for both buyer and
suppliers)
Collaboration Making it easier for purchasers to work together on common

sourcing projects across different departments and regions
Strategic Allowing purchasing professionals to focus on value-added
focus and strategic procurement activity, rather than
administration
ADVANTAGES DISADVANTAGES
Global, 24/7 available source of data Excess volume of information

Low-cost, fast, convenient info search Information may be unreliable or outdated
Information generally frequently up-dated Difficulty verifying data, source credibility
Access to small, niche, global suppliers Limited ability to ‘sample’ product or service
Access to customer feedback, reports, ratings, Supports global sourcing – creating logistical
certification data etc challenges, risks etc
Some ability to ‘sample’ product or service (eg May discriminate against developing country
virtual tours, digital samples) suppliers
Facilities for direct contact (eg via email)
Benefits of electronic contracts
• Enabling the ‘cutting and pasting’ of standard contract terms, and the variation of
draft terms, in an efficient and flexible way
• Enabling strong controls over confidentiality
• Enabling strong contract variation, change and version control
• Integration with a contract management database
Specifications must include:

• The features, the values of which will be the subject of electronic auction
• Any limits on the values which may be submitted
• The information which will be made available to tenderers in the course of the
electronic auction
• The relevant information concerning the electronic auction process
• The conditions under which the tenderers will be able to bid and, in particular, the
minimum differences which will, where appropriate, be required when bidding
• The relevant information concerning the electronic equipment used and the
arrangements and technical specifications for connection
Benefits
• Efficient administration and reduction in acquisition lead time

• Savings for buyers, as a result of competition
• Improved value for buyers
• Access for buyers to a wider range of potential suppliers and sources of market
information, including a global supply base
• Less time ‘wasted’ on interpersonal interaction
• Opportunities for suppliers to enter previously closed markets or accounts
• Opportunities for suppliers to gather competitor and market pricing data
Criticisms
• Online auctions are based on a zero-sum, adversarial or ‘win-lose’ approach
• Suppliers are vulnerable to coercion and manipulation
• There may be long-term adverse effects on the economic performance of the
supplier
• There may be long-term adverse effects on the economic performance of the
buyer
• Promised savings may not materialise
• Suppliers get the message that price is the most important factor in winning
business
• The process leaves little scope to take adequate account of non-price criteria and
stakeholder inpu
E tendering benefits
• E-tendering provides a single point of contact to access and view all tender
opportunities and information
• E-tendering offers non-discriminatory access to the tender process – via the
internet – for SME suppliers and international suppliers
Drawbacks
• Limited access for suppliers lacking the technical know-how or equipment to bid
electronically
• Issues around the security of commercial information and intellectual property
shared in the course of the tender exercise
• Significant initial investment costs associated with specialist equipment, software,
staff training and so on
3.0 Understand compliance issues when sourcing from suppliers
3.1 Compare the key legislative, regulatory and organisational requirements when
sourcing in the not- for-profit, private and public sectors

• The impact of timescales on tendering processes
• Regulations that impact on product and safety standards
Legislative and regulatory requirements- all sectors

• To ensure that bought-in materials, goods and services comply with defined public
standards and specifications
• To ensure that all sourcing exercises are compliant with public policies, standing orders
and statutory procedures
• To ensure that all resulting supply chain operations are compliant with law, regulation
and standards in areas such as:
• health and safety
• environmental sustainability
• employment rights
• data protection
• freedom of information
Private Sector More

The private sector is subject to legislative and regulatory requirements in a number of areas
including:
• Government influence – restrictions on corporate behaviours, taxes and duties,
environmental requirements and competition rules
• Legal regulations – protecting the rights of employees, customers, minority groups and the
environment; preventing corruption
• Standards organisations – e.g. ISO
• Health and safety
• Quality
• Corporate responsibility
• Financial regulation- including company reporting.
• Voluntary codes of practice – whilst these are not legally required, they often become a
cultural to continue to compete in business.
Public Procurement constraints- as an EU public organisation … will be subject to tender

rules covering thresholds, timescales, award process, etc.; rigid budgetary constraints;
expansive stakeholder interest; Anti-corruption law; Freedom of information; etc.
The differences between public sector procurement and private sector procurement may
vary between jurisdictions or contexts –e.g. from country/organisation to another. These
differences more in terms of degree of emphasis than of basic operational procedure.
They might include the following:

•the objective of the procurement function in the private sector will be to reduce costs and
increase profits, whereas in the public sector it aims to achieve value for money and defined
service levels
•in the private sector, the procurement function is responsible to the directors and
shareholders of the company, whereas in the public sector, it will be responsible to
taxpayers and the general public
•the legal restrictions facing the procurement function will differ; for the private sector its
activities will be restricted by company law, employment law and product liability law, but in
the public sector there will be additional restrictions such as EU or other procurement
directives
•in the private sector procurement there will be confidentiality in supplier/buyer dealings,
but in public sector procurement confidentiality is limited because of the public interest.
This principle will also apply in dealings between different organisations/functions in terms
of information exchange within the public or private sectors.
•the procurement function in the public sector is constrained by externally imposed
spending limits, through budget thresholds; in the private sector, there are fewer constraints
and funding can be found for attractive commercial projects that may emerge
•The differences between public sector procurement and private sector procurement may
vary between jurisdictions or contexts –e.g. from country/organisation to another. These
differences more in terms of degree of emphasis than of basic operational procedure. They
might include the following:
•the objective of the procurement function in the private sector will be to reduce costs and
increase profits, whereas in the public sector it aims to achieve value for money and defined
service levels
•in the private sector, the procurement function is responsible to the directors and
shareholders of the company, whereas in the public sector, it will be responsible to
taxpayers and the general public
•the legal restrictions facing the procurement function will differ; for the private sector its
activities will be restricted by company law, employment law and product liability law, but in
the public sector there will be additional restrictions such as EU or other procurement
directives
•in the private sector procurement there will be confidentiality in supplier/buyer dealings,
but in public sector procurement confidentiality is limited because of the public interest.
This principle will also apply in dealings between different organisations/functions in terms
of information exchange within the public or private sectors.
•the procurement function in the public sector is constrained by externally imposed
spending limits, through budget thresholds; in the private sector, there are fewer constraints
and funding can be found for attractive commercial projects that may emerge.
Not for profit – third sector
Third Sector
Non-governmental organisations which are value-driven and which principally reinvest
their surpluses to further social, environmental or cultural objectives. It includes
voluntary and community organisations, charities, social enterprises, cooperatives and
mutuals. ---Office of the Third Sector. Third sector organisations are very diverse in both
size and scope, ranging from small, locally based community groups, to social
enterprises and large, national charities. Some have no income at all and rely on the
efforts of volunteers whilst others are, in effect, medium sized businesses run by paid
professional staff.
Regulations impacting on charities -Charity Commission

The Charity Commission has a statutory objective to ensure trustees comply with their
legal obligations in managing charities and to promote public trust and confidence in
charities more generally. They also have a statutory function to identify and investigate
abuse and mismanagement in charities.
Regulation may require - Most cost-effective use of charities resources and spending
budgets. Impact on purchasing activities – need for records, policies and procedures,
and transparency in all transactions
Regulation may require - Accountability to members, trustees and regulators. Impact -
induction training, frequent reporting to stakeholders, maintaining records.
Regulation may require - Need for probity in all financial transactions. Impact – may
imply dual authorisation of orders and invoices and the implementation of robust
purchasing / payment procedures.
Regulation may require - The development and implementation of all ethical,
environmental and CSR policies in line with organisation’s objectives. Impact – needs to
be part of the supplier selection process, terms and conditions, contract monitoring.
These might include:

• Organisations set out their objectives, policies, rules and regulations in some form of a
governing document such as a constitution, a charter, memorandum/articles of
association, etc.
• Besides the general statutes a not-for profit (NFP) organisation, may be regulated by
the Charities Commission (if it is a charity) which enforces the independence and
accountability of charitable organisations
• NFP organisations are seen as performing a 'stewardship' role demanding clear
governance structures for management, including procurement, for clarity,
transparency, financial controls and accountability.
• NFP organisations operate on limited/fixed budgets. .. will be constrained to pursue
best value for money and with the strong emphasis on cost control.
• likely to have a wide range of stakeholders, including funders, beneficiaries, the media
and regulatory bodies - hence there will be multiple influences on procurement policies
and objectives.
• Other compliance issues –potential properly registered and suppliers trading legally
e.g. paying taxes; sustainability considerations –CSR, Environment, Ethics,
labour/workplace standards; accreditations; etc.
Disadvantages of competitive tendering could be explained with such content as:-

• it discourages closer working relationships with suppliers;
• limits innovative approaches
• it can create a risk avoidance culture for suppliers;
• it is not appropriate where suppliers are few or the timescales are short; SMEs
may be discouraged due to the complexity of the tendering process;
• it demands much time, cost and bureaucracy; etc.
Advantages of Competitive tendering

• Best value- it encourages competitive supply where the goods supplied and terms
achieved will meet or exceed the expectations.
• Can also result in genuine consumer choice …, with potential benefits in lower
prices, improved quality of the goods being procured and innovation, in terms of
better or more advanced products.
• Best practice -will result in fair, non-discriminatory supplier selection based on pre-
determined criteria, and accountability/transparency requirement including the
provision of feedback to unsuccessful suppliers.
• Wider supplier base –expanded from local to regional, national, EU or even global
suppliers – e.g. where organisations must advertise the tender in the Official Journal
of the European Union (OJEU) -in compliance with EU Public Procurement
Directives- if the value of the contract exceeded the threshold levels.
Problems of competitive tendering:

• It might discourage some suppliers, because of the increase in bureaucracy and
timescales
• If competition is based purely on the lowest price this may put insufficient focus on
other important criteria, such as quality and sustainability
• The process within the public sector may put a large administrative burden on
procurement staff, employed
• The process may be costly to manage, in terms of staff time and resources
• Competitive tendering may not enhance supplier relationships as the award of a
contract is perceived as a one-off
• It may discourage value adding innovative approaches, as suppliers respond only to
the tender information provided.
• It might also reinforce a risk-avoidance culture within the supply base as suppliers
may make bids purely against the information provided.
• The impact of timescales on tendering processes – new rules
• The timescale for return of tenders in an open procedure is 35 days, although this
can be reduced by 5 days if tenders can be received electronically. The tender return
date is given in the contract notice.
• RESTRICTED procedure-and COMPETITIVE PROCEDURE WITH NEGOTIATION The
minimum timescale for responses to the notice is 30 days. If an accelerated
procedure has been duly justified, the minimum timescale becomes 15 days.
• Standstill period 10-15days (electronic v manual tender process)
The legal principles underlying the rules

The principles are as follows:
• equal treatment (non-discrimination/fairness):
• transparency (openness):
• proportionality:
• mutual recognition:
• confidentiality:
The original aim of public procurement policy in the European Union was to dispel
discrimination and government protectionism in public procurement. The purpose of the
rules is to open up the public procurement market, ensuring the free movement of goods
and services within the EU. In most cases they require competition. The EU rules reflect and
reinforce the government’s procurement policy focus on value for money. All public
procurement must be based on vfm (defined as the optimum combination of whole-life cost
and quality to meet the user’s requirement) which should be achieved through competition,
unless there are compelling reasons why this is not possible.
• EU procurement directives- now Public Contracts Regulations 2015

• Anti-corruption law- Bribery act 2010
• Freedom of information law
• Review by the National Audit Office (central government and public bodies) and the
Audit Commission (local government authorities)
• Advertising- above threshold need to advertise in OJEU
The new Public Contracts Regulations 2015 provides for five award procedures,
See section *****
New Rules 2015

Contract award
The contracting authority must use criteria linked to the subject matter of the contract when
assessing tenders. The questions should relate to HOW the supplier will perform the
contract. (So it is about the bid itself not the organisation).
Must be on the basis of the most economically advantageous tender (MEAT’) (This can be
identified on the basis of the price or cost, such as life-cycle costs so in fact lowest bid can
win.
The criteria to be used and the assigned weightings must be disclosed.
Right to feedback- 10/15 day 'standstill period', enabling unsuccessful bidders the
opportunity to seek information about the procuring body's award decision before a
contract is concluded.
Other provisions- frameworks – electronic purchasing
Debriefing
After the completion of the procurement evaluation process, and once a contract has been
arranged with the successful supplier, the unsuccessful suppliers must be advised, preferably
in writing, of their non-selection. Debriefing is the act of informing suppliers, contractors or
service providers that were not selected during a particular procurement process, of the
reasons why they were not selected.
Depending on the procurement rules, a debriefing should include:
• The selection criteria,

• The score of the losing bidder being debriefed,
• The reasons for the losing bidder’s score,
• The score of the selected bidder, and
• The name of the selected bidder.
• Cost - an indication of competitiveness,
• Offer/contractual issues;
• Design - e.g. any design deficiencies that would lead to higher operating costs;
• After-sales service - inadequate servicing network, spares held etc.;
• Delivery dates,
• Administrative or management systems;
• Industrial relations - e.g. a poor record with no plans for improvement;
• Quality management - ineffective control methods, systems, people, training;
• Experience/qualifications/referee reports or past performance - e.g. inadequate
experience or qualifications, or poor performance on previous contracts;
• Personnel - number, experience or quality of management and other personnel;
• Facilities/equipment - e.g. outdated, inefficient equipment or facilities; and/or
• Sub-contracting - e.g. inadequate control mechanisms
OBJECTIVES OF THE DEBRIEFING
The objective of the debriefing session is to help unsuccessful suppliers submit more competitive
bids in the future by identifying ways in which the supplier's offer could have been improved. A
summary of the objectives of debriefing suppliers can be as below
• To assist contractors to improve their bids.

• To establish and maintain a reputation as a fair , honest and ethical entity, to ensure
that high quality contractors are encouraged to submit tenders
• To act as a feedback mechanism and to ensure that tender Documents are understood
fully.
However care must be taken during the debriefing process as it should be noted that most of the
suppliers take time and money to prepare for their bids. Therefore a prior preparation for the
debriefing should be in place
First and foremost the tender document should be clear on what is required and should be one
that communicates directly on the consequences of not complying with some of the
requirements
See other sections on general regulations and next section.
In General terms
The regulatory framework established by a regulator has a significant impact on the
activities of a company. This includes the purchasing function, which will be impacted in the
following ways:
•Compliance with standards: purchasing needs to ensure all goods and services relating to
the principal activities of the company are compliant with relevant standards and
specifications. An example of this is the purchase of pipes or valves in the water industry.
•Health and safety: all sourced activities, good and services need to comply with the
relevant health and safety standards. For example deliveries by hand need to be packaged
safely and must comply with manual handling regulations.
•Environmental: similarly, all sourced activities, goods and services need to comply with the
relevant environmental regulations. Examples of this include the use of regulated
constituent materials and components of products (such as hazardous materials, gases or
liquids).
•Cost: particularly relevant where the regulator has placed a price-cap on the goods or
services produced. Purchasing needs to ensure it delivers cost effective solutions for the
company's third party expenditure.
•Governance: purchasing may be required to demonstrate that probity, due diligence and
due process has been followed when sourcing or outsourcing from third parties. An example
of this in the US relates to the provisions of the Sarbanes-Oxley Act. In UK it a code known as
the Corporate Governance Code (formerly the Combined Code) sets out standards of good
practice in relation to board leadership and effectiveness, remuneration, accountability and
relations with shareholders.
•Clear audit trail: purchasing may be required to maintain files on key transactions to
demonstrate they have been fair and acted within the due process and with probity.
•EU directives: although usually referring to public sector procurement will also apply for
utilities (such as energy, water and telecommunications).
•Appropriate service levels: particularly relevant when third party suppliers have been
sourced to undertake a service that touches the customer (such as call handling, deliveries,
inspections or engineering).
• Organisations that impact on product and safety standards

Organisations that impact on product and safety standards
A standards organisation is one whose primary activities are developing, coordinating,
revising, or amending technical or safety standards that are intended to meet the needs of a
wide number of use'; Most standards are voluntary in that they are offered for adoption by
organisations operating in the industry.
The three largest and most established international organisations are the International
Organisation for Standardisation (ISO), the International Electro technical Commission (IEC),
and the International Telecommunication Union (ITU)
ISO standards in particular are common in purchasing.
Europe
There are THREE European Standardization Organizations (CEN, CENELEC and ETSI) that have
been officially recognized by the European Union and by the European Free Trade
Association (EFTA) as being responsible for developing and defining voluntary standards at
European level.
A product’s compliance with EU legislation

CE marking is a key indicator of a product’s compliance with EU legislation and enables the
free movement of products within the European market. By affixing the CE marking on a
product, a manufacturer is declaring, on his sole responsibility, conformity with all of the
legal requirements to achieve CE marking and therefore ensuring validity for that product to
be sold throughout the EEA, CE marking applies to products, ranging from electrical
equipment to toys and from civil explosives to medical devices.
In general, each country or economy has a single recognised national standards body.
There are two main types of standard.
• Technical standards consist of technical specifications or other precise criteria that

ensure products, manufacturing processes and services meet fixed benchmarks for
quality and health and safety.
• Management system standards provide a framework for a business to manage its
business processes and activities.
Technical standards can be used to:
• ensure quality and safety requirements for products and services
• improve compatibility between products and services
• provide information about products and services
• make the most out of innovations.
Management system standards can help businesses improve their efficiency by providing a
best practice model for them to follow. Showing that your company, product or service
meets a specific standard can also help you compete for business from larger businesses or
government departments, many of whom have strict standards or criteria that suppliers
must comply with. In some instances customers may insist that a business uses standards
before they feel comfortable purchasing their products or services.
International Standards bring technological, economic and societal benefits. They help to
harmonize technical specifications of products and services making industry more efficient
and breaking down barriers to international trade. Conformity to International Standards
helps reassure consumers that products are safe, efficient and good for the environment.
Benefits of standards include:
• Cost savings - International Standards help optimise operations and therefore improve the
bottom line
• Enhanced customer satisfaction - International Standards help improve quality, enhance
customer satisfaction and increase sales
• Access to new markets - International Standards help prevent trade barriers and open up
global markets
• Increased market share - International Standards help increase productivity and
competitive advantage
• Environmental benefits - International Standards help reduce negative impacts on the
environment
3.2 Compare the key legislative, regulatory and organisational requirements when
sourcing from international suppliers

• The use of INCOTERMS
• Applicable law
Introduction
International sourcing- regulation etc

The aim of the question was to test the candidates’ ability to analyse legislative regulatory
and organisational requirements for international sourcing. The answer content was
expected to include such aspects as:
• -applicable law – the supplier’s country law will be different from the law of the
buyer’s country. It is essential to establish whose country’s law will apply to the
supply contract; taxes and duties
• import and export duties and taxes may be applicable on the goods which might
significantly impact on the final cost of the purchases;
• ethical sourcing – social and environmental working conditions, standards and
legislation may differ in the country of supply and therefore must be verified due
their impact on the image of the business;
• fair trade standards – BS should consider whether its trading behaviours and those
of its suppliers meet ethical trading standards internationally;
• currency /payment considerations – payment terms should state the currency,
mode and timing of payment in order to mitigate the risks associated with currency
fluctuations;
• cultural considerations – international laws and attitudes to bribery, corruption and
diversity –BS needs to ensure that the foreign supplier understands what is and is
not acceptable to BS;
• Quality standards – due to differences in national standards it may be necessary to
engage third party inspection/certification of the products to ensure that they
conform to the required specification or internationally recognised standards.
Documents in International Trade
The role of HM Customs & Excise

• Ensure that no unauthorised goods are allowed to enter or leave the
country
• Ensure that all relevant import and export duties are paid
• Compile trade statistics
A Certificate of Origin is documentary evidence that the cargo in a shipment for
international export has been manufactured, processed or produced in a
particular country - the "Origin".The Certificate is initially prepared, issued and
signed by an exporter and then certified and signed by the appropriate
government authority.
The Single Administrative Document for import and export
The SAD (form C88) is recognised by customs around the world and is essential
for trade outside the EU, or of non-EU goods: it details your goods and their
movement.
https://www.gov.uk/declarations-and-the-single-administrative-document
DOCUMENT DESCRIPTION
Invoice Evidence of a contract between the buyer

and the seller
Bill of lading A multi-purpose document: evidence of a

contract for carriage; a receipt for the goods;
a statement of the condition of the goods;
and, in some cases, a document of title
(ownership) as well
Seaway/airway Evidence of contract for carriage by sea or air,
bill and receipt for the goods
Insurance Evidence that insurance has been effected
policy/
certificate
Certificate of Evidence of the country of origin of the goods
origin
SAD -Single The SAD (form C88) is recognised by customs
Administrative around the world and is essential for trade
Document outside the EU, or of non-EU goods: it details
your goods and their movement.
Bill of Lading is used in Export and Import trade under sea mode of shipments.
1. Evidence for a contract of carriage.

Bill of lading serves as evidence for a contract of carriage.So bill of lading is a
document of evidence under a sea consignment. Means, Bill of Lading is proof of
shipment under a sea mode of transport.
2. Proof of receipt of shipment by carrier
Secondly, it is proof of receipt of shipment by carrier of goods to overseas
destination. Once after completion of necessary export customs formalities in an
exporting country, the cargo is handed over to shipping company who carries goods
to final destination. The carrier or their agent issues bill of lading as proof of receipt
of cargo.
3. Bill of Lading is a document of title.
Thirdly, Bill of Lading is a document of title. It is a legal document used as proof of
shipment in various authorities, as it has been approved as per Negotiable
instrument Act. Without original bill of lading, the goods cannot be taken delivery at
destination.
The Air Waybill

Sets out the contract between your business and the carrier you’re using.
Sea Waybill
Similar in many ways to a Bill of Lading in that it acts as a receipt for cargo and also as a
contract for carriage, it differs from a Bill in that it is not a document of title.

The Tariff
The HM Revenue & Customs (HMRC) Integrated Tariff of the United Kingdom (‘the
Tariff’) is published by the Stationery Office as a loose-leaf set of three volumes. The
Tariff:
•explains how to make an entry

•sets out the codes to be used
•gives information on which reliefs from customs duty may be available, and
•gives details of other arrangements for declaration, such as those used when goods
are imported privately or by post.
A tariff is a tax on imports or exports. Money collected under a tariff is called

a duty or customs duty. Tariffs are used by governments to generate revenue or to
protect domestic industries from competition.
There are generally two types of tariffs.
1. Ad valorem tariffs are calculated as a fixed percentage of the value of
the imported good. When the international price of a good rises or falls,
so does the tariff.
2. A specific tariff is a fixed amount of money that does not vary with the
price of the good. In some cases, both the ad valorem and specific tariffs
are levied on the same product.
Letter of Credit
A letter of credit is basically a guarantee from a bank that a particular seller will receive a
payment due from a particular buyer. The bank guarantees that the seller will receive a
specified amount of money within a specified time. In return for guaranteeing the payment,
the bank will require that strict terms are met. It will want to receive certain documents - for
example shipping confirmation - as proof.
Letters of credit are most commonly used when a buyer in one country purchases goods
from a seller in another country. The seller may ask the buyer to provide a letter of credit to
guarantee payment for the goods.
The main advantage of using a letter of credit is that it can give security to both the seller
and the buyer.
Advantages for sellers
By asking for an appropriate letter of credit a seller is reassured that they will receive their
money in full and on time. A letter of credit is one of the most secure methods of payment
for exporters as long as they meet all the terms and conditions. The risk of non-payment is
transferred from the seller to the bank (or banks).
When a buyer uses a letter of credit they get a guarantee that the seller will honour their
side of the deal and provide documentary proof of this.
It’s important to be aware of the additional costs involved in using a letter of credit. Banks
make charges for providing them, so it’s sensible to weigh up the costs against the security
benefits.
Sometimes a letter of credit may combine two types, such as ‘confirmed’ and ‘irrevocable’.
Irrevocable and revocable letters of credit
A revocable letter of credit can be changed or cancelled by the bank that issued it at any
time and for any reason.
Confirmed and unconfirmed letters of credit
When a buyer arranges a letter of credit they usually do so with their own bank, known as
the issuing bank. The seller will usually want a bank in their country to check that the letter
of credit is valid.
For extra security, the seller may require the letter of credit to be ‘confirmed’ by the bank
that checks it. By confirming the letter of credit, the second bank agrees to guarantee
payment even if the issuing bank fails to make it. So a confirmed letter of credit provides
more security than an unconfirmed one.
They can sometimes result in expensive delays, bureaucracy and unexpected costs.
A suitable diagram could be provided to aid analysis.
Other Payment terms

Open account- normal trade credit terms-
Payment in advance-
Bills of exchange- Bills of exchange are similar to cheques and promissory notes.
“A bill of exchange is an unconditional order in writing, addressed by one person to another,
signed by the person giving it, requiring the person to whom it is addressed to pay on
demand or at a fixed or determinable future time a sum certain in money to or to the order
of a specified person, or to bearer”.-Bills of Exchange Act 1882
• The use of incoterms

Incoterms
To avoid confusion, internationally agreed Incoterms should be used to spell out exactly
what delivery terms are being agreed, such as:
• where the goods will be delivered

• who arranges transport
• who is responsible for insuring the goods, and who pays for insurance
• who handles customs procedures, and who pays any duties and taxes
GROUP DUTIES OF BUYER/SELLER

‘E’ The seller’s only duty is to make the goods available at its
terms own premises: it may assist with transit, but this is not a
requirement
‘F’ The seller will undertake all pre-carriage duties, but main
terms carriage arrangements are the responsibility of the buyer
The seller arranges for carriage of the goods, but once
‘C’ they are despatched it has fulfilled its obligations
terms
The seller’s obligations extend to delivery of goods at the
‘D’ specified destination; it is therefore liable for damage or
terms loss in transit, insurances in transit and so on
EXW—Ex Works: the seller ‘delivers’ when he or she places the goods at the disposal of
the buyer at the seller’s premises or another named place. The goods will not have been
cleared for export and not loaded onto any collecting vehicle. Under Ex-Works the seller
has no obligation to load the goods.
DDP—Delivered Duty Paid: the seller delivers the goods to the buyer, cleared for import
and not unloaded from any arriving means of transport at the named place of
destination. Under DDP there is maximum obligation to the seller and, on the other
hand, this option allows minimum obligation on the buyer. The only responsibility of the
buyer under DDP is to offload at the delivery place.
How to use the new rules
• Incorporate the new rules specifically into the relevant contract. They will not
apply otherwise.
• Choose the right rule.
• Use as precise a named place as possible; for example: FCA, Seller’s premises at
142 Holborn, London, England, EC1N 2SW, Incoterms 2010.
Making an import entry

If you are in business and import goods into the UK, you must normally declare them
by making an entry on form C88 the Single Administrative Document (SAD) and
delivering it to us. You may either do this yourself or arrange for an agent to act for
you.
For imports from outside the EU, a buyer would usually use the services of an import
agent or freight forwarder, who presents Customs entries, usually by computer.
Trade with other EU member states
•If you import goods from another EU member state, you do not need to make a
customs entry. However, you may be required to complete an Intrastat
supplementary declaration if your EU imports (arrivals) exceed an annual value
threshold.
The New Computerised Transit System (NCTS)
Is a European wide system, based upon electronic declarations and processing. It is

designed to provide better management and control of Community and Common
Transit. Community Transit is the movement of goods between the EU Member
States
Under the Simplified Procedures Authorised Consignors / Consignees will, as at
present, be able to carry out Community Transit operations without presenting the
goods and corresponding documents at the Customs Ofice.
For companies, the advantages of using NCTS include:
•Improved quality of service - less time waiting at Customs, greater flexibility in

presenting declarations
•Quicker control and release of goods at the Office of Destination, leading to earlier
discharge of the transit procedure and faster release of the guarantee
•Reduction in the costs, time and effort associated with the lengthy paper based
procedures for declaring goods, eventually resulting, through electronic interface
with companies, in a largely paperless environment for Transit
•Opportunity to integrate electronic Transit declaration procedures with a
companies existing computerised system
•Greater clarity of the Transit operation and consistency in requirements
•Additional advantages for companies using Simplified Procedures as Authorised
Consignors and Consignees
Inland Clearance Depots (ICDs)

Instead of having your goods cleared at a port or airport, you can obtain customs clearance
at an approved inland depot. There are depots throughout the UK. Normally only goods in
containers, rail freight wagons or road vehicles which can be sealed may be removed for
clearance inland. However, in some cases we may allow the use of another means of
conveyance which cannot be sealed.
Exchange rate Risk

Exchange rates are important for firms in international supply markets. As an example,
consider a UK company with extensive importing activities.
Remember SPICED_
• Strong
• Pound
• Imports
• Cheaper
• Exports
• Dearer
Firms producing goods for the domestic market in competition with foreign imports
similarly want the value of sterling to be low, as this makes imports more expensive in
domestic terms, favouring domestic suppliers. If sterling rises, imports will be more
competitive. Fluctuations in foreign exchange rates therefore represent a source of financial
risk for purchasing organisations. An overseas supplier will normally quote a price in its own
currency, and the buyer will need to purchase currency in order to make payment. If sterling
weakens between the time when the price is agreed and the purchase of the currency, the
buyer will end up paying more. The risk is even greater if staged payments are to be made.
There are a number of ways of managing exchange rate risk.
• The purchaser might be able to transfer the risk to the suppliers, by getting them to
quote prices in their own currency.
• If fluctuations are not extreme, it may be possible to estimate the rate that will apply
at the time of payment, and negotiate prices accordingly (perhaps with a contract
proviso that prices will be renegotiated if the exchange rate fluctuates by a stated
percentage or reaches a stated rate).
• It may be possible to agree to pay for the goods at the time of contract (i.e. at today's
known exchange rate), without waiting for later delivery. This is an example of a
technique called 'leading' (making payment in advance of the due date to take
advantage of a positive exchange rate):
• Another approach would be to use one of the available tools of currency
management, such as a forward exchange contract, which enable the importer to
'hedge' the risk. Under this arrangement, the organisation contracts now to purchase
the overseas currency at a stated future date, at a rate of exchange agreed now.
• If exchange rate risks are severe, a purchaser may have to consider
temporarily sourcing from the domestic market, from a single currency
market such as the EU, or from other markets with less volatile
currencies.
• Applicable law
Applicable law-the Rome Convention 1980 allows the parties to expressly agree on which
county law will apply in the event of a contractual dispute. Without such stipulation, the
nature of the contract and the prevailing circumstances will dictate - usually the country
mostly associated with the contract, e.g. in which the contractual work will be performed.
The role of HM Customs & Excise

• Ensure that no unauthorised goods are allowed to enter or leave the
country
• Ensure that all relevant import and export duties are paid
• Compile trade statistics
4.0 Understand ethical and responsible sourcing
Ethical sourcing focuses on conducting sourcing activities at the highest

possible standards of responsible, sustainable and socially aware business practice.
Companies across industries include ethical sourcing policies in their operational

standards and principles. While the primary goal is to ensure that
products/goods and services are produced and delivered ethically, responsibility
extends beyond the act of sourcing goods and services. It also includes the
processes of evaluating and engaging with a supply market through to managing
relationships with suppliers
Ethical sourcing is the process of ensuring the products being sourced are obtained
in a responsible and sustainable way, that the workers involved in making them are
safe and treated fairly and that environmental and social impacts are taken into
consideration during the sourcing process. According to the Chartered Institute of
Purchasing & Supply (CIPS), ethical sourcing also means the procurement process
respects international standards against criminal conduct and human rights abuses
and responds to these issues immediately if identified.
4.1 Describe the impact of international ethical standards on procurement and supply
• Bribery
• Corruption
• Fraud
• Human rights
• Modern slavery
• Bribery- when a person offers, gives or promises to give a "financial or other advantage"
to another individual in exchange for "improperly" performing a "relevant function or
activity".
• Bribery and Corruption Act 2010- UK legislation
• Foreign Corruption and practices act FCPA 1977- USA legislation
Bribery and Corruption Act 2010- UK legislation
• Bribery i.e. offering bribes

• Being bribed -requesting or agreeing to receive bribes
• Bribery of foreign public officials
• Failure of a commercial organisation to prevent bribery on its behalf - by
not having ‘adequate procedures’
• Corruption
Corruption does not in itself define a specific crime in the UK, however it is a term
used to describe a wide range of unethical behaviour, including fraud and bribery.
Types of Corruption
• unethical access to data or competitive intelligence.
• fraudulent working practices at any point across in the supply chain.
• bribery and corruption in the labour market.
• conflicts of interest with favours being given and or preferential treatment.
• criminal offences relating to safety and workers’ rights in the supply chain.
• Fraud
By fraud we mean:
“Any intentional false representation, including failure to declare information or

abuse of position that is carried out to make gain, cause loss or expose another to
the risk of loss”
In the UK, the term fraud is used to describe many acts such as deception, bribery,
forgery, extortion, corruption, theft, conspiracy, embezzlement, misappropriation,
false representation, concealment of material facts and collusion- CIPFA
https://www.cipfa.org/html/elearning/nasbm/fraud%20awareness/resources/fra
uddefinitionandexamples.pdf
Types supply chain fraud - such as:
supply chain procurement related fraud - falsified supplier invoices, breach of
corporate purchasing card policies, falsifying claims, supplier payroll fraud,
fraudulent theft or mis-transfer of supplier stock, equipment or consumables,
information broking - on commercially sensitive information , competitor fraud - this
is essentially competitors unethically gaining access to data or competitive
intelligence, bribery to secure favourable contract or sub- contract awards, collusion
with customers to defraud the business ,collusion with
suppliers to defraud the business , on-line procurement fraud, telephone fraud
abuse, corporate identity theft or ‘Phising’, Intentional misrepresentation (over
stating profits for example).
Preconditions
• The fraudster must have a motive
• There must be assets worth stealing
• There must be opportunity
• Lack of control
Prevention
• Ethical values should be a key criterion in the recruitment and selection of
staff to work in the purchasing function
• Training will be supported by a strong stance devolved down from the most
senior levels of the organisation
• Unduly close relationships between purchasers and suppliers should be
prevented from developing
• Ensure separation of responsibilities
• Modern Slavery
Today slavery is less about people literally owning other people – although that still
exists – but more about being exploited and completely controlled by someone else,
without being able to leave.
https://www.antislavery.org/slavery-today/modern-slavery/
Modern Slavery is the term used within the UK and is defined within the Modern
Slavery Act 2015. The Act categorises offences of Slavery, Servitude and Forced or
Compulsory Labour and Human Trafficking (the of which comes from the Palermo
Protocol).
These crimes include holding a person in a position of slavery , servitude forced or

compulsory labour, or facilitating their travel with the intention of exploiting them
soon after.
It is possible to be a victim even if consent has been given to be moved.
Children cannot give consent to being exploited therefore the element of coercion
or deception does not need to be present to prove an offence.
Types of Human trafficking
There are several broad categories of exploitation linked to human trafficking,

including:
• Sexual exploitation
• Forced labour
• Domestic servitude
• Organ harvesting
• Child related crimes such as child sexual exploitation, forced begging, illegal drug
cultivation, organised theft, related benefit frauds etc
• Forced marriage and illegal adoption (if other constituent elements are present)
4.2 Identify practices that support ethical procurement

• Prequalification and assessment criteria
• Due diligence on suppliers and risk assessment
• Supporting information on ethical practices in supplier quotations and tenders
• Contractual clauses
• Supplier monitoring
• KPIs
Ethics are the principles which define behaviour as right, good and appropriate and members
are bound to uphold certain values in their professional activities.
The value of the transactions in the procurement process along with pressures to lower costs
could result in bribery, corruption and other practices which could be deemed unethical. It is
therefore imperative that procurement operates ethically, with impartiality, transparency, and
professionalism.
Enhance and protect the standing of the profession, by:
• never engaging in conduct, either professional or personal, which would bring the
profession or the Chartered Institute of Procurement & Supply into disrepute
• not accepting inducements or gifts (other than any declared gifts of nominal value which
have been sanctioned by my employer)
• not allowing offers of hospitality or those with vested interests to influence, or be
perceived to influence, my business decisions
• being aware that my behaviour outside my professional life may have an effect on how I
am perceived as a professional
Maintain the highest standard of integrity in all business relationships, by:

• rejecting any business practice which might reasonably be deemed improper
• never using my authority or position for my own financial gain
• declaring to my line manager any personal interest that might affect, or be seen by others
to affect, my impartiality in decision making
• ensuring that the information I give in the course of my work is accurate and not
misleading
• never breaching the confidentiality of information I receive in a professional capacity
• striving for genuine, fair and transparent competition
• being truthful about my skills, experience and qualifications
Promote the eradication of unethical business practices, by:
• fostering awareness of human rights, fraud and corruption issues in all my business
relationships
• responsibly managing any business relationships where unethical practices may come to
light, and taking appropriate action to report and remedy them
• undertaking due diligence on appropriate supplier relationships in relation to forced labour
(modern slavery) and other human rights abuses, fraud and corruption
• continually developing my knowledge of forced labour (modern slavery), human rights,
fraud and corruption issues, and applying this in my professional life
Enhance the proficiency and stature of the profession, by:
• continually developing and applying knowledge to increase my personal skills and those of
the organisation I work for
• fostering the highest standards of professional competence amongst those for whom I am
responsible
• optimising the responsible use of resources which I have influence over for the benefit of
my organisation
Ensure full compliance with laws and regulations, by:
• adhering to the laws of the countries in which I practise, and in countries where there is no
relevant law in place I will apply the standards inherent in this Code
• fulfilling agreed contractual obligations
• following CIPS guidance on professional practice
Ethical procurement (often referred to as responsible procurement) refers to procurement

processes which;
• respect fundamental international standards against criminal conduct (like bribery, corruption
and fraud) and human rights abuse (like modern slavery), and respond immediately to such
matters where they are identified, and
• result in progressive improvements to the lives of people who contribute to supply chains and
are impacted by supply chain decisions.
Sustainable procurement considers the environmental, social and economic consequences of

design, materials used, manufacturing methods, logistics and disposal.
Buyers need to address these issues throughout the supply chain. To achieve this, suppliers,
especially in developing countries or countries with weak workplace regulatory environments,
need knowledge, guidance and incentives to improve from the organisations they supply
Labour standards codes are usually based on the International Labour Organisation’s
conventions. The ILO’s 1998 ‘Declaration on Fundamental Principles and Rights at Work’ set out
eight core conventions whose principles are binding on all ILO member states, i.e. most countries.
Labour core standards are but ONE aspect of CSR- they do not cover bribery, corporate
governance or environmental/sustainability issues- but are fundamental to companies to ensure
ethical supply chains.
ILO Core Labour Standards

1. Forced Labour Convention,
2. Freedom of Association and Protection of the Right to Organise Convention,
3. Right to Organise and Collective Bargaining Convention,
4. Equal Remuneration Convention,
5. Abolition of Forced Labour Convention,
6. Discrimination (Employment and Occupation) Convention,
7. Minimum Age Convention,
8. Worst Forms of Child Labour Convention,
ETI Ethical Trading Initiative
The Ethical Trading Initiative (ETI) is an alliance of companies, trade unions and voluntary
organisations. They work in partnership to improve the lives of poor and vulnerable workers
across the globe that make or grow consumer goods – everything from tea to Tshirts, from
flowers to footballs.
ETI code of practice:
1. Employment is freely chosen

2. Freedom of association and the right to collective bargaining are respected
3. Working conditions are safe and hygienic
4. Child labour shall not be used
5. Living wages are paid
6. Working hours are not excessive
7. No discrimination is practised
8. Regular employment is provided
9. No harsh or inhumane treatment is allowed
SAI is a non-governmental, international, multi-stakeholder organization dedicated to

improving workplaces and communities by developing and implementing socially
responsible standards.
In 1997, SAI launched SA8000 (Social Accountability 8000) – a voluntary standard for
workplaces, based on ILO and UN conventions – which is currently used by businesses and
governments around the world and is recognized as one of the strongest workplace
standards.
Elements of the SA8000 Standard
1. Child Labour
2. Forced or Compulsory Labour
3. Health and Safety
4. Freedom of Association and Right to Collective Bargaining
5. Discrimination
6. Disciplinary Practices
7. Working Hours
8. Remuneration
9. Management System
Codes and standards can be subdivided in several ,different ways:

• Mandatory (e.g. UK Competition Commission’s Grocery Supply Code of Practice) vs.
voluntary(e.g. SA8000).
• Those based on minimum international standards, and those which go beyond
• Those which are independently verified
• Those which apply to an organisation and those which apply to a product
• Those which involve supplier and worker representatives in the setting and governance of
the standard (as appropriate to the objectives of the standard).
4.3 Compare the use of audits and other feedback mechanisms to evaluate ethical standards in the
workplace
•Monitor supplier performance
•Encourage dialogue with suppliers on improvements to process
•Recommend remedial actions where appropriate
•Identify and address potential conflicts of interest
•Monitor supplier performance
In cases where a contract require social or environmental standards of the supplier, an audit can
be invaluable in determining which parts of the standard were met.
Audits involve in-situ checking of the supplier’s conditions, and, in some cases, off-site interviews
with workers and ex-workers in places where they are free to speak honestly. Audits can b
undertaken by a third party (NGOs, commercial audit companies) or by staff of the buyer.
Ethics audits
• Ensure that top management is committed to the audit
• Appoint a suitable ethics committee to write the terms of reference for the audit
and an ethics officer to conduct it
• Create a diverse team of employees to formulate audit questions regarding the
organisation’s ethical performance
• Analyse official guidance, such as ethical mission statements and codes of ethics,
to see how clear and thorough it is
• Ask people in the organisation questions about why they think various unethical
behaviours have occurred
• Benchmark your organisation’s ethical practices to those of others in the same
industry
• Formally report and communicate findings to all concerned parties
Advantages of using third party audits

Feedback on supplier performance will be factual, impartial and independent.
Where the buying organisation is geographically distant, a local third party auditor can be
used.
A third party may have more experience and a better understanding of cultural and
sustainability factors.
Some standards can only be audited by a third party e.g. ISO 14001.
Disadvantages of using third party audits
Engaging with a third party auditor can be expensive and time consuming.
An audit is only a snapshot at a particular point in time.
Using a third party relies on careful selection of an audit organisation.
Where there is a sensitive relationship between buyer and supplier, bringing in a third party
may lead to supplier suspicion, demotivation and dishonesty if the supplier feels threatened.
Stonger answers also recognised that third party auditing alone is usually not sufficient to
guarantee compliance with sustainability standards within supply chains.
•Recommend remedial actions where appropriate
Where breaches of basic standards occur, such as those involving corruption, fraud, bribery
and modern slavery, a ‘zero tolerance approach’ should be adopted, with such breaches
addressed immediately.
To enable swift progress to be made at the end of an audit, the Corrective Action Plan (CAP)
needs to be shared with all relevant decision makers, i.e. not only site managers, supplier
owners and buyers but also workers’ representatives.
Workers can comment on the veracity of the audit, suggest improvements and highlight the
highest-priority changes. Workers are the best monitors of whether changes have occurred
at their workplace. Commercial audit companies may offer to monitor the implementation
of the ‘corrective actions’. However, the buyer’s direct involvement in discussions with
suppliers and worker representatives emphasises the buyer’s desire for improvements to be
made. For example, they could update the contract to make a commitment to the supplier
for a fixed term, on the condition that improvements are satisfactorily implemented.
Investigating ethical breaches

• Problem definition
• Framing the issue
• Factual evidence collection
• Evaluation of factual evidence and credibility
• Evidence interpretation
• Conclusion(s) and presentation
For Urgent Issues
• Investigate in detail the possible breaches and their extent including framing the issue,
evidence collection, full evaluation and a clear action plan.
• An early and urgent dialogue with the supplier (at executive or CPO level) will be
necessary.
• Review the level and content of key performance indicators and take remedial action if
unclear, to create confidence in the market, transparency and reassurance to investors
and customers
• Produce a supply chain map to outline vulnerabilities
• Conduct an audit, or appoint a third party to conduct the audit-urgently
• Need for better auditing regime to be planned
• In extreme cases it may be necessary ,as a last resort, to exit the supplier or even alert
the police
• After accusation made, international supplier should issue statement indicating that the
accusations are being taken seriously, and immediate action is being taken, as
reputation of food organisation is at risk
• Food organisation should check workers of supplier have not been treated badly
throughout the known supply chain
• Communication with the media will have to be carefully planned
•Identify and address potential conflicts of interest
Stakeholders
Stakeholders are people or groups who are affected by the actions of your organization.
Often they also have the ability to affect you. This is why ISO 26000 emphasizes stakeholder
involvement, and provides suggestions on how to go about it..
In order to improve organizational performance, stakeholder engagement should:
• Include leaders of different stakeholder groups (ex. community, workers,

stockholders), and also seek to involve the broader population to ensure fairness
and to obtain different viewpoints
• Emphasize two-way communication (listen to your stakeholders, as well as
explaining yourself to them)
• Keep a realistic and positive tone; avoid making vague or ambitious promises that
can’t be kept
• NOT be used mainly as a vehicle for publicity or photo opportunities
Managers may be resistant to responsible procurement, if:

• It is perceived as being irrelevant to – or, worse, incompatible with – the critical
success factors for which they are responsible and accountable
• It is perceived as being ‘soft’ or subjective, without a sound business case to justify
effort and investment
• It is perceived as a public relations exercise: something to which ‘lip service’ can
usefully be paid without the need for meaningful action
• It is perceived as the preserve of the procurement function, without significant
implications for other functions – or as an attempt by the procurement function to
bolster its influence and status
• It threatens the status quo, established norms and procedures, and established
competencies and relationships
Internal Resistance to responsible procurement may be a result of:

• A lack of understanding or poor communication
• Conflicting priorities
• Insufficient resources
• Not having a sound business case
• Change, threatening existing ways of working and relationships
• It is seen as an activity that only affects procurement and doesn't require other
functions to do anything
• The need to compromise on issues such as quality to achieve sustainability standards
• The threat of increased costs.
Reduce internal resistance to 'responsible procurement' within an organisation

• Gaining buy-in and visible support from senior managers/directors
• Adjusting organisational and individual targets and measures that are perceived to
make responsible procurement more difficult
• Obtain cross-functional buy-in
• Align responsible procurement objectives clearly to the organisation's mission and
values
• Articulate the benefits of responsible procurement to key stakeholders
• Incorporate into day-to-day processes so that they become "business as usual"
• Demonstrate the consequences of not operating responsible procurement
• Benchmarking against other respected organisations that operate responsible
procurement
• Articulate the benefits clearly of responsible procurement initiatives
• Build responsible procurement activities with internal stakeholders who support the
initiatives
Managing conflicting priorities
• Communicating, promoting and reinforcing sustainability values and policies in such

a way as to secure cross-functional stakeholder ‘buy-in’
• Emphasising the benefits of sustainability and risks of non-sustainability for each
stakeholder group
• Incorporating sustainability goals, values and aspirations in corporate mission, value
and policy statements
• Co-opting senior management champions for cross-functional leadership
• Clear, cross-functional communication of (a) the standards expected in the supply
chain and (b) methods of working with suppliers to achieve these standards
• Aligning performance measurement and reward systems cross-functionally, in order
to reinforce congruent and consistent action
• Risk and vulnerability impact assessments
• Capture and dissemination of learning from critical incidents, and attempting to
identify and resolve root causes
• Maintaining consistency in sustainability efforts, so that they become ‘business as
usual’
4.4Contrast processes and practices that the organisation could adopt to meet the
requirements of Corporate Social Responsibility (CSR)

• Design procurement processes to deliver social outcomes as well as, or as an alternative to,
normal economic measures of value
• Expand reporting frameworks to include ecological and social performance
• Define organisational value for money to include social outcomes - use of local labour,
participation of disadvantaged groups
-----------------------------
For the purposes of this module:
Corporate Social responsibility= Sustainability= Triple Bottom Line

Corporate Social Responsibility. it is a business principle that encompasses ethical trading, social
responsibility and environmental sustainability. Although it relates to all aspects of organisational
activities, purchasing and supply has particular emphasis on the practices of external party
suppliers and their contracts with the organisation.
Corporate responsibility & sustainability (CR&S) is about enabling companies to incorporate

creation of social and environmental, as well as economic, value into core strategy and
operations. This improves management of business risks and opportunities whilst enhancing
long-term social and environmental sustainability.- Cranfield 2015
Corporate social responsibility mandates usually revolve around the triple bottom line approach
to organisational sustainability (CIPS: Balancing commercial and sustainability issues purpose).
Triple Bottom Line (TBL) is embedded into a company's CSR and is closely related to the 3Ps.
The phrase “the triple bottom line” was first coined in 1994 by John Elkington, the founder of a
British consultancy called SustainAbility.
Companies should be preparing three different (and quite separate) bottom lines. One is the
traditional measure of corporate profit—the “bottom line” of the profit and loss account.
The second is the bottom line of a company's “people account”—a measure in some shape or
form of how socially responsible an organisation has been throughout its operations.
The third is the bottom line of the company's “planet” account—a measure of how
environmentally responsible it has been.
The triple bottom line (TBL) thus consists of three Ps: profit, people and planet. It aims to
measure the financial, social and environmental performance of the corporation over a period of
time. Only a company that produces a TBL is taking account of the full cost involved in doing
business.
https://www.economist.com/news/2009/11/17/triple-bottom-line

ISO 20400:2017 Sustainable procurement -Is the world’s first international standard to,
provide guidance on delivering sustainability objectives through its supply chain.
ISO 20400:2017 provides guidance to organizations, independent of their activity or size, on
integrating sustainability within procurement, as described in ISO 26000. It is intended for
stakeholders involved in, or impacted by, procurement decisions and processes.
While the standard outlines how an organisation can integrate efficient procurement steps
into its existing procurement methods, it does not make recommendations for changing the
procurement metods themselves.
The standard also uses the core pillars of sustainability, taken from ISO26000:
This is a guidance standard like ISO 26000, not a requirements ,standard like ISO 14001. This
,means an organisation cannot be certified for compliance but can be evaluated and/or
advised by a competent third party.
“Procurement that has the most positive environmental, social and economic impacts on
a whole life basis”.
The standard also uses the core pillars of sustainability, taken from ISO26000:
• Organisational governance
• Human rights
• Labour practices
• The environment
• Fair operating practices
• Consumer issues
• Community involvement and development
ISO14001
ISO 14001 is an internationally agreed standard that sets out the requirements for an
environmental management system. It helps organizations improve their environmental
performance through more efficient use of resources and reduction of waste, gaining a
competitive advantage and the trust of stakeholders.
Benefits
• Demonstrate compliance with current and future statutory and regulatory

requirements
• Increase leadership involvement and engagement of employees
• Improve company reputation and the confidence of stakeholders through strategic
communication
• Achieve strategic business aims by incorporating environmental issues into business
management
• Provide a competitive and financial advantage through improved efficiencies and
reduced costs
• Encourage better environmental performance of suppliers by integrating them into
the organization’s business system
Requirements for an EMS under ISO 14001
• An environmental policy statement

• Identification of all aspects of the organisation’s activities, products and services
that could have a significant impact on the environment
• Establishing performance objectives and targets for the EMS
• Implementing an EMS to meet these objectives and targets
• Establishing a programme for periodic auditing and review of environmental
performance
• Taking corrective and preventive actions when deviations from the EMS are
identified
• Undertaking periodic reviews of the EMS by top management
Practices
‘While the tender documentation typically focuses on the specific nature of the product
requirement, there is often also a qualitative requirement, focusing on the experience,
capacity and service level of the prospective supplier’. CIPS, 2012, p.114
Pre-qualification questionnaires (PQQ’s)
Evaluates how indicators of desired behaviours can support compliance with standards for
sustainability to supply chains, the capabilities of third party organisations to promote
compliance with standards for sustainability in supply chains and critically assesses how
relationships with suppliers should deal with infringements of standards for sustainability
• Environmental performance (e.g. having an environmental management system in

place to ISO 14001 standard or equivalent)
• Supply chain (e.g. details of measures or initiatives aimed at addressing
sustainability impacts)
• Sustainability training and awareness (e.g. how the supplier will ensure that staff
are adequately trained and made aware of associated sustainability issues)
Needs and Alternative Actions

When analysing the organizational need for specific goods or services, the organization
should consider what alternative options might exist to deliver the same outcome in a better
way, e.g.
• eliminating the demand by reviewing the need;
• reducing the frequency of use/consumption;
• identifying alternative methods of fulfilling demand, such as outsourcing
services or leasing rather than owning;
• aggregating and/or consolidating the demand;
• sharing use between divisions or organizations;
• encouraging recycling, repairing, reusing or repurposing of older goods;
• determining whether outsourcing is required and how to extend the scope of
responsibility for environmental and labour practices throughout supply chains;
• using recycled/renewable materials.
Environmental issues in purchasing

• The recovery, recycling and reusing of materials and waste products
• The safe disposal of waste products that cannot be recycled
• Supplier selection policies that support organisations conforming to environmental
standards with regard to air, water and noise pollution
• Supplier and product selection policies that reflect concern for conservation and renewal
of resources
• Safe testing of products and materials
• Concern for noise, spray, dirt and vibration in the operation of transportation facilities
• Define organisational value for money to include social outcomes - use of local labour,
participation of disadvantaged groups
• Design procurement processes to deliver social outcomes as well as, or as an alternative to,
normal economic measures of value
An improvement to “economic, social and environmental well-being of the relevant area” -

UK Social value Act
Or as YPO’s head of procurement services Gillian Askew explains:
‘Social value’ is a way of thinking about how scarce resources are allocated and used. It
involves looking beyond the price of each individual contract and looking at what the
collective benefit to a community is when a public body chooses to award a contract.
The reality is that ‘social value’ is a hugely complex area; it’s difficult to deliver beyond the
obvious and the topic itself is so broad it can often confuse even those with the best of
intent by the sheer scale, complexity and challenge of practical interpretation.
‘Social value’ is about aiming beyond a long-standing volunteering program and a well-
established apprenticeship scheme. It’s about seeing further ahead than a local business
target into societal and community development. Social value is about using the spend in
any organisation to drive social and economic opportunities to those most in need, to the
most vulnerable in society. It’s about protecting our planet one procurement at a time and
it’s about breaking down barriers and developing opportunities to do good business that
does good.
https://www.ypo.co.uk/social-value/what-is-social-value
Examples of social value can come in lots of shapes and sizes. Some of the more obvious and
usually well embedded examples include:
1. Apprenticeship schemes
2. Graduate schemes
3. Training and development programs to up-skill employees
4. Work placements or work experience
5. Reduce waste to landfill (recycling)
6. Carbon reduction initiatives
7. Local business
8. SME initiatives
9. Volunteering programs
10. Charitable donations/awareness campaigns
11. Sustainable product sourcing/design/manufacture
Implementation Guide: https://www.ypo.co.uk/news-and-events/blog/implementation-

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Module purpose

1.2 Differentiate between approaches to the sourcing of requirements from suppliers

• Assessment of suppliers proposals

3.0 Understand compliance issues when sourcing from suppliers

4.0 Understand ethical and responsible sourcing

4.2 Identify practices that support ethical procurement

1.0 Understand options for sourcing requirements from suppliers

1.1 Identify the sourcing process in relation to procurement

• Definitions of sourcing and outsourcing

“The strategic contracting

• Make or buy decisions

FACTORS SUPPORTING MAKING/DOING FACTORS SUPPORTING BUYING IN

Factors in make Buy

• Strategic and tactical sourcing costs and benefits of outsourcing

Tactical and operational sourcing

• Outsourcing non- core and core work or services

Managed services is increasing used instead of outsourcing to refer to the practice of

THE IMPORTANCE OF STRATEGIC OUTSOURCING

Core Competency Check

“The set of competencies that differentiate one organization from another”-

Outsourcing matrix- VERY VERY important

A company may find it beneficial to outsource work that:

Factors to Consider When Outsourcing

• Supplier pre-qualification or criteria for supplier appraisal

Benefits of pre-qualifying suppliers:

•pre-qualification is a part of pre-contract supplier appraisal

• Vendor or supplier performance management

KPIs for supplier performance

Service/relationship Competence, congeniality and co-operation of account managers

Financial stability Ability to meet financial commitments and claims

Innovation capability Number of innovations proposed or implemented (and/or

Overall performance Benchmarking against other suppliers

• Potentially higher cost of services (including contractor profit margin), contracting

Making a success of outsourcing (Zenz)

Why does it go wrong?

Drivers of Outsourcing - CIPS

• Regulations affecting employees’ terms of employment

Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE)

What do you need to do to comply with TUPE?

• Employers involved in a business transfer must inform appropriate representatives of the

1.2 Differentiate between approaches to the sourcing of requirements from suppliers

• Single, dual and multiple sourcing arrangements

Single sourcing may be considered appropriate where:

Partnership Sourcing- Defined by Partnership Sourcing Ltd (PSL):

A commitment to both customers and suppliers, regardless of size, to a long term

Key drivers for establishing partnerships identified by CIPS include:

• Drive for lower acquisition costs

Key characteristics of partnership sourcing

• The use of tendering: open, restricted and negotiated approaches to tendering

In the public sector they call this contract award procedures.

3.The competitive dialogue procedure-This procedure is used for more complex

• where no tenders were submitted in an open or restricted procedure

Advantages of the Open procedure Disadvantages of the Open procedure

• Increased competition due to the • Resource implications of a potentially

Advantages of the Restricted procedure Disadvantages of the Restricted procedure

• Restricts the number of organisations • Speculative SQ’s being submitted due to

Disadvantages of the Competitive

FIVE CRITERIA FOR THE USE OF COMPETITIVE BIDDING

FOUR SITUATIONS IN WHICH COMPETITIVE BIDDING SHOULD NOT BE USED

• Direct negotiations with suppliers