Assessor’s feedback/comment
Assignment Question
Classification: Internal Use
Excusive Summary:
The assessment has been related to the development of the sourcing plan in SABIC. The procurement department has been dedicated to procure the right materials, cost, and time to all SABIC affiliates. Valves have been selected as an example of material category procured by spot buying department.
It has been found that the procurement function has to implement various aspects of modern day technology and automation to be able to supply the needs of the industry. The industry has become competitive and thus it is important for the company to produce at cheaper costs. Cost savings can be done in the stage of procurement. Collaboration with suppliers will be the key in understanding the market’s modern day trends as well as innovation techniques that can improve the overall procurement process. Suppliers can also know about the needs and demands of the company with the help of this collaboration. These suppliers are to be contracted and chosen based on the quality of the products. They are to be connected on a real time platform whereby they can measure the needs and demands of the company. This will enable suppliers to adjust their production quickly accordingly. Cost savings can also be done with the help of proper techniques by the procurement department. The procurement department can also take the help of data analysis, which can provide them with proper information relating to the demand, types of customers, conditions in the market etc.
All these aspects can be summed up in the development of a proper procurement strategy that in turn can contribute to the development of the procurement department in the days to come.
Introduction
The basis of the success of the companies in the modern days has been the development of a proper supply chain management (SCM) which in turn has helped the companies to procure the right kind of materials, developing the same and delivering the finished products in a timely manner to the eventual customers. The globalization of the business environment has made it apparent that customers today have various choices at hands in most of the industries and thus the companies have to perform to the best of their abilities in order to succeed. The SCM helps the organizations in this regard and provides them the ability to deliver high quality products and services to the eventual customers (Christopher, 2016).
The researches in the field have analysed that the needs and the preferences of the customers in the market play an integral role in the development of procurement functions in the SCM process. Technological aspects have been at the fore in the development of the procurement process in SCM today (De Barros et al, 2015).
SABIC procurement process is developed to make the procurement department in sync with the business environment in Saudi Arabia. The procurement function related to valves will be consider.
1. Assessor’s feedback/comment
Assignment Question
Classification: Internal Use
Excusive Summary:
The assessment has been related to the development of the
sourcing plan in SABIC. The procurement department has been
dedicated to procure the right materials, cost, and time to all
SABIC affiliates. Valves have been selected as an example of
material category procured by spot buying department.
It has been found that the procurement function has to
implement various aspects of modern day technology and
automation to be able to supply the needs of the industry. The
industry has become competitive and thus it is important for the
company to produce at cheaper costs. Cost savings can be done
in the stage of procurement. Collaboration with suppliers will
be the key in understanding the market’s modern day trends as
well as innovation techniques that can improve the overall
procurement process. Suppliers can also know about the needs
and demands of the company with the help of this collaboration.
These suppliers are to be contracted and chosen based on the
quality of the products. They are to be connected on a real time
2. platform whereby they can measure the needs and demands of
the company. This will enable suppliers to adjust their
production quickly accordingly. Cost savings can also be done
with the help of proper techniques by the procurement
department. The procurement department can also take the help
of data analysis, which can provide them with proper
information relating to the demand, types of customers,
conditions in the market etc.
All these aspects can be summed up in the development of a
proper procurement strategy that in turn can contribute to the
development of the procurement department in the days to
come.
Introduction
The basis of the success of the companies in the modern days
has been the development of a proper supply chain management
(SCM) which in turn has helped the companies to procure the
right kind of materials, developing the same and delivering the
finished products in a timely manner to the eventual customers.
The globalization of the business environment has made it
apparent that customers today have various choices at hands in
most of the industries and thus the companies have to perform
to the best of their abilities in order to succeed. The SCM helps
the organizations in this regard and provides them the ability to
deliver high quality products and services to the eventual
customers (Christopher, 2016).
The researches in the field have analysed that the needs and the
preferences of the customers in the market play an integral role
in the development of procurement functions in the SCM
process. Technological aspects have been at the fore in the
development of the procurement process in SCM today (De
Barros et al, 2015).
SABIC procurement process is developed to make the
procurement department in sync with the business environment
in Saudi Arabia. The procurement function related to valves
will be considered in the context of SABIC. Thus, it will be
important to understand the process of procurement in the
3. department so that it can provide a detailed understanding of the
similar companies all over the world.
This category plan provides an in-depth analysis of the key
aspects surrounding the valves category as of August 2018,
presenting a schema for a category strategy based on current
SABIC requirements and supply market dynamics. The category
team is to monitor the evolution of internal requirements and
external supply market dynamics, and adjust the proposed
recommendations in this document as required. The scope of the
category buyer coversall manual and control valves, including
spare parts and services.
Internal category profile
· In 2017, spend for valves, spares and services was USD 41.1
MM
· SABIC’s KSA affiliates account for 77% of valves and spares
spend
· Number of unique specs is too high (125,000)
· Over the last three years, SABIC has purchased valves from
more than 683 suppliers
· 524 active plank agreements, only 12% of spend procured
through these, 64% of these contracts now expired
· Several data quality issues: availability of capital projects
data, spend categorization discipline and accuracy, and vendor
name standardization
External category profile
· Global market size for industrial valves in 2017 was
approximately USD 20.5 billion
· Over the next 4 years, GCC (Gulf Cooperation Council)
market activity expected to grow at 11% CAGR (Compounded
Annual Growth Rate)
· Despite recent consolidation, valves supply market is very
fragmented (top 10 suppliers account for 25% of the world’s
production facilities)
Total cost of ownership
· Acquisition cost represents less than 50% of the total lifecycle
cost
4. · Current selection of suppliers based on acquisition price is
suboptimal
Category strategy
· Three main category objectives: complexity reduction (of
specifications and suppliers), cost reduction (leveraging total
cost of ownership models), and localization of valves and spares
· Improve master data quality and conduct a spec
standardization
· Reduce number of suppliers, bundling volumes across
geographies and over time, also across categories (mega
supplier agreements) and across companies (buying consortia)
· Establish long term performance based agreements with a
reduced number of suppliers to be used both in new projects and
replacements/repairs – three criteria: technical qualification,
total cost of ownership, and local content development
· Price revision mechanism (e.g. index, frequency, etc.) to be
part of the contract
· Pilot VMI (Vendor Managed Inventory) with a selected
number of SKUs (Stock Keeping Unit) and back-to-back SLAs
(Service Level Agreement) with customers and suppliers
Category strategy implementation
· Implementation plan sees all strategies above yielding benefits
within 12 months
· Four enablers: people (capacity, training, cross-functional
teaming), information (access within and outside SABIC), tools
(as needed), and organizational alignment (management
sponsorship)
We believe that, by following the recommendations laid out in
this plan, SABIC can see a double-digit reduction of its valves
cost while improving service levels offered to its internal
customers.
1. Category Definition
1.1. Category Description
Valves are mechanical devices widely used across many
industries (e.g., petroleum, petrochemical, chemical, power,
pharmaceutical, water, etc.) to regulate, direct or control the
5. flow of a fluid (gases, liquids, fluidized solids) by opening,
closing, or partially obstructing various passageways.
There are two common ways to classify valves. The first one, by
how they are actuated. Based on this, valves can be hydraulic,
pneumatic, electrical and manual. The second and most common
classification is based on their design. As we describe below,
different designs are suitable for different process requirements.
Gate valves
A gate valve opens by lifting a round or rectangular gate/wedge
out of the path of the fluid. The distinct feature of a gate valve
is that the sealing surfaces between the gate and seat are planar.
Gate valves are often used when there is a straight-line flow of
fluid and minimum restriction is desired.
Selected features:
· Frequently used
· Economic
· Not suitable for throttling (create vibration)
· Minimum pressure drop
· Typically rising stem - when the valve is opened or closed, the
hand wheel remains in the same position and it is the stem that
rises or falls
Plug valves
This is one the simplest and earliest valve designs. It consists of
a plug, which is generally tapered toward the bottom. This plug
fits in a seat in the body of the valve, and contains a port to
allow the fluid flow. The rotation of the plug is used to control
the opening - rotating the plug by 90 degrees completely
opens/closes the valve.
Plug valves provide reliable leak tight service, can be quickly
opened and closed, and offer low resistance to flow. These
valves are seldom used for regulating flow.
Globe valves
Globe valves are most commonly used for pipeline flow
regulation. They consist of a movable disc-type element and a
stationary ring seat in a generally spherical body.
The plug in a globe valve (sometimes referred to as disc) is
6. connected to a stem, which is operated by screw action, using a
hand wheel in manual valves or an actuator in automated ones.
Ball valves
A ball valve is a one-way valve with a spherical disc that
controls the flow through it. The sphere has a hole, or port,
through the middle to allow the flow when the port is in line
with both ends of the valve. The ball valve, along with the
butterfly valve and plug valve, is part of the quarter turn valves
family.
Ball valves are very commonly used for flow regulation and can
be found in all sizes and materials. They are generally operated
with a wrench/lever instead of a wheel. Depending on the body,
we find different types: single body, three-piece body, split
body, top entry, and welded. Ball valves can be also classified
based on their port/bore style as:
· Full port - over-sized ball so that the hole in it is the same size
as the pipeline, which reduces friction loss
· Reduced port - hole in the ball is of a smaller size than the
pipeline (flow area is smaller than the pipe)
· V port - either a 'V' shaped ball or a 'V' shaped seat
Check valves
Check valves, also known as a no-return valves, allow fluids to
flow through them in only one direction. These valves close by
the pressure exercised by the fluid, not needing to be controlled
by any external element. Accordingly, most do not have any
valve handle or stem.
Check valves are generally small, simple, and inexpensive in
comparison to most other valves. The most common types of
check valves are:
· Lift - closing member, the movable part to block the flow, is a
ball or a disc
· Diaphragm - use a flexing rubber diaphragm positioned to
create a normally-closed valve
· Swing or tilting disc - have a swinging gate hinged at the top
and open as fluid flows through
Butterfly valves
7. Butterfly valves can be used for isolating and regulating flow.
The closing mechanism takes the form of a disc. Their operation
is similar to that of a ball valve, which allows for quick shut
off. Butterfly valves are generally favored for low
temperature/pressure applications due to their low cost. They
are also lighter and require less maintenance. Nevertheless,
because the closing mechanism is always present within the
flow, butterfly valves produce higher pressure drops and
turbulence than other types of valve.
The most commonly used butterfly valve types are:
· Wafer-style – designed to maintain a seal against bidirectional
pressure differential and prevent backflow in systems designed
for unidirectional flow. It accomplishes this with a tightly fitted
seal (e.g., gasket), and a flat valve face on the upstream and
downstream sides of the valve.
· Lug-style – with threaded inserts at both sides of the body,
this valve is installed between two flanges using a separate set
of bolts for each flange. This permits either side of the piping
system to be disconnected without disturbing the other one.
Solenoid valves
These electromechanically operated valves are controlled by an
electric current through a solenoid. In the case of a two-port
valve, the flow can be switched on and off. In the case of a
three-port valve, the outflow is switched between the two outlet
ports.
Diaphragm valves
Diaphragm valves get their name from a flexible disc that comes
into contact with a seat at the top of the valve body to form a
seal. This diaphragm is a flexible, pressure responsive element
that transmits force to open and close the valve. Diaphragm
valves are extremely clean, leak proof and easy to maintain
(most repairs can be made without interrupting the pipeline).
These are linear motion valves used to start/stop and control
fluid flow, mostly in moderate pressure and temperature
systems. The two most common types of diaphragm valves are:
· Weir diaphragm valves are the most popular type of the two
8. and are typically used for small flows, and for corrosive and
abrasive environments
· Straight-way diaphragm valves’ bodies have a flat bottom that
is parallel to the flow stream. These valves are typically used in
situations where the flow direction changes within the system
Needle valves
These valves have a small port and a threaded, needle-shaped
plunger. They allow precise regulation of flow, but they are
generally only capable of handling relatively low flow rates.
Needle valves are similar to globe valves in their functioning,
having a needle-like point at the end of the valve stem, instead
of a disc. They are mostly used to start, stop, and regulate the
flow rate within a pipeline. Indeed, needle valves are usually
used in flow-metering applications, especially when a constant,
calibrated, low flow rate must be maintained for some time.
Relief valves
Relief valves (also called safety relief valves or pressure relief
valves) are passive devices designed to open when pressure
exceeds a certain threshold (set value) to relieve it from the
vessel or line to which the valve is connected.
These are critical safety devices that prevent pressure within the
system from exceeding design tolerances. Hence their proper
functioning is an important element of the plant’s overall safety
system.
Control valves
Control valves are automated valves that can make precise
adjustments to regulate the flow of a fluid, based on signals
received from instruments situated throughout the system.
The opening or closing of automatic control valves is usually
done by electrical, hydraulic or pneumatic actuators.
Control valves can be of many of the different types of valves
described in this section (globe, butterfly, ball, diaphragm,
etc.).
Other valve types
Other less common valve types include:
· Angle valves: These valves are used for controlling the flow
9. of a fluid, which leaves the valve at a right angle (90 degrees)
to the direction in which it enters it
· Pilot valves: Small valves that control a limited-flow control
feed to a separate piloted valve. Typically, this valve controls a
high pressure or high flow feed. Pilot valves allow a small and
easily operated feed to control a much higher pressure or higher
flow feed, which would otherwise require a much larger force
for operation
· Shuttle valves: Valves that allow fluid to flow through it from
one of two sources. Generally, a shuttle valve is used in
pneumatic systems, although sometimes it can be found in
hydraulic systems too
· Poppet valves: Valves typically used to control the timing and
quantity of gas or vapor flow into an engine
Valve specifications
Valves can be made of multiple materials including forged or
casted steel (carbon and stainless), iron, plastic (e.g., PVC),
bronze, and exotic alloys. Different operational requirements
dictate different design requirements (material, size,
temperature rating, pressure rating, etc.). Most valves are
manufactured according to international standards. The most
common ones are: API (600, 602, 603, 608, 609, 598, 6D),
ASME (B16.34, B16.10) and DIN (3202-4, 3202-5, 3339, 3351-
1, 3352-2, 3352-3, 3352-4).
Valves have five main components: body, bonnet, seat, disc and
stem.
The body of the valve is the main pressure containing structure
and comprises all internal parts.
The bonnet provides a leak-proof closure to the valve body,
ensuring containment of the fluid. Bonnets can be bolted,
welded, threaded or screwed depending on pressure rating
requirements.
The valve seat is the interior surface of the body which contacts
the disc to form a leak-tight seal. The seat ring provides a
stable, uniform and replaceable shut off surface. Seats can be
soft (e.g., Teflon or Viton, which offer better shutoff but are
10. limited from a pressure / temperature rating perspective) or hard
(mostly metallic and used for high pressure / temperature and
aggressive environments).
The valve disc is a movable obstruction inside the body that
restricts flow through the valve.
The valve stem transmits motion from the handle or controlling
device to the disc. In some cases, the stem and the disc, or the
stem and the handle, can be combined in one piece. Stems can
be rising (no contact with the fluid) and non-rising (only usable
in non-corrosive applications).
Valves end connections can be threaded (male / female), flanged
(RF - raised face / FF - flat face FF / RTJ - ring type joint), or
welded (butt / socket).
1.2. Category Tree
The category tree depicted below is structured based on the
most common classification of valves, mirroring both the way
the supply market is organized and SABIC’s internal category
taxonomy.
Even for a company the size of SABIC, the number of unique
specs observed is high. This is investigated further throughout
different sections of this document.
2. Internal Category Profile
2.1. Spend Analysis
Valves are reparable static equipment, which means that,
beyond the acquisition of new valves, spares and related
services need to be also procured. As such, the analyses
performed in this section encompass all valve types, spares and
related services procured outside LSTK agreements for large
capital projects. The latter have not been included in this
section due to lack of data availability.
Spend evolution over time
The overall spend related to valves increased by 3% between
2015 and 2017. This growth was uneven – while valves spend
increased by 14%, the spend for valve spares and related
services decreased by 4% and 24% respectively.
This change might indicate a shift in the maintenance strategy,
11. as it could be driven by an increasing proportion of valve
replacements vs. repairs. This hypothesis will be validated
during the implementation phase.
Spend breakdown by region
Despite the global footprint of the company, SABIC’s KSA
operations continue to dominate the external spend. More
specifically, 77% of valve materials spend (valves and spares)
correspond to affiliates located in the Kingdom.
As a matter of fact, almost two thirds of valve materials spend
correspond to the following nine affiliates: PETROKEMYA
(2000), SAUDI KAYAN (1900), SADAF (1100), SAFCO
JUBAIL (4000), IBN ZAHR (3300), YANPET (1300), SHARQ
(1200), HADEED (2100) and YANSAB (1800).
Not only the total valve materials spend is different by region,
but also its relative distribution. In the graph below, we observe
that the relative value of spares to valves is significantly larger
in the KSA.
Something similar happens when we analyse the relative size of
the spares and services spend across regions.
These differences should be further explored, but are likely
driven by a combination of four factors:
· Tendency to repair vs. replace (e.g., in the KSA more valves
are repaired and that is why the relative spend in spares is
higher)
· Extent to which repair services are outsourced vs. performed
in-house (e.g., in KSA, more valves are repaired in-house and
hence the spend for services is relatively small)
· Nature of the repair contracts (e.g., valve repairs outside the
KSA can be under lump sum service contracts with the supplier
also providing spares bundled under the same one)
· Extent to which smaller repair services are scheduled within
larger turnarounds, having a similar effect to the one described
above
Spend breakdown by valve type
Over the last three years, the top five valve types (control, gate,
ball, relief, and solenoid) accounted for more than 60% of the
12. valve spend (excluding spares and services).
It is also observed that there is a significant amount of valve
spend uncategorized in the system (USD 12.7 MM). This issue
is explored in more detailed at the end of this section.
Spend breakdown by specification
Given the extensive network of SABIC locations and the
category complexity, a large number of unique specifications is
to be expected. The spend by specification varies significantly
though. As shown in the chart below, 21% of the total account
for 80% of the spend.
This is interesting from a couple of different perspectives. First,
it identifies those specifications where special attention needs
to be placed within the context of securing advantageous
agreements. Second, it detects the need to manage the
complexity derived by the excessive number of existing variants
(e.g., impact on inventory carrying costs and plant
maintainability). Both insights and required actions are
addressed in more detail in the category strategy section.
Spend breakdown by supplier
Another area where excessive complexity is found is within the
number of suppliers currently used. Over the last three years,
SABIC has purchased valves from 683 suppliers – a mix of
manufacturers, agents, traders, stockers and service providers.
This represents a unique opportunity to better manage cost and
complexity by reducing the number and rethinking the type of
suppliers that we do business with. As a matter of fact, volume
consolidation would likely enable direct negotiations with
manufacturers, avoiding the need to deal through non-value
adding intermediaries.
2.2. Spend Trend
While developing a detailed understanding of the historical
spend is critical, it is equally so to develop a clear view of
SABIC upcoming requirements (ongoing operational
expenditures, upcoming capital projects, JVs, mergers and
acquisitions). This will be an instrumental piece of information
to develop the scope of work and increase the attractiveness of
13. SABIC’s business for suppliers.
While no major changes are expected to SABIC’s operational
requirements, upcoming projects should be considered when
going to market.
2.3. Agreements in place
Despite having 524 active plank agreements, only 18% of the
spend in the last three years was procured through these. In
addition, 66% of those contracts are now expired.
2.4. Limitations to the analysis
Spend transparency is the backbone of a robust category
strategy. While analysis performed offers a good basis for the
development of the same one, several data quality issues were
encountered and should be addressed for future efforts (within
and outside the valves category).
Capital projects data
Despite being an important spend driver, data for valves
purchased within EPC contracts for large capital projects is not
available.
Spend categorization
Over the last three years, at least 12,161 valves have not been
properly categorized, hindering company’s ability to achieve
the level of spend transparency required for maximum
procurement effectiveness. This seems to be related to
suboptimal discipline at the time of data entry. For example, the
valve shown in the figure below was generically categorized
under material class “valve” despite a more detailed material
class (“valve, butterfly”) being available.
In addition, another issue related to spend categorization has
been identified. As the figure below shows, there are instances
where there is more than one material class (e.g., “Valve, Ball”,
and “Ball Valve”) for the same UNSPC, again hindering
SABIC’s ability to sort spend data easily and accurately.
Finally, it has also been observed an excessive usage of certain
“generic” material classes that further limit spend transparency.
In the example below, the same material class is used for
recording multiple transactions of very different nature, as the
14. variance analysis suggests.
Spec standardization
Specification standardization is a critical enabler of cost
savings driven by procurement, inventory management, and
maintenance. Analyzing the attributes entered in the system to
describe valves, we observe an excessive amount of possible
entries for each attribute. This is likely driven by an absence of
a pre-established taxonomy at the attribute level, and prevents
the company from understanding the real amount of truly unique
specifications. For example, typically, port types for ball valves
can be narrowed down to four, “Full”, “Standard”, “Reduced”,
and “V”. Currently, there are 183 different port types in the
system (note: port type is the attribute where the least variance
is observed).
Vendor name standardization
Similarly to what happens with specifications, the lack of
consistent supplier master data results in multiple vendor codes
being associated with one same vendor, making it time
consuming and potentially inaccurate to run basic analysis like
spend by vendor.
3. External category profile
3.1. Global supply market dynamics
The global market size for industrial valves in 2017 was
approximately USD 20.5 billion. This was the lowest point in a
downward trend following the oil price collapse of 2014. This
high correlation demonstrates the importance of the oil & gas
industry for the industrial valves market, it being its single
largest consumer.
Over the next 4 years, the valves market is expected to grow at
8% CAGR (Compound Annual Growth Rate) as oil prices
recover.
Since 2015, we have seen multiple mergers and acquisitions
within the valves industry (the table below lists the key ones).
Despite recent consolidation, the valves supply market
continues to be very fragmented, with the top 10 suppliers
accounting for 25% of the world’s production facilities. These
15. top suppliers are: Emerson (including Pentair, Fisher and Tyco),
Samson, Schlumberger (including Cameron), CIRCOR Energy,
Flowserve, GE Oil & Gas, IMI, Metso, and Curtis Wright.
An additional layer of complexity comes from the extensive use
of distributors and agents (especially in markets like Saudi
Arabia), which increases the degree of fragmentation further.
It is also important to notice that the same level of
fragmentation is not observed across all types of valves. For
control and high spec valves, both of which have a higher
degree of complexity (size, pressure rating, special operating
conditions, etc.), there are fewer credible suppliers, which
affects that balance of power between demand and supply as we
will see in section 5.
3.2. Regional supply market dynamics
Within the Gulf Cooperation Council (GCC), we observe that
the valve industry slowed down in 2017 and 2018 driven by a
delayed response to the drop in oil prices in the form of project
cancelation/postponements.
Over the next 4 years, the GCC valves market is expected to
grow at 11% CAGR as oil prices recover, and with a prominent
role of the KSA energy sector.
Oil & gas has been the main engine behind industrial valves
demand in the GCC. It is expected that the relative importance
of this sector will decrease as the petrochemicals sector expands
over the coming 3 years.
Currently, there are several Saudi companies (see table below)
supplying valves locally, but true manufacturing (beyond
assembly) is limited due to the lack of basic enablers within the
valves manufacturing value chain (e.g., the existence of casting
and forging capacity in Saudi Arabia).
3.3. Cost structure
The biggest cost component of a valve is its raw material, which
accounts for 45% to 55% of the cost of the valve depending on
the specification. Hence, it is important to understand in depth
the raw material market (often carbon steel) and test the
correlation between theoretical (should cost analysis) vs. actual
16. cost/price increases.
Generally speaking, margins for standard valves are lower due
to stronger competition in this segment, with players facing
pressure from emerging manufacturers from low cost countries
such as China. High spec valves’ market is less fragmented and
more competitive, and consequently enjoy higher margins.
4. Total cost of ownership (TCO)
Total cost of ownership (TCO) is a financial estimate of the
direct and indirect costs incurred when acquiring a product or a
service. It is calculated by accounting for all the costs that will
be incurred through the lifecycle of the product or service.
This analysis is critical from a procurement standpoint since it
informs the cost elements that need to be evaluated to select the
most appropriate supplier (the lowest acquisition price is not
always the lowest total lifecycle cost). For valves, there are six
relevant cost elements that need to be considered.
Acquisition cost
Acquisition cost is composed of the actual price paid to the
supplier for the valve (after any discounts applied) and the
internal cost to process the PO. SABIC PO processing costs are
tabulated below.
Transportation cost
Transportation cost is mostly dependent on the Incoterm the
contract is negotiated under. Unless it is a DDP contract (which
is commonly used), there will be a transportation cost incurred
that will depend on a variety of factors, including the delivery
weight, size, and shipment mode.
The tables below summarize the different Incoterms and the
associated costs for SABIC.
Installation cost
Initial installation costs are covered under the EPC contract. For
replacements, these are covered under the maintenance and
repair cost element.
Inventory carrying cost
Inventory carrying cost includes taxes, employee costs,
depreciation, insurance, cost to keep items in storage,
21. 1. Overview
The assignment brief is set by CIPS and all assignments are
validated to ensure a standard approach. The
purpose of each assignment is to enable you to demonstrate your
ability to research, analyse and problem
solve in different situations. You will be expected to approach
your assignment work from a procurement and
supply context, addressing the brief directly and undertaking the
tasks required. The assignment will relate
directly to the specified module content and is marked using the
assessment criteria provided as an appendix
to this guide.
Read carefully the assignment title and guidance for candidates.
The assignment will identify which modules it
is designed to assess. Use the relevant content from the stated
modules as the basis of your assignment. It
will help you structure your planning and research. Ensure you
plan your assignment to meet all of its
requirements.
2. Submission requirements – important
2.1 Include the assignment front sheet
2.2 The maximum number of documents you can submit for an
assessment is one
2.3 All of your work must be contained in one document
2.4 You must not submit appendices as separate documents
2.5 You must word process your assignment using MS word, or
equivalent, and convert it in to a pdf file
format
a. The file name should only consist of your full 9-digit
membership number and the assignment
22. number, e.g. “005429889 AS1.pdf”. Please note that this should
reflect the assignment
number, not the module number.
b. You may wish to make use of Adobe Acrobat’s Reduce File
Size… function
2.6 Every page should be numbered and contain your candidate
number at the top of the document in
the header.
The average number of pages for a 3,000 word assignment is 27
(including appendices). The maximum
number of pages allowed for a 3,000 word assignment is 50
pages in total. You should not exceed this
allowance. In the case of the integrative assignment, the
average number of pages for a 5,000 word
assignment is 45. The maximum number of pages allowed for a
5,000 word integrative assignment is 100
pages in total.
You must hand in your assignment no later than the submission
deadline stated in your timetable. There are
penalties if your submission is handed in late without prior
agreement from CIPS through the Reasonable
Adjustment, Special Consideration or Extension Policies (see
section 15, page 8 and 9). Submissions that do
not meet the submission requirements (for example Word .doc
rather than .pdf, multiple files, candidates
name present) will not be accepted and if the revised version is
not sent within the submission timeframe the
corrected version may be subject to penalty.
Leading global excellence in procurement and supply
24. confidentiality, suppliers or products will be
referred to as…”.
Research forms part of the assessment criteria, hence it is an
essential element of your assignment
preparation. Do not fail to realise the importance of collecting
information to support and underpin your
assignment work. It is vital that you demonstrate your ability to
establish information needs, obtain relevant
information and use it sensibly, in order to arrive at appropriate
conclusions, recommendations and/or
decisions. You should establish the nature of the information
required, follow up possible sources and ensure
you allow time to obtain the information. You may be
dependent on other colleagues or suppliers to obtain
relevant information – do not underestimate the time it may take
you to gather it. In order to conduct your
research effectively, you will need to conduct wider reading
associated with the topics covered in the module
content.
Useful sources of information include those freely available to
CIPS members such as our Knowledge site and
the Supply Management site. Additionally, websites such as
those of the National Audit Office and the
Financial Times are a great source of case studies and examples
of successes and failures which can support
your assignment preparation.
Your reference list and bibliography will provide an indication
of the level of research, information collection
and application within your assignment.
4. Structuring your assignment submission
Presentation: Your assignment submission should be word
processed with minimum font size 12pt and 1.5 or
26. assignment submission accordingly. However, during your
planning or research, you may identify that it is not
appropriate to place equal emphasis on each requirement within
the assignment title.
For example, factors beyond your control, such as the nature of
your organisation or the external business
environment in which it operates, may mean that it is not
appropriate to place equal emphasis on each
requirement of the assignment title. In such circumstances,
acknowledge this within your assignment
submission to demonstrate to the assessor that you have
considered all the requirements of the assignment
title. Explain to the assessor why you have adopted a particular
approach to demonstrate your ability to
make judgements. Think carefully about the structure, style and
content of your assignment; the key is to
ensure you justify any deviation from the assignment
requirements in order to explain to the assessor why
you have adopted an unusual approach. Failure to do so could
mean you fail to gain marks in the knowledge
and approach section of the assessment criteria.
Remember also that the marking team will not be familiar with
your company, company-specific terminology
or acronyms. Take care to ensure you explain necessary
background information, or the meaning of company-
specific terminology, in order to provide the marking team with
an understanding of the nature of your
organisation and the business environment in which it operates.
5. Assignment front sheet
Please complete and attach the assignment front sheet to your
submission. Your name should not appear
anywhere within your assignment.
28. application (use of examples from your organisation, or one
with which you are familiar). You must select
appropriate models to demonstrate knowledge and application.
It is suggested you consult and reflect upon
the programme content for the relevant module(s) in the first
instance and conduct an audit of the theories,
tools and models etc., in order to identify those which may be
appropriate for your assignment.
For any theories, tools or models that you include, your
assignment should contain a brief description and
justification of its selection in relation to your analysis.
You should ensure you include discussion on how it was used
and what information was generated from it –
interpret the findings of your analysis. Avoid citing models,
tools etc., without applying them within your
analysis as this will gain no marks. You may wish to use tables
or diagrams to demonstrate your application of
relevant tools or models.
When including information about the theories, tools and
models etc. within your assignment, narrative
should be integrated in to the content of your assignment.
Assignment submissions which simply skip from
one model or tool, for example, to the next, without linking
them in some way or consolidating them in
conclusions, will be unlikely to demonstrate the extent of your
comprehension of the module content and
your ability to apply it to practical business situations.
Providing a sound argument for selection and application of a
particular theory, model, tool or technique –
highlighting why it is appropriate, its strengths and
weaknesses/limitations (as well as your findings) – is likely
to be awarded higher marks.
30. Again, the application and insight section of the assessment
criteria is the most heavily weighted. You must,
therefore, ensure you demonstrate your ability to interpret your
evidence and findings by providing
recommendations, proposals for change and/or conclusions, as
appropriate, which are consistent with the
evidence you have generated. This will exhibit the validity of
your insight. Thorough application of tools of
analysis will help to provide strong findings which will form
the foundation of your conclusions and
recommendations.
Your conclusions and recommendations must be consistent with
your analysis and findings and should act as
a summary. It is important that any conclusions or
recommendations are justified as part of your overall
assignment submission. When you have completed your
assignment, take time to re-read it a day or so later
and check that your conclusions really are consistent with the
evidence generated from your analysis.
10. Referencing
In order to avoid plagiarism, whenever you use someone’s
words directly, or make reference to the ideas or
work of others, you must reference this appropriately using a
recognised referencing system, such as the
Harvard system of referencing or as outlined in the CIPS
Reference Guidance document. The following points
will help you cite sources of information appropriately within
the body of your assignment.
• When a reference is made in your assignment to a particular
document, the author (or editor, compiler or
translator) individual or organisation and year of publication are
inserted in brackets:
31. o e.g. Agriculture still employs half a million people in rural
Britain (Shucksmith, 2000).
• If the author’s name occurs naturally in the sentence, only the
year of publication is given:
o e.g. … concept is discussed by Jones (1998)…
• When referring to more than one document by an author
published in the same year, these are
distinguished by adding lower case letters (a, b, c) after the
year:
o e.g. (Watson, 1999a)
• If there are two authors, the names of both should be given:
o e.g. (Lines and Walker, 1997)
• Where there are more than two authors, cite the first author,
followed by ‘et al.’:
o e.g. (Morgan et al., 1998)
• Quotations: Direct quotations are used to show the work of
another party word-for-word; the exact
words must be copied from the source document. When citing
quotations, include the page number of
where the quotation can be found in the source document.
Please note quotations used within your
assignment content are included within the total word count.
o Short quotations may be run into the text, using single
quotation marks.
o e.g. While they recommend that teams ‘...be encouraged to
improve collaboration within an
organisation autonomously’ (Driedonks, et al., 2010, p. 115),
they ...
33. downloaded)
• provide the location of an online source (for example, a
database or web address)
Unlike printed material, internet sources can easily be changed,
or disappear altogether, so full and accurate
citation information is essential.
Example – referencing web documents
British Lawnmower Museum (no date) Lawnmowers of the Rich
and Famous [online] Southport, British
Lawnmower Museum. Available:
http://www.lawnmowerworld.co.uk/Rich.htm [Accessed10
March 2004]
Example – referencing electronic journals
Hart, K. (1998) The place of the 1898 Cambridge
Anthropological Expedition to the Torres Straits (CAETS) in
the history of British social anthropology. Science as a culture.
[Online] 11 (1). Available: http://human-
nature.com/science-as-culture/hart.html [Accessed 9 November
2003]
Example – referencing journal articles from a web-based full-
text database
Mahoney, R. (2000) Leadership and learning organisations, The
Learning Organization. [Online] 7 (5), 241-244.
Available: http://www.emerald-library.com/brev/11907ec1.htm
[Accessed 23 October 2000]
The source materials you use should be included in a reference
list at the end of your assignment. See the
following sections relating to your reference list and
bibliography.
11. Reference list
34. A reference list is essential to ensure the works of others is
acknowledged and to avoid the risk of plagiarism
issues. You must use a recognised referencing system, such as
the Harvard system or as outlined in the CIPS
Reference Guidance document, as assessors will need to
identify sources you have accessed during your
research and used within your assignment. See the section
relating to referencing for information on how to
cite sources of information within the body of your assignment.
References are arranged alphabetically by author’s name (or
title, if no author) which has been used in the
body of the text and should be presented in the following way:
• Book references - include where possible, the following
information in the order listed here:
o Author(s)/Editor(s) - Surname first, followed by first name(s)
or initials (be consistent). Include
all names if there are two or three authors; if more than three,
use the first name and then et
al. For editors, compilers or translators (instead of author), give
the abbreviation ed/eds,
comp/comps or trans following the name(s): e.g. Peckham, T.
and Smith, G. (eds.)
o Year of publication – e.g. (1996)
http://www.lawnmowerworld.co.uk/Rich.htm
http://human-nature.com/science-as-culture/hart.html
http://human-nature.com/science-as-culture/hart.html
Leading global excellence in procurement and supply
36. substitute for effective writing and editing of your assignment
to meet the word count. You do not have to
use appendices – indeed; it is considered best practice that
assignments only include appendices in
exceptional circumstances. For example, information that is not
essential to your assignment, but validates
the content of it, provides confirmatory evidence or provides
information or material that the assessor would
not otherwise be able to access, should be placed in an
appendix. Documents that are available in the public
domain should be referenced, in accordance with a recognised
referencing system, rather than including
them as appendices.
Examples of things which could be useful as appendices to an
assignment include:
• Supporting evidence – feedback, testimonials, stakeholder
interview outcomes etc.
• Technical information presented in tables and graphs –
organisational charts, statistics etc.
• Supplementary data which adds useful information or insight,
but is not essential to the
understanding of the personal statement – including
organisation-specific material (ensure
appropriate permissions have been sought for use outside your
organisation).
Appendices should be presented in the order they are mentioned
in your assignment, and it is essential to
refer to each appendix within the text of your assignment. You
should NOT include something as an appendix
if it is not discussed within the assignment, nor should you
include any material which is readily available in
39. • Copying and pasting material from a website
• Copying the work of another student (past or present)
• Copying course material or lecture notes
• Copying material out of a textbook, journal or other
publication
You must take care when writing your assignment that the work
you submit is your own. You are permitted
to reproduce short extracts, diagrams, tables and illustrations
from other publications. But, these must be
clearly referenced and the source acknowledged. CIPS treats
plagiarism very seriously and if your work is
found to contain unacknowledged third party content you may
fail your assignment.
In order to avoid …
Corporate Award Practitioner Level - Integrated
Assignment
(1) The roles of procurement and supply in
managing this area of expenditure underlining
the inputs that may be made by its stakeholders
Role of Procurement
• terms that relate to procurement and supply
• roles and benefits of procurement
• How effective procurement impacts on profitability
or creating savings and
40. efficiencies
• Internal and external priorities;
• Price/Cost
• Quality
• Time
• Quantity
• Place
• internal and external stakeholder’s inputs
• conflictsof interest
• objectives of a procurement
• tiers of the organisation’s supply chain
• triple bottom line benefits of sustainability
(economy, environment, social
development)
Procedures in Procurement
• The documentation typically used in procurement
and supply:
• Requisitions
• Orders
• Delivery Notes
• Invoices
• Other documents
• documented policies and procedures
• The responsibilities for procurement
• Regulations relating to competition
• Levels of delegated authority
• Responsibilities for the stages of the
sourcing process
• Invoice clearance and payment
41. • ethical codes
• corporate governance
• financial budgets
• achieving compliance with processes and the
achievement of outcomes that bring
added value
(2) Techniques that can be applied to the area of
expenditure to improve added value
The impact of the External Environment on
Procurement and Supply
• How markets can be defined in terms of
size, scope and stages of development
• levels of industry competition such as perfect
competition, imperfect competition,
oligopoly,duopoly and monopolies
• How demand and supply factors impart on
organisations in the supply chain
• impact of market change can have on
organisations
• PEST (political, economic,social and technological)
criteria and the Five Forces model
impacts on an organisation, its suppliers and
customers to enable an improved
understanding of the organisation’s supply chain
• How macro-economic factors such as interest
42. rates, inflation, exchange rates and
the level of economic activity (GDP/GNP) impacts on
organisations
Effective Purchasing
• sources of added value that can be achieved
through effective procurement and
supply including:
• Competitive pricing
• Reduced total costsof ownership
• Improvedquality
• Delivery performance and time to market
• Reduced stockholding, quantities of resources
matching demand innovation
• Sustainability
• portfolio matrices to assess categories of
expenditures and perceptions of the
organisation by suppliers
• business cases to justify expenditures on
supplies, services or projects including:
• Costs
• Benefits
• Options
• Alignment with organisational needs
• Timescales
• main types of pricing arrangements in
commercial agreements including:
• Pricing schedules
• Fixed pricing arrangements
• Cost plus and cost reimbursable pricing
arrangements
43. • Indexation and priceadjustment formulae
• Incentivised gain share pricing
• Payment terms
• The operation of financial budgets for the control
of procurements
• Published reports and indices on markets
• The comparison of quoted prices to
historical data
• The link between costs, prices, margins and
mark ups
• Negotiating improved prices
• Estimating whole life costs
• Defining quality and the costsof non-conformance
• Assessing the quality of delivered products or
services
(3) Inclusions that should be made in contracts
formed in the future
Developing Contracts
• The main types of contracts and agreements
including:
• The use of spot purchases
• Term contracts
• Framework agreements (or blanket orders/panel
agreements)
o Call offs
• documentation that is used to create commercial
agreements for the supply of goods,
44. services or works and how to complete these
including:
• The specification
• Key performance indicators (KPIs)
• Contract terms
• Pricing schedule
• Other schedules (for health and safety, use of
sub-contractors, non-
disclosure/confidentiality agreements
• sources of express terms that can be used to
regulate contracts made for the supply of
goods or services including:
• The use of standard or specialised terms of
purchase
• Model form contracts
• Bespoke contracts
• legal issues that relate to the creation of
commercial agreements with customers or
suppliers relating to offers, counter offers,
acceptance and otherissues
• Core clauses that comprise commercial agreements
with customers or suppliers
including:
o Indemnities and liabilities
o Sub-contracting and assignment
o Insurances
o Guarantees
o Liquidated damages
o Payment
o Delivery and completion
45. • provisions of legislation that relate to
contracts for the supply of goods and
services
including:
o Quality
o Delivery
o Payment
o Passing of property
o Compensation
Developing Specifications
• differenttypes of specification typically used in
the procurement of goods or services
such as drawings, samples, branded, technical,
conformance, output or outcome based
specifications
• Sources of information that can be used to create
specifications such as standards,
internet, suppliers and directories
• use of social and environmental criteria in
specifications
• typical sections of a specification such as scope,
definitions, descriptions of
requirements, testing and acceptance, change control
mechanisms, remedies
• risks that can result from inadequate
specifications particularly through under or
over
46. specifying needs
• use of standardisation, value analysis and value
engineering programmes to regulate
specifications
• use of contractual KPIs that link to technical and
commercial requirements in contracts
Contract Management
• sources of added value in procurement and
supply such as the movementof:
• Prices or total costs
• Timescales
• Quality
• Innovation
• Sustainability or othersources of added value
• main types of risks in the performance of
contracts such as internal, market, economic,
legal, ethical sourcing and performance based
risks
• Responsibilities for contract management
• Demand management for contracts
• Performance management and ensuring compliance to
agreed standards
• Payment responsibilities in contract management
• Creating targets for assessing the performance of
suppliers based on the SMART
(specific, measurable, achievable, relevant and timely)
targets for performance
• Supplier improvement plans in contract management
47. (4) Measures that can be taken to select
effective suppliers
The impact of the External Environment on
Procurement and Supply
• Reviewing and clarifying requirements from internal
customers and stakeholders
• The impact of organisational procedures on
the sourcing process including:
• The responsibilities for procurement
• Regulations relating to competition
• Levels of delegated authority
• Responsibilities for the stages of the sourcing
process
• Invoice clearance and payment
• Developing sourcing options such as single, dual,
multiple sourcing arrangements
• The development of invitations to tender
comprising of specifications, applicablekey
performance indicators, contract terms, pricing
schedule and otherschedules
• Analysisand planning involved in a sourcing process
• The distinction between the selection in the
pre-contract stageand award used in the
post-contract award stages of a sourcing process
• The evaluation of supplier’s quotations or
48. tenders
• How to use Purchase to Pay (P2P) systems
used in procurement and supply such as E-
requisitioning, E-catalogues and E-invoicing
• How to use E-tendering software in procurement
and supply
• The use of E-auctions in the sourcing process
Supplier Appraisal
• The use of pre-qualification criteria or
processes for supplier appraisal in the sourcing
process
• Sources of information on suppliers such as:
• Financial reports
• Credit rating agencies
• Other appropriate publications and sources
• The assessment of financial statements to
evaluate the financial, commercial and
technical capabilities of potential suppliers in the
sourcing process
• The use of ratio analysis to evaluate potential
suppliers
• The use of scoring in the supplier appraisal
process
49. (5) Any aspects of purchase/supply that
may require negotiation
• Negotiation in relation to the sourcing process
dealing with conflict with stakeholders
and suppliers
• The types of approaches that can be pursued
in commercial negotiations such as:
• Collaborative (win/win)
• Distributive (win/lose)
• Pragmatic
• Principled styles of negotiation
• The stages of a commercial negotiation
including the planning and preparation, opening,
testing, proposing, bargaining and agreeing
• The use of data and information in commercial
negotiations
• The sources of power in commercial
negotiations
• Creating the right environment for a commercial
negotiation including the choice of
location, its surroundings and timings
• Behavioural aspects of negotiation including
effective listening, the use of persuasion