Defıning Business Need (L4M2)

Module Purpose
On completion of this module, learners will be able to devise a business case for requirements to be externally sourced and will understand the role of market managementand competitive forces as they specify goods and services in procurement and supply.

Module aim(s)
The development of a business case and the ability to analyse markets are key if an organisation is to successfully source activity from external suppliers. Similarly, the clear definition of specifications for through life contracts is crucial to overall business achievement. This module is designed for those who are expected to analyse, interpret and evaluate information on the different types of markets utilised by procurement and supply. It explores a variety of elements that underpin the development of business cases and specifications and considers the options that should be explored when procurement and supply personnel are involved in defining requirements.

Next steps
Joining a CIPS qualification programme means you will join the largest Institute in the world for those working in procurement and supply. You can join as a member online today. Once you've become a CIPS member you can book your examinations online.

    Learning outcomes

    1.0  Understand how to devise a business case for requirements to be sourced from external suppliers

    1.1  Analyse how business needs influence procurement decisions

    • Type of purchase such as new purchase, modified re-buy, straight re-buy
    • Implications of the business needs on the types of purchase
    • Procurement’s role in developing a business case

    1.2  Identify how costs and prices can be estimated for procurement activities

    • Types of market data that can provide informationon costs and prices
    • Direct and indirect costs
    • Producing estimated costs and budgets
    • Approaches to total costs of ownership/whole life cycle costing

    1.3  Analyse the criteria that can be applied in the creation of a business case

    • Examples of criteria typically applied in the production of a business case: costs, benefits,options, alignment with organisational needs andtimescales
    • Benchmarking requirements
    1.4  Interpret financial budgets for the control of purchases
    • The purpose of financial budgets
    • Cost entries and timings of cash flows
    • Performance and control of budgets
    • Dealing with variances to budget

    2.0  Understand market management in procurement and supply

    2.1  Analyse the different types of markets utilised byprocurement and supply

    Such as:

    • Manufacturing
    • Construction
    • Retail
    • Financial
    • Agriculture
    • Services

    2.2  Compare the competitive forces that influence markets

    • Bargaining strength of suppliers and buyers,
    • Availability of substitutes and threat of entry
    2.3  Contrast the breakdown between direct and indirect costs and the types of data that can provide information on cost and price
    • Collate sources of information to estimate the breakdown of costs between direct and indirect costs for purchased goods and services
    • Use information to prepare budgets or to negotiate prices
    • Research market data and use to estimate and negotiate current and future prices and costs for purchased goods and services

    3.0  Understand the use of specifications in procurement and supply

    3.1  Analyse different types of specifications used inprocurement and supply and sources of informationthat can be used to create specifications

    • Drawings, samples, branded, technical
    • Conformance specifications
    • Output or outcome, statement of work based specifications
    • Standards
    • The internet
    • Suppliers
    • Directories

    3.2  Identify sections of specifications for through life contracts

    • Scope
    • Definition
    • Description of requirement
    • Testing and acceptance
    • Change control mechanisms and remedies
    • Social and environmental criteria
    3.3  Identify the risks that can result from inadequate specifications and mitigation approaches

    • Under or over specified need
    • Monitor specification creation by colleagues and other internal stakeholders
    3.4  Identify opportunities to regulate short and longer term specifications
    • Implement standardisation
    • Value analysis
    • Value engineering
    • Provide guidance to internal stakeholders onimplementation

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