CIPS L4M1 Scope and Influence of Procurement and Supply Exam Practice Test

- Mention of some of the following benefits with at least one example provided against each; cost savings, time savings, more efficient, higher levels of transparency, easier to access historical records to inform upon decision making, mitigates risks such as fraudulent spending, easier to track spend against budgets, ensures compliance with regulations, provides ‘real-time’ information, paperless communications (so more environmentally friendly), assists in Supply Chain Management and integration with supply partners.

- I’d suggest 5 is a good amount to aim for

Example Essay

Procurement stands to gain numerous benefits from the adoption of electronic systems. These electronic tools and systems bring efficiency, accuracy, transparency, and cost-effectiveness to the procurement process. Here are several compelling reasons why procurement should leverage electronic systems:

Cost savings – the use of electronic tools saves organisations money. Although there is an initial cost outlay, over time the systems will save the organisation money. For example the use of e-procurement tools can save money by accessing a wider pool of suppliers. For example, when using an e-sourcing portal, a tender may reach a larger number of suppliers- this makes the tender more competitive thus driving down prices. Compared to traditional methods such as phoning suppliers for prices, the use of electronic portals encourages suppliers to ‘sharpen their pencils’ and provide the best prices in order to win work. Money is also saved as communication is digital (so there is no costs for paper and postage).

Time savings – electronic tools automate a lot of processes which saves time. An example of this is e-requisitioning tools where orders can be placed automatically by a piece oftechnology when quantities of a material reach a certain level. For example, in a cake manufacturing organisation they may use an MRP system which calculates how many eggs are required per day. The machine knows that when the company only have 50 eggs left, a new order needs to be issued to the supplier. The MRP system (e-requisitioning system) therefore saves time as the Procurement department doesn’t have to manually pick up the phone to place the order with the supplier- it is done automatically.

Access to higher levels of information - e-Procurement gives you centralised access to all your data. You can access the system to look at historical purchases with ease compared to having to dig through folders and filing cabinets. For example, an electronic PO system will hold details of all historical POs, this means if someone has a question about a PO that was raised 4 months ago, finding the information is much easier and quicker. Some systems may also be able to provide analytical data such as changes to spend over time, or which suppliers a buyer spends the most money with. This higher level of information can help inform upon future decision making. For example, if the organisation wishes to consolidate its supplier base it would look through historical data provided by the electronic system to find out which suppliers are used the least and remove these from the ‘pre-approved supplier list’. This level of data might not be available in manual systems.

Better budget tracking – using electronic systems allows for real-time information to be collected which allows Procurement Managers to see where spend is compared to forecasts and budgets. An example of this is in the use of Pre-Payment Cards – rather than giving staff members petty cash to make transactions and having to chase this up and collect receipts and change, a pre-payment card usually comes with an online portal where a manager can see what has been purchased and the remaining budget on that card for the month. A manager may be able to see for example that a member of staff has spend £300 of their allotted £500 monthly allowance.

Higher levels of transparency and control – using E-procurement tools allows an organisation to track who is ordering what. For example, an e-requisitioning tool may allow Procurement Assistants to make purchases up to £500 but set an automatic escalation if they try to buy something of higher value. This allows for Management to have greater levels of visibility and more control over spending. Another example of transparency and control is in the use of e-sourcing tools to run a competitive tender exercise. All communication between the buyer and suppliers is tracked on the system and award letters can be sent via the system too. This reduces the risk of information being lost.

Environmental benefits- the use of e-procurement tools means that there is less paperwork involved. For example, rather than creating a physical PO which needs to be signed by a manager, an electronic system can allow a manager to sign-off the purchase by clicking a button. This means there is no requirement for the document to be printed. This saves paper and thus has a positive on the environment. Using electronic systems may help an organisation achieve their environmental targets.

In conclusion there are numerous benefits for procurement to adopt e-procurement tools. Depending on the sector and requirements of each individualised company, some advantages may be more pertinent than others, but it is undeniable that technology is helping to shape the industry into a value adding function of organisations.

Tutor Notes

- With an essay like this you could use subheadings and number the advantages if you like. It’s a good idea to do one advantage per paragraph and using formatting really helps the examiner to read your essay.

- study guide p.108

How to approach this question

- Sometimes CIPS give you a steer on how to answer the question. My advice is to follow it. The question says you MAY make reference to the following, but I’d use those hints as a guide for content- a paragraph on each and you’re done!

- When you’ve got a ‘may make reference to’ hint – this means you can completely ignore it and do your own thing and bring in your own ideas. May means it’s optional, so you wouldn’t be penalised for this. However, you have to consider the examiner’s mark scheme- it will detail options of stuff you can write for funding, ownership etc. Then there will be a line at the bottom saying something like ‘accept other options such as x and y’. This leaves it up to the examiner to decide whether what you’ve said is relevant. I’d personally not leave it up to chance you get a lenient examiner. If you write what’s definitely going to be on their mark scheme, you’re more likely to get more points.

Example Essay

The modern economy is a complex tapestry of various sectors, each with its own distinct characteristics and functions. The three prominent sectors are the public sector, the private sector, and the third sector. These sectors differ significantly in terms of their funding mechanisms, ownership structures, objectives, the concept of shares, and their administration.

Firstly, the public sector is predominantly funded by the government through taxation, grants, and other forms of public revenue. Its very existence hinges on the provision of essential services and the fulfilment of societal needs. These organizations are owned by the government, be it at the federal, state, or local level. Unlike the private sector, the concept of shares doesn't apply in the public sector. Instead, the government allocates budgets to various departments and agencies for public services and projects. The primary objectives of the public sector revolve around the welfare of the citizens, including the provision ofeducation, healthcare, defence, and infrastructure. It is characterized by bureaucratic administration, with decision-making processes subject to governmental regulations and oversight. A prime example is public schools and healthcare systems, which are funded and operated by the government with the primary objective of ensuring universal access to education and healthcare services.

In contrast, the private sector operates on a starkly different paradigm. It is primarily funded by private capital, investment, and profit-seeking activities. Private individuals and corporations own these entities, with ownership shares often represented by stocks. Shareholders invest capital in exchange for ownership stakes and the potential for dividends. The central objective in the private sector is profit maximization, driven by competition in the market. Companies in the private sector are administered by management teams and boards of directors, with decisions guided by market forces. Apple and ExxonMobil are examples of private sector entities, privately owned and publicly traded, with profit motives at their core. Shareholders invest in these companies with the expectation of financial returns.

Lastly, the third sector, often referred to as the nonprofit or voluntary sector, represents a unique economic sphere. It relies on a combination of funding sources, including donations, grants, and earned income, but not taxation. Third sector organizations are not owned by individuals or shareholders; instead, they are governed by boards of directors or trustees. Unlike the private sectors, shares are not applicable in the third sector. These organizations do not seek to distribute profits to owners. The primary objective of the third sector is to serve a social or community purpose, such as addressing societal issues, promoting social change, and providing services that benefit the public. Administration in this sector is overseen by non-profit boards, and it heavily relies on volunteers, philanthropy, and community engagement. For example, the Red Cross operates with the objective of providing humanitarian aid and disaster relief, relying on donations and volunteers to fulfil its mission. Any profits that are made are reinvested into the organisation to further its mission.

In conclusion, the public, private, and third sectors represent diverse economic domains, each with its own funding mechanisms, ownership structures, objectives, and administrative models. These sectors play essential and complementary roles in society, contributing to economic development, public welfare, and social progress. Together, they form the foundation of a balanced and dynamic economic landscape.

Tutor Notes

- I’ve structured this essay with a paragraph on each sector, but you could have done a paragraph on each theme, thus having 5 paragraphs instead of 3. Either approach works.

- You’ve got 5 things and 3 sectors, that equals 15 marks. If you give an example of each and a strong intro and conclusion, that’s full marks.

- See LO 4.1 p. 203 – there’s a cute table with this information on.

- there are a lot of components to this question so I would take a good 5 minutes to write out some bullet points on the characteristics of each one, and on some differences. Then from your notes make this into an essay. The mark scheme isn’t 100% clear on how many characteristics and differences you need to name, so try and keep an equal split between the two areas. You would probably need 2-3 characteristics of each, and 3 differences for a good score.

- Characteristics of goods: tangible, homogeneous, items tend not to perish quickly, can be stored

- Characteristics of services: intangible, heterogenous, inseparable (produced and consumed at the same time), no transfer of ownership, perish upon use (i.e. cannot be stored)

- Characteristics of construction work: project-based procurement, includes procuring both goods and services, complex procurement which has its own set of regulations (CDM2015).

- Differences between these

1) goods are not usually outsourced and services can be.

2) Complexity of the supply chain (goods and construction may have a complex supply chains, but service contracts usually only involve 2 parties).

3) Timescales – construction work has a designated timescale but procurement of goods could be a one off or long-term contract, services is usually a long-term contract.

Example Essay

Introduction:

Procurement is a multifaceted field, and understanding the nuances between procuring goods, services, and construction works is pivotal for effective management. This essay explores the main characteristics that differentiate these categories.

Tangible / Intangible:

Goods are tangible items that can be physically seen and touched. For instance, raw materials like wheat and sugar in a manufacturing organization are tangible goods. On the other hand, services are intangible—though the results can be observed, the service itself cannot be touched. An example is a cleaning contract for a factory; while the effects of the cleaning are visible, the service itself remains intangible. Construction is usually a mixture of tangible and intangible procurement; the tangible is the construction materials such as bricks and windows, and the intangible aspect is the labour to complete the project.

Heterogeneous / Homogeneous:

Goods are generally homogeneous, meaning they are always the same. For example, steel purchased for manufacturing purposes will always be the same. In contrast, services areheterogeneous, varying each time they are rendered. Customer service, for instance, is inherently different each time due to the dynamic nature of customer interactions. Construction could be either heterogeneous or homogeneous depending on the project – is it a one off unique building, or is it a large housing estate of same-build properties?

Transfer of Ownership:

When goods are procured, there is a transfer of ownership. The product becomes the property of the buyer upon delivery and payment. In contrast, services do not involve a transfer of ownership as there is no physical entity to transfer. In construction the transfer of ownership is extremely complex and varies depending on the project. Usually the buyer will retain ownership of the land throughout the project, but on some occasions the construction company may take ownership for insurance purposes.

Storable (Separable/ Inseparable):

Goods are storable, allowing for purchase on one day and use on another. For example a factory can buy in plastic to be used to manufacture toys and this is stored in inventory until the time comes to make the toys. However, services are consumed at the point of purchase, making them inseparable. The service is bought and utilized simultaneously. Services cannot be stored. This is the same for construction.

Ability to Outsource:

Goods are rarely outsourced, as they are typically purchased directly from suppliers. Services, on the other hand, can be easily outsourced—examples include outsourcing finance, cleaning, or security services. Construction works are commonly outsourced, with external companies hired to execute projects.

Complexity of the Supply Chain:

Service contracts often involve a simple two-party relationship between the buyer and the supplier. Goods and construction, however, may have complex supply chains. For example, procuring a pen involves a supply chain with various steps, including the raw material supplier, manufacturer, and possibly a wholesaler. Construction works often feature a tiered supply chain with subcontractors playing crucial roles.

Construction as a Hybrid:

Construction procurement represents a hybrid, incorporating elements of both goods and services. It involves hiring a service, such as a bricklayer for laying bricks, while also procuring the tangible goods—bricks. Separating goods from services in construction is challenging, as they are often intertwined, and both aspects are paid for simultaneously.

Conclusion:

In conclusion, distinguishing between the procurement of goods, services, and construction works is essential for effective supply chain management. The tangible or intangible nature, heterogeneity, transfer of ownership, storability, outsourcing potential, and supply chain complexities offer a comprehensive framework for understanding the unique characteristics of each category. Recognizing these distinctions empowers organizations to tailor their procurement strategies to the specific challenges and dynamics associated with goods, services, and construction works.

Tutor Notes

- What a characteristic is can also be a difference. So for example you can say tangible is a characteristic of goods but tangibility is also the main difference between goods and services. So don’t worry too much about which order to write stuff in, or doing clear sections for this type of essay. It all comes out in the wash.

- Other differences in procuring these include:

- Costs: procuring goods such as stationary for an office will be low-cost so may not require approval, but a service contract may require management sign off. Procuring construction projects tend to be huge sums of money

- Where the budget comes from: goods and services may be operational expenditure and construction works capital expenditure.

- The level of risk involved in the procurement: goods tends to be quite low risk and construction high risk.

- Types of contract involved: procuring goods may be very simple and just require a PO, services is more complex so may require a formal contract or Deed of Appointment. Construction projects will require a contract due to the high value and high risk of the purchase

- Legislation – Goods = Sale of Goods Act, Construction - CDM Regulations 2015. Construction is much more heavily regulated than services or goods. Note CDM regulations isn’t part of CIPS. It’s occasionally referenced in various modules but you don’t have to really know what it is. Just know it’s the main legislation governing the construction industry. Construction - Construction Design and Management Regulations 2015 (hse.gov.uk)

- Study guide LO 1.3.1 p. 40, but mainly p. 52 for services. NOTE the title of this learning outcome includes construction and it is hardly mentioned in the study guide. Most of the above information on construction comes from my own knowledge rather than the book.

How to approach this question

- Description of the ‘third sector’ - the part of an economy comprising non-governmental and non-profit-making organisations including charities, voluntary and community groups, and cooperatives. These organisations reinvest surplus profits back into the enterprise to further their objectives. This is worth 10 points so should be a good 2-3 paragraphs, with examples.

- Main objectives – these could include engaging with stakeholders, social or environmental aims, education, providing a service to the community, stewardship role. There’s more points for this question so you should have more content here.

Example Essay

The 'Third Sector' refers to a segment of the economy distinct from the public (government) sector and the private (for-profit) sector. It encompasses a diverse range of non-governmental organizations (NGOs), charities, foundations, social enterprises, cooperatives, and other non-profit entities. These organizations are primarily driven by social, environmental, cultural, or community objectives rather than the pursuit of profit. They often operate based on values such as democracy, equality, and social justice. The Third Sector plays a crucial role in providing services, advocating for social causes, and filling gaps left by the public and private sectors.

The third sector is often called the ‘not-for profit’ sector. It’s distinguished from the private sector in that the main aim isn’t to make money for money's sake. The main aim is to generate money to reinvest back into the organisation so that the organisation can achieve the purpose it was set up for. Whereas the private sector may exist solely to make money, the third sector has a ‘higher aim’.

Organisations operate in a very narrow marketplace. They may be the only provider in that marketplace. For example the RNLI is the only operator of lifeboats and the only organisation that sets out to save lives at sea- there is no ‘competitor’.

3rd Sector Organisations have multiple sources of income; e.g. subscriptions or donations, or from donated goods that they then sell on (such as Oxfam shops), fundraising activities or selling merchandise. The sector also has a wide range of stakeholders.

The third sector is subject to same regulations as private and public companies but also has its own regulations imposed by the Charities Commission. This is a statutory regulation body which checks charities are run for public benefit and not private advantage, ensures charities are independent, and sets out to remedy serious mismanagement. They can audit, offer advice and investigate complaints. Therefore the sector is highly regulated.

Organisations in this sector have a huge range of objectives depending on why they were set up. These can be very specific, for example: charities such as Cancer Research (objective- find a cure for cancer), Museums (objective- educate the public), CIPS (objective - provide professional services to a particular industry), trade unions (objective- defend the rights of workers), pressure groups (objective- change laws and practices they morally disagree with).

However organisations in this sector do have overarching objectives in common.

1. Survival – Generating Enough Money to Continue Operations: Survival is a fundamental objective for Third Sector organizations. Unlike for-profit entities, these organizations do not aim to generate profits for shareholders but need sufficient funding to sustain their operations. This funding often comes from donations, grants, fundraising activities, and sometimes income from services provided. The challenge lies in balancing the mission with the need for financial stability, ensuring that the organization can continue to serve its community and pursue its goals over the long term. Financial sustainability is crucial, particularly in a sector where funding sources can be uncertain and competition for donations is high.

2. Creating Awareness of Their Cause: Raising awareness is vital for Third Sector organizations, as it helps to educate the public, garner support, attract volunteers, and drive fundraising efforts. Awareness campaigns are essential in highlighting the issues these organizations address, whether it's health, environmental conservation, social justice, or cultural preservation. Effective communication strategies, including the use of social media, public events, and collaborations, are employed to reach a wider audience. The more people know about a cause, the more likely they are to support it, either through donations, volunteering, or advocacy.

3. Compliance with Regulations and the Charities Commission: Compliance with legal and regulatory requirements is a critical objective. In many countries, including the UK, Third Sector organizations are regulated by bodies like the Charities Commission. These organizations must adhere to specific legal standards, including financial transparency, governance practices, and ethical guidelines. Compliance ensures credibility and trustworthiness, which are essential for maintaining public confidence and the continued support of donors and volunteers. It also ensures that the organization operates within the law, avoiding legal issues that could jeopardize its mission.

4. Providing a Service to the Community: The core of a Third Sector organization's mission is to provide services or benefits to the community. These organizations often address needs that are unmet by the private or public sectors, focusing on improving the quality of life for certain populations or addressing specific societal issues. This objective can take many forms, from offering direct services like healthcare and education to advocating for policy changes that benefit underserved communities. The impact of these services on the community can be profound, often bringing about significant social change.

5. Fulfilling a ‘Gap in the Market’: Many Third Sector organizations exist to fill gaps in services not provided by the public or private sectors. A classic example is the provision of air ambulance services in the UK. While the government provides comprehensive healthcare services, there's a gap in the rapid transportation of critically ill patients, which is filled bycharities operating air ambulances. These organizations identify specific needs that are not adequately addressed and work to meet them, often innovating in the process. By fulfilling these gaps, they play a crucial role in complementing existing services and enhancing the overall welfare of society.

In conclusion, Third Sector organizations operate with a unique set of objectives that distinguish them from other sectors. Their focus on survival, awareness-raising, compliance, community service, and filling market gaps is essential not only for their existence but also for the significant societal impact they make. These objectives align with the overarching mission of the Third Sector to contribute positively to society, addressing needs and issues often overlooked by other sectors.

Tutor Notes:

- A strong essay will use real life examples of organisations in the third sector and their objectives. I’ve mentioned a couple above such as Cancer Research UK: Our strategy to beat cancer | Cancer Research UK and North West Air Ambulance Charity: Home | North West Air Ambulance Charity (nwairambulance.org.uk) but pick charities you know well.

- LO 4.4. P.230

How to approach this question

- Your essay should mention at least one regulation and one governing body particular to the charity section and I would recommend these be the Charities Act 2011 and the Charities Commission.

- If you don’t know a lot about the sector you can bring up more generalised regulations and governing bodies, such as financial conduct and the Equalities Act, but make sure it’s relevant to Sarah. Her charity is a small, local one, so things like Modern Slavery Act will not be appropriate to talk about.

Example Essay

When setting up a charity in the UK, particularly one focused on animal welfare, there are several regulations and governing bodies that Sarah should be aware of. These ensure that the charity operates legally, ethically, and effectively.

A charity’s purpose involves raising awareness and helping someone or something, in Sarah’s case this will be local animals and potentially their owners. A charity has to satisfy two aspects: The benefit aspect and The public aspect. In the UK, both aspects are regulated by the Charities Act 2011.

To satisfy a benefit aspect, a charity must: have a purpose that must be beneficial to the community it works in – this must be in a way that is identifiable and capable of beingproved by evidence. For Sarah this would be showing that her charity helps animals, potentially by taking them in off the street or removing them from dangerous homes and caring for them.

To satisfy a public aspect, a charity must benefit the public in general, or a sufficient section of the public. In Sarah’s case the public benefit may be in removing stray dogs and cats from the streets where they can transport diseases and potentially attack people. Most charities strive to satisfy both aspects but in some cases this is not possible.

All charities are regulated. Because charities are funded by donations from the public, businesses and sometimes from government, their conduct is regulated closely. Key regulatory bodies that Sarah will have to engage with include:

1. Charity Commission for England and Wales:

· As the primary regulator for charities in England and Wales, the Charity Commission oversees the registration and regulation of charities. Sarah's organization must meet the legal definition of a charity and apply for registration if its income is over £5,000 per year.

· The Commission ensures compliance with the Charities Act, offering guidance on charity governance, financial management, and reporting.

2. HM Revenue and Customs (HMRC):

· Charities can apply to HMRC for recognition as a charity for tax purposes. This status allows for tax reliefs and exemptions, including Gift Aid on donations.

· HMRC ensures compliance with tax obligations and scrutinizes the use of charity funds.

3. Data Protection:

· Under the General Data Protection Regulation (GDPR) and the Data Protection Act 2018, any charity handling personal data must ensure its protection and comply with data privacy laws.

4. Health and Safety Executive (HSE):

· The HSE provides guidelines for workplace safety, which are important if the charity has employees or volunteers.

In conclusion there are many regulations and bodies that Sarah should be aware of when setting up her charity. Sarah should consider seeking legal advice or consulting with charity advisory services to ensure full compliance with all relevant laws and regulations. Additionally, staying informed about changes in charity law and animal welfare legislation would be beneficial to the smooth operation of her charity.

Tutor Notes

- With case study questions you’re not expected to know anything about the specific topic, in this case Animal Charities. If it happens to be something you know about, you can bring in some of your own knowledge, but this isn’t a requirement to get a good score. You’re not expected to know, for example about the Animal Welfare Act 2006, but if you happen to do so, it could be a nice little thing to add in. Just don’t focus your essay on it. However you can make some sensible guesses on what Sarah will be doing, for example I talked about removing stray animals from the street.

- Charities comes up in LO 4.4 p.232

Bottom of Form

Top of Form

- Firstly give a short definition of Code of Ethics: a document that sets out moral principles or values about what is right and wrong.

- What an Ethical Policy should contain: Condition of workers, Environment, H+S, Discrimination, Gift / Bribery Policy, Whistleblowing, Confidentiality, Fair Dealings, Declaration of Conflict of Interests. You won’t have time to go into depth on all of these, so pick a few where you want to give an example.

- Measures to take if there is a breach: depending on what the breach is and who breached it this could include: education/ training, sanctions, blacklisting, reporting to authorities, publicise the issue, use a performance improvement plan, issue warnings, dismissal.

Example Essay:

A code of ethics is a formal document or set of principles that outlines the values, ethical standards, and expected conduct for individuals within an organization. It serves as a guide for employees and stakeholders, shaping their behaviour and decision-making to align with the organization's ethical framework. It may take the form of a Mission Statement, Core Values, Specific Guidelines or established reporting mechanisms. The purpose of the Code is to establish standards, promote integrity, mitigate risks and build trust- with both internal and external stakeholders.

A Code of Ethics may contain the following:

- Condition of workers – stating what the company will provide to the employees to make sure the environment is safe. This could include the physical environment but also hours worked, opportunities for breaks etc. Depending on the sector it could detail shift patterns, expectations regarding overtime and compensation.

- Environment – this section would discuss compliance with legislation regarding pollution, disposal of waste materials etc. Depending on the company’s goals- they may have higher commitments to the environment than those imposed by the government. Additional commitments may include NetZero targets or the use of renewable sources of energy.

- H+S- Health and Safety. Ensuring that the working environment is free of hazards and that workers have the training and equipment they need to complete the work safely. E.g. PPE

- Discrimination- a promise not to discriminate based on any characteristic. Aligns with the Equalities Act. Policy should include how the company would handle situations, for example if an employee reports an issue of discrimination or harassment. This may involve the use of a whistleblowing hotline or details on how to contact HR.

- Gift / Bribery Policy – this area of the code of conduct would explain whether the company allows staff members to receive gifts (e.g. from suppliers) and the processes to complete if they do (e.g. return the item, complete an internal document, donate the gift to charity). Different companies and industries will have different rules surrounding this, the Public Sector is much more likely to reject gifts from suppliers for example.

- Declaration of conflict of interests- this explains what staff should do if there is a conflict. For example if they are running a tender and their father owns one of the suppliers who is bidding for the work. The conflict of interest policy will explain what the person should do, how to report it and have mechanisms in place to ensure that nothing untoward could come of the situation. This may be having another member of staff mark the tender to ensure unbiasedness.

Measures to take in case of a breach

A response to a breach will depend on who breached the policy – whether this is an employee or a supplier. It will also depend on the severity of the breach.

Remedies for a supplier breach could include: education / training if the breach is minor. Supplier development if the relationship with the supplier is very important (for example if there are no other suppliers the buyer could turn to) and the breach is minor. If the breach is major such as fraud or misappropriation of funds, a buyer could look to issue sanctions, claim damages and dismiss the supplier. There could be options to claim liquidated damages if this is included in the contract. For very serious offenses the buyer may blacklist the supplier- never use them ever again and could also report the issue to the police if the breech is also criminal (e.g. modern slavery or fraud).

Remedies for an employee breach could include: for minor breaches training may be required, particularly if it was a junior member of the team and it was an innocent mistake like forgetting to fill out a form when they received a Gift. The employee could be carefully monitored and put on an Improvement Plan. If internal issues are found, such as several staff are breaching the Code of Ethics, senior management could look to review policies to make sure issues are being flagged and responded to in the best way. Employees who fail to follow the Ethical Policy, either through routinely failing to adhere to it or through a major breach could be dismissed from the organisation. There would need to be strong evidence of this.

In conclusion it is important for all organisations regardless of size of industry to have an Ethics Policy. Sharing the code of ethics with staff is a fundamental step in embedding ethical principles into the organizational culture. Regular communication and training reinforce these principles, fostering a shared commitment to ethical behaviour across all levels of the organization.

Tutor Notes

- In an essay like this it’s always a good example to use examples. They can be hypothetical – you don’t have to know any company’s Ethics policy off by heart. E.g. If a supplier breached a buyer’s Ethical Policy by employing Child Labour in their factories, an appropriate measure for the buyer to take would be to cancel the contract and find another supplier. This is because not only is Child Labour illegal, the buyer will not want to be associated with this supplier as it will have negative repercussions on their image. The best response would therefore be to distance themselves from the supplier.

- Code of Ethics and an Ethics Policy are the same thing. Just different language. The terms can be used interchangeably

- Study guide p. 128

How to approach this question:

- There are 3 terms and an advantage and disadvantage for each you need to talk about. So that’s 9 things. Out of 25 points you can see you’ll probably only get 1-2 points for each aspect of the question. That shows you the level of detail you need to include – not that much!

- In terms of structure feel free to use headings and bullet points for this one

Example Essay

Outsourced procurement, shared service units (SSUs), and consortium procurement are distinct approaches to managing procurement activities within organizations. Each method carries its own set of advantages and disadvantages, catering to different organizational needs and circumstances.

Outsourced Procurement: Outsourced procurement involves engaging a procurement consultant or an external organization to provide advice or handle the entire procurement process on behalf of the company. The advantages of outsourced procurement are that it frees up internal resources, allowing them to focus on other tasks. The expertise and skills brought by external consultants can also fill gaps in the organization's capabilities. Moreover, this approach is flexible, adapting well to irregular procurement needs. However, drawbacks include a potential loss of control, higher costs, the need for an additional management layer, and the risk of losing intellectual property (IP).

Shared Service Unit (SSU): A Shared Service Unit is an internal procurement support function within an organization that various divisions can access for assistance, resembling the outsourcing concept but within the organizational structure. The advantages of SSUs lie in potential cost savings, the ability to aggregate demand, and the establishment of common standards and processes across the company. The expertise utilized is internal, providing a sense of familiarity. The disadvantage is that measuring the success of an SSU can be challenging, and there is a risk of stifling innovation. The unit may also be perceived as remote from end users, and procurement processes might be slower due to serving multiple departments.

Consortium Procurement: Consortium procurement involves a collective effort where separate organizations join forces to purchase goods, thereby increasing their bargaining power. The advantages of this approach are in the aggregated demand, resulting in more economical purchases. Pooling knowledge and expertise within the consortium enhances the collective capabilities of its members, providing a sense of safety in numbers. However, disadvantages include a potential loss of individual organizational power, prolonged decision-making processes within the consortium, challenges in responding quickly to demands, and the potential hindrance to small and medium-sized enterprises (SMEs) competing if demand is aggregated.

In conclusion, organizations must carefully consider their specific needs, priorities, and the nature of their procurement requirements when choosing between outsourced procurement, SSUs, or consortium procurement. Each approach offers unique benefits and challenges, and the decision-making process should align with the organization's overall goals and strategies.

Tutor Notes:

- I’ve named lots of advantages and disadvantages for each of the models. 1-2 advantages and disadvantages of each is all you need to secure you the marks. Remember you only have 35 minutes to write this. A danger with this type of question is spending too long on one aspect of the question and running out of time to answer the rest of it.

- A good idea is to pace yourself and give yourself 10 minutes per term (outsourced, SSU and consortium) then 5 minutes at the end to review and edit your response.

- Some further details you may wish to include:

- Outsourced procurement – this is often used when the organisation doesn’t have the expertise to procure the item they need. This often happens for complex / technical procurements or highly regulated industries. An example may be a housing provider who runs a block of flats where the lift has just broken down and cannot be fixed. They need to procure a new lift but have no idea how to write a specification for this as they don’t have the technical knowledge of how lifts work. Hiring a consultant who is experienced in tendering for lifts, although expensive, may actually save money by reducing the risk of procuring the wrong thing.

- SSU – a Shared Service Unit acts as a support function for the organisation. This is described in Porter’s Value Chain- all other departments can call on the SSU when they require assistance. The SSU is responsible for managing its own costs, employs its own resources and may have contractual agreements with other divisions. The main aim of the SSU is to add value. SSUs are common in large organisations where the core activities don’t revolve around procurement (such as finance and service industries).

- Consortium – Consortium buying is encouraged in the public sector in order to maximise value for money. Consortiums can create their own Frameworks. There is a risk that large consortia can abuse their dominant market position.

- LO 3.3 p. 161

How to approach this question

- This question is very vague. Sometimes CIPS do this. It allows for you to be a bit more free in your response, but can also be quite stressful because you don’t 100% know what they’re after.

- For this question we’re looking at competitions, so full tenders where lots of suppliers are invited to bid for an opportunity. This means the type of things we could be discussing include; IP, cartels, merger controls and monopolies.

Example Essay

Procurement professionals operate within a legal framework that regulates competition, aiming to ensure fair business practices and prevent anti-competitive behaviour. Three critical areas of regulation related to competition that procurement professionals should be aware of include intellectual property, cartels, and merger controls.

Intellectual Property (IP):

Intellectual property encompasses creations of the mind, such as inventions, designs, and brand names, protected by law. In the context of procurement, understanding intellectual property is essential when dealing with suppliers' products, technologies, or services that may involve intellectual property rights.

Procurement professionals must be aware of the intellectual property rights associated with the goods or services they are procuring. This includes respecting patents, trademarks, copyrights, and trade secrets owned by suppliers. Due diligence is crucial to ensure that the products or services being procured do not infringe on the intellectual property rights of others, requiring verification of legal ownership and legitimacy. An example of something procurement should look out for include ensuring goods are authentic and not counterfeit.

Cartels:

Cartels involve agreements between competitors to control prices, manipulate markets, or restrict competition. For procurement professionals, it is imperative to be vigilant and avoid engaging in or unintentionally supporting cartel activities. Procurement professionals should refrain from participating in anti-competitive behaviour, such as bid-rigging or price-fixing, which are common cartel activities. This involves not colluding with suppliers or competitors to manipulate procurement processes. Maintaining open and fair competition is essential, ensuring that procurement processes remain transparent, competitive, and free from attempts to distort market dynamics, thereby preventing the formation of cartels and promoting a level playing field.

One notable example involved the construction industry in the UK. In 2019, the Competition and Markets Authority (CMA) fined three major suppliers to the construction industry for participating in a cartel. The companies, which supplied concrete drainage products, were found to have coordinated their behaviour to share markets, fix prices, and rig bids.The investigation revealed that these companies had breached competition law by engaging in anti-competitive practices that limited competition and negatively impacted customers. The fines imposed were part of the CMA's efforts to deter and penalize such cartel behaviour, emphasizing the importance of fair competition in procurement. The Directors of the companies have also been banned from undertaking the role of Director of any company for 12 years.

Merger Controls:

Merger controls are regulations overseeing the consolidation of companies, mergers, and acquisitions to prevent monopolistic practices and protect fair competition. Procurement professionals need to be aware of these regulations, especially when dealing with suppliers undergoing mergers or acquisitions.

Staying informed about mergers and acquisitions within the supplier base is crucial. If a key supplier undergoes such changes, it may impact the stability of the supply chain or alter market dynamics. Procurement professionals need to be aware of potential changes in supplier relationships, pricing structures, or product/service availability resulting from mergers. Engaging in proactive risk management and contingency planning is necessary to mitigate any negative impacts on procurement operations.

Mergers are actively watched in the UK by the Competition and Markets Authority, and where rules are broken, the CMA can intervene and even prevent mergers from happening. A notable example of this was the attempted merger between JD Sports and Footasylum – the companies were fined millions of pounds for exchanging information and attempting to collude and distort the marketplace.

In conclusion, procurement professionals play a crucial role in navigating these regulatory landscapes effectively. Understanding intellectual property, avoiding cartel activities, and staying informed about merger controls contribute to fostering fair and transparent competition within the marketplace.

Tutor Notes

- The construction example of a cartel can be found here Supply of precast concrete drainage products: civil investigation - GOV.UK but feel free to use your own!

- The JD/ Footasylum one is here: JD Sports and Footasylum fined £4.7m for competition breach - BBC News. Basically, the CMA got involved because the two firms were sharing private information and having secret meetings, with the intention that they could combine. The CMA thought it was super dodgy and that it would distort the trainer / footwear market in the UK so they fined the companies and told them to stop it.

- The study guide is a bit light on this topic, so I would do a bit of extra research and have an example in your back pocket for if you need it. P. 142

If you want an example of IP issues- Shein is a great company to look at- ‘They took my world’: fashion giant Shein accused of art theft | Art and design | The Guardian

How to approach this question:

- Your response will need 5 definitions. For 25 points that means 5 points per section so think about the level of detail you’ll need to include. It would be 5 points for electronic system (i.e. your introduction and conclusion), and then do a paragraph on each of the technologies. In the description you could talk about why it’s used and the advantages, and give some examples if you know any.

- Definition of electronic system – a system which uses some form of technology and automates a procurement process than would otherwise have been completed manually.

- E-Requisitioning – a way of ordering goods or services. Includes the use of integrated ordering systems such as: ERP/ ERP II / MRP / MRP II

- E-Catalogue- an electronic display of what goods can be ordered. A simple example of this may be a supplier displaying the goods they offer on their website and the prices to purchase the goods.

- E-Sourcing – this involves the early stages of the tender process- using an electronic portal to find a supplier and / or conduct a tender exercise.

- E-Payment – the P2P part of the cycle (procure to pay) – may involve electronic POs and Invoices, BACS, CHAPS and SWIFT payment systems, and the use of Purchasing Cards

Example essay:

Electronic systems, commonly refered to as E-procurement, is the business-to-business or business-to-consumer purchase of goods or services, typically using the Internet or other information/ networking systems such as ERP systems. It has developed in the past 20 years as technology has improved and replaces time-consuming manual processes and is now considered the ‘norm’. Electronic systems and e-procurement can be used throughout the entire supply chain- not just between a single buyer and supplier. Examples of electronic systems including the following:

E-requisitioning

This is often used in manufacturing organisations to order raw materials. An electronic ‘bill of materials’ is created and stock levels are automatically updated. As materials get used and a pre-determined level is reached, this triggers a new order which is placed via an e-requisitioning system such as MRP. It is a technological version of the traditional kan-ban (2 bin) system. E-requisition tools are often cloud-based. It helps buyers simplify the buying process, track orders and provides higher levels of visibility on spend. The main disadvantage to this technology is that it requires technology interfacing between the buyer and suppler, which may be expensive.

E-catalogues

This is a digital or online version of a catalogue- a document that details what you can buy and at what price. There are two main types – buy side catalogues and sell side catalogues. A buy-side catalogue is an internal system used by a buyer which hosts a list of pre-approved suppliers from whom purchases can be made. It may include details of commonly bought items and the prices. The use of this reduces maverick spending and ensures consistency in purchases (e.g. whenever lightbulbs need to be ordered, the same lightbulbs are ordered so the office lighting is consistent). A sell-side catalogue is provided by a supplier and details what they offer- it often includes prices, any discounts for bulk buying and may also let buyers know of availability (e.g. the website may say only two items remaining). This may be as simple as a price list on their website, available for anyone to view.

E-sourcing

This is a tool that helps a buyer find the most suitable supplier. Examples include e-tendering websites where a buyer can host a competition to find a supplier. E-auctions are also a type of e-sourcing tool. The tool (often a website) hosts all of the tendering documents and allows for buyers and suppliers to communicate during the tender process (for example if there are any clarifications needed on the specification). Using this tool allows for transparency and equal treatment, but also saves time in completing the tender exercise. PQQs can be automated and some e-sourcing tools include the use of Artificial Intelligence which can ‘read’ tender submissions and automatically exclude suppliers who do not fulfil the required criteria.

E-payment technologies

These are methods to pay for goods and services that replace the need for cash and cheques. Examples include online bank transfers, electronic Purchase Orders and Invoices and the use of Pre-Payment cards. These act like credit cards for employees to use when they need to buy supplies. For example, if you have a maintenance team that frequently need to purchase low-value items like screws and paint, you could issue the team with a Pre-Payment card with a certain limit (e.g. £500/ month) so they can buy what they need. The company will then automatically be sent a monthly invoice for all of the purchases. This saves time from having to issue the maintenance team with petty cash for the purchases and allows for greater visibility over spend (e.g. how many screws are typically bought per year?). Another typical use is for staff travel.

In conclusion, procurement teams benefit significantly from leveraging electronic tools, including e-requisitioning, e-catalogues, e-sourcing, and e-payment technologies. The adoption of these electronic tools brings about various advantages that enhance efficiency, transparency, cost-effectiveness, and overall effectiveness in the procurement process. Moreover E-procurement tools has helped develop the procurement function into a professional and respected function and allows for a more pro-active rather than reactive approach to purchasing.

Tutor Notes:

- Fun Fact! In the public sector, it is mandated that electronic systems are used in procurement (Public Contract Regulations 2015) as this helps to achieve the objectives of transparency and equal treatment. Where manual systems are used, it is easy to manipulate the tender process. For example, a buyer could read some tender submissions before the deadline for submission and no one would know, but with an electronic system this is impossible as it locks evaluators out until the deadline has passed and all bidders have submitted their responses. (note PCR 2015 is being replaced in 2024- details are still TBC but the above fun fact will still remain in the new legislation- they’re definitely still going to make it compulsory).

- You could also mention the names of systems if you know any. For example, e-sourcing tools include MyTenders.com and Delta E-Sourcing. PO / Invoice systems include Sage, Xero and QuickBooks.

- The question doesn’t ask for advantages of using these technologies but you could mention this in your answer. Just be sure that this isn’t the focus of your response- the question asks specifically for you to DESCRIBE the systems so detailedExplanation:s and examples are where you will secure the most points.

- p.108

How to approach this question

- This question is testing to see if you know the 4 procurement procedures allowed in the Public Sector which are: open, restricted, competitive dialogue, competitive dialogue with negotiation. The Public Sector is limited in how it can procure due to the Public Contract Regulations, so things like Early Supplier Involvement isn’t an option.

- The question doesn’t specifically say it has to be these four, but these are the ones in the book. Because of the vagueness you could say something like running a competition and awarding via a Framework instead. Talking about Public Private Partnerships could also be appropriate but that is outside of the scope of this module (and Level! It comes up in Level 5). These answers would be accepted.

- Also note that it doesn’t say the UK in the question, so if you answered this about your own country, that would be fine.

Example Essay

Each country’s government has its own regulations relating to how goods, services and works can be procured. The UK’s procurement rules is currently dictated by the Public Procurement Regulations 2015 which is based off EU Procurement Directives. This piece of legislation will likely be superseded in Autumn 2023 due to the UK leaving the EU. Until this point, the PCR allows UK public sector organisations to procure in the following ways: open, restricted, competitive dialogue, competitive dialogue with negotiation

Open Procedure: This is the most straightforward and transparent method. A local government issues an open tender for office supplies. Any company that provides these supplies can submit a bid. The government then evaluates all bids based on price, quality, and delivery terms to select the supplier. Any interested supplier can submit a tender. The process is open from the outset, and all submissions are evaluated against pre-defined criteria. This procedure is used when you wish to attract a large number of bidders for the opportunity and is often posted online on a platform such as Find A Tender.com so that suppliers can find the opportunity. If it is a large contract it is a requirement for details to be published on OJEU. The disadvantage of using this approach is that you may receive many bids which can be time-consuming.

Restricted Procedure: In this method, the public sector organization invites suppliers to express their interest. After a preliminary selection process, only those who meet the criteria are invited to submit tenders. This is used when the opportunity is more technical, for example a healthcare authority needs specialized medical equipment. The authority would requests expressions of interest from suppliers. After reviewing these, it invites a shortlist of qualified suppliers to submit detailed bids for further evaluation. The benefit of this approach is that unsuitable suppliers are weeded out early, this saving time.

Competitive Dialogue: This is used for complex contracts where the organization cannot define the technical means or legal or financial make-up of a project in advance. A dialogue with selected bidders is conducted to develop one or more suitable solutions, which are then put out to tender. For example, a local council is planning a new public transport system but is unsure of the best solution. It enters into a dialogue with several firms specializing in transport systems to explore various options before requesting final bids based on the developed solutions. Suppliers can be eliminated through the dialogue process based on pre-determined criteria.

Competitive Dialogue with Negotiation: Similar to competitive dialogue, but with an added phase of negotiation. It's used for particularly complex projects where the needs cannot be met without adaptation of readily available solutions. For example: a government department requires a complex IT system that integrates various existing systems. It engages in a competitive dialogue to develop potential solutions and then negotiates with bidders to refine these solutions before finalizing the contract. This procedure allows for negotiations with the winning bidder to readjust requirements if needed.

The approach taken by a public sector organisation will depend on a number of factors, but in particular the complexity of the project and whether there is a pre-determined scope. Other factors to consider include; the time-sensitiveness of the project and how quickly the procurement exercise needs to be completed, the amount of suppliers in the marketplace, and whether suppliers need to be consulted on to create the specification.

Tutor Notes

- These four procedures are outlined on p.212. Post PCR 2015, these procedures may change, or be renamed, depending on what the UK government decide to do. So if you’re taking this exam in November 2024 or later, note that the study guide is now out of date and you should conduct a bit of your own research.

- You could also mention that the value of spend is a factor when public sector organisations are deciding on a procurement route. For really low value stuff, like they need a new sofa for the office, most organisation's requirements are to get three quotes and compare them. That isn't in the study guide, it's just real life (I've worked in this sector so know thisstuff). Each organisation will have it's own thresholds for what procurement route needs to be taken, so I wouldn't comment on that but generally if it's under £10k there's quite a bit of flexibility. Where you reach 'threshold' then things become very serious and there's much more scrutiny.

- Thresholds are not part of the syllabus so don't worry about learning this. But if you're interested have a read here: New public procurement thresholds from 1 January 2024 - BM Insights - Blake Morgan

- This is essentially two mini essays, so you can do them completely separately if you like.

1) Definition of centralised procurement – when an organisation has a designated procurement function which makes purchases on behalf of other teams. When departments need to make a purchase, they would do this by approaching the procurement department who would purchase the item they need. This is in contrast to devolved procurement where departments can make purchases themselves.

2)Explanation:of 2 forms of hybrid structures- there’s a couple in the study guide you can pick from – consortium, shared services, lead buyer and outsourced. In the old syllabus they used to discuss SCAN – Strategically Controlled Action Network and CLAN = Centre Led Action Network. This has been removed from the new syllabus, but I don’t think it would be wrong to use SCAN and CLAN in this essay if you wanted to. However they are more complicated than the others and if you can talk about other models instead I’d definitely go for that.

Example Essay:

Centralized procurement refers to a procurement strategy where an organization consolidates its purchasing activities into a single, central department or unit. Instead of allowing individual departments or divisions within the organization to independently manage their procurement processes, centralized procurement involves the concentration of these activities under a unified structure.

Key features of centralized procurement include:

1) Single Procurement Authority: In a centralized procurement system, there is a designated procurement authority or department responsible for handling all purchasing decisions. This central entity has the authority to negotiate contracts, select suppliers, and make procurement-related decisions on behalf of the entire organization.

2) Streamlined Processes: Centralized procurement aims to standardize and streamline procurement processes across the organization. This can include the establishment of uniform procurement policies, procedures, and documentation to ensure consistency and efficiency.

3) Economies of Scale: By consolidating purchasing power, centralized procurement allows organizations to leverage economies of scale. Bulk purchases, standardized contracts, and negotiations with suppliers on a larger scale can lead to cost savings and more favourable terms.

4) Improved Coordination and Communication: Centralized procurement enhances coordination and communication within the organization. With a centralized structure, there is better visibility into overall procurement activities, allowing for improved collaboration, information sharing, and strategic planning. Moreover, this centralized control helps manage risks, ensure transparency, and monitor adherence to ethical and legal standards.

5) Consolidated Supplier Relationships: Centralized procurement enables the organization to consolidate its relationships with suppliers. This can lead to stronger partnerships, better negotiation positions, and improved collaboration with a select group of suppliers that meet the organization's needs.

6) Strategic Decision-Making: Centralized procurement allows organizations to make strategic decisions at a higher level. This includes aligning procurement strategies with overall organizational goals, optimizing the supply chain, and contributing to broader business objectives.

An example of centralised procurement would be in a hotel chain with several hotels across the UK. In a centralised procurement function there would be one team responsible for ordering everything for all of the hotels, rather than allowing the individual hotels to buy things themselves. Premier Inn is an example of a company that uses this structure- it allows them to buy stock in bulk and ensures that all hotels have the same equipment so customers expectations are always met.

Centralized procurement is often contrasted with decentralized procurement, where individual departments or business units manage their procurement independently (i.e. each hotel would buy their own supplies). The choice between centralized and decentralized procurement depends on various factors, including the size and structure of the organization, the nature of its operations, and the specific goals it aims to achieve through its procurement processes.

Consortium Procurement Model:

The consortium procurement model is characterized by the collaboration of multiple organizations forming a joint group (the consortium) to engage in collective buying activities. Typically composed of entities from the same industry or sector, these organizations unite their resources, expertise, and purchasing power to pursue shared procurement objectives. The consortium leverages this collective strength to negotiate contracts, conduct bulk purchases, and benefit from economies of scale, resulting in cost savings and increased operational efficiency. The UK University sector is an example of Consortium activities- many universities come together to ‘group buy’ items as this brings about many benefits.

The main benefit of this form of hybrid procurement model is the increased negotiating power and leverage derived from combining the purchasing volumes of participating entities. This often results in more favourable terms, competitive prices (through bulk purchases), and improved conditions with suppliers. Additionally, consortium buying allows organizations to share resources, knowledge, and expertise, fostering a collaborative environment that enhances overall procurement capabilities. By working together, consortium members can collectively address challenges, negotiate strategically, and navigate the procurement landscape more effectively.

However, consortium buying is not without its challenges. A potential disadvantage lies in the complexity of managing a collaborative procurement structure, involving coordinationamong diverse entities. Achieving consensus on procurement strategies, vendor selection, and contract terms may require considerable effort and compromise. Additionally, individual organizational needs and preferences within the consortium may differ, posing challenges in aligning priorities. It is essential to strike a balance between centralized decision-making and accommodating the specific requirements of each consortium member. Furthermore, the success of consortium buying relies heavily on effective communication and trust among participants. Any breakdown in communication or lack of trust could hinder the collaborative process, impacting the overall efficiency and success of the consortium's procurement endeavours.

Overall, while consortium buying offers notable advantages, its effectiveness is contingent on careful management of collaborative dynamics and effective communication strategies.

Shared Services Procurement Model:

In the shared services procurement model, various departments or business units within a single organization converge under a centralized procurement function. Rather than individual units managing their procurement independently, a dedicated shared services centre is established to provide procurement-related services across the organization. This model facilitates streamlined processes, ensures consistency through standardized procedures, and capitalizes on economies of scale.

One key benefit is the potential for cost savings through economies of scale. By centralizing procurement, the organization can negotiate bulk purchases and standardized contracts, leading to better terms and prices. This consolidation of purchasing power enables the organization to optimize its resources and achieve overall cost efficiency. Additionally, centralized procurement allows for streamlined processes, standardized procedures, and better control over procurement activities. It promotes consistency, reduces redundancy, and ensures adherence to organizational policies and compliance requirements.

However, there are also potential disadvantages to centralized procurement. One notable challenge is the potential for reduced flexibility in meeting the unique needs of individual departments or business units within the organization. Centralization may lead to standardized approaches that might not be well-suited for all units, potentially impacting their specific requirements. Furthermore, the centralization of decision-making can result in increased bureaucracy and longer decision-making processes, potentially slowing down procurement activities. Additionally, there may be resistance from decentralized units that are accustomed to managing their procurement independently. Striking a balance between centralized control and accommodating the diverse needs of various units is crucial for the success of centralized procurement.

In conclusion, both the consortium and shared services procurement models represent strategies to enhance efficiency, realize cost savings, and optimize procurement processes. While the consortium model involves collaboration with external entities, the shared services model centralizes procurement functions within a single organization. The choice between these models depends on the unique goals, structure, and requirements of the organizations involved, each offering distinct advantages in the pursuit of effective procurement management.

Tutor Notes:

- This is from LO 3.3 p.161 onwards. There’s quite a bit of information on these hybrid models so there’s many ways it can come up as a question. There are different types of consortium, which I didn’t go into in the above essay because it wasn’t asked for as part ofthe question, but I’d familiarise yourself with this. Also with the pros and cons of each model, and think about when an organisation may choose this type of model.

Essay Plan:

Definition of Stakeholder- someone who has a ‘stake’ or interest in the company. A person or organisation who influences and can be influenced by the company.

Categories of stakeholders:

1) Internal Stakeholders- these people work inside the company e.g. employees, managers etc

2) Connected- these people work with the company e.g. suppliers, mortgage lenders

3) External Stakeholders – these people are outside of the company e.g. the government, professional bodies, the local community.

Example Essay:

A stakeholder is an individual, group, or entity that has a vested interest or concern in the activities, decisions, or outcomes of an organization or project. Stakeholders are those who can be affected by or can affect the organization, and they play a crucial role in influencing its success, sustainability, and reputation. Understanding and managing stakeholder relationships is a fundamental aspect of effective organizational governance and decision-making and there are several different types of stakeholders.

Firstly, internal stakeholders are those individuals or groups directly connected to the daily operations and management of the organization. Internal stakeholders are key to success and are arguably more vested in the company succeeding. They may depend on the company for their income / livelihood. Anyone who contributes to the company's internal functions can be considered an internal stakeholder for example:

This category includes

1) Employees: With a direct influence on the organization's success, employees are critical internal stakeholders. Their engagement, satisfaction, and productivity impact the overall performance.

2) Management and Executives: The leadership team has a significant influence on the organization's strategic direction and decision-making. Their decisions can shape the company's future.

Secondly, connected stakeholders are those individuals or groups whose interests are tied to the organization but may not be directly involved in its day-to-day operations. Connected stakeholders work alongside the organisation and often have a contractual relationship with the organisation. For example, banks, mortgage lenders, and suppliers. These stakeholders have an interest in the business succeeding, but not as much as internal stakeholders. It is important to keep these stakeholders satisfied as the organisation does depend on them to some extent. For example, it is important that the organisation has a good relationship with their bank / mortgage provider/ supplier as failing to pay what they owe may result in the stakeholders taking legal action against the organisation.

This category includes:

1) Shareholders/Investors: Holding financial stakes in the organization, shareholders seek a return on their investment and have a vested interest in the company's financial performance.

2) Suppliers and Partners: External entities providing goods, services, or collaboration. Their relationship with the organization impacts the quality and efficiency of its operations.

Lastly external stakeholders are entities outside the organization that can influence or be influenced by its actions. This category includes anyone who is affected by the company but who does not contribute to internal operations. They have less power to influence decisions than internal and connected stakeholders. External stakeholders include the government, professional bodies, pressure groups and the local community. They have quite diverse objectives and have varying ability to influence the organisation. For example, the government may be able to influence the organisation by passing legislation that regulates the industry but they do not have the power to get involved in the day-to-day affairs of the company. Pressure groups may have varying degrees of success in influencing the organisation depending on the subject matter. This category includes:

1) Customers: With a direct impact on the organization's revenue, customers are vital external stakeholders. Their satisfaction and loyalty are crucial for the company's success.

2) Government and Regulatory Bodies: External entities overseeing industry regulations. Compliance with these regulations is crucial for the organization's reputation and legal standing.

In conclusion, stakeholders are diverse entities with a vested interest in an organization's activities. The three categories—internal, connected and external —encompass various groups that significantly influence and are influenced by the organization. Recognizing and addressing the needs and concerns of stakeholders are vital for sustainable and responsible business practices.

Tutor Notes

- The above essay is pretty short and to the point and would pass. If you want to beef out the essay you can include some of the following information for a higher score:

- Stakeholders can be harmed by, or benefit from the organisation (can affect and be affected by the organisation). For example a stakeholder can be harmed if the organisation becomes involved in illegal or immoral practices- e.g. the local community can suffer if the organisation begins to pollute the local rivers. The local community can also benefit from the organisation through increased employment levels.

- CSR argues organisations should respect the rights of stakeholder groups

- Stakeholders are important because they may have direct or indirect influence on decisions

- The public sector has a wider and more complex range of stakeholders as they’re managed on behalf of society as a whole. They’re more likely to take a rage of stakeholder views into account when making decisions. However, these stakeholders are less powerful – i.e. they can’t threaten market sanctions, to withdraw funding, or to quit the business etc.

- The essay doesn’t specifically ask you to Map Stakeholders, but you could throw in a cheeky mention of Mendelow’s Stakeholder Matrix, perhaps in the conclusion. Don’t spend time describing it though- you won’t get more than 1 point for mentioning it. You’d be better off spending your time giving lots and lots of examples of different types of stakeholders.

- Study guide p. 58