Neha Kumari Singh

SAP ID: 77120761269

NMIMS Global Access
School for Continuing Education (NGA-SCE)
Course: Procurement Management
Internal Assignment Applicable for December 2021 Examination
1. Explain what is Ethics in Procurement & why it is important? You are a Procurement
Head of Consumer Product organization, explain any 4 ISM Standards & link with
mention industry scenario. (10 Marks)
Ans. Introduction: Procurement has been an ongoing problem in many businesses because of the
90s when procurement was a big deal in both the service and product industries. A company's
procurement and delivery specialists collaborate with each other to ensure that they have an
efficient and effective procurement logistics system.
The Importance of Ethical Procurement
In an ideal world, ethical procurement would be the default state of affairs for businesses of all
sizes and types; doing the right thing for the company and the right thing for the society the
company operates within would be the same. Which is not to say that ethics and morality are the
same thing, of course, but rather that what is ethical is what is just, fair, and consistent with the
values one champions.
But as procurement professionals in the real world know, even the sturdiest code of ethics can be
severely tested in a world where not everyone is on the side of the light with regard to conflict of
interests, human rights, child labour, and other unethical behavior.
For companies, the question of ethical procurement boils down to supply chain management
blended with meeting legal, moral, and societal obligations and expectations. These obligations
and expectations are contextual, as different societies have different views on the importance of
personal gain in partnership with corporate profits, or the definition of a term like “corruption.”
Regardless of location, however, ethical procurement always requires an understanding of a
company’s social responsibility in addition to its legal one—and an intelligent approach to
eliminating unethical practices from its procurement activities. A bribery scandal might create
hefty fines, for example, but the lasting damage to a company’s reputation could bring it to its
knees if it loses the trust (and therefore the business) of its customer base.
Trust lies at the crux of ethical procurement. Losing it not only damages customer relations and
public perception, but supplier relationships and the efficacy of procurement activities themselves.
A company known for unethical behavior may have trouble attracting new potential suppliers, or
earning incentives, discounts, and “extra-mile” customer support from existing ones. They may
also attract the wrong sort of suppliers, whose own unethical practices could spell further disaster.
These companies may find themselves under extra scrutiny from government compliance teams,
or denied crucial funding by wary financial institutions. Companies that use suppliers who shirk
the law, using child labour, disregarding basic human rights, or violating environmental
compliance mandates may find themselves excluded from lucrative government bids. And if the
public finds a company’s practices questionable, it can lose millions to boycotts and bad press.

The Significance of Ethics in Procurement and Supply Operations

a) Enhancing and protecting the standing of the profession

This part of the CIPS code of conduct is to do with how a procurement professional should always
operate in ways that both enhance and help to protect the standing of the profession. Furthermore,
it ensures that CIPS members should act in a professional way in both their working and personal
life, and they should always operate in accordance with their organisation’s policies while being
mindful of the profession they are representing – this part of the code of conduct includes the
following practices:

• Never engaging in conduct, either professional or personal, which would bring the
profession or the Chartered Institute of Procurement and Supply into disrepute.

• Not accepting inducements or gifts (other than any declared gifts of nominal value which
have been sanctioned by our employer).

• Not allowing offers of hospitality or those with vested interests to influence, or be

perceived to influence, our business decisions.

• Being aware that our behaviour outside our professional life may have an effect on how
we are perceived as a professional.

b) Maintaining the highest standard of integrity in all business relationships

Integrity is about being honest and ethical, and working to or portraying conduct which reflects
strong moral values. This part of the CIPS code of conduct outlines why a CIPS procurement
professional should maintain a high standard of integrity within business relationships, and
includes the following principles:

• Rejecting any business practice which might reasonably be deemed improper.

• Never use our authority or position for our own financial gain.

• Declaring to our line manager any personal interest that might affect, or be seen by others
to affect, our impartiality in decision making.

• Ensuring that the information we give in the course of our work is accurate and not
misleading.

• Never breaching the confidentiality of information we receive in a professional capacity.

 • Striving for genuine, fair and transparent competition.

• Being truthful about our skills, experience and qualifications.

c) Promoting the eradication of unethical business relationships

Ethical behaviour is very important within procurement, procurement professionals can help
eradicate unethical behaviour through not creating or maintaining a relationship with businesses
that do not promote good ethics – Such eradication of unethical business practices is done by the
following practices:

• Fostering awareness of human rights, fraud and corruption issues in all our business
relationships.

• Responsibly managing any business relationships where unethical practices may come to
light, and taking appropriate action to report and remedy them.

• Undertaking due diligence on appropriate supplier relationships in relation to forced labour

(modern slavery) and other human rights abuses, fraud and corruption.

• Continually developing our knowledge of forced labour (modern slavery), human rights,
fraud and corruption issues, and applying this in our professional life.

d) Enhancing the proficiency and stature of the profession

The code of conduct in this section asks members to bring skills, competences and a good
reputation to the procurement industry. In addition, CIPS members are expected to keep their CPD
up to date and undertake a certain amount of training, reading or knowledge gathering each year.
In doing so, procurement professionals can apply their knowledge within their employment and
help to develop both themselves and colleagues.

This can be achieved by:

• Continually developing and applying knowledge to increase our personal skills, and those
of the organisation we work for.

• Fostering the highest standards of professional competence amongst those for whom we
are responsible.

• Optimising the responsible use of resources which we have influence over for the benefit
of our organisation.

e) Ensure full compliance with laws and regulations

The final part of the CIPS code of conduct is related to complying with legislation and regulations
through:

• Adhering to the laws of the countries in which the procurement professionals practice, and
in countries where there is no relevant law in place they will apply the standards inherent
in this code.

• Fulfilling agreed contractual obligations.

• Following CIPS guidance on professional practice.

Last but not least, the CIPS code of conduct outlines what is important to help a procurement
professional practise in a professional, ethical, and effective way. This code is reviewed regularly
to keep it relevant and is approved by CIPS Global Board of Trustees.

1. Perceived Impropriety

Prevent the intent and appearance of unethical or compromising conduct in relationships, actions,
and communications.

2. Conflicts of Interest

Ensure that any personal, business, or other activity does not conflict with the lawful interests of
your employer.

3. Issues of Influence

Avoid behaviors or actions that may negatively influence, or appear to influence, supply
management decisions.

4. Responsibilities to Your Employer

Uphold fiduciary and other responsibilities using reasonable care and granted authority to deliver
value to your employer.

5. Supplier and Customer Relationships

Promote positive supplier and customer relationships.

6. Sustainability and Social Responsibility

Champion social responsibility and sustainability practices in supply management.

7. Confidential and Proprietary Information

Protect confidential and proprietary information.

8. Reciprocity

Avoid improper reciprocal agreements.

9. Applicable Laws, Regulations, and Trade Agreements

Know and obey the letter and spirit of laws, regulations, and trade agreements applicable to supply
management.

10. Professional Competence

Develop skills, expand knowledge, and conduct business that demonstrates competence and
promotes the supply management profession.

Conclusion

Procurement professionals who are perfectly familiar with the CIPS code of conduct and its correct
standards, and follow such standards at all times can help their organisations to achieve long-term
success, being more financially successful, and create and sustain a good reputation.

Ethics in procurement and supply operations are a moving goalpost that procurement professionals
should ensure they keep up to date with. Legislations and standards can change frequently so it is
significant to always follow the current version of the employer’s code of ethics in order to ensure
that procurement best practices are used.

2. You are part of Pharma Company who has grown immensely during Covid times.
Your company is planning to set up two more plants for manufacturing of
vaccinations. As Procurement Manager help them to evaluate between leasing or
buying two factory premises. Please support your answer with reasoning & mention
advantages of selected option. (10 Marks)
Ans. Introduction

If this scenario is a reality, it would mean that an individual would accept to hire a particular item
from a rental agency below the rental agreement. Rent is a contract between an owner and tenant
in exchange for making the rental payments each month to guarantee the possessions of the
landlord are used. The renter and the lessor need to make sure that the contract is not written in
such a way that it will not be enforceable. Rentals are protected in incorporation privileges.
Procurement manager role and responsibilities
A procurement manager is responsible for ensuring that their business purchases the goods and
services that will best help them achieve their goals. Generally, that means finding supplier
partners that strike a balance between quality and cost. Additionally, procurement manager
responsibilities include reviewing past purchases made by the company. This evaluation
determines vendor effectiveness, compliance and ultimately, the business’s return on investment
(ROI).

Accordingly, the job duties of a procurement manager have expanded. Likewise, the number of
factors they consider when selecting a vendor has also grown.

Procurement manager responsibilities

• Solution and product research

• Inventory management
• Procurement process optimization
• RFP management
• ROI analysis
• Supplier evaluation and selection
• Risk and compliance management
• Contract negotiation
• Data analysis

Key vendor considerations

• Pricing
• Quality
• Product features and functionality
• Delivery timeline
• Expertise and experience
• Company values including diversity and sustainability
• Customer experience
• Ability to scale with business growth

3 challenges facing procurement professionals

Rogue spend and a lack of business engagement

To be effective, procurement managers must collaborate with every department. Unfortunately,
uncertainty or skepticism about procurement’s role often makes winning buy in from the business
a challenge. The result? Rogue spend.
Also known as dark purchasing, invisible spend, tail spend, unmanaged spend or maverick spend,
rogue spend is any purchase made outside of the procurement process. According to a 2016 report
from Hackett Group, almost 29 percent of indirect spend is off-contract or rogue spend. These
items are difficult to account for and open the business up to risk.

Dave Hulsen, COO of RFP360 discussed overcoming this challenge on a recent podcast from Art
of Procurement podcast. He recommends improving process transparency, being proactive and
engaging with stakeholders early. Ultimately, involving stakeholders in solution builds trust and
credibility. So, it’s wise to include their input in procurement research, project kick off and
proposal evaluation.

Lack of technology resulting in a time-consuming process.

Even in businesses where digital transformation initiatives are widely embraced, technology seems
slow to arrive in the procurement department. In the 2018 CPO Survey Report, Deloitte
summarized the challenges saying this:

“Despite recognising digital technologies, their impact and imminent uses, few organisations
appear to be progressing at the rate that their c-suite executives consider necessary for achieving
overall goals. Indeed, in the majority of areas, the level of impact has declined and the forecast
application of new technologies is low.”
While undertaking software and IT sourcing for other departments is a big part of a procurement
manager’s job, they may still be working through a largely manual process. Certainly, the irony of
this isn’t lost on us.

A common source of frustration for procurement managers and internal stakeholders alike is the
length of the procurement process. Typically, procurement projects are a result of an ongoing
problem that is keeping the business from meeting their goals. Understandably, in this situation,
delays and inefficiency are particularly unwelcome. For example, common delays include lengthy
requirements research, inefficient vendor communication, a lack of collaboration in proposal
evaluation, manual scoring or roadblocks in contract negotiation.

Technology solves many of these issues. At the same time, it empowers better insights,
transparency, workflows and RFP automation. In addition, valuable data from a digitized process
can be reviewed for optimization opportunities.

Strategic sourcing and supplier selection

As businesses begin to understand the value the procurement department can deliver, the pressure
on procurement managers increases. Unsurprisingly, strategic sourcing has grown in popularity to
help meet this challenge. The practice focuses on selecting long-term partners, rather than
transactional suppliers. Longer, more productive relationships with vendors mean fewer
procurement projects and lower costs.

Strategic sourcing starts with picking the right vendor. Often, RFPs compare variety of similar
vendors’ qualifications, experience and capabilities. Then, procurement manager evaluate and
score the results. Ideally they use weighted scoring to ensure the company’s highest priorities are
met. Again, if performed manually, weighted scoring can be a time-consuming process.

Selecting the right vendor isn’t the end of the procurement team’s duties. Indeed, managing vendor
relationships is an underappreciated and highly-valuable skill. A procurement manager continually
manage and evaluate the performance of each vendor to ensure the partnership remains mutually
beneficial. Luckily, vendor profiles can help organize and centralize crucial vendor information
for easy reference and tracking.

Technology and resources for procurement managers

To achieve their goals, procurement managers may use a number of tools, processes and resources.

3. a. Oftenly we hear debate that Purchase Requisition is whose responsibility? What

do you think? Explain Purchase requisition and its types. Why PR is one of the critical
steps of P2P cycle? (5 Marks)
Ans. Introduction

Purchasing requests are files that are used as part of an organization's management functions, but
which members of the organization need to maintain. A purchase request can be quite simply
defined as a professional order that is only intended to announce the buying desire of a department
or distributor to the supervisor or distributor.

Purchase requisitions – also referred to as purchase requisition forms – are documents that are
used when employees need to make a purchase or order request. Anytime an employee wants to
make a purchase – say, for example, they need a new laptop – they’ll use a purchase requisition
form to explain exactly what the purchase is and why they need it for work. It’s used to ensure that
all business purchases are legitimate and that there’s a genuine need for the item that’s being
requested.
Procure to pay (P2P) is important and useful for accounts professionals to adopt procure to pay
systems and how this can help run their businesses more effectively. It consists of the following
14 steps:
1. Identifying the requirement
2. Authorizing the purchase order
3. Approving the purchase order
 4. Procurement
5. Identifying and vetting the suppliers
6. Taking quotes from suppliers
7. Negotiating terms with suppliers
8. Selecting a supplier
9. Confirming a purchase order
10. Sending a shipment notice
11. Receiving and inspecting the received goods
12. Recording an invoice
13. 3-Way match
14. Paying the supplier for the goods they have delivered.
In this post, we will explain each of these 14 procure to pay cycle steps.
Identifying the Requirement
Before a purchase can be made, there has to be a need or requirement for supplies, material or
parts needed for the continuation of a business operation. This requirement can be identified by a
worker directly on site, who notifies his immediate superior, who then creates and submits a
purchase request to the manager.
Authorizing the Purchase Request
There are several factors that can affect and derail the authorization of a purchase request. For
instance, it might need a higher level of authorization and be required to be sent to a senior level
executive for approval or revision. Also, the purchase request might clash with the company’s or
the department’s budget limit and this can cause it to be rejected or returned for revision.
Approving the Purchase Request
However, if all obstacles have been successfully surmounted and it has received an approval from
the procurement officer, the request can then proceed to the the next step. In larger organizations
this may be an inventory controller. He will look if the company already made similar requests
earlier. Once the inventory controller is finished, the purchase request is sent to the procurement
department. Keep in mind that in smaller organizations, these two may be the same person.
Procurement
The next step in the procure to purchase cycle is the procurement itself. There are two ways this
step can go.
a) If there were other requests like this one, then the company creates a Call-Off with an existing
supplier the company has a contract with.
b) If there are no similar requests, then the buyer looks for a new supplier.
Identifying and Vetting the Suppliers
There are several ways for a company to find a supplier for the materials it requires. This includes
referrals, search databases, Internet search, etc. The buyer needs to carefully consider his options
and select a few potential suppliers. The next step is to send each of them a request for proposal
(RFP) or a quote.
Taking Quotes from Suppliers
Once the buyer sends out RFPs to potential suppliers, they need to prepare quotes and send them
back to him. The buyer then needs to review them. This person will make the changes and send
the quote back to the supplier and tell him if he agrees or not.
Negotiating Terms with Suppliers
If the buyer has approved the RFP and quote from the supplier, the two can proceed to negotiate
the terms. This will include: payment terms, delivery terms, freight fees, insurance fees, quantity
discount, quality and more.
Selecting a Supplier
Once the buyer has concluded negotiations with the potential suppliers and identified one he will
do business with, he will award that supplier a contract and send him a purchase order (PO) for
the items.
Confirming the Purchase Order
After the supplier receives the purchase order, he needs to send a confirmation to the buyer. The
buyer then keeps this confirmation for future reference in his records. Earlier this was done on
paper, with both the buyer and the supplier having several copies (for each department involved),
but today all of this can be done via specialized software or email.
Sending a Shipment Notice
Following the confirmation of the PO, the supplier needs to send a shipment notice to the buyer,
notifying them that the goods are on their way. This notice will typically include the shipment
date, delivery location address, PO number, description of goods (number of packages, their
weight…) and the name of the transporter, among other things.
Receiving and Inspecting the Goods
Once the buyer has received the goods, he will have to inspect it thoroughly to see if it matches
the terms agreed with the vendor. At this stage, the buyer needs to check the condition and quantity
of the items. The delivery staff will also compare the PO number to the one from the request and
confirm the receipt.
Recording an Invoice
If the buyer has acknowledged that he has received the goods and has no complaints (he didn’t
send anything back), the supplier will send him an invoice for payment. The invoice will contain
the payment date, how much the buyer is to pay, PO number and other payment terms.
3-Way Match
The purchase order, invoice and any delivery documents need to go through revision and checking
by the accounts payable department of the company to see if everything matches.
Paying the Supplier
This is the final step in the procure to pay cycle. If everything is okay and the invoice matches the
purchase order and the delivery documents, the buyer issues a payment to the supplier according
the payment terms they’ve agreed upon

b. What are various types of Pricing Contracts; why they are used? Explain types,
sub types and difference between them in terms of responsibility of buyer or seller. (5
Marks)
Ans. Introduction

It is the contractual pricing system which provides the client company with the price network
information as well as the component prices, ensuring the customer is in complete control of the
price network.

Types of Pricing Contracts

1. Fixed-Price Contract (FP)

A fixed-price contract is a contract where you will define a definitive and fixed price for the
services or the work that you will perform. Any services required outside of the scope of a fixed-
price contract will require a separate agreement to be signed by the parties.

There are many benefits of fixed price contracts. This type of contract is when a seller and buyer
agree on the total cost of a service or good, which is listed in the contract. Both parties agree to
this and sign it to honor the agreement, and the terms of the contract will determine how long the
fixed price will last for.

2. Firm-Fixed-Price Contract (FFP)

A firm-fixed-price contract is a type of contract that shifts the maximum level of risk onto the
vendor and the minimum risk onto the customer. In this type of contract pricing model, the contract
provides for a price that is not subject to change no matter the vendor’s cost experience during the
performance of the contract. The project cost risk is therefore fully assumed by the vendor.

The term firm fixed price contract refers specifically to a type or variety of fixed price contract
where the buyer or purchaser pays the seller or provider a fixed amount, and that this particular
set amount will not waver of vary under any circumstances whatsoever, such as in instances in
which unexpected costs suddenly arise and the provider may have to expend additional resources.

3. Fixed-Price Contract with Escalation (FFE)

A fixed-price contract with escalation is a type of contract that will fix the price of the service to
be rendered with a possibility to revise the pricing upwards if certain price fluctuations defined in
the contract were to occur. This type of contract pricing is used when the delivery of the services
will span over a few years potentially having an impact on the market costs and expenses. The
possibility of ‘escalating’ the price is a protection given to both parties in case there is an important
change in labour or material cost.

If a buyer includes a maximum price in an escalation clause, the seller will immediately know the
buyer’s top price thereby compromising the buyer’s bargaining position. An offer containing an
escalation clause may not become enforceable until a specific price is entered into the contract and
the buyer sees the price the seller has specified

4. Fixed-Price Incentive (FPI)

A fixed-price incentive contract is a type of contract pricing model where the contract provides for
a fixed-price while allowing an adjustment to the final contract price based upon an agreed formal
taking into account the final negotiated cost and the total targeted cost. In essence, this type of
contract will provide a financial reward or incentive to the seller for the defined criteria related to
its performance. Both seller and buyer stand to gain in this type of contract. To start with, the
seller will give a very reasonable price to the buyer having the ability to benefit from the incentive
should the seller’s performance meet or exceed the success criteria in the contract.

If the seller succeeds, then the price may go up to the benefit of the seller. On the other hand, the
buyer benefits from a very reasonable price upfront and even if the price goes up based on the
contractual criteria, the buyer will still be happy as the seller did an amazing job. So the increase
in price will be justified.

5. Lump-Sum Contract (LS)

Lump-sum contracts is very typical in construction contracts where the parties will agree on one
lump-sum for the entire work before the work begins. A lump-sum contract can work well for both
parties when the scope of the project is well defined and it’s unlikely that the scope changes
significantly. The contractor will be able to set the lum-sum price based on the effort needed for
the project. The contractor will take on more risk as there may not be many contractual
mechanisms to vary the price based on cost and actual work performed.

6. Time and Material contract (T&M)

A time and material contract involves one party paying for the work or services as the work is
getting done. The customer plays a more important role in the actual project and carries all the risk
related to change of scope. Depending on the responsibilities and scope defined in the contract,
the service provider will render its services by charging for the time of its personnel and the costs
incurred. This essentially shifts the project risk from the vendor to the buyer.

7. Cost-Reimbursement Contract (CR)

A cost-reimbursable contract is a variant of a contract that involves a reimbursement payment from

the buyer based on sellers actual costs. The seller will usually add a fee or a percentage charge
associated with the administration of that cost. The costs must necessarily be incurred by the
vendor in regards to the project. This type of contract is also sometimes called a cost-plus contract.

8. Cost-Plus-Fixed-Fee (CPFF)

A cost-plus-fixed-fee contract is a type of contract where the contractor is paid for the normal
expenses for the project along with an additional fee for the services rendered. This type of contract
can result in the contractor not having any incentive to control the cost of the project as this cost
will be reimbursed by the client in full. As such, the initial price negotiated may be drastically
different than the actual costs. If the contractor has a good control on the project costs, the final
project cost can be lower than what was anticipated benefiting the buyer.

9. Cost-Plus-Incentive-Fee Contract (CPIF)

A cost-plus-incentive-fee is a type of contract where the cost of the project is reimbursed and the
contractor can get an incentive-based on a formula defined in the contract based on the total
allowable cost and the total targeted costs. In this type of contract, the seller’s total profit will
increase the more the actual project cost is below the targeted costs and the total profit will decrease
if the actual project costs are above the targeted costs.

10. Cost-Plus-Award-Fee Contract (CPAF)

A cost-plus-award-free contract is a type of contract pricing model where the fee is based on the
amount fixed at the inception of the contract along with a financial incentive or award based on
defined contractual objectives. This type of contract gives the seller the flexibility of earning a
good profit when the work cannot be defined at the beginning of the project. This type of pricing
can be highly rewarding in a high-risk project.

11. Unit Pricing Contracts (UP)

Unit pricing contracts are based on estimated quantities of items or unit prices such as hourly rate,
the rate per unit work volume or other metrics. Typically, the vendor will price the unit in such a
way that the overhead and profits are embedded in the unit price. This type of contract works well
when you know the resources that you need for a project but you are unsure for how much time or
volume. Engineering projects or construction project are suitable for unit pricing as you may know
the cost of your personnel per hour but cannot fully estimate the total time spent until the end of
the project.

12. Milestone Pricing Contract

A milestone pricing is a type of contract where the payment from the buyer to the vendor will be
made based on concrete accomplishment or milestones in the project. Software development
contracts or construction contracts can be milestone based as the vendor or contractor will need to
demonstrate that they have successfully accomplished a phase of the work as define dint he
contracts to be entitled to get paid. Typically, the buyer will make an initial payment to start the
project and all subsequent payments will be made based on the accomplishment of milestones.

Conclusion: Hence, there are various types of Pricing Contracts types, sub types which differ
between in terms of responsibility of buyer or seller