CIPS flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Procurement cycle

The sequence from identifying a need, through specification, sourcing, evaluation, award, and contract management, to review and close. Each stage acts as a decision gate that controls risk before the next commitment is made.

Five Rights of procurement

Right quality, quantity, time, place, and price. A purchase is fully effective only when all five are satisfied; optimising price alone can damage quality, delivery, or total cost.

Kraljic portfolio matrix

A segmentation tool plotting profit impact against supply risk. It produces four categories - non-critical, leverage, bottleneck, and strategic - each requiring a different sourcing and relationship approach.

Strategic items

Kraljic quadrant with high profit impact and high supply risk. Appropriate responses include long-term partnership, joint development, detailed contracts, and close performance management with few carefully selected suppliers.

Bottleneck items

Kraljic quadrant with low profit impact but high supply risk. The priority is securing supply through long-term agreements, contingency stock, alternative sources, or redesign to reduce dependence on scarce suppliers.

Total cost of ownership

The full cost of acquiring and using an item over its life: price, transaction, transport, inventory, quality, maintenance, and disposal costs. It is the correct basis for comparing offers rather than unit price.

Performance specification

A specification stating the required outcome or function rather than prescribing how to achieve it. It allows supplier innovation but requires clear, measurable acceptance criteria and KPIs to be enforceable.

Economic order quantity

EOQ = square root of (2 × annual demand × order cost ÷ holding cost per unit per year). It balances ordering cost against inventory holding cost to identify the lowest-cost order size.

Three-way match

The control that reconciles purchase order, goods received note, and supplier invoice before payment. Discrepancies in quantity, price, or receipt are investigated, preventing overpayment and fraud.

Strategy alignment chain

The cascade from organisational mission through corporate and business unit strategy to procurement strategy, category plans, and sourcing plans. Each lower level must demonstrably support the level above it.

Spend analysis

Structured analysis of expenditure by category, supplier, and business unit, often with contract coverage. It reveals consolidation opportunities and concentrates effort where spend and risk are greatest.

Pareto principle in procurement

The observation that a minority of categories or suppliers typically accounts for the majority of spend. It directs limited procurement resource toward the highest-value and highest-risk relationships first.

Power/interest grid

A stakeholder mapping tool. High power and high interest are managed closely; high power and low interest kept satisfied; low power and high interest kept informed; low power and low interest monitored.

RACI matrix

A responsibility chart: Responsible performs the work, Accountable owns and approves it, Consulted gives two-way input, Informed receives one-way updates. Each activity should have exactly one accountable person.

Category management

Managing a group of related purchases as a business unit: profiling spend and market, defining strategy, selecting sourcing approach, contracting, and continuously managing supplier performance and value delivery.

Demand management

Actions that reduce or reshape the need for a purchase before sourcing, such as specification review, standardisation, volume consolidation, substitution, and changing internal user behaviour.

Porter's Five Forces in supply markets

An analysis of supplier bargaining power, buyer bargaining power, threat of new entrants, threat of substitutes, and competitive rivalry. It explains market dynamics and informs sourcing and negotiation strategy.

Supplier tiering

Classifying suppliers by strategic importance and risk to determine management effort: strategic suppliers receive executive sponsorship and joint plans; transactional suppliers are managed through automated, low-touch processes.

Contract formation elements

Offer, acceptance, consideration, intention to create legal relations, and capacity. Terms must be sufficiently certain; vague or incomplete agreements risk being unenforceable in dispute.

Liquidated damages

A pre-agreed sum payable for specified breach, such as late delivery. It must be a genuine pre-estimate of loss; if it operates as a penalty it may be unenforceable.

Limitation of liability

A contract clause capping the maximum financial exposure of one or both parties and excluding certain categories of loss, such as indirect or consequential loss. It allocates risk between buyer and supplier.

BATNA

Best alternative to a negotiated agreement: the course of action a negotiator takes if no deal is reached. A strong BATNA raises the reservation point and negotiating power.

ZOPA

Zone of possible agreement: the overlap between each party's reservation point within which a deal is acceptable to both. No overlap means no viable negotiated agreement.

Integrative negotiation

A negotiation approach that expands value by trading across multiple variables, such as price, volume, payment terms, warranty, and lead time, rather than bargaining over a single fixed issue.

Contract change control

A formal process requiring all variations to be documented, priced, and approved before work begins. Undocumented change is a leading cause of cost overrun and contract dispute.

Supplier KPI design

Performance measures should be specific, measurable, achievable, relevant, and time-bound, few in number, and balanced across cost, quality, delivery, responsiveness, and sustainability to avoid gaming.

Conflict of interest

A situation where personal, financial, or other interests could improperly influence a procurement decision. It must be declared and managed, not simply avoided in appearance.

Facilitation payment

A small payment made to speed up a routine action to which the payer is already entitled. It is treated as bribery under laws such as the UK Bribery Act and must be prohibited.

UK Bribery Act 2010

Legislation criminalising bribery, including a corporate offence of failing to prevent bribery. Having adequate procedures in place provides a defence for the commercial organisation.

Gifts and hospitality register

A record of gifts and hospitality offered or received, with value thresholds and approval requirements. The test is whether the benefit could improperly influence a procurement decision.

Modern slavery due diligence

Assessing human rights and forced labour risk across supply tiers, applying contractual clauses, auditing high-risk suppliers, and publishing statements where legislation requires them.

Supplier due diligence

Pre-award checks on financial stability, legal status, sanctions and debarment, capacity, insurance, health and safety record, and reputation, to confirm the supplier can and should be contracted.