CIPS LEVEL 4: DIPLOMA IN PROCUREMENT AND SUPPLY

L4M1.4.3: EXAMINE THE IMPACT OF THE PRIVATE SECTOR ON

PROCUREMENT OR SUPPLY CHAIN ROLES
ALMAHI SULIMAN – PROCUREMENT AND SUPPLY CHAIN CONSULTANT – MCIPS APPROVED INSTRUCTOR
OBJECTIVES OF PRIVATE SECTOR

 The objectives of a private sector organization include the

following:
 Make a profit
 Increasing market share
 Increasing shareholder value
 Ensuring actions are socially responsible (CSR)

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MAKE A PROFIT

 The main focus of a private sector organizations is to make a profit. They are not reliant on government funding and are not
publicly accountable, although the are still subject to public scrutiny and accountable to their shareholders.
 Accountability is important to protect the reputation and health of the business
 The profitability of an organization is linked to its turnover and its expenditure.
 The most common form of income comes from sales, and this is known as sales revenue
 Money that leaves the business includes the cost of sales (how much it costs to produce goods) and indirect costs such as
salaries, heating and lighting know as business expenses
 By subtracting the cost of sales from turnover, business calculate their gross profit. The find out the business’ net profit,
expenses are deducted from the gross profit. Net profit = gross profit – expenses. This formula demonstrate whether a
business is profitable or not
 This financial information can be found in a business’ statement of comprehensive income.

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 Statement of comprehensive income
1 January 2018 – 31 December 2018 Organisations can use their net profit
$ $ in various ways; some examples are
Turnover 50,000 shown below:
Cost of sales 18,000 • Pay the net profit to the owners
Gross profit 32,000
• Invest the money into growing the
Less expenses
Utilities 4,000
business, such as buying new
Salaries 10,000 equipment or developing new
Rent 5,000 concepts.
Marketing 3,500 • Take over other companies in order
Insurance 250 to increase market share and
22,750
reduce competition
Net profit 9,250

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INCREASE MARKET SHARE:
 Market share is simply the percentage of the market that a particular company has in one industry. Either through
volume of sales or value of sales.
 The higher the percentage, the larger the market share or value of sales.

 Private sector organization actively seek to obtain the largest possible market share to entice consumers to make
them their first choice when purchasing products. This reduces the threat from competitors and thereby increases
profitability.
 An organization increase its market share through the pursuit of other business objectives.. For instance, in relation
to achieving the objectives of a good reputation with customers, the following elements of a good reputation may
each individually increase the organization’s market share.
 Best price, good customer service, value for money, reliability, availability strong, ethics policy and sustainability

 All of the above contribute to customer satisfaction which in turn may result in increased sales and customer loyalty,
both of which market share.
 An organization that has a majority share is often referred to as a monopoly. There is no set percentage that
dictates when an organization is a monopoly.

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INCREASE SHAREHOLDERS VALUE

 Private sector organisations are owned by shareholders who may be individually or corporations.
Shares can be purchased by the individual or corporation, acquired through employment or
received as a gift.
 Shareholders are stakeholders and have rights within the organisation in which they own shares.
These include the following:
 A right to influence company decision
 A right to buy more shares or to increase their holding
 A right to share of the company’s profits
 A right to a share of the company’s profits
 A right to vote in company decision making
 A right to take legal actions against the organization if it commits wrongful acts.

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SHARES AND DIVIDENDS

 shares have a value which reflects how well an organisation is performing. Within Plc organisations shares can be
traded on the stock exchange.
 Organisations that are performing well will see their share prices increase.

 The value of shares may also fall if the organisation underperforms or its reputation is damages.

 Shares do not have to be sold. Shares which are kept will earn dividends. If an organisation is profitable, it pays an
amount to its shareholders in the form of a dividends. The amount payable depends on how profitable the
organisation has been in a financial period.
 A universal objectives for a private sector organisation is to increase its shareholder value – the higher the value of
the shares, the higher the shareholder value. A profitable organisation will have a high shareholder value.

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CORPORATE SOCIAL RESPONSIBILITY (CSR)

 As in the public sector, private sector organisations’ objectives include CSR. With increased awareness about
environmental issues, sustainability and community welfare, consumers are increasingly concerned about
the origins of the goods and services they purchase. Private sector organisation have to ensure that they
procure ethically and sustainably as part of their CSR policy. An organisation’s and ethical and that correct
behaviour is always followed.
 Private sector organisation often set improving CSR as part of their overall strategy. This could be done by
setting objectives such as the following:
 Using sustainable suppliers
 Using recycled packaging
 Donating a percentage of profits to a local charity
 Contributing towards a community project
 Private and public sector organizations can work together on shared initiatives to promote CSR polices and
improve local, national or global awareness and action on common causes.

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REGULATIONS THAT IMPACT ON PROCUREMENT AND SUPPLY CHAIN
OPERATIONS
 As you learned earlier, the regulations surrounding the public sector are stringent. Private sector regulations are not
as strict or numerous. However, private sector organisations still have to follow guidelines in order to promote good
practice in procurement and supply chain operations.
 Unlike the public sector, many regulations for private sector procurement are set internally and as a result
organisations may follow different regulations.
 Internal regulations are likely to be based around the following criteria.
 CIPS Code of Conduct
 Code of Ethics
 Anti-bribery policy
 Sustainability policy
 Environmental awareness
 Transparency
 Accountability

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EXAMPLE OF REGULATION AND STANDARDS THAT THE PRIVATE
SECTOR MUST COMPLY WITH
Regulations Information
International Labour Organisation (ILO) Setting standards and social protection for employees
and the supply chain globally.
International Organisation for standardisation (ISO) Standards for achieving quality, environmental good
practice, etc
Consumer Rights Act 2015 Delivering products and services that are fit for
purpose
GDPR (General Data Protection Regulation) Safeguarding and not sharing suppliers’ or customers’
information without their consent
Health and Safety Regulations Ensuring safe working environments for employees,
customers and suppliers
Transport Driving Regulations Monitoring logistics to ensure drivers are not driving for
more than nine hours per day, or 56 per week

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THE MAIN DIFFERENCE BETWEEN THE PUBLIC SECTOR AND THE PRIVATE SECTOR
Public sector Private sector
Less flexibility More flexibility
Contracts often pre-written or they can be bespoke Contracts can bespoke
Supplier have to be managed according to process Suppliers can be managed as require as long as anti-
briber, coercion, unethical conduct, etc. do not occur
Limited negotiation Freedom to negotiate
Details of proposed work have to be published to allow All suppliers can be considered
all interested suppliers to bid
Information is shared openly Buyers can invite who they want to bid and disregard
anyone they choose not to work with.
Relationships harder to manage due to restrictions in Confidentiality in spending patterns easier to maintain
policies
Procurement workers’ salaries are pre-determined Relationships often more personal and less regulated
Innovation is promoted
Procurement workers can negotiate salaries
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THE IMPORTANCE AND ROLE OF BRANDING

 Functions of a brand

 Concept of branding

 Effective branding

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FUNCTIONS OF A BRAND

 A brand’s function is to reflect values in a positive way to

engage consumers and entice them to buy a product or
service.
 A brand should inform consumers of three basics things:
 What the products is
 What the product can do
 Why the products is the desired choice

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 Advertising

Strategy Marketing

Elements
Logo of a trust
brand

Design Identify

Value
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CONCEPT OF BRANDING

 The concept of branding relates to telling consumers which products or organisations to value and the reasons why.
The brand identify is part of branding but the two involve different processes.
 Branding is a company’s way of life that has greater purpose than being just the visual face of an organisation.

 Branding and marketing work hand in hand but are two very different concept

 Branding is important because it adds an intangible value to a product. It can motivate consumers to buy one
company’s products over those of another’s simply due to the power of the brand.
 Branding can be applied to all products regardless of the quality, price or market share.

 In the absence of a brand, a product becomes a commodity and is valued only it its net worth, without any
reputation, brand awareness or loyalty.
 For example water is a resource but Evian is a brand; petrol or diesel is a commodity but Shell is a brand.

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EXAMPLES OF THINGS WHICH CAN BE BRANDED

What can be Examples

branded?
Goods Heinz beans, Coca-Cola
Services DHL
Retail outlets Walmart
People Bill Gates, Trump
Destinations Maldives, New York
Companies Amazon, Google, Facebook
Concepts Smartphones, electric vehicles
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EFFECTIVE BRANDING

 Effective branding can be a powerful influence on consumers, which may help to

form their decisions as to which brand to buy when they make a purchase.
 Positive branding is created through the following:
 Convincing consumers that they need the product or service
 Displaying values consumers can relate to
 Empathy with consumer needs
 Being future oriented
 Offering sustainable solutions
 Creating environmental change
 Demonstrating value for money

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HOW BRANDING CAN EFFECT PROCUREMENT PROFESSIONALS

 For procurement professionals, branding is important because the results of branding

may influence buyers and help them to make informed decisions on sourcing and supply
 If a buyer has a positive impression of a supplier’s brand it is likely that the buyer will
approach the supplier for other products or services that they could supply.
 Unknown or untrusted brands with ineffective branding are less likely to motivate a buyer
to use that company.
 Effective branding offers a number of benefits to an organisation:
 Increased awareness
 Increased profitability
 Increased loyalty
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REBRANDING

 If an organisation or a product is approaching the decline stage of its life style or its
workforce is lacking engagement and becoming disillusioned, rebranding may be
required.
 The rebranding is intended to relaunch the product/organisation and remind existing,
future and potential consumers or employees of its identity, vision and what is stands for
in the marketplace.
 It is not unusual for business to rebrand; rebranding can aid organisational performance
through renewing and reviewing strategies, setting new objectives and setting the
company apart from existing and possible competition. The main purpose of rebranding is
to ensure organisational continuity and profitability.

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FINALLY,

 Procurement professionals must also be aware of the potential gains from

substituting recognized brands with better value alternatives or generic products.
The application of value engineering is a key tool in the buyer’s toolkit.
 Value engineering is a process of improving that the value or an existing product
or service.

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