L5M4 CONTRACT AND FINANCIAL - Learning Definition Business Model Formula Discussion (Advantages & Disadvantages)

outcomes
1.0 Understand and apply tools and techniques that can be used to measure and develop contract performance in procurement and supply
1.1 Assess the use of Key Performance KPI - Financial and Eckerson (2009) - Characteristics of effective KPI must be SMART Advantage: 1. Motivate
Indicators (KPIs) nonfinancial metrics used KPIs: Sparse, Drillable, Simple, Actionable, compliance and improvement. 2. Manage
to reflect the critical Owned, Referenced, Correlated, Balanced, supply risk. 3. Support contract management.
success factors of an Aligned and Validated. Neely's Four CPs of 4. Identify high performing suppliers. 5.
organisation or contract. measurements 1998 - 1. Check position. 2. Identify closer partnership suppliers. 6. Gives
Key - CSF. Performance - Communicate Position. 3. Confirm Priorities. 4. feedback for learning and continuous
State of business. Indicators Compel Progress. improvement. Disadvantages: 1. Focus is on
- Way business is the measured areas only. 2. Can lead to
measured. CSF - ares tath cutting corners on quality or service to
are essential for a contract achieve targets 3. KPIs can be misaligned
or business to be with corporate objectives and 4. Can be time
successful. consuming. 5. Risk that the wrong metrics
have been selected.

Cost Cost - Amount of money Dolan 2004 - says that suppliers might also be KPIs for Cost: 1. Basic purchase price. 2.
used to make a product or rated on costs in relation to continuous Whole life cost - benchmark. 3. Cost
deliver a service. improvement via (a) Supplier partnership reduction submiited by the supplier.
initiatives (b) Performance against cost adn (c)
Cost reduction recommendations submitted by
the supplier.

Quality Quality - ability to meet SERVQUAL - A method of analysing customer KPIs for Quality 1. rejects parts per million
and exceed our customer perceptions of service quality. RATER (PPM). 2. Conformance to specification. 3.
expectations through Framework - A framework around which Point system on general performance.
clearly defined goals. It is SERVQUAL measures are based (Reliability,
our belief that sustainable Assurance, Tangibles, Empathy and
success as an organisation Responsiveness). Garvin 1984 - identified five
can only be achieved by major approaches to how quality is defined; 1.
constantly challenging transcendent approach - equates quality with
ourselves in the pursuit of excellence. 2. User-based approach - making a
excellence. product that is fit for purpose (Juran 2010). 3.
Product-based approach - sees quality precise
and measurable. 4. Manufacturing based
approach - regards quality as the manufacture
of products that meets specs. 5. Value based
approach - develops with the manufacturing
based approach to future by incorporating both
cost and price.
Delivery Delivery -The process of Hiles business model on SLAs - Hiles (1993) KPIs on Delivery 1. % of OTIF. 2. % on early
delivering goods or defined an SLA as “An agreement between the delivery. 3. % on late delivery. 4. % on over
services. Supply chain provider of a service and its users, which delivery. 5. % on correct paperwork. Below
management is concerned quantifies the min. quality of service which service Performance - Service credits can
with the flow of materials meets business needs.” apply.
and services, including
delivery to the ultimate
customer, as well as the
associated flows of money
and information. Delivery
can include: 1. Service
delivery. 2. Product delivery
and 3. on-time logistics.
Rights of delivery: 1. Right
time. 2. Right Quantity. 3.
Right Place.

Safety Health & Safety - The The Iron Triangle - Quality, cost and time. A safety performance KPIs on Safety 1. Audit non conformance
health, safety and welfare Bubshait and Almohawis 1994 - noted with Index - SPI. SPI = (LTI x reports. 2. HSE reports. 3. Accident incident
of management, employees regards to safety in relation to construction C) divided by M. LTI - reports. 4. Lost time as a result of accidents.
and contractors projects "the degree to which the general Lost Time Incidents. M 5. Industrial accident rates. 6. Accidents
conditions promote the competition of a - total man hours. C - avoided. 7. Number of reportable accidents.
project without major accident or injury. Constant
 CIPS L5M4 - Advanced Contract and Financial Management - Key Definitions CIPS L5M4 - Advanced Contract and Financial Management - Key Definitions
LO Definition Description LO Business Model/Theorist Description
On KPI@s - characteristics on effective KPIs: Sparse,
Measurements of organisational performance using
1 Cost-Based Metrics 1.1 Eckerson (2009) Drilliable, Simple, Actionable, Owned, Referenced,
cost.
Correlated, Balanced, Aligned and Validated.

Those areas that are essential for a contract to be KPIs in performance measurements as per Neely’s
1 Critical Success Factor (CSF) 1.1 Four CPs of measurements 1998: 1. Check position. 2.
successful.
Communicate Position. 3. Confirm Priorities. 4. Compel
Neely’s Four CPs of measurements 1998 Progress.
This is so via: 1. Supplier partnership initiatives. 2.
Performance against cost reduction targets
The health, safety and welfare of management, Dolan, 2004 regarding continuous
1.1 Health & Safety 1.1 3. Cost reduction recommendations submitted by the
employees and contractors improvements relating to cost
supplier.

1. transcendent approach. 2. user-based approach. 3.

The actual cost at a past point in time when the KPI Garvin (1984) identified five major
1.1 Historic Cost Baseline 1.1 product-based approach. 4. manufacturing-based
was first established approaches to how quality is defined;
approach. 5. value based approach.

Hiles (1993) defined an SLA as “An agreement

Financial and nonfinancial metrics used to reflect
between the provider of a service and its users, which
1.1 Key Performance Indicators (KPI) the critical success factors of an organisation or 1.1
quantifies the min. quality of service which meets
contract.
business needs.”
Hiles (1993) defined an SLA
1.1 Lost time incidents (LTI) The number of lost time incidents to date
The view that quality of a product that precisely
1.1 Manufacturing-Based Approach
meets specifications
1.1 Metrics A measure of how well a project is performing
On-time Delivery In Full = the percentage of orders
that are shipped on time and in full, meaning the
1.1 OTIF
customer gets everything they ordered, on the day
they expected to receive it.
1.1 Product-Based Approach The view that quality is precise and measurable
A framework around which the SERVQUAL
1.1 RATER Framework measures are based (Reliability, Assurance,
Tangibles, Empathy and Responsiveness)
A calculation based on time lost and total man-
1.1 Safety Performance Index (SPI)
hours worked.
A management tool used to address, improve, and
communicate supply chain management decisions
1.1 SCOR
within a company and with suppliers and customers
of a company.
 Compensation given by a supplier to a buyer when
1.1 Service Credits
service fails below the required level.
A method of analysing customer perceptions of
1.1 SERVQUAL
service quality.
A contractual document, which sets out the
1.1 SLA (Service Level Agreement) expected service level and service credit regime in a
contract for services
Specific, Measurable, Achievable, Relevant and
1.1 SMART
Time bound.

1.1 Supplier Rating Measuring the performance of an existing supplier.

Reports used to track a suppliers achievement of, or

1.1 Supplier Scorecard progress towards targets or goals, which can include
quantitative and qualitative data.
An estimate used to help buyers to determine the
1.1 Total Cost of Ownership (TCO) costs, both direct and indirect, of a product or a
service.
1.1 Transcendent Approach The view that equates quality with excellence
the making of a product that is fit for purpose and
1.1 User-Based Approach
use
A description of the set of processes and activities
1.1 Value Chain that add value to raw materials in order to turn
them into a viable product to sell to customers.
A development of the manufacturing-based
1.1 Value-Based Approach
approach that incorporates both cost and price.
The total cost of an asset over its whole life,
including, for example, its purchase price and costs
1.1 Whole-Life Cost
relating to servicing repairs, consumables, disposal
and other end of life costs