Transfer pricing is not a key topic in Level 4, but CIPS still askes 1-2 questions on the subject. Transfer pricing refers to prices of goods/ services exchanged between two subsidiaries under the control of a parent company. Its purpose is to allocate profit between related parties within the same group, allowing both entities to optimize the tax costs by shifting profits to countries with lower tax rates. Furthermore, transfer pricing can help a company to reduce duty costs by…

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In the previous post, I discussed how cost analysis is conducted and its importance to a company’s survival. However, cost analysis provides buyers with detailed cost information about a purchased item, which represents only one piece of the puzzle. To assess the fairness and reasonableness of a price, buyers need to combine cost analysis with price analysis. This raises two questions: What is price analysis? and How is price analysis implemented? What is price analysis? Price analysis is a comparison…

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Cost analysis is one of the key elements in a business case. From the perspective of executive management, understanding the true costs of purchased products is essential to ensure that purchases deliver value for money. According to the CIPS study guides, buyers have various methods for analyzing the costs of purchased items, depending on the nature of the purchase and the type of supplier relationship. The nature of the purchase refers to how frequently items are bought, either as one-off…

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In order to achieve value for money in every purchase, buyers must comprehensively define what their company needs. Failure to identify these needs can expose the company to risks such as obsolescence and financial losses. According to CIPS study guides, buyers are encouraged to use the RAQSCI framework to define all aspects related to their purchased items. RAQSCI stands for Regulation, Assurance of Supply, Quality, Service, Cost, and Innovation. Regulation This refers to laws, standards, or regulations that a purchased…

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Types of tendering are featured in the CIPS study guides, and are frequently asked about in the exams. As a buyer, you must understand the basic principles of tendering, enabling you to apply this knowledge properly in the workplace. There are many types of tendering, but in the context of this article, I would like to introduce three common ones: open tendering, restricted tendering and negotiated tendering. Open tendering: This type of tendering refers to a sourcing process in which…

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Acting as a buyer, you have the flexibility to use the appropriate type of sourcing to achieve value for money in your purchases. According to the CIPS study guide, there are four common types of sourcing: single sourcing, sole sourcing, dual sourcing, and multiple sourcing. Each type of sourcing is well-suited to specific market conditions and purchasing objectives. Single sourcing In single sourcing, a company chooses to purchase from one supplier. Although there are some suppliers who are capable of…

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In the previous posts, you understood the role of the income statement and the balance sheet for buyers. Today I’ll continue exploring the final component of the financial statements: the cash flow statement. This document describes how much money flow in and out of the business over a period of time. I’ve attached an example of a company’s cashflow statement in 2023. Normally, the income statement is structured into 3 sections: cash flow from operating activities, cash flow from investing…

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In the previous post, I shared insights about the income statement and its implications for buyers. However, they may miss out some key information if they only look at the income statement. Financial statement typically includes the income statement, the balance sheet and the cashflow statement. Each offer different aspects, allowing buyers to outline a broad picture of a supplier’s financial health. The buyer needs to take them into account when assessing suppliers. In this post, I continue to analyze…

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Supplier appraisal is a crucial step in achieving value for money in every purchase. Acting as a buyer, you need to assess various aspects of suppliers to choose the best one who is capable of fulfilling the business’ needs. One key consideration is the supplier’s financial health, which holds strategic importance for the buying organization. The question is: how can buyers properly assess a supplier’s financial capabilities? According to the CIPS study guide, buyers are encouraged to review the supplier’s…

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