CIPS L4M2 - Defining Business Needs

Explanation

A product’s life cycle portrays the length of time a product is in the market; from the beginning of its introduction to consumers until it is removed from shelves and phased out. This cycle is often divided into four phases: introduction, growth, maturity, and decline. Depending on the relevant stage, companies will set an according strategy to achieve their desired targets. Pricing and promotions play a pivotal role in the design of these product life cycle strategies. Therefore, product life cycle management, the process of strategizing ways to continuously support and maintain a product, is seen more and more at pricing mature players and could bring real value to your company.

Introduction phase: during the introduction phase, the new product is introduced to consumers and a substantial amount of money is invested in advertising and marketing campaigns to bring awareness of the product to the customer. In this phase competition is low, but units sold will also correspondingly be quite low as well still. Consumers need to be convinced of the benefits of the product. Lots of articles never make it beyond this phase: e.g. 3D televisions.

Profits in the introduction stage tend to be low or there may even be a loss. This is because the cost of marketing to establish product awareness plus distribution costs can be far higher than the revenue received from sales. This can be offset to a degree by 'skimming' price in the very early stages. Skimming a price is where a business charges the highest price that it thinks the market will bear initially until product recognition brings in other buyers and then the price drop.

Growth phase: when it’s shown there is proven demand for the product and consumers are buying it, the next stage will be its growth phase. This phase is punctuated by increasing demand, increas-ing production and an increase in the competitive landscape. Availability of the product is under-standably paramount during this phase, going out of stock is unthinkable during the growth period.

The electric car is an example of a product that is currently in the midst of the growth phase.

Maturity phase: normally the maturity phase is the phase that is characterized by declining production and marketing costs due to synergies and economies of scale. During this phase the first signs of market saturation occur and most consumers or households already own the product. Sales numbers still grow, but at a slower pace. In the maturity phase, price competition becomes intense, a broader range of distribution channels are deployed and competition is more focused on competitive pricing, marginal product differences or the difference in services or promotions. This period in the PLC is often said to be the ‘cash-cow period’.

That being said, the idea of ‘Maturity from the start’ also exists. This occurs when a brand decides to launch a product extension and directly follows up the maturity phase of an earlier version of the product. For example, the iPhoneX followed up from the ‘normal’ iPhone-series and therefore the iPhoneX never had to undergo the introduction or growth phase, but immediately started in its maturity phase.

Decline phase: the final phase of the PLC is entered once the product loses market share to other, newer products and the competitive landscape becomes too hard to survive. During this stage, de-mand declines, companies are left with overstock with prices and margins getting depressed. Therefore retailers and brands normally start stunting with promotions during the decline of the PLC to sell their final stock.

A well-known example of a product that has been through the decline phase were the Nokia phones; sales results dramatically decreased after the introduction of the iPhone.

Comprehensive and Detailed Explanation (from CIPS L4M2: Business Case & Cost Analysis)

When the quoted price seems higher than expected and market data suggests lower costs, CIPS advises to:

Seek a detailed cost breakdown to identify which components are inflating price.

This supports negotiation and ensures transparency, aligning with should-cost analysis and cost-based negotiation methods.

Options A and C would act prematurely; B (delay) is unnecessary.

Relevant CIPS L4M2 Sections:

Cost breakdown and cost analysis

Supplier pricing transparency and negotiation preparation

Comprehensive and Detailed Explanation (from CIPS L4M2: Market Management)

CIPS L4M2 draws heavily on Porter’s Five Forces when explaining buyer and supplier power. A buyer’s bargaining strength increases when:

The buyer has alternatives or can make the product in-house (reduces supplier dependence).

The buyer represents a large portion of the supplier’s sales, giving the buyer leverage.

Therefore:

Statement 1 (make in-house) → strengthens buyer’s position.

Statement 4 (buyer’s spend = high proportion of supplier’s revenue) → supplier cannot risk losing the buyer, so buyer gains power.

Statements 2 and 3 → limited suppliers and high switching costs both reduce buyer power.

Hence, 1 and 4 only are correct.

Relevant CIPS L4M2 Sections:

Porter’s Five Forces model

Factors affecting buyer power and supplier dependence

Explanation

Lean design is about maximising the value that a customer receives and at the same time minimis-ing waste in delivering that value.

For an organisation to be ‘lean’ it must have had all non-essential resources removed (ie. anything that does not add value, see below). This is efficient and cost effective, in that the value/supply chain can theoretically do exactly what is needed of it and no more, but requires sound forecasting and planning of demand and supply. It is most suitable for industries with stable product specifications, long lead times and few impulse purchases.

Organisations which are ‘agile’ react as quickly as is practicable to provide a cost effective response to customer demand. This is based on flexibility in design, supply, production and distribution. It is most appropriate for products such as fast fashion and foodstuffs which must be on display and available when wanted by the customer.

Explanation

The purpose of this QUESTION NO: is to test the student's ability to identify the problems and translate those problems to actionable requirements before communicating with the suppliers. The scenario suggests that Synergy Ltd's customer services team is using Excel spreadsheets, they lack a centralised customer database. This leads to problems in communications with customers.

A CRM system can solve the communication problem. But a QUESTION NO: arises: If a CRM system is employed, how will the previous data be imported? If the CRM system can support bulk import from Excel tables, it will save a lot of time.

Explanation

Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. CIPS preferred way to determine your risk control strategy is to use the four T’s Process:

Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization

Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business. Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.

Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred. Finding an alternative sup-plier is an example of treating the risk.

Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the ap-proach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.

If an item presents a risk and can be changed or removed without it materially affecting the busi-ness, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.

Explanation

Closed problem is something happens that should not have happened. To solve this type of prob-lem, procurement professional should find a way to correct the situation or try to adapt to it. On the other hand, open ended problem is a obstacle to your short-term objective. You will need to overcome this obstacle.

Shortage of key medicines is a situation in which procurement must find a substitution or try to save the current stock.

In case of cyber attack, procurement should find a way to recover the IT system as soon as possible.

Otherwise, 'There are not enough data for procurement analytics' is an open-ended problem be-cause it prevents company to conduct procurement analytics (an objective).

'Logistics costs incur a large portion in wholesale prices': In this situation, logistics costs are hur-dles that prevent companies to reach lower wholesale.

'The suppliers don’t comply with the company’s policy on underage labour': In this situation, pro-curement should seek ways to help supplier comply with the company's labour policy.

LO 1, AC 1.1

Explanation

Robots in manufacturing help to create jobs by reshoring more manufacturing work. Robots protect workers from repetitive, mundane and dangerous tasks, while also creating more desirable jobs, such as engineering, programming, management and equipment maintenance.

LO 2, AC 2.1

Explanation

Based on variability, the costs has been classified into three categories, they are fixed, variable and semi variable. Fixed costs, as its name suggests, is fixed in total i.e. irrespective of the number of output produced. Variable costs vary with the number of output produced. Semi-variable is the type of costs, which have the characteristics of both fixed costs and variable costs (Source: Key Differences).

Among above costs, leasing and depreciation are relatively static and do not change if volume of business activities increase or reduce.

Packaging, utilities and annual business rate (tax) are variable costs.