Graduate Diploma in Purchasing and Supply. Finance for Purchasers L6-12 LEVEL 6. Senior Assessor s Report. May L6-12/SA report/may

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1 Graduate Diploma in Purchasing and Supply Finance for Purchasers L6-12 LEVEL 6 Senior Assessor s Report May 2008 L6-12/SA report/may

2 INFORMATION FOR CANDIDATES The senior assessor s report is written in order to provide candidates with feedback relating to the examination. It is designed as a tool for candidates both those who have sat the examination and those who wish to use it as part of their revision for future examinations. Candidates are advised to refer to the Examination Techniques Guide (see the following link as well as this senior assessor s report. The senior assessor s report aims to provide the following information: An indication of how to approach the examination question An indication of the points the answer should include and how marks are allocated An indication of candidates performance for the examination question APPENDIX A syllabus matrix for the examination is included as an appendix. It highlights the learning objectives of the syllabus unit content that each question is testing. The unit content guides are available to download at the following link: ADDITIONAL SOURCES OF INFORMATION The Supply Management magazine is a useful source of information and candidates are advised to include it in their reading during their study. Please see the following link to the Supply Management website L6-12/SA report/may

3 SECTION A Question 1 Part (a) Using ratio analysis, analyse Stanton s year-on-year comparative annual financial performance. Comment on the outcome of the analysis (18 marks) This question was looking for candidates to carry out a financial appraisal and risk analysis of a potential key supplier, using a range of financial performance ratios. In line with the case study it was an opportunity to test the candidate s application of these ratios and draw additional comment upon them. Most candidates were able to list and calculate most of the key ratios and were able to draw some comparison between the two years. However, many re-wrote the figures as statements, and very few moved on to provide more in-depth analysis on the concerns or draw up a substantive conclusion. This question was one of the better answered questions on the examination paper, with those with a firm grasp of the learning material displaying a good understanding of what the question was asking. Candidates at the higher end tended to show real understanding of how the different ratios could build up a substantive conclusion to the plight of the supplier when producing responses to part (a) Some things to watch out for however, in this type of question, are calculations ranged from two decimal places to full rounding. Part (b) Outline the additional information you may require for the meeting with Bill Stanton next week (7 marks) Part (b) was looking for candidates to outline additional and supporting financial and non-financial factors in decision-making with some critical analysis. L6-12/SA report/may

4 Some better candidates related their answers to part (a) and indicated that they would require both short- and long-term views from the supplier. Those candidates scoring poorly on this question often failed to really answer the questions posed, reiterating only those bits of information provided by part (a), a fragmented account that possessed vague notions of relevance. This question was covered adequately in most cases but with only seven marks available, most candidates reviewed what they would do in the short term and not relate to what the question asked. Very few indicated that they would use third-party credit searches. Question 2 Stanton Limited is considering the purchase of new plant costing 2million, which is required to provide additional production capacity. Evaluate the alternative sources of finance and make a recommendation as to the most appropriate. You must give reasons to support your recommendation. (25 marks) This question required candidates to show a depth of knowledge of the alternative sources of long-term financing of capital goods by means of assessing and evaluating the various sources of finance applicable to this case study. The response to this question varied widely and from the standardisation process was seen as the question in which many candidates failed to grasp the magnitude of the finance required with very few candidates scoring highly. Many of the weaker candidates could provide one or two longer term sources of finances only. The best answers listed but disregarded short-term finance and concentrated on the longterm sources of finance and rounded off with a reasoned recommendation which often related to findings from the case study. The poorer candidates picked only one or two long-term solutions and in general in their recommendations just restated their list. L6-12/SA report/may

5 SECTION B Question 3 Jameswarn Ltd Analyse the main issues that will need to be considered and addressed by the board when developing the business case. (25 marks) This question was looking to assess the impact of external factors effecting the decision making process in delivering an effective capital purchasing plan. Candidates needed to support issues with commentary and examples in building up the business case for this company expansion. Some good answers displayed an understanding of project management and grouped/listed issues that were related together. A smaller percentage of candidates concentrated on reviewing a few issues in depth. The standard of answers overall were good for all those candidates that attempted this question. Although it was evident that some candidates did not read the question and looked at the business plan from the perspective of the UK plant being shutdown and not that this was for additional capacity. A good answer completed the question, drawing together the issues into a base business case for the expansion. Question 4 Assess the main categories of financial risks that global organisations face and suggest ways that they can manage and minimise their exposure. Illustrate your answer with appropriate examples. (25 marks) This question looked to test the candidate s knowledge of evaluating and managing financial risk in procurement, with emphasis on the types of risk and their impact on a global organisation, with the use of relevant examples to support arguments. L6-12/SA report/may

6 Virtually all candidates understood the concept of PEST, SWOT, STEEPLE and used this as the basis for an answer to this question. Candidates responses to this question were generally quite good, although answers varied in the level of detail produced and this was reflected in the marks awarded. Most candidates were able to provide some creditable points relating to some of the risks. The main issue was that many answers did not include examples. Most candidates on this question went into detail on a number of issues, rather than just listing the risks. The management of these risks was answered by the better candidates although the use of insurance was not widely presented as a potential way of managing risk. Question 5 You have recently become purchasing director of a large manufacturing company. Your managing director has challenged you to get purchase costs and expenditure under control. Analyse the areas you will investigate and the actions you will take to achieve this goal. (25 marks) This question aimed to test the depth of knowledge of candidates ability to plan, develop, and manage budgets, identifying key performance areas based upon the cost base of a manufacturing organisation in substantive detail. Most candidates who attempted this question showed a good and, in some cases, outstanding understanding of the principles of procurement management. The poorer answers concentrated on reiterating the introduction and stating what they would then do autocratically. On the whole, this question was over-answered. Simple bullet points and some depth would have shown more clarity, in general, a lot of pages containing unnecessary and irrelevant comment. Good answers indicated a team-player approach, with planning and research at the forefront of the process. A number of candidates related this question to a manufacturing organisation and, as such, answers were predominately skewed to the Pareto and Porter analysis. L6-12/SA report/may

7 Question 6 Part (a) Explain what is meant by transfer pricing and suggest the reasons why it is commonly used. (10 marks) The question, in two parts, was looking for depth of knowledge and understanding of the strategies and related external factors of transfer pricing and why it is commonly used. On the whole, this was a well-answered question with even poorer answers scoring above the pass mark criteria due to the mark breakdown awarded to this question. Part (a) was particularly well answered, with candidates often demonstrating a detailed account of why transfer pricing is used by multi-nationals. As the marks were broken down into introduction plus marks for each reason, candidates quickly accumulated marks in the 6-8 range. Part (b) Evaluate the main methods of transfer pricing within an organisation. (15 marks) Part (b) was looking for in-depth knowledge of the methods of determining transfer pricing and to evaluate the various methods and external factors determining the transfer price of an item. Most candidates were able to list the differing methods of transfer pricing; where some were let down was in the detail of why they would be used. This may have been due to a lack of time. The best answers covered the methods in full and with use of examples. Surprisingly, a minority of candidates had clearly not learned all the different methods which would have given them a higher mark overall on this question. L6-12/SA report/may

8 SECTION A SECTION B Question No Learning Objective a b 1 Assessing different financial management tools Evaluate the financial and non-financial factors in decision-making Assess and evaluate the various sources of finance available for business and major capital acquisitions and projects Developing and managing budget and cost management control Deliver effective capital purchasing plans Manage financial risk in procurement L6-12/SA report/may