CIPS Exam Report for Learner Community:

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1 CIPS Exam Report for Learner Community: Qualification: Advanced diploma in procurement and supply Unit: AD3 - Improving the competitiveness of supply chains Exam series: Nov 2016 Each element of a question carries equal weighting unless otherwise stated. Question 1(a) Learning Outcome 1 Explain Nestlé s approaches to improving quality and reducing costs to achieve added value in its supply chain. 18 s Learning outcome addressed: 1.2 Command word explanation: Explain give reasons for or account for something The question asked for an explanation of how both improving quality and reducing cost added value to Nestle so both issues needed to be addressed in the answer. Answers could have demonstrated an understanding of the term quality taken from recognised sources. Quality could have been explained as a fitness for use or fitness for purpose or conforming to requirements, meeting the specification. Quality could also be defined from the perspective of the customer where it is their perception that determines whether quality has been achieved or not. Answers could have identified a range of potential authors such as Garvin or van-weele as sources for a detailed definition of the term. The case study contains multiple references to quality, all of which suggest that Nestlé are heavily committed to continually improving it. Some specific examples from the Nestlé the case study include: Building trust by offering products that meet customer expectations Complying with internal and external food safety requirements Achieving zero-defects, no waste attitude, within the company Making quality a group-wide objective Operating an overarching quality management system Building quality in during product development stage Applying international standards of quality performance Providing product information to ensure safe use of products Engaging with customers to talk to the company related to quality issues A philosophy of continuous improvement Delighting the customer NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 1/12

2 The case study also contains examples of Nestlé reducing costs to enhance added value. Examples include: The use of its dominant position as a global leader in food products across five continents The application of the lean supply chain model The roll out of NCE to provide billions in cost savings Producing products in very large batches to keep unit costs low Make-to-stock production strategy Predicting accurately customer demand The use of an efficient tiered supply chain Reducing transaction costs Mitigating price volatility exposure Avoiding single sourcing situations All examples from the case that were linked to either improving quality or reducing costs were given credit. Better answers explained both the issue of improving quality and reducing costs in a balanced way and also linked the issues to the concepts of added value and quality. Also good answers linked the two aspects in terms of explaining how improving quality would reduce costs in the supply chain. Answers that did not attract high marks did so either because they only explained one of the two aspects asked for in the question in most cases- quality. Or answers explained the different approaches to quality at length but then did not provide sufficient links to the case study to attract high marks. Overall this was a well answered question with many answers achieving a pass grade or above. However It was evident in a number of scripts that some answers were very long indicating that a large amount of the total time had been spent on this question to the detriment of questions later on in the paper. A minority of answers did not follow the question and provided general points on quality and cost, without using examples from case study. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 2/12

3 Question 1 (b) Learning Outcome 1 Outline the benefits for its customers of Nestlé improving quality and reducing costs to achieve added value in its supply chain. 7 s Learning outcome addressed: 1.2 Command word explanation: Outline give the main features, facts or the general idea of something The command work was outline so a detailed discussion of the issues was not sought in this answer, however answers needed to consider the benefits for the external customers of Nestlé reducing costs and improving quality. Nestlé provided the following potential benefits to its customers based on achieving quality and reducing costs for example: Customer delight exceeding expectations High quality products both in terms of meeting specification and having brand and marketing respect Fewer product recalls Improved customer satisfaction Innovation based on improved quality methods Greater choice the improvement in quality and costs has enabled Nestle to become more responsive to customer demands Lower prices for individual products Faster more frequent deliveries to retail customers meeting the customer requirements Note customers can be seen as either retailers or the end consumer and benefits for both were seen as being equally valid. Good answers were able to provide an outline of a range of benefits (often 5 or 6) for the customers which were enough to gain close to or full marks. They were a few candidates that misread the question and explained the benefits to Nestle or the suppliers and not the customer. A number of answers only provided 2/3 examples resulted in not gaining full marks. Overall a well done question with the majority of answers gaining a pass mark or above on this question. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 3/12

4 Question 2(a) Learning Outcome 2 Figure 1 of the case study, The ONE Nestlé Operating Model shows a LEAN Supply Chain, as the approach adopted by Nestlé. 16 s Explain, using appropriate theory and examples from the case study, the characteristics of a lean system, including the potential benefits of this approach for Nestlé. Learning outcome addressed: 2.3 Command word explanation: Explain give reasons for or account for something Answers should have provided an explanation of the lean philosophy. There are a range of sources and academic models that can be identified including Womack & Jones, The Machine That Changed The World. One summary of the characteristics of lean supply (Lamming) includes: Based on alliances and collaboration Early involvement of established suppliers Kaizen improvement techniques - change in supplier last resort Transparency between supplier and buyer Extensive use of ICT tools Synchronised capacity between buyer and supplier JIT delivery scheduling "Perfect" quality as a goal, zero defects All of which were evidenced to some degree within the case. Alternatively Ohno outlines seven wastes that are reduced or eliminated in order to achieve a lean approach. Examples of the wastes that can be eliminated to achieve a lean approach can be demonstrated from the case study as shown below: Over production Nestlé make for stock. However, this is closely aligned to customer forecasts with no surplus produced that is not sold. Transportation The case study contains details of the move from a single warehouse system to a multi-site approach to reduce transport costs. Inventory There is detailed content of the case study related to the management and control of inventory. Over processing - Nestlé will undertake the operations required, but no more Defects and corrections - these are eliminated and reduced by the approach to quality Inventory - the avoidance of duplications by Nestlé and the siting of warehouses to minimise stock holding close to market Motion waiting - these two 'wastes' relate to individuals involved in production for which there are limited details in the case, but answers were given recognition for acknowledging them. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 4/12

5 Other wastes could also be evidenced based on the case study. The benefits of adopting a lean approach include: Reduced costs Reduced stockholding Minimised transport costs Reduced waste due to over production Economies of scale Collaboration within the supply chain Shorter life cycles smoother production flows As lean has many theorists / approaches any of the above theorists /approaches applied to the case were considered as being valid. Answers that scored high marks provided either a range of lean approaches or concentrated on one approach for example the seven wastes but in both cases they blended the approach with examples from the case to provide a good explanation of how the lean techniques are reflected in Nestle. Also good answers considered the benefits to Nestle of adopting the elements of a lean approach. Some good answers even prioritised the benefits demonstrating a good understanding of both the theory and the case scenario. Answers that did not gain high marks did not fully answer the question in terms of addressing the benefits of the approach for Nestle; also some answers did not refer to any lean theory. The marks for this question were mixed with many answers focused on one aspect out of two: ether theory or examples from case study. Most answers correctly identified characteristics of a lean system, but did not provide in depth and balanced answers in terms of specific theory; several answers did not mention any of the main theorists of lean (e.g. Womack) or the main elements. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 5/12

6 Question 2 (b) Learning Outcome 2 The use of a lean approach has some critics. Explain the potential problems of using a lean approach and explain how these may be overcome by an organisation such as Nestlé. 9 s Learning outcome addressed 2.3 Command word explanation: Explain give reasons for or account for something Answers were required to provide examples of potential problems of the lean approach as they may apply to Nestlé. These include: Reduced capability to respond flexibly e.g. sudden changes in demand for Nestlé s products Integrated supply chains for Nestlé that are very lean may increase supply chain vulnerability e.g. industrial action in one site affects many others. The narrow focus by Nestlé on reducing costs may have counter-productive effects Less powerful members of the supply chain e.g. farmers, may be forced to bear heavier costs such as holding stock Lean principles work well with a clearly defined pattern of demand but not so well when fluctuations occur, such as seasonal demand for Nestlé s products Potential solutions to the problems identified above may dilute the lean principles but achieve some flexibility. E.g. some stock may be held, batch sizes are not increased purely on the basis of reducing unit manufacturing costs. The alternative approach that answers suggested was a more agile and responsive approach. Any characteristics of a system that met these more flexible criteria was credited with marks. Answers that gained high marks for this question considered a range of limitations and applied them the case rather than providing generic limitation. Also a range of solutions were suggested again, applied from the case suggesting how Nestle had overcome these problems. Answers that did not score high marks consisted of very brief bullet points which did not address the command work explain. Several answers provided a list of problems with lean that were generic and did not apply then to the case. Also there was a lack of suggested solutions in some answers which was asked for in the question. Overall this was a well answered question with many answers able to clearly define what the issues would NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 6/12

7 be when using a lean system in the workplace. However there were several answers who did not address the second part of the question as to how they would be overcome resulting in failure to gain high marks for the question. Question 3(a) Learning Outcome 3 Using appropriate theory and examples from the case study, explain how Nestlé achieves competitive advantage over its market rivals. 13 s Learning outcome addressed: 3.1 Command word explanation: Explain give reasons for or account for something Answers could begin by demonstrating an understanding of the terms within the question. Competitive advantage could have suggested linkage to the work of Michael Porter who outlines three main strategies for competitive advantage. From the case study, answers could have recognised characteristics of each of these approaches, detailed below are some examples of each type: Cost leadership this is where the organisation is seeking to become the lowest cost producer in the industry. This should not be confused with selling at low costs as Nestlé may have achieved higher profits than their competitors, selling at the same prices. Examples from the case study related to cost leadership include the scale and economies achieved by Nestlé due to their sheer scale of operations. Cost leadership is also achieved by organisations operating lean philosophies. The case study gave examples of Nestlé reducing costs through supplier collaboration. Differentiation this is where Nestlé differentiate their product compared to the rest of the market and in this case, quality and a brand image were valid sources of differentiation. Focus - is the targeting of particular segments of the market and the organisation seeks to exploit a product that is different or unique compared to the market as a whole e.g. for Nestlé they did not concentrate on the whole food sector, they provide products which are for the baby food, prepared dishes and healthcare nutrition markets. It is noted that the question could have been answered by concentrating on one of the approaches to achieving competitive advantage and explaining this in depth however most answers did provide a range of examples covering all three approaches which were all present in the case. Good answers clearly linked the examples from the case to the theory of competitive advantage. Some NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 7/12

8 answers applied all three of Porters Generic Strategies and then came to a judgment as to which was the most important. Others explained that they had decided which was the main source of competitive advantage and then provided some evidence to support the statement. Either approach was acceptable for high marks providing the theory and the examples were present in sufficient depth. Some answers did not provide any theory or used an incorrect model: Porters 5 Forces proved a popular alternative for several answers and marks were awarded where they could be for the use of this model but as it was a model that does not deal directly with competitive advantage, answers struggled to link the forces to sources of competitive advantage. The general performance of this question was of a good standard, it was apparent from the answers that it was understood what was asked for in the question and good knowledge of how companies like Nestle can achieve competitive advantage through cost leadership, differentiation and focus was demonstrated. A good number of answers were able to link the theory to the case and therefore scored high marks on this part of the question. Question 3(b) Learning Outcome 3 Outline Nestlé s approach to supplier relationships using appropriate theory and examples from the case study to illustrate your answer. 12 s Learning outcome addressed : 3.3 & 3.4 Command word explanation: Outline give the main features, facts or the general idea of something The command word was outline so a detailed discussion of the issues was not sought in this answer, however answers should have provided some theoretical basis for the suggestion of Nestlé s approach to supplier relationships. Potential theories included the use of the Relationship Spectrum, or the Relationship Life Cycle as the basis for categorising the relationship. Other models, suitably explained, were accepted including Kraljic and Supplier Preferencing. Having applied appropriate theory, it was expected that answers might conclude that Nestlé s approach to supplier relationships is based on a collaborative, co-operative, partnership, strategic alliance style of operation. There were multiple examples within the case study of Nestlé behaving in this way towards their suppliers including running supplier awards, working with tier one suppliers to develop others in the supply chain. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 8/12

9 There were a few examples of good answers to this question, those that score high marks selected a relationship theory or approach and the applied it to Nestle citing examples. As the command word was outline an extensive discussion was not required to score high marks but a blend of some theory and some application was. Answers that did not score high marks did so by not providing any theory or just providing a diagram without giving suitable explanation. Also several answers used the Supplier Preferencing model to assess the type of relationship but tried to apply this to Nestle rather than realise it is a model that explains how the supplier view Nestle. The approach to answering this question was mixed; with many answers not scoring high marks on this question. The majority of the answers recognised the collaborative type relationship, with better answers explaining the relationship with Smurfit Kappa and the suppliers awards programme that is run by Nestle. However, it is noted that there were many examples that could have been discussed in the case but the case did contain a sub-heading entitled Supplier Relationships which only really covered the packaging suppliers and many answers did not look beyond this section for examples. It is also noted that some answers confused relationships with supplier development and in these cases the answers to 3b and 4a were very similar when in fact they are different concepts. Question 4(a) Learning Outcome 4 Explain the meaning of the term supplier development and, using examples from the case study, illustrate Nestlé s approach to supplier development. 15 s Learning outcome addressed: 4.1 & 4.2 Command word explanation: Explain give reasons for or account for something Supplier development may be defined as any activity that a buyer undertakes to improve the supplier s performance and/or capabilities to meet the buyer s short-term or long-term supply needs. This definition is taken from the CIPS guide. Hartley and Choi suggest there are two forms of supplier development, results orientated which are focused on solving specific issues or process orientated which are focused on enhancing suppliers capabilities. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 9/12

10 It is suggested that there are two generic approaches to supplier development; Directive where suppliers are regulated via specifications and targets and facilitative where buyers and suppliers engage collaboratively in teamwork and planning. There are multiple examples from the case study of Nestlé engaging and developing suppliers to meet their particular needs. Supplier development may often include the transfer of staff to suppliers within the supply chain and the use of cross-functional teams to improve overall performance. There is a paragraph within the case study related to supplier development where farmers were supported to develop capacity increasing yields, crop quality and overall income. Nestlé also developed their Rural Development Framework to align their objectives with local priorities. Supplier development in the Nestlé case study yields real benefits for Nestlé and its supplies including secure local sources of supply for previously imported materials, avoiding single sourcing, the development of indigenous suppliers, cost savings, provision of technical assistance and the development of infrastructure. Answers that scored high marks on this question provided a good definition of supplier development and referenced suitable theory for example Harley & Choi and then applied the specific activities described in the theory to the case and provided an explanation as to how and why the specific activity was developing suppliers. Answers that did not score high marks did so mainly because they neglected to include any refence to theory or just repeated large chunks of the case study without relating it to specific examples of supplier development. Also there was some repetition of points in some answers which led to a narrow range of activities being covered in little depth. In general marks for an explanation of Supplier Development were not maximised e.g. many scripts just quoted a short paragraph from the textbook and failed to add anything further about Facilitative or Directive etc. Popular answers included assisting farmers but on the whole many of the scripts were light on content from the case. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 10/12

11 Question 4(b) Learning Outcome 4 Discuss the potential benefits of a supplier development programme to promote innovation for both Nestlé and its supplier base. 10 s Learning outcome addressed: 4.2 Command word explanation: Discuss consider something by writing about it from different points of view As the question mentioned both the suppliers and Nestle an explanation of the benefits to both was expected. Answers should have identified that there are a wide range of benefits for both Nestlé and their supplier base from a programme of supplier development to improve and enhance innovation. For Nestlé these may include: A wider supplier base A greater range of products and services available Reduced time to market Improved quality Streamlining of systems between Nestlé and its supplier base Innovation and the development of new products For the suppliers this may include: Guaranteed outlets for their production Improved customer service Better communication and relationships between the supplier base and Nestlé The development of new capacity Direct gains in knowledge and resources Access to enhanced learning and flexibility via Nestlé It was noted that some of the benefits could be joint benefits for both the supplier and Nestle, answers that describe the same point from both the supplier s and buyer s viewpoint were credited accordingly. Answers that scored high marks did so by providing a range of advantages for both the buyer and supplier of supplier development and supported these with suitable examples from the case. Good answers also considered the issue of innovation in terms of both the buyer and supplier and there were examples of this in the case, both in the area of packaging as well as developments in India. Answers that did not score high marks either produced a list of unexpanded bullet points that did not NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 11/12

12 specify which or either party the point would benefit for example access to innovation or just repeated the approaches from 4(a) and not addressing the benefits which were asked for. Some answers also only considered either the supplier benefits or benefits to the buyer without considering both as asked for in the question thus limiting the marks the answer could attract. This was not a well answered question overall with many of the answers focused on benefits for Nestle rather than a suitable mix of both Nestle and the supplier base. Also many answers failed to consider the issue of innovation that was asked for in the question. Those answers that did address the benefits to both sides and considered innovation did score high marks on this question but these were the exception rather than the rule. NOV16_AD3_EXAM REPORT _LEARNER_COMMUNITY_FV 12/12