CIPS Exam Report for Learner Community:

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1 CIPS Exam Report for Learner Community: Qualification: Diploma in procurement and supply Unit: D1 - Contexts of P&S Exam series: March 2016 Question 1 Learning Outcome 1 (a) Explain, with examples, the characteristics of each of the following purchasing categories: (i) Commodities (ii) Goods for resale (iii) Maintenance, repair and operating (MRO) supplies. (15 marks) (b) Outline FIVE circumstances where 'buying for stock' would be an appropriate procurement policy. (a) LO 1.1Explain the categories of spend that an organisation may purchase. (b) LO 1.1 Explain the categories of spend that an organisation may purchase. (10 marks) Answer to part (a) (i) should have stated that commodities are items that occur in nature. They may be mined or quarried, farmed or fished. Examples include coal, iron ore, cotton, tea and wheat. They are usually the raw materials that go into the manufacturing process to create finished products. Iron ore is used to make steel, cotton is used to make clothing, while wheat is converted into bread products. Stronger answers would have explained some of the key characteristics, such as the fact that they are unequally distributed geographically and that they are often sourced internationally, resulting in exchange rate and transport risks. A further characteristic is that they are often subject to significant price fluctuations, because of changes in supply and demand. Answer to part (a) (ii) should have stated that goods for resale are finished goods that are sold on to customers with little or no work carried out by the purchasing organisation. Examples include televisions, computers, clothing and foodstuffs. The strongest answers would have gone on to explain the key characteristics. These include 'bottom line thinking' because profit margins are likely to be low, broad assortment, involving a wide range of products and the fact that buyers will usually purchase according to supplier specifications. Answer to part (a) (iii) should have stated that MRO supplies are goods and services needed to transform raw materials and components into end products. Examples include paints, lubricants and packaging materials. One characteristic of MRO supplies is that manufacturing companies use such items regularly and this can lead to a large number of stock lines. Others include the fact that usage of such items can be relatively low, but the cost of procurement and stockholding can be high and that MRO supply availability is likely to be crucial, in that their absence might disrupt operations and involve high costs. Answers to this question were generally good, with a high number of candidates achieving a mark of a March 2016 D1 Exam Report Learner Community FV 1/5

2 distinction, or credit. Only a small minority of candidates did not achieve at least a pass mark and this was because they were unable to explain the three categories. Part (b) Should have outlined five circumstances where 'buying for stock' would be an appropriate procurement policy. These include: Where there is a long lead time, for example when buying from an overseas supplier Where items are critical for operations and running out of them would cause costly disruption to the organisation, for example 'bottleneck' items Where there are legal requirements for holding items, for example health and safety equipment Where items are likely to appreciate in value over time, for example fine wines and timber Where the price of the item is expected to rise and purchasing now and holding in stock may result in cost savings Where demand for the item is seasonal and the buying organisation lacks the capacity to deal with peaks in demand, for example Christmas cards Where buying in bulk might lead to economies of scale and cost savings, which outweigh the storage costs Again, this part of the question was answered well, with many candidates achieving the maximum, or almost the maximum mark. Only a very small minority of candidates were unable to achieve at least a pass mark, mainly because they were unable to answer the question. Question 2 Learning Outcome 2 (a) Outline THREE functions which could be included in a Purchase to Pay (P2P) system. (9 marks) (b) Explain FOUR potential disadvantages of using electronic systems in the sourcing (16 marks) process. (a) LO 2.3 Explain how electronic systems can be used at different stages of the sourcing process. (b) LO 2.3 Explain how electronic systems can be used at different stages of the sourcing process. Part (a) should have outlined three functions which could be included in a P2P system. These include: Tracking and tracing deliveries Expediting by exception Automated receipt and inspection, verifying delivery to trigger payment, authorisation and automatic payment Capturing of supplier performance data, budgetary control and spend data Receipt of invoices, automated invoice matching and electronic invoice generation The generation of payment, by e-payments or fund transfers Stronger answers to this question included illustrative examples, often from the candidate's own workplace. The standard of answers was mixed. There were some excellent answers, with candidates outlining three March 2016 D1 Exam Report Learner Community FV 2/5

3 appropriate functions and introducing examples to illustrate. A few candidates, however, produced answers which demonstrated little knowledge of P2P systems and these did not achieve a pass mark. Answers to part (b) should have explained four potential disadvantages of using electronic systems in the sourcing process. These include: High capital investment and set-up costs, which may be too great, especially for small organisations High initial learning curve costs, for example the training of users and the cost of initial errors Reliability issues, such as the risk of network breakdown, viruses and power failure Compatibility issues with suppliers; some suppliers may be located in countries with a less developed infrastructure Some small suppliers, who do not have access to electronic systems, may be precluded from doing business, even though they may have the capabilities Data security risks, arising from unauthorised or malicious access to data Supplier relationships may become transactional as personal contact and face-to-face meetings are reduced Again, the strongest answers to this question introduced examples to illustrate, often from the candidate's own workplace. As was the case for part (a), answers to this part of the question were of a mixed standard. A high proportion of candidates were able to explain four potential disadvantages and illustrate these with examples, they were rewarded with a distinction or credit. A small minority of candidates, however, misunderstood the question and instead of explaining generic disadvantages, selected different e-systems, such as e-tendering and e- auctions and attempted to explain the disadvantages of these. In such cases, marks could only be awarded for any relevant points made. Question 3 Learning Outcome 3 (a) Define the term 'ethics'. (5 marks) (b) Discuss FIVE examples of ethical or unethical behaviour that could be addressed in (20 marks) an ethical code for procurement professionals. (a) LO 3.1 Explain the main aspects of corporate governance of a procurement or supply chain function. (b) LO 3.1 Explain the main aspects of corporate governance of a procurement or supply chain function. Answers to part (a) of the question should have stated that 'ethics' are moral principles or values about what constitutes 'right' and 'wrong' behaviour. At a corporate level, there are issues which face an organisation as it formulates strategies and policies about how it interacts with its stakeholders, including Corporate Social Responsibility. Stronger answers would have included examples, such as not dealing with suppliers who exploit their labour force or suppliers who offer bribes to win business. This part of the question was answered well, with many candidates achieving a mark of distinction or credit. Only a small minority did not achieve a mark of at least a pass standard and the reason for this was that March 2016 D1 Exam Report Learner Community FV 3/5

4 answers were very short and lacked depth of detail. Answers to part (b) should have discussed five examples of ethical or unethical behaviour that could be addressed in an ethical code for procurement professionals. These might have included: Not accepting inducements or gifts from suppliers or potential suppliers, other than those of a nominal value and which have been sanctioned Not allowing offers of hospitality to influence, or to be perceived to influence, procurement decisions Not allowing vested interests, such as having a family link or a personal interest in a supplier, to influence procurement decisions Never breaching the confidentiality of information received in a professional capacity Ensuring that information given to suppliers is accurate and that all potential suppliers have access to the same information Striving for genuine, fair and transparent competition Promoting positive environmental issues, such as reducing waste and increasing recycling Never using one's authority or position for personal gain Stronger answers would have illustrated the points made with examples, often from the candidate's workplace or from real life cases which have been featured in the press. Again, this part of the question was generally answered well. Many candidates achieved a mark of distinction or credit, by discussing five examples of ethical or unethical behaviour and introducing appropriate examples to illustrate. Few candidates did not achieve a mark of a pass standard and this was usually because of repetition, with similar points being made several times. Question 4 Learning Outcome 4 (a) Describe, with examples, FOUR ways in which a third sector organisation's objectives may impact on its procurement activities. (16 marks) (b) Explain the impact of regulation on a third sector's procurement function. (9 marks) (a) LO 4.4 Analyse the impact of the not for profit or third sector on procurement or supply chain roles. (b) LO 4.4 Analyse the impact of the not for profit or third sector on procurement or supply chain roles. Answers to part (a) of this question should have identified four objectives of a third sector organisation and then gone on to describe how these objectives may impact on procurement activities. These might have included the following: Raising public awareness of the organisation's cause; this might be for an environmental or social pressure or interest group. The impact on procurement is that all procurement activities must be done in a way that conforms to the organisation's objectives. For example, in the case of an organisation concerned with environmental issues, procurement activities must be arranged in an environmentally friendly manner March 2016 D1 Exam Report Learner Community FV 4/5

5 Political lobbying and advocacy on behalf of the organisation's cause. The impact on procurement is that purchases that might be seen to go against the cause should be avoided Raising funds to carry out the organisation's activities, perhaps using commercial operations to generate profits. This is likely to impact on procurement in that any purchases to be made for resale must be attractive to customers, in terms of quality and price Providing material aid and services to beneficiaries, such as the homeless or the aged. The impact on procurement would be to source items that would contribute as much as possible to the organisation's cause Providing services to members, for example trade unions advocating employment rights and professional bodies securing ethical and technical standards. The impact on procurement would be to source only from suppliers who have similar objectives Mobilising and involving members of the public in community projects for mutual benefit. The impact on procurement will be that purchases will need to be made that will add to the organisation's objectives in some way The strongest answers to this question would have illustrated the points made with examples, such as cases that have been featured in the press. This was the least well answered question on the paper. Few candidates achieved a mark of distinction or credit and only about half of the candidates achieved a pass mark. The main reason for this was that the majority of candidates were not aware of the objectives of a third sector organisation. Instead, they identified procurement objectives, such as establishing an audit trail and being transparent, which attracted few marks. A few candidates did correctly identify some third sector organisation objectives, but then did not go on to describe how these impact on procurement activities, which resulted in low marks being awarded. Answers to part (b) should have stated that, in the third sector, procurement functions are more closely regulated than in the private sector. This is because they are spending money which is derived from donations and government grants. This means that procurement is performing a 'stewardship' role, with a strong emphasis on accountability. Also, third sector organisations, such as charities, will need to ensure that procurement complies with the charity's legal requirements and those of the Charities Commission. Regulators may check that a third sector organisation is run for the public benefit and not for private advantage. This means that information must be made available to the public and that activities are audited. Regulators may also investigate complaints about possible mismanagement or abuse. This will apply to the third sector organisation in general and to the procurement function specifically. This part of the question was also not answered well, with many candidates not achieving a pass mark. The reason for this was that there was little understanding of the impact of regulation on a third sector's procurement function. There were, however, a small number of answers of a high standard, which were rewarded by a mark of distinction. March 2016 D1 Exam Report Learner Community FV 5/5