CIPS Exam Report for Learner Community:

Transcription

1 CIPS Exam Report for Learner Community: Qualification: Diploma in procurement and supply Unit: D1 - Contexts of P&S Exam series: January 2016 Question 1 Learning Outcome 1 (a) Explain, with examples, the differences between direct and indirect procurement. (b) Explain, in procurement terms, THREE distinctive features of services. LO 1.1 Explain the categories of spend that an organisation may purchase. Answers to part (a) should have explained the differences between direct and indirect procurement, introducing examples to illustrate. The main difference that should have been explained is that direct purchases are materials for production in a manufacturing organisation, or goods for resale in a retail organisation. Typical examples that might have been mentioned include raw materials and components for manufacturing, or computers and televisions for a retail organisation. Indirect purchases, on the other hand, are items that support manufacturing or resale and examples that might have been mentioned include marketing items, IT facilities, MRO supplies and stationery. Another difference is that direct purchases have a direct impact on the organisation's operations, whereas indirect purchases do not. If the cost of direct purchases is lowered, then the overall cost of production is lowered, giving the organisation a competitive advantage and contributing to the 'bottom line'. While indirect purchases do not have the same impact on the cost of production, any savings made will impact on the 'bottom line'. Candidates might also have referred to differences in quality, stockholding and supplier relationships. The strongest answers might have referred to Michael Porter's value chain model, which refers to direct procurement as a primary revenue earning activity, whereas indirect procurement is referred to as a support, or secondary activity. This part of the question was answered well, with a large number of candidates achieving a mark of a distinction or good credit standard. They provided a clear and detailed explanation of the main differences and introduced appropriate examples. A small number of candidates, however, provided an explanation of the main difference only, with limited examples. Such answers were rewarded by a mark of a pass standard. A very small number of candidates did not know the differences. JANUARY 16_D1_EXAM REPORT _LEARNER_COMMUNITY_FV 1/6

2 Answers to part (b) should have provided a detailed explanation of three distinctive features of services. These might have included the following: Services are intangible, in that they can't be measured, weighed or analysed before purchase, or when the satisfaction with the service is being assessed after purchase. Evidence of satisfaction might come from a Service Level Agreement Services are inseparable, in that they are produced and consumed at the same time. The efficiency and effectiveness of service delivery personnel and the service's processes are crucial to the recipient's experience Services are heterogeneous, in that whereas manufactured items tend to be uniform in nature, services will vary because the personnel and circumstances differ. It is difficult to standardise service specifications, so that recipients will be sure of what they receive Services can't be stored for later use. As a result, the procurement function and suppliers must plan ahead carefully, so that the service is available when needed Services do not result in a transfer of ownership. This makes it difficult when a service contract has been fulfilled and when risk and liability have passed from one party to another. Buyers should define requirements clearly in a Service Level Agreement and include an agreed basis for charges Again, answers to this part of the question were generally good. The majority of candidates were able to identify and explain three distinctive features of services and they were rewarded by a mark of distinction or credit. The strongest answers illustrated points made with examples, often from the candidate's own workplace. A minority of candidates' answers, however, lacked depth of detail and were confined to a few short sentences. Question 2 Learning Outcome 2 Analysing the supply market is one of the key pre-contract stages in the sourcing process. (a) Outline FIVE possible sources of information for finding potential suppliers at this stage of the sourcing process. (b) Explain THREE reasons for using a clear specification when defining needs as part of the sourcing process. (a) LO 2.1 Explain the main aspects of sourcing processes. (b) LO 2.2 Analyse the main stages of a sourcing process. Answers to part (a) of the question should have outlined five sources of information for finding potential suppliers at the pre-contract stage of the sourcing process. These might have included existing procurement database records of preferred, approved or authorised suppliers, which have been used in the past supplier catalogues and websites JANUARY 16_D1_EXAM REPORT _LEARNER_COMMUNITY_FV 2/6

3 printed and web-based listings of suppliers and stockists trade or industry press and specialist procurement journals trade fairs, exhibitions and conferences networking with other procurement professionals. who may be willing to make recommendations Stronger answers would have provided a brief outline of each of the sources chosen, with examples being introduced. This was by far the best answered question on the paper, with many candidates scoring a mark of distinction and often the maximum mark. A small number of candidates, however, outlined methods that did not identify potential suppliers. Examples included site visits to suppliers and issuing questionnaire to suppliers. Answers to part (b) of the question should have explained three reasons for using a clear specification when defining needs as part of the sourcing process, These might have included: It encourages all relevant stakeholders to consider what they really need and whether this is the only, cost-effective or most value adding solution It communicates the requirement clearly to the supplier so that they can conform to the requirement and perhaps use their expertise to suggest innovative or lower cost solutions It minimises risk and costs associated with doubt, ambiguity or misunderstanding as to the requirement It provides a means of evaluating the quality or conformance of the goods or services supplied Stronger answers would have explained the three reasons chosen in detail and provided examples, often from the candidate's own workplace. This question was, in general terms, answered well, with many candidates achieving a credit or distinction. A small number of answers, however, lacked depth of detail, with only a very brief explanation. Question 3 Learning Outcome 3 (a) A procurement consortium is a group of separate organisations that combine together for the purpose of procuring goods and services. Describe THREE disadvantages, for an organisation, of operating within a procurement consortium. (b) Describe TWO advantages for an organisation in having an outsourced procurement function. LO 3.3 Compare the different structures of a procurement or supply chain function. JANUARY 16_D1_EXAM REPORT _LEARNER_COMMUNITY_FV 3/6

4 Answers to part (a) of the question should have described any three disadvantages, for an organisation, of operating within a procurement consortium. These might have included: There are costs and time associated with communication and coordination, staff development and policy development. These might outweigh any savings arising from the consortium being able to buy in bulk and achieve economies of scale There is a transparency issue between consortium members. Buyers need full information about plans, processes, designs and costs in order to make informed procurement decisions. This may expose some members of a consortium to commercial or intellectual property risk A consortium may suffer from lengthy negotiation and decision making processes and this may deter some suppliers from dealing with the consortium Aggregated demand from consortium members may result in large contracts which may deter small or medium sized enterprises from doing business with the consortium A large consortium may fall foul of the laws and regulations designed to prevent dominant market players from abusing their market position, for example by dictating prices Within a consortium, relationships with suppliers may become more transactional and it would be difficult for a supplier to develop long term relationships with a group of different organisations Answers to this question were generally good. Many candidates were able to identify and describe in detail three disadvantages of an organisation being in a consortium and they were awarded a distinction or strong credit. The strongest answers introduced examples from the candidate's own workplace to illustrate points made. A small number of answers, however, lacked depth of detail, or only described two disadvantages. A very small number of candidates misread the question and described the advantages of being in a consortium. Answers to part (b) of the question should have described in detail any two advantages for an organisation of having an outsourced procurement function. These might have included: The freeing up of resources, such as management time, office space and equipment, which may be deployed for value-adding activities elsewhere The ability to draw on the procurement knowledge, experience, expertise, contacts, systems and technology of the outsourcing function, which may not be available in-house The potential for aggregated demand from a number of clients, resulting in cost savings through economies of scale and bulk discounts The re-focusing of the remaining procurement staff on strategic issues, such as make or buy decisions and sustainable procurement policies Greater flexibility to adjust to the peaks and troughs of demand for procurement activity. The contracting organisation no longer has to cope with excess payroll in slack periods, or overtime in peak periods Answers to this question were generally of a high standard. The majority of candidates were able to describe in depth two advantages of an outsourced procurement function, earning a high mark as a result. Again, the strongest answers introduced examples to illustrate. A few answers lacked depth of detail. JANUARY 16_D1_EXAM REPORT _LEARNER_COMMUNITY_FV 4/6

5 Question 4 Learning Outcome 4 (a) Explain the differences between a private sector company and a public sector organisation in the following areas: (i) Ownership and control (ii) Sources of finance (b) Describe FIVE issues that may affect procurement in the agricultural sector. LO 4.1 Identify different economic and industrial sectors. Answers to the first section of part (a) should have stated that a private sector company is owned by shareholders in the case of a limited company, or individuals in the case of a sole trader or partnership. Shareholders appoint directors to control the company, who in turn will appoint managers. Public sector organisations, on the other hand, are owned by the public, with the government representing the public. They are controlled by the elected government and selected management. Stronger answers would have stated that the main focus of private sector companies is to maximise profits, whereas the focus of public sector organisations is to provide public services, such as health care and education. Answers to the second section of this part should have stated that private sector organisations are primarily financed by investments from shareholders, or other types of owner, or from re-invested profits. Other sources might be bank loans, overdrafts or debentures. Public sector organisations, however, are financed by taxpayers and examples might be personal taxation, such as income tax or value added tax and company taxation, such as corporation tax. Other sources include council taxes, levied by local authorities, fines and car parking fees. This part of the question was generally answered well. The majority of candidates were able to explain both the differences in ownership and control and the sources of finance and they were rewarded by a high mark. A minority of candidates, however, missed the point of the question in section (i) and described how legislation affecting private sector companies and public sector organisations differed. Answers to part (b) of the question should have described any five issues that may affect procurement in the agricultural sector. These might have included: There is a high degree of risk and uncertainty through the supply chain, resulting from unpredictable weather and climate factors. The impact on procurement is the need for careful planning to mitigate such risk and uncertainty This is likely to lead to significant fluctuations in the price of agricultural products. Where shortages arise, prices are likely to rise, while in the case of bumper harvests, prices are likely to fall. Procurement should have strategies in place to deal with such fluctuations The potential long geographical distances from the point of production to the point of consumption of agricultural products, creating transport and supply chain management risks. Again, procurement will need to ensure that such risks are mitigated, by ensuring that appropriate methods of transport are used The high capital investment that is likely to be needed, for machinery and start-up stock. Procurement will need to be involved in the sourcing of such items and ensure that value for money is achieved JANUARY 16_D1_EXAM REPORT _LEARNER_COMMUNITY_FV 5/6

6 Laws and regulation to protect food hygiene and health and safety is likely to be a key issue facing the agricultural sector and procurement will have to ensure that such laws and regulations are adhered to Environmental and sustainability issues, such as soil exhaustion, water depletion and contamination and the loss of bio-diversity are issues that must be addressed by procurement in the agricultural sector Supply chains in the agricultural sector often cross political boundaries, leading to issues such as foreign exchange rate risk, differences in national laws and languages, all of which must be addressed by procurement The strongest answers would have introduced examples to illustrate points made, often from recent real life events. The question was again generally answered well. A large number of candidates were able to identify and describe five issues that affect procurement in the agricultural sector and high marks were awarded. Some candidates, however, while describing five issues, did not attempt to explain how they would impact on procurement and lower marks were awarded as a consequence. JANUARY 16_D1_EXAM REPORT _LEARNER_COMMUNITY_FV 6/6