CIPS Exam Report for Learner Community:

Transcription

1 CIPS Exam Report for Learner Community: Qualification: Professional diploma in procurement and supply Unit: PD4 - Supply chain diligence Exam series: January 2016 Question 1 Learning Outcome 1.3 Homeware, a retail organisation has acquired a rival company that has outlets worldwide. This has enabled Homeware to develop sales in new territories, but the IT (information technology) systems of the companies are not compatible. a) Discuss the advantages to Homeware of having integrated IT systems. b) Discuss the challenges to Homeware of integrating the IT systems of the two companies. (25 marks) The question started with a short scenario and I would like to give some advice. A scenario is designed to set the scene only i.e. key words such as outlets worldwide and new territories are clear signposts for candidates to consider in answers. Part (a) required a discussion of the advantages to Homeware of having integrated IT systems. Many answers concentrated on systems being viewed as an aggregation of subsystems so that the system is able to deliver the overarching functionality, and this was rewarded. Better answers observed that system integration involved integrating existing often disparate systems. On a wider perspective some answers looked at supply chain management itself being seen as an exercise in integration, involving the creation of a structure that enables individuals, organisations, activities and processes in connecting end user demand for a product or service. The better answers referred back to the key points from the scenario. The key advantage of an integrated system for Homeware (signposted in the scenario) was that it will be better aligned to and integrated with the company that it has acquired. This should help enable the sharing of data on costs, demand and supply and better answers argued that the benefits should also result in the reductions of: The stages taken in business processes The costs involved in administration and service The time required to process transactions such as orders and invoices The cost of processing, data entry and correction Duplication and data entry errors Leading global excellence in procurement and supply

2 No number of advantages was requested and answers ranged from one to ten, however for a discussion for 13 marks the better answers looked at three or four in medium detail. Part (b) now moved on to some of the challenges of system integration and this second part of the question required candidates to discuss the challenges to Homeware in integrating the IT systems of the two companies. Better answers accepted that the organisation will be starting from different initial conditions, with different end goals and with different available resources. Better answers had little difficulty in discussing the challenges around: Preparation: which involves breaking down the barriers to integration, the connection of information systems Active internal integration: which involves forming intra- organisational teams, the communication and sharing of information organisation wide Active external integration: which will involve identifying supply chain information system requirements and identifying key business process requirements Also, there can be process barriers since the systems will be built on different platforms and will use different technology. In addition, there can be human barriers since there can be resistance to change by those affected by the project to integrate the systems. Better answers also considered that the various systems that need to be linked together often resided on different operating systems, used different database solutions and different computer languages. Although not specifically asked for in the question, better answers looked at how the challenges can be overcome. Although question 1 as a whole could be considered a technical type question the marking reflected the fact that not all candidates would have had hands on knowledge of systems integration. Question 2 Learning Outcome 2.2 Assess FIVE benefits of using standards published by the International Organisation for Standardisation (ISO) and other bodies to support international trade. (25marks) Candidates were required to assess FIVE benefits of using standards, and a broad definition of standards was allowed for in the marking. Many candidates defined what a standard was although this was not a specific requirement of the question, at this Professional level this sort of context is rewarded A standard can be defined as setting out the requirements, rules, guidelines, specifications, vocabulary, levels, subject and other aspects that are needed to operate a process, make a product or do some other specific thing. It is often a minimum operating guide. JANUARY 2016_PD2 EXAM_REPORT_LEARNER_COMMUNITY_FV 1/7 1

3 In practice, however, standards and technical regulations may be used strategically to enhance the competitive position of countries or individual firms in the field of International trade. The main benefits that candidates often recognised were that international standards operate to reduce variability, improve efficiency and reduce uncertainty. There was a variety of general benefits that could have been identified, including: clearer communication and better (shared) understanding in trade increased compatibility or inter-changeability between products or services reduced waste and increased efficiency higher safety standards technology sharing and transfer reduced trade barriers reduced variety increased competition When products and services conform to International Standards consumers and trade organisations can have confidence that they are safe, reliable and of good quality. For example, ISO's standards on road safety, toy safety and secure medical packaging are just a selection of those that help make the world a safer place. The question related specifically to International trade and many candidates answered in terms of International Standards being strategic tools and guidelines to help companies tackle some of the most demanding challenges of modern business. They ensure that business operations are as efficient as possible, increase productivity and help organisations access new markets. International trade is governed by an increasing range and variety of product and process standards and technical regulations. Standards and technical regulations, whether for products, labour, or for the environment, are applied to mitigate against health and environmental risks, to prevent deceptive practices, and to reduce transaction costs in business by providing common reference points for notions of 'quality', 'safety', 'authenticity', 'good practice', and 'sustainability'. Benefits specific to trade include: Cost savings - International Standards help optimise operations and therefore improve the bottom line Enhanced customer satisfaction - International Standards help improve quality, enhance customer satisfaction and increase sales Access to new markets - International Standards help prevent trade barriers and open up global markets Increased market share - International Standards help increase productivity and competitive advantage Environmental benefits - International Standards help reduce negative impacts on the environment JANUARY 2016_PD2 EXAM_REPORT_LEARNER_COMMUNITY_FV 2/7 2

4 ISO efforts promote globalisation They prevent disputes over specifications They promote international trade through improving international communication and collaboration Businesses also benefit from taking part in the standard development process. The marking was not restricted to ISO standards and credit was allowed for areas as diverse as European standards, National standards, publically available specifications, private standards, Incoterms, Codes of Ethics, Model Form contracts, Vienna Conventions, EU Directives and so on. Marking wise (broadly) 5 marks per benefit with latitude allowed for an assessment, i.e. looking at the costs and risks of using standards to support International trade. Question 3 Learning Outcome 3 Analyse FIVE factors which could cause exchange rates to change (25marks) At this level a context is normally rewarded and learners could have started this question by summarising that an exchange rate is a price of a currency-some even made the link of the share price of a country. Candidates could have mentioned that there will be two exchange rates between currencies; a selling rate and a buying rate. The price is determined by the forces of demand and supply in the currency markets. Just like the commodity markets for wheat, oil and coffee, the price of a currency will reflect the amount of the currency that consumers and businesses want to buy (demand) and sell (supply).as a guide in any question looking at prices (including exchange rates) demand and supply will normally attract marks. Most candidates observed that there were many major factors behind exchange rate change and movements. These can be broadly summarised as demand and supply in foreign exchange markets, the balance of payments perspective, purchasing power parity, monetary perspective and the portfolio balance perspective. Candidates could have broken down some of these to assess five of these broad factors and the following headings are given as a guide 1. Differentials in Inflation As a general rule, a country with a consistently lower inflation rate exhibits a rising currency value, as its purchasing power increases relative to other currencies. 2. Differentials in Interest Rates Interest rates, inflation and exchange rates are all highly correlated. By manipulating interest rates, central banks exert influence over both inflation and exchange rates, and changing interest rates JANUARY 2016_PD2 EXAM_REPORT_LEARNER_COMMUNITY_FV 3/7 3

5 impact inflation and currency values. Higher interest rates offer lenders in an economy a higher return relative to other countries. Therefore, higher interest rates attract foreign capital and cause the exchange rate to rise. 3. Current-Account Deficits / Balance of Payments The current account is the balance of trade between a country and its trading partners, reflecting all payments between countries for goods, services, interest and dividends. A deficit in the current account shows the country is spending more on foreign trade than it is earning, and that it is borrowing capital from foreign sources to make up the deficit. 4. Public Debt Countries will engage in large-scale deficit financing to pay for public sector projects and governmental funding. While such activity stimulates the domestic economy, nations with large public deficits and debts are less attractive to foreign investors. 5. Purchasing Power Parity The exchange rate moves until parity is achieved. E.g. considering two different fictitious countries, where 100 dollars from one country buys an item and 50 pounds from a different country buys the same item, then purchasing parity is achieved when the exchange rates of the dollar to pound rate is 2:1. 6. Terms of Trade A ratio comparing export prices to import prices, the terms of trade is related to current accounts and the balance of payments. If the price of a country's exports rises by a greater rate than that of its imports, its terms of trade have favourably improved. Increasing terms of trade shows greater demand for the country's exports. 7. Political Stability and Economic Performance Foreign investors inevitably seek out stable countries with strong economic performance in which to invest their capital. A country with such positive attributes will draw investment funds away from other countries perceived to have more political and economic risk. Political turmoil, for example, can cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries leading to exchange rate volatility. Some learners, to good effect, explained the Fisher effect, and even produced some key examples such as the situation with Zimbabwe s currency. Many learners also gave a broad purchasers view taking in areas such as the purchase cost may be beneficial if the currency moves in the right direction but equally if an adverse move takes place it could leave them in a vulnerable position. However the question was aimed squarely at the factors which could cause exchange rates to change but the purchasing angle will normally attract additional marks. As a guide to marking there could be other factors to consider from those given above, as this is a vast subject with often little agreement between experts, marks were allowed for a balanced response looking in depth at five forces in some detail for broadly five marks each although latitude was allowed for context. JANUARY 2016_PD2 EXAM_REPORT_LEARNER_COMMUNITY_FV 4/7 4

6 Question 4 Learning Outcome 4.1 There are a number of financial measures that can be applied to measure the performance of the supply chain. Assess how ratio analysis can assist a purchaser to understand the financial performance of a potential supplier. (25marks) Candidates could have started this question with a brief overview of ratio analysis; how the approach covers a wide spectrum of the business, that it enables good trend analysis if done over a period of years, it can provide good comparisons with previous performance and also with other similar businesses enabling relevant comparisons across the sector or wider. It can also allow nonfinancial people, with a minimum level of training, to understand summarised performance of a supplier. Better candidates explained that ratio analysis is not the whole financial landscape but a key tool in the understanding of a potential supplier s financial performance over several key areas. An assessment (minimum of benefits and limitations) of ratio analysis was required to answer this question. Benefits could include the data covers a wide spectrum of financial data which can be industry specific or general to the market, gives indication of trends over recent past history, gives good comparison with similar suppliers and with overall industry sector average enabling effective benchmarking, enables organisations to understand suppliers financial performance in a simple understandable way. Ratio analysis can cover specific areas such as profitability, liquidity, investment etc. therefore a buyer is able to see at a glance, and evaluate on, the most important area to them. As part of the answer candidates could have explained a number of ratios and indicated how they enabled purchasers to assess the financial performance of the supplier. Knowledge demonstrating how such ratios were calculated was rewarded depending on detail and depth of knowledge demonstrated and how this was linked to assessing the supplier. Limitations could include large number of ratios can be produced and these need to be understood in order for an accurate assessment of the supplier, training may be required to assist this process, information produced by supplier is historical, it indicates trends but not the reasons or causes of those trends, it may mask seasonal variations, the date is often a snapshot of the business at the end of its financial year, internal financial data is not provided, information from other suppliers or sector generic data is required for effective comparison and benchmark. It can be argued that large supplier s ratios cannot be directly compared to a small supplier (especially on ROCE) and this takes away the general comparison scenario. Emphasis could have been made that ratio analysis is just one tool to be used in evaluating potential supplier. JANUARY 2016_PD2 EXAM_REPORT_LEARNER_COMMUNITY_FV 5/7 5

7 Some candidates related the ratios to their relevance to a potential supplier in areas such as long term relationships with suppliers with an evaluation and explanation of relevant ratios, using examples. There was a wide range of potential examples including ROCE, liquidity and acid test, profitability and utilisation. Generally this question produced some very weak answers with many candidates failing to give any real assessment of the value of the process; never mind the key point of how ratio analysis can assist a purchaser to understand the financial performance of a potential supplier, which was the fundamental requirement of the question. Many ratios (where given) were incorrect and a number of candidates discussed financial areas (e.g. corporate governance) which by any stretch of the imagination could not be regarded as ratio analysis. The small minority of candidates, who, as part of their assessment, correctly focused on explaining the benefits and limitations of how ratio analysis can assist a purchaser to understand the financial performance of a potential supplier, did score highly. Marking wise as general guide 5 marks were awarded for demonstration of understanding of the process, with 10 marks each for benefits and limitations. Markers were able to exercise some discretion in the balance of the marks awarded between these three areas. JANUARY 2016_PD2 EXAM_REPORT_LEARNER_COMMUNITY_FV 6/7 6