LEVEL 4. Foundation Diploma in Purchasing and Supply. Senior Assessor s Report. Nov Measuring Purchasing Performance L4-03

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1 Foundation Diploma in Purchasing and Supply Measuring Purchasing Performance L4-03 LEVEL 4 Senior Assessor s Report Nov 2008 L4-03/SA report/nov

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 for 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 candidate performance for the examination question APPENDIX A unit content matrix for the examination is included as an appendix. It highlights the learning objectives of the 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 L4-03/SA report/nov 08 2

3 SECTION A Question 1 (a) (15 Marks) Using the information provided in the case study, analyse the performance of the three potential suppliers of bicycle frames. The case study, entitled the Folding Bicycle Company (FBC), offered information about the performance of three potential suppliers of bicycle frames. This information contained: the price quoted per frame the percentage of deliveries on time the percentage of delivered frames rejected the average number of days taken to resolve queries whether or not the supplier had a corporate social responsibility policy the attractiveness of FBC as a customer In answer to Q1 (a), an appraisal of the three potential suppliers should have revealed that the lowest price quoted is by Supreme Engineering Ltd at per frame. However, the same company has the largest percentage of frames rejected (8%) and it takes the longest time to resolve queries (4 days). FBC would not be a significant customer, if Supreme Engineering were to be awarded the contract. It has a reputation for not keeping customers informed and it does not have a CSR policy. The most expensive quotation is from Avon Cycle Supplies, at per frame. However, the company has the best record for quality; with only 2% of frames being rejected and 97% of orders are delivered on time. Also, it is the most responsive and resolves queries within one day. The company has an excellent reputation for customer relations, it has a well developed CSR policy; FBC would be a core customer if it was awarded the contract. The price quoted by Cornwell Frames Ltd is between the other two potential suppliers, at However, it has the worst record of delivering on time (86%) and has a significant number of frames rejected (5%). It has a reputation for being unresponsive, but it is currently developing a CSR policy. Candidates analysed the performance of the three potential suppliers in a proficient manner and using the information provided, they produced good responses to this question. Question 1 (b) (10 Marks) Suggest which of the three potential suppliers should be awarded the contract to supply bicycle frames to FBC and explain the reasons for your suggestion. For answers to Q1 (b), there is no right or wrong answer to the question. It will depend upon which variables candidates perceive as being the most important in making the decision. If candidates believe that price is the only consideration, the recommendation should be that the contract is awarded to Supreme Engineering Ltd. However, there are reasons for not choosing this L4-03/SA report/nov 08 3

4 company, for example its poor quality record, its response time to resolve queries and its lack of a CSR policy. If this company is chosen, there would be a need to work together to improve the weaknesses. If candidates believe that quality is the most important consideration, in terms of the lowest number of rejects or the percentage of deliveries on time, the contract should be awarded to Avon Cycle Supplies Ltd. Other arguments for choosing this company are that it has a well developed CSR policy and that it would perceive FBC as a core customer. However, if this company were chosen, it might be necessary to explore ways of reducing the price. Candidates might have opted for Cornwell Frames Ltd, as a compromise supplier, as it is mid-range on most criteria. This question was answered very well by the majority of candidates and high marks were achieved as a result. Candidates provided detailed answers which focused on the question and made extensive reference to the case study. They made justified recommendations as to which supplier should be awarded the contract. Some candidates also introduced creative tables and the weighting concept to illustrate points made. Question 2 (a) (15 Marks) Describe FIVE measures that FBC could use to evaluate supplier performance once the contract to supply frames has been awarded. Whereas question 1 related to pre-contract supplier appraisal, this question related to post-contract supplier performance monitoring. In part (a), candidates were asked to identify and then describe five measures that might be used. In answers to part (a), two examples of the models that could have been chosen are the five rights of purchasing or part of Carter s 7 C s model. If candidates had chosen the five rights of purchasing model, these should have been related to the case study: Price: candidates could have stated that the supplier s performance would be compared to the price quoted. For example, if the contract had been awarded to Supreme Engineering Ltd, the comparison of performance would be Quality: the performance of the supplier could have been that no frames delivered were rejected because of faults Quantity: the supplier should have delivered the number of frames ordered by FBC Place: the frames ordered must have been delivered to the place specified in the contract Time: the supplier must have delivered the frames ordered by the date specified in the contract If candidates had chosen the Carter 7 C s model, the following measures could have been described and related to the case study: Competence Commitment Control Cost Consistency L4-03/SA report/nov 08 4

5 Some of the Carter 7 C measures, such as cash and capacity are not applicable to post-contract monitoring. This question was not answered as well as question 1 and the marks gained, reflected this. Answers to part (a) often lacked depth and although candidates were able to identify the five rights of purchasing, there was often no attempt to relate these to the case study. Question2 (b) (10 Marks) Describe TWO qualitative measures of CSR that FBC could apply to the company selected to supply bicycle frames. For part (b), candidates were asked to describe two qualitative measures of corporate social responsibility of the supplier selected. In answers to part (b) the measures suggested must be credible in the context of the case study. Examples of the measures that could have been described are: policy statements by the supplier about their attitude to CSR evidence of community involvement feedback from other customers feedback from a trade association to which they belong accreditation, such as ISO Many candidates misunderstood the question and described methods of achieving CSR, such as recycling, rather than describing measures; this resulted in some candidates missing the opportunity to achieve marks. L4-03/SA report/nov 08 5

6 SECTION B Question 3 (a) (10 Marks) Describe the concept of value-added in a purchasing and supply context. Part (a) of this question asked candidates to do two thing; firstly, they were asked to describe the concept of value-added. Secondly they were required to apply this concept to a purchasing and supply context. Answers to part (a) could have defined added-value as the achievement of financial savings or benefits that are not based on changes in unit price. Candidates were expected to describe how this can be achieved in a purchasing and supply context. Examples could have included: changing the specification of the product or service substituting lower cost inputs extending payment terms improving operational efficiency Answers to this question were mixed; some candidates described the concept of value-added, without relating it to a purchasing and supply context. Appropriate marks were gained for this, but as these candidates had answered only part of the question, marks were not high. Question3 (b) (15 Marks) Explain how a purchasing and supply department can reduce inventory costs by improving each of the following: (i) (ii) (iii) Economy Efficiency Effectiveness In part (b), candidates were asked to explain how inventory costs could be reduced by improving economy, efficiency and effectiveness. A brief definition of each of the three terms is essential before dealing with the main part of the question. Candidates were expected to explain how improving economy, efficiency and effectiveness can reduce inventory costs in an organisation. Improving economy can reduce inventory costs through achieving best value for money. Examples could include finding lower cost suppliers or by outsourcing inventory management. Improving efficiency can reduce inventory costs through improving the performance of the purchasing and supply function. Examples could include using information technology, better supplier management and reduced obsolescence. Improved effectiveness can achieve reduced inventory costs by improving the level of service to end users. Examples could include improving service standards, achieving budget targets and better relationships with internal customers and suppliers. L4-03/SA report/nov 08 6

7 Some candidates provided good definitions of the three terms, but did not demonstrate how improving them would lead to reduced inventory costs. Some candidates did the opposite and explained how improving economy, efficiency and effectiveness would reduce inventory costs, but did not define the three terms; candidates who provided responses to both aspects of the question, achieved high marks. Question 4 (25 Mark) Describe FIVE ways whereby the use of information technology can help in measuring purchasing and supply performance. This question asked candidates to identify and describe five ways that information technology could be used to measure purchasing and supply performance. To answer this question, candidates could have reflected on their own work experience or have drawn on examples from their textbook learning and studies. In answer to this question, candidates could have described any relevant uses of IT, from their studies or from their experience. But it is important that they did not stray from the remit of the question; only those uses of IT to do with measuring purchasing and supply performance were being sought and mention of other uses of IT gained very few marks. For example, any vendor rating system could be relevant to an answer, as long as it uses IT, and its operation could be described. The description could also include the additional speed scope and accuracy that can be achieved through the use of IT in such systems, contrasted with the possible downsides of information overload, compatibility issues, and costs of maintaining up-to-date hardware and software. Other areas that candidates could have discussed include using databases to measure the performance of suppliers and buyers or the use of spreadsheets to measure operational efficiency; each of these can be used as a basis for measuring purchasing and supply performance. For example, if a database reveals that a supplier's performance is unsatisfactory; ways of improving this can be investigated. Reference could also be made to the use of e-procurement, MRP and ERP systems and EPOS to measure performance. There were many very good answers to this question. A large number of candidates referred to their own work experience and how databases are used to measure supplier and buyer performance and how e-procurement is used; such answers achieved high marks. Some responses, however, lacked depth, with candidates writing only two or three sentences on each use of IT.; in these instances, the mark gained was low. Question 5 Describe how the development of a purchasing officer s skills, knowledge and expertise will benefit each of the following: (a) The purchasing officer s performance (b) The performance of the organisation for which the purchasing officer works. (12 marks) (13 marks) This two part question asked candidates to describe the benefits of developing a purchasing officer s skills, knowledge and expertise. Firstly, they were asked to describe the benefits for the individual L4-03/SA report/nov 08 7

8 purchasing officer s job performance and secondly the benefits for the organisation s overall performance. In the answers to part (a) of this question, candidates were expected to describe how individual buyer performance will be improved. The benefits that could have been put forward include greater professionalism, greater loyalty to the employer, enhanced commitment, higher rewards and promotional prospects. Reference could have been made to the units in the CIPS level 4 qualifications; for example, purchasing officers will become better at negotiating, have a better understanding of contract formation and management, and have the knowledge to manage supply relationships better. For part (b) of the question, candidates were expected to describe how the employer would benefit by supporting the development of a buyer s skills, knowledge and expertise. Again, there are many reasons that could be suggested, and all convincing reasons gained marks. Likely arguments would be that the extra skills and abilities will pay for themselves quickly and potentially many times over in better deals achieved by the buyer for the organisation. Prices could have been re-negotiated downwards leading to cost savings for the organisation, better services achieved for internal/external customers by the buyer, benefiting organisational efficiency. Improved motivation is likely to lead to staff retention, with lower recruitment and training costs. Answers to both parts of this question were generally good. Many candidates were able to draw on their own experience of training and describe how they had benefited and how they perceived that their employer had benefited; high marks were achieved for such answers. Some responses, however, lacked depth, with candidates introducing only three or four benefits and writing one or two sentences on each. Such answers were awarded appropriate credit, but marks were low. Another common mistake was to introduce the same benefits in both parts of the question. Some ideas were valid for both parts and if justified, acceptable; for example, if the purchasing officer is more motivated, they will get more job satisfaction, while the employer will experience productivity gains. Some candidates, however, repeated inappropriate benefits in part (b) and marks were not awarded for their inclusion in both parts. Question 6 You are a buyer for a large organisation and recently two assistant buyers have been appointed to support you. (a) Explain THREE methods of analysing the training needs of the assistant buyers (15 marks) (b) Describe TWO performance measures that you might apply to the assistant buyers (10 marks) Part (a) of the question required candidates to draw on their own work experience or their textbook studies and learning to explain three methods of analysing the training needs of assistant buyers. Similarly, part (b) could be related to their work experience and the types of performance measures applied to them, these could be used as the basis of their answer. In their answers to part (a), candidates were expected to explain the methods that can be used to establish the training needs of assistant buyers.; examples include job performance appraisals, work L4-03/SA report/nov 08 8

9 achievements measured against personal or organisational objectives, measuring performance, carrying out tests or self assessment. Whichever three were chosen, it was important that they were explained in detail. Answers to part (b) could have described qualitative or quantitative measures. Qualitative measures might include establishing and maintaining effective relationships with suppliers or the ability to work as part of a purchasing team. Quantitative measures could include the number of orders processed over a given period of time or the time taken to respond to queries or requests from internal customers. Again, it was important that the two measures chosen were described, with information given on their significance. This was the least popular question in section B and in general terms, it was not well answered. Most of the answers provided, lacked depth. Although candidates could identify three methods of analysing training needs in part (a), few were able to explain them in detail. Similarly in part (b), candidates were able to identify two performance measures, but did not go on to describe their significance. L4-03/SA report/nov 08 9

10 APPENDIX: Matrix indicating the learning objectives of the unit content that each question is testing Question No. Learning Objective 1 SECTION A SECTION B a b c a b c a b c a b c a b c a b c Measuring and evaluating the performance of the purchasing and supply function X X 1.6 X 2 Measuring and evaluating the performance of the supplier 2.1 X X 2.2 X X Measuring and evaluating the performance of the buyer X X 3.5 X X L4-03/SA report/nov 08 10