Graduate Diploma in Purchasing and Supply Strategic Supply Chain Management L6-02 LEVEL 6 Senior Assessor s Examination Report March 2010 Series
SECTION A Q1 (a) Evaluate the recommendation by BHC s Chief Executive to set up a merger or joint venture arrangement with a larger healthcare confederation. (12 marks) This question required candidates to demonstrate their ability to analyse a case study situation and understanding of joint ventures and mergers through a robust evaluation in the context of healthcare. Candidates should ensure they read the Section A questions carefully, and re-read the case study thoroughly. Candidates should note that part (a) is worth 12 marks and answers should be planned accordingly. Typically candidates approached the question by considering a merger and a joint venture in the context of the case. They conducted a robust evaluation of both a merger and a joint venture in relation to the case. Answers here were required to draw from the case to provide a robust evaluation of both a merger and a joint venture in the context of healthcare. In order to do this effectively the answers would have picked up the salient points from the case. Candidates needed to demonstrate understanding of what a merger and a joint venture actually are, and many answers began by defining the terms. As evaluation is required, it is expected that answers might consider the pros and cons of these strategies, and good answers typically formed some sort of conclusion about the planned route to take. Candidates should demonstrate a robust understanding of joint ventures and mergers in relation to the case study situation. Initially answers could have defined both a joint venture and a merger. A joint venture is where two organisations share resources and activities in order to pursue specific strategies while retaining their independence. A merger is where two established organisations join together in a permanent arrangement. Then they could have gone on to evaluate each option in the context of the case. It would be important to set the context around Bankshire and both the benefits and disadvantages/risks for each option. Benefits included areas such as the use of specialist knowledge, sharing of resources, co-specialisation, cost efficiencies, and technology transfer. Disadvantages included significant up-front investment, poor cultural fit, poor integration, lack of trust, opportunistic behaviour, poor returns, reduced performance, geographical difficulties, and being swallowed up or dominated by a larger confederation. Answers could have then gone on to consider practicalities around the options such as the expense of a merger and whether it delivers bottom-line performance. Therefore a joint venture might be pursued due to less risk. This might especially be the case where a L6-02/SA report/march 2010 2
match was such that both parties had specific expertise to bring to the table e.g. Bankshire having high performance on clinical performance and patient focus and them carrying out a joint venture with an organisation with high performing purchasing. Answers might have added the general principles that would be required to make such a joint venture work e.g. clear strategic purpose, cultural compatibility, defined performance expectations in terms of goals, governance and responsibilities, simple and flexible organisational arrangements, integrity, openness, discretion, and consistency of behaviour. Exam Question Summary Answers here were very mixed. The evaluation of the options in many cases was patchy and needed better planning in order to develop the full scope. The use of suitability, feasibility and acceptability (SFA) as a framework for the evaluation was only used by a minority of candidates. A few candidates appeared to misunderstand the question and provided an answer solely discussing centralisation and decentralisation. Some also focused only on the purchasing aspects of the two options and the benefits/risks and not on the whole context provided by the case. This meant the answer did not have appropriate scope. Stronger answers made recommendations on what would be appropriate and some even suggested an alternative of doing nothing (regarding the merger and joint venture) and focusing on their procurement structure and strategies initially instead. Q1 (b) BHC is a public sector healthcare organisation. Analyse the implications that this is likely to have on its corporate and procurement strategies. (13 marks) This question required candidates to demonstrate their ability to analyse a case study situation and demonstrate understanding of public sector issues and challenges and the implications for its corporate and procurement strategies. Candidates should note that part (b) is worth 13 marks and answers should be planned accordingly. Candidates should approach the question by considering the public sector, its corporate and supply chain strategies, and how healthcare fits into this. Candidates might approach this question in a number of ways due to the wide range of issues for consideration. One approach was to break the question into a section on the corporate strategies and the factors influencing them, and how this impacts on the way they approach strategy formulation and structure themselves. They could then consider the supply chain objectives and the difficulties around identifying who the customers and L6-02/SA report/march 2010 3
stakeholders are and providing a service on their behalf. They could then finish by discussing the supply chain strategies themselves. In corporate terms the public sector organisations usually adopt a rational approach to strategy formulation which may lead to inflexibility and poor alignment with changing commercial circumstances. BHC is limited in the strategic directions it can take. It needs to satisfy imposed strategies from central government, and imposed targets and legislative requirements which all provide a level of difficulty and potential conflicts. Public sector organisations tend to be bureaucratic and functional organisation structures, which enable them to drill their strategies down from corporate level through to functional and individual level, thus ensuring consistency of purpose. This does however result in a potential lack of flexibility and a plethora of monitoring systems in place to ensure accountability which may lead to a culture of conservatism and risk avoidance. In terms of the supply chain for healthcare it is very complex. There are many customers for healthcare services (patients, GPs, government, taxpayers, society, and local community) and there is no clear view as to who the focal relationship should be with. Secondly, in the public health sector under consideration, although the patient participates in the service, they do not directly purchase it and cannot therefore be seen as a buyer, BHC perform this role and consumes the product on their behalf. Public sector supply chain strategies are driven by EU procurement directives and require prescriptive and formulated sourcing approaches. This impacts the way relationships can be developed. There is considerable political intervention, an emphasis on budgetary control, and a risk-averse culture. Supply chain strategies must achieve value for money, but it is not always clear what this entails. Procurement competences are not always well-developed. Decision-making is often slow and bureaucratic, and public sector organisations often have a remit to pursue environmental and social objectives, which may contradict the commercial imperatives. Exam Question Summary Most answers to this question were fair. Some answered in general terms about the public sector as a whole, but not linked to Bankshire. Some also answered part (b) as a continuum of part (a) on mergers and joint ventures alone. Stronger answers covered the way the public sector works, the implication of outside forces such as government, EU directives etc and provided context on Bankshire in order to develop the answer fully. L6-02/SA report/march 2010 4
Q2 Recommend how BHC can improve its procurement and supply chain performance. (25 marks) This question required candidates to demonstrate their ability to analyse a case study situation and demonstrate their understanding of procurement and supply chain issues. Candidates should note Q2 is worth 25 marks and answers should be planned accordingly. Here the candidates needed to identify what they thought were the procurement and supply chain issues for BHC and how these might be addressed in order to improve BHC s performance. Candidates here might start the answer with a discussion on BHC s current procurement and supply chain performance and the implication of this for their overall corporate objectives. They could then move on to discuss specific issues, propose ways to improve them, and how to deal with factors that might hamper these changes. Issues provided should be carefully justified to explain how these might contribute to the procurement and supply chain performance. There is a wealth of content in the case on BHC and surgical implants to draw from and candidates should ensure that the comments that they make are appropriate to the healthcare sector and not just generic suggestions. It is important to discuss how BHC s procurement and supply chain activities are currently under-developed. A positive point is that the strategic review has focused attention on bought-in goods and services, and a new procurement director has been appointed. Expertise of staffing will need to be explored for example by developing internal capabilities or recruiting externally. Structure will need to be discussed particularly taking into account the difficulties that will be encountered with the technical nature of the products and the consultant behaviour. Common purchases across the dispersed sites should be centralised within a CLAN organisation structure, and policies and procedures established to regulate the buying activities of internal clients. Category managers could be appointed who analyse supply, carry out appropriate sourcing, suppliers appraisal and selection, relationship management, performance monitoring and so on. The information provided on surgical implants supply chain allows candidates to illustrate problems and solutions to being locked in to suppliers offerings with high levels of asset specificity. These sorts of issues will require careful and sensitive handling and take some time. As a result it will be important to identify quick wins and a timetable to deal with more complex issues. L6-02/SA report/march 2010 5
Exam Question Summary Answers here were good. Some weaker ones tended to be a bit general and provided rather idealistic solutions to the problems encountered without fully drawing from the context that the case could give the answer. Stronger answers dealt with cultural, technical and procurement and supply chain issues. SECTION B Q3 (a) There are a number of different views of what the term supply chain management means. Assess the different views and state what you think supply chain management means. (13 marks) This question required candidates to demonstrate their understanding of the supply chain management concept and the different views of supply chain management. Candidates should note part (a) is worth 13 marks and answers should be planned accordingly. The question clearly requires more than one view ( different views ) to be included in the assessment and it is reasonable for candidates to therefore assess two views in significant depth of detail, or more views in less depth of detail. The command word assess indicates a judgement is required, and it is therefore reasonable to expect candidates to include their own view in the answer, which should be supported by reference to relevant theory. Candidates need to break the answer into sections on the different views of supply chain and then state what they think supply chain management is. Candidate could start their answer by acknowledging the different types of views and assess these views. Good answers closed with a conclusion indicating the candidate s personal view of what supply chain management means. It was expected that answers would relate to specific theory and writers to support the assessment. It is acknowledged that there is a lack of clear definition and consensus over the supply chain management concept. Some see it as a specific sourcing strategy that may or may not be appropriate and others as an all-encompassing, best practice concept that every organisation should strive for. The assessment might cover issues such as the difference between logistics and supply chain management; the difference between supply management and supply chain management; chains, networks and pipelines; internal and external integration; dyadic, partial and whole-chain approaches. L6-02/SA report/march 2010 6
Exam Question Summary Few candidates answered this question. Answers varied from those which demonstrated a clear grasp of theory and supply chain management with their own views, and those which only provided the candidate s personal views. Candidates must support their personal views with relevant theory or examples in order to demonstrate the extent of their understanding of the unit content. It is important to remind candidates to ensure that during the planning of their answer they break down the question into chunks to ensure they cover all the question requirements. Q3 (b) Evaluate the contingent approach to supply chain management. (12 marks) This question required candidates to demonstrate depth of knowledge of the contingent approach to supply chain management. It also required demonstration of understanding of different models of supply chain structure and relationships. Candidates should note part (b) is worth 12 marks and answers should be planned accordingly. Candidates might approach the answer by defining supply chain management, then evaluating the contingent approach and alternative views. The candidate might start the answer with a brief definition of supply chain management and then go on to explain what the contingency approach to supply chain actually means i.e. that it is based on the idea there is no single best way to manage the supply chain. This approach suggesting that an all-encompassing best practice concept will not be suitable for every organisation. Examples could be given of best practice models of sourcing and the alternative of specific strategies selected for the fit with the industry, organisation and products. Contingent approaches to supply chain management assume that one size does not fit all. Some people see supply chain management as a best practice model of sourcing behaviour. Hines' network sourcing is a typical example which consists of ten core principles: a supplier tier structure; few supply sources; high asset specificity and risk sharing; a low value-added ratio; bilateral design; supplier innovation; long-term relationships; supplier grading and self-certification; supplier coordination; and supplier development. On the other hand, others see supply chain management as a specific sourcing strategy that is appropriate for certain organisations, certain industries and certain products. Within this definition, supply chain management involves the conscious decision of an L6-02/SA report/march 2010 7
organization to work proactively and collaboratively with all of its supply chain partners with a view to improving functionality, reducing cost, and aligning their interests with the requirements of the end consumer. It may be suitable where the buyer is in a position to appropriate value from the relationships, where the items being purchased are of a strategic nature, where supply chain integration is imperative, or where there is a restricted market, but other sourcing options can also be pursued. An evaluation of market conditions and a sourcing portfolio analysis will determine the approach to be taken. Strategic purchases are likely to require a supply chain management approach, but tactical supplies warrant more of an arms-length, market-based sourcing strategy. Exam Question Summary Answers here were very mixed. Some candidates demonstrated a clear grasp of a best practice and contingent approaches using appropriate theory. Weaker answers did not demonstrate the understanding of these approaches, and provided a low level and generic response. Q4 Compare and contrast the rational, emergent and hybrid approaches to formulating strategy. (25 marks) Here the candidate needed to plan their answer into three parts covering rational, emergent and hybrid. As the question is worth 25 marks and does not indicate otherwise, it is reasonable to assume the answer requires equal emphasis to be placed on each of rational, emergent and hybrid approaches and answers should be planned accordingly. Here the candidate would need to consider rational, emergent and hybrid taking care to ensure that they compare (refer to the similarities between the three approaches) and contrast (refer to the differences between the three approaches) as required by the question. Answers could consider the benefits and disadvantages of each approach and what sort of environment each might suit. Regarding the rational approach, answers might consider its top-down, formal, longterm, predictive nature and the problems of inflexibility, unresponsiveness and implementation difficulties. As the question is about formulating strategy, answers might highlight the process in that senior management analyse the internal and external environment, evaluate a range of possible options, draw up a formal plan, and attempt to implement the preferred solution. This would result in clear goals and objectives, but employee buy-in may be difficult to achieve and the plan may not keep up with changes in the external environment. The emergent approach is very bottom-up, informal and responsive. As a result may also result in a lack of direction and focus as strategies emerge over time through the activities of the organisation and are implemented informally as opposed to being planned. L6-02/SA report/march 2010 8
Answers were required to consider hybrid choices and the concept of logical incrementalism which combines the best features of both rational and emergent approaches. This means a deliberate series of actions are planned, but they are flexible enough to change in line with emergent streams in order to achieve a realised strategy. Exam Question Summary Most answers demonstrated a good understanding of theory. However many just defined the approaches instead of comparing and contrasting them as required by the question. Some answers did not discuss hybrid or provided a very brief discussion on hybrid. Stronger answers touched on strategic drift and also suggested which sort of industries that the approaches might suit. Stronger answers provided specific theory references in order to support their answer. Q5 Explain how a change in strategic direction can be implemented effectively throughout an organisation. (25 marks) This question required candidates to demonstrate their depth of knowledge of strategy implementation concepts and understanding of change management concepts. Here the candidate could plan their answer in two chunks with a view to discussing implementation of a change in strategic direction and change management issues associated with such a task. Good answers might start with a brief discussion on what might cause the need for strategic direction change, and indeed what strategic direction really means. Discussion on the type of change such as transformational, incremental, managed or imposed could be linked to this. It would be possible to use McKinsey s 7-S framework as a method to discuss the 'hard' (strategy, structure, systems) and 'soft' (style, staff, skills, shared values) elements of implementation and change management. It would be important to discuss the factors that might hamper such a change, and it would be possible to use examples to demonstrate changes in strategic direction. The key issue here is to ensure that candidates should demonstrate an understanding of implementation and change management issues and cover both hard and soft elements in their answer. There was an opportunity for candidates to use theory in order to develop their answer fully. For example McKinsey's 7-S framework as a means to differentiate between the 'hard' (strategy, structure, systems), and 'soft' (style, staff, skills, shared values) elements of change. Regarding implementation they might have discussed the role of vision and mission statements; corporate, business and functional plans; communications policies; the L6-02/SA report/march 2010 9
alignment of strategy and structure; consideration of staff, skills, styles and systems; performance management systems; and the dangers of strategic drift. The coverage of change management, might have included types of change (transformational or incremental, managed or imposed); restraining and facilitating forces; change management techniques (communication, education, collaboration, early involvement, direction or coercion); change roles; change agents; cultural issues; timing and top management support; reinforcement, monitoring and review. There was also an opportunity for candidates to draw from real life business examples in order to develop their answer further. Exam Question Summary This was a popular question and was answered by most candidates. The answers were very mixed and some were very low level, with no theory at all and very generic in nature. Some others were very operational and not focused on strategic direction. Many answers were only focused on the softer side of change management e.g. managing the people etc, however this was not the full scope required by this answer. Stronger answers developed the answer into hard and soft themes, types of changes and issues and also gave some examples of changes in strategic direction that have been successes and failures. Q6 Alcoa, one of the world s largest metal producers, recently announced that it will increase the use of global sourcing and work more collaboratively with suppliers. (Source: Supply Management 2009). Evaluate how these initiatives may improve the strategic performance of an organisation like Alcoa. (25 marks) This question required candidates to demonstrate understanding of global sourcing. It also tested candidate s knowledge of collaborative relationships and their impact upon strategic performance. Candidates should note that the question has two specific requirements ( global sourcing... and work more collaboratively ) and answers would be best structured in two sections, one covering global sourcing and the other covering collaboration. In order to demonstrate a robust understanding of global sourcing, candidates could have considered firstly what it is, why it might come about in terms of market based and procurement based reasons and advantages and disadvantages/risks of such an approach. Then they could have moved on to define what working collaborative might mean, and where this might be appropriate. They could also discuss the benefits and risks of working collaboratively in the context of global sourcing. L6-02/SA report/march 2010 10
As the question requires evaluation, it would be expected that the answer would not be descriptive, but that it provided an evaluation of global sourcing and collaboration with suppliers. Candidates might have commenced the sections of their answer with a definition of global sourcing and collaboration. Then it would be important to explore how these might enhance or hamper Alcoa. Global sourcing may improve Alcoa s strategic performance in the market due to increasing the number of available sources, introducing competition to the domestic market, reacting to competitors' sourcing strategies and establishing a presence in a foreign market. There are also a number of procurement-based reasons that might mean global sourcing is attractive to Alcoa such as cost reduction, quality improvement, increased exposure to technology, and delivery and reliability requirements. However, global sourcing is not without its risks and candidates would be expected to suggest a number of factors for Alcoa to consider such as import/export licenses, quotas tariffs and embargoes, technical standards, restricted channels and providers, and currency exchange controls. Also procurement and logistics practicalities may make global or low cost sourcing from developing counties more risky. As a result careful planning and skilful management will be required. Areas to consider might include sourcing difficulties, language problems, cultural differences, currency conversions and fluctuations, different legal systems, unclear responsibilities, customs issues, payment methods, inventory management and transportation delays. After defining collaboration and what it means to supplier relationships candidates might move on to discuss where this sort of approach might be appropriate. The approach is usually adopted where there is a restricted market, where the two parties are interdependent, or where critical or strategic items are being purchased. They then could move on to discuss the benefits and difficulties. On one hand it might enable Alcoa to share risk, capture specialist expertise, and gain local knowledge. Working together closely and collaboratively with suppliers has the potential to derive benefits through joint innovations and cost reduction initiatives over and above that which can be achieved through transactional approaches. However, significant investments are required and there is the danger of supplier lock-in. Exam Question Summary Answers here were mixed. Few provided a definition of global sourcing and collaboration. Some focused more on one than the other and as a result did not provide enough scope. Many did not expose risks of these approaches and did not really evaluate global sourcing and collaboration. Stronger answers provided a clear answer with good evaluation and the use of theory. Some candidates provided concise business examples in order to develop their answer. In summary candidates might benefit from using an answer plan to break down their answer and also refresh themselves on evaluation techniques. APPENDIX: Syllabus matrix indicating the learning objectives of the syllabus unit content that each question is testing L6-02/SA report/march 2010 11
SECTION A SECTION B Question No. 1 2 3 4 5 6 Learning Ob a b c a b c a b c a b c a b c a b c 1 The concept of strategy and the process of developing corporate strategy 1.1 X 1.2 X 1.3 1.4 1.5 X 1.6 1.7 2 Converting strategy into action through effective alignment and implementation 2.1 X 2.2 X 2.3 X 3 The contribution of strategic supply chain management to corporate strategy 3.1 3.2 3.3 X 3.4 X 4 The nature of supply chain 4.1 X 4.2 4.3 X 4.4 5 The role of strategic supply chain management in achieving competitive advantage 5.1 X 5.2 5.3 5.4 5.5 6 Models of supply chain structures and relationships 6.1 X 6.2 X 6.3 L6-02/SA report/march 2010 12
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