CIPS Exam Report for Learner Community: Qualification: Diploma in Procurement and Supply Unit: Contexts of Procurement and Supply Exam series: November 2016 Each element of a question carries equal weighting unless otherwise stated. Question 1 Learning Outcome 1 Explain FIVE differences between operational expenditure and capital expenditure. 25 marks Learning outcome addressed : LO 1.1 Explain the categories of spend that an organisation may purchase. Explain - give reasons for or account for something. Good answers would have explained five differences between operational and capital expenditure. These might have included: Capital expenditure items are charged to a capital account, whereas operational expenditure is charged to a profit and loss account Capital items are procured for a long period of time and have a lifespan of many years. Operational items are procured for short term consumption Capital items tend to be high value assets, whereas operational items tend to be comparatively inexpensive The procurement of capital items involves complex requirements and decisions about expenditure are likely to involve a wide range of stakeholders. Operational expenditure is usually less complex and often involves repeat spends Preparation work on capital expenditure is likely to be lengthy and will involve building a business case, investment appraisal and the option to buy or lease. Operational expenditure tends to be more straight forward and budgets are pre-set for regular demand Capital procurement is less frequent than the procurement of operational items, which is usually on a regular basis Stronger answers, which were rewarded by a mark of a merit or distinction grade, would have provided depth of detail for each of the five differences. Also, they would have introduced examples of capital expenditure, NOV16_D1_LEARNER_COMMUNITY_FV 1/6
such as buildings, machinery and vehicles and examples of operational expenditure, such as raw materials, lubricants and stationery. Some answers were very brief, consisting of a short paragraph for each difference. Depth of detail was lacking and as a result, such answers were awarded a mark of a pass or marginal fail grade. In the case of a few papers, only three or four differences were provided. In general terms, this question was answered well. Many candidates were awarded a mark of a merit or distinction pass standard, because of the quality of their answers. Only a small number of candidates did not achieve at least a pass grade for this question. Question 2 Learning Outcome 2 (a) Outline THREE benefits that may result from the use of electronic systems in the sourcing process. (b) Describe FOUR potential costs of using electronic systems in procurement and supply. 9 marks 16 marks Learning outcome addressed: LO 2.3 Explain how electronic systems can be used at different stages of the sourcing process (a) Outline - give the main features, facts or the general idea of something (b) Describe - give a full account of something Good answers to part (a) should have outlined three benefits that may result from using electronic systems in the sourcing process. These might have included: Cost savings, through streamlining and speeding up processes; examples include data input and transfer and calculating Improved communication and transparency of information throughout the internal and external supply chain, to support decision making Greater accuracy of data input, manipulation and transfer Reduced cycle and lead times, through streamlining procurement processes and more accurate data for demand forecasting Answers to part (b) should have described four potential costs of using electronic systems in procurement and supply. These might have included: The high capital investment and set-up costs of the electronic systems, including hardware and software items The high initial learning curve costs, where users of the electronic systems will have to be trained to use them efficiently NOV16_D1_LEARNER_COMMUNITY_FV 2/6
Possible costs arising from the failure of data security; this may be because of malicious access to data or loss of data The cost of compatibility issues, because suppliers will have to invest in the necessary technology to be able to work with their customers Possible redundancy costs, because electronic systems are faster and more efficient, meaning that fewer staff will be required For both parts of this question, stronger answers would have developed points made in detail and provided examples, often from the candidate's workplace. There were few poor answers to this question. A very small number of answers, however, lacked the necessary depth of detail. Points made consisted of a very short sentence. Both parts of the question were answered very well. A significant number of answers to both parts were awarded a mark of a distinction, or merit pass standard. In such cases, the answers correctly identified the number of points specified in the question and went on to provide in-depth answers. Only a few answers were not awarded a mark of at least a pass standard. Question 3 Learning Outcome 3 (a) Explain what is meant by the term 'devolved procurement' in relation to procurement structures. (b) Outline FIVE disadvantages to an organisation of a devolved procurement function. 5 mark 20 marks Learning outcome addressed: LO 3.3 Compare the different structures of a procurement or supply chain function (a) Explain - give reasons for or account for something (b) Outline - give the main features, facts or the general idea of something Answers to part (a) should have explained the term 'devolved procurement' in relation to procurement structures. This might have been in terms of procurement responsibilities not being placed in the hands of a single, centralised department. Instead, procurement responsibilities are given to procurement officers in different divisions, strategic business units or user departments. In service organisations, it is common for procurement to be carried out by users or budget holders, rather than by procurement specialists. NOV16_D1_LEARNER_COMMUNITY_FV 3/6
Answers to part (b) should have outlined five disadvantages of a devolved procurement function. These might have included: The staff involved may not be procurement specialists and procurement may be only a small part of their work. As a result they will not have specialist skills or knowledge and may not be able to select the best suppliers or monitor their performance It is likely that the consolidation of orders will not be possible, so that bulk discount or economies of scale are not achieved There may be less coordination of procurement activities and there may not be uniform procurement policies and procedures, as there would be in a centralised function. There is likely to be less standardisation of specifications, possibly leading to reduced quality and efficiency Conflict between different divisions or business units might arise, as they compete for scarce raw materials and there may be unequal budgetary allocations of procurement expenditure It may be more difficult to control procurement activities. When procurement is centralised it is easier to monitor procurement performance and compare it to defined KPI's Answers to part (a) should have provided a detailed explanation of the term 'devolved procurement' and provided illustrative examples. Answers to part (b) should have outlined the required five disadvantages of a devolved procurement function in some detail and provided illustrative examples, possibly from the candidate's own work experience. A small number of candidates did not understand the term 'devolved procurement'. Some confused it with outsourcing and provided an explanation of this. As a result, few if any, marks were awarded for such answers, because in part (b) the disadvantages of outsourcing were outlined. A small minority misread the question and outlined the advantages, rather than the disadvantages, of devolved procurement in part (b). A few answers contained only three or four disadvantages in part (b). Answers to this question were of a mixed standard. There were some very good answers, which explained the term in detail in part (a) and outlined five disadvantages in depth in part (b). Such answers were awarded a mark of a distinction or merit standard. Some answers to part (b) were very brief, with single sentence responses for each disadvantage and these were rewarded by a mark of a pass standard. NOV16_D1_LEARNER_COMMUNITY_FV 4/6
Question 4 Learning Outcome 4 Explain FIVE factors that impact on purchasing activities in the retail sector. 25 marks Learning outcome addressed LO 4.1 Identify different economic and industrial sectors Explain - give reasons for or account for something Good answers would have explained five factors that impact on purchasing activities in the retail sector. These might have included: Bottom line thinking: Retailers do not add much value to the goods they sell and their margins are small. As a result, buyers must focus on goods that will sell well at the best possible profit margins Broad assortment: One of the functions of retailers is to make available to customers a wide range of goods offered by many different manufacturers. The number of stock lines and suppliers is high and buyers have to attempt to monitor prices, quality and supplier terms and conditions Buying against supplier specifications: Retailers generally buy what is available on the market, as described by suppliers, who determine the specifications. As a result, changing suppliers is easy for retailers and supplier relations are less durable Short feedback loop: In the retail sector, buying products and selling them are close together in time. As a result it quickly becomes apparent which products are selling and which are not. A fast response to such information is a key requirement for procurement Product mix: A retailer develops a product mix to maximise sales. This mix will change in line with seasons, tastes and fashion. Therefore retailers have to monitor contemporary themes among its customer base and ensure that customer feedback is accurate and regular Control of stock: The retailer will want to maintain sufficient stock to avoid stock-outs, or it may lose customers to competitors. On the other hand there is a need to avoid the cost of holding too much stock. The solutions are accurate demand forecasting,, responsive replenishment systems and agile supply chains, capable of delivering on short lead times Answers that explained in detail five factors that impact on purchasing activities in the retail sector. Some answers contained illustrative examples to reinforce the points made and these were rewarded by a high mark. Some answers were based on generic factors that might apply to any sector of the economy, although the question specified the retail sector. Examples included exchange rate fluctuations, inflation and the state of the economy. In such cases marks were awarded only for any valid application to retailing. Other answers were based on the five 'rights' of purchasing and marks were only awarded where they were applied to the NOV16_D1_LEARNER_COMMUNITY_FV 5/6
retail sector. Answers to this question were of a mixed standard. There were a few that were of a high standard, correctly identifying five relevant factors and providing an in-depth explanation of their impact on purchasing activities in the retail sector. Such answers were rewarded by a mark of a distinction or merit standard. Other answers, although identifying five relevant factors, were very brief and lacked depth of detail and these were generally awarded a mark of a pass standard. A small minority of answers did not address the question and these were awarded a fail grade mark. NOV16_D1_LEARNER_COMMUNITY_FV 6/6