CIPS Exam Report for Learner Community: Qualification: Professional diploma in procurement and supply Unit: PD3 - Strategic supply chain management Exam series: November 15 Question 1 Learning Outcome 1.1 Analyse FIVE major risks that the Caterpillar supply chain may encounter. For each risk outline a strategy that Caterpillar could use to mitigate its impact. (25 marks) There are a wide range of potential risks that relate to Caterpillar and there was no requirement for the risks to be of a particular type or of a particular perspective. The risks could have been internal and/or external but they must be related to the supply chain in some way. Examples of risks that could have been discussed include: supply risks, compliance risks, reputational risks, economic and financial risks, market and demand risks, environmental risks, operational risks, technological risks, workforce risks, and risks relating to the global nature of Caterpillar s supply chains. Candidates were expected to identify each risk, link it to the case situation, and discuss its impact on the supply chain. There are a number of risk mitigation strategies which Caterpillar could apply which include: proactive monitoring and identification of risks, increased transparency and data sharing, greater collaboration and trust, rigorous supplier selection, effective contract management, risk-sharing arrangements, supply chain mapping, quality assurance, HRM, governance structures, policies, and training. Candidates were expected to suggest specific risk mitigation strategies to address the risks identified. This question was generally answered well. Most candidates appeared to have prepared PESTLE and SWOT analyses in advance which are rich sources for identifying risks. Some candidates covered more than five risks, while others only discussed four. Others failed to provide mitigation strategies. Another problem was not linking mitigation strategies to specific risks. Many candidates referred to mitigations that Caterpillar had already carried out to address specific risks. This demonstrated good linkage to the case and was given due credit. Strong answers clearly identified five risks relating to the case, discussed the impact of these risks, and suggested relevant mitigation strategies. Weaker answers did not cover the required number of risks, provided answers that were too generic, or failed to provide risk mitigation strategies. NOV2015_PD3_EXAM_REPORT_LEARNER_COMMUNITY_TD_FV 1/4
Question 2 Learning Outcome 2.3 Analyse the factors that might impact on the configuration of Caterpillar s supply chain network, including its inbound logistics and distribution channels. (25 marks) There are a number of factors that could have been analysed such as: the channels of distribution required (direct to the customer or via intermediaries); the size and location of depots (upstream and downstream); the stockholding policy; the extent of outsourcing; tiering arrangements; the nature of the products; the choice of transportation modes; the prevalence of value-adding activities such as servicing and spare parts; the type of plants, warehouses and distribution centres required; the local, regional, and global requirements of suppliers and customers; and sustainability issues. There are a number of Caterpillar-related issues that could have been linked to these factors: the role of the dealers; the role of the 3PL logistics providers; the control tower arrangements; the globalised nature of the supply and demand networks; the single-source suppliers; partial vertical integration; the size and weight of the finished products; the manufacture-close-to-demand policy; the three-lane strategy for the small backhoe loaders; the integration of the new product lines; and locational trade-off decisions between Asia and America in relation to the exoloader. In general answers to this question were poor. A number of candidates who gained marginal pass marks for the other questions failed overall due to their performance in relation to Q2. Previous reports have highlighted the weakness of answers in relation to distribution and logistics and this was again evident here. The situation was exacerbated by many candidates ignoring the main requirement to consider the configuration (design) of the supply chain network. Some answers just described a range of supply chain initiatives that were covered in the case. Others appeared to be at a complete loss and included much irrelevant content. Many candidates attempted this question last and these answers tended to be incomplete or superficial. This demonstrates a lack of preparation in relation to this area of the syllabus. This was not a question about procurement or supply chain management but one related to supply chain network design, logistics and physical distribution. Strong answers focused clearly on the question requirements and discussed a range of factors that impact on the configuration of Caterpillar s logistics and distribution network. Weaker answers failed to address the question specifics. NOV2015_PD3_EXAM_REPORT_LEARNER_COMMUNITY_TD_FV 2/4
Question 3 Learning Outcome 3.1 (a) Apply the concept of supply chain evolution to Caterpillar, using appropriate theory and examples from the case study. (15 marks) (b) Explain how Caterpillar uses technology and data integration to achieve effective supply chain management. (10 marks) (a) There are a number of different models of supply chain evolution that could have been used to demonstrate the movement from traditional, independent and transactional working to new ways of integrated supply chain management. Examples include those of Emmett, Gattorna, Accenture, and Jesperson & Skjott-Larson. There are also a number of examples from the case that could be used. Examples of integrated supply chains include: the inclusion in Caterpillar s vision statement, recognition by senior management, the relationship with dealers, the demand-driven rapid-response supply chain, supply chain segmentation, the integrated supply chain strategy, strategically managed inventory, global sourcing decisions, the recruitment of new supply chain talent, and the collaborative working with Tenneco and Tata Steel. The question is about the evolution from one state to another and some discussion of more traditional thinking would also be appropriate. There are some examples in the case which relate to this: silo-thinking, poor rationalisation, excessive inventory, decentralised decision-making, poor forecasting, and lack of communication with suppliers. There were some strong answers to (a) which discussed a range of case examples within the appropriate evolutionary stages of their chosen model, and formed an opinion on where Caterpillar currently sits. Weaker answers failed to utilise a model and did not demonstrate the evolutionary nature of the question requirements. Some candidates incorrectly discussed change management principles. (b) Candidates should recognise that Caterpillar uses technology and data integration in a wide number of ways in order to achieve improvements in its supply chain and provide good visibility. Examples include: demand forecasting, stock management, logistics and distribution planning, early supplier engagement in the development of new products and services, EDI links, control towers, state of the art distribution centres, IT solutions for dealers and customers, and freight optimisation software. Good answers to (b) discussed a range of examples, clearly demonstrating their benefits. Poorer answers did not focus sufficiently on technology and data integration examples, or just copied out descriptions of the initiatives from the case study text. Other responses failed to differentiate their answers between parts (a) and (b) of the question. This demonstrates the importance of spending some time on answer planning. NOV2015_PD3_EXAM_REPORT_LEARNER_COMMUNITY_TD_FV 3/4
Question 4 Learning Outcomes 2.4, 4.1 (a) Summarise a range of factors that are likely to have a positive impact on the demand for Caterpillar s main product ranges. (7 marks) (b) Outline the following concepts, highlighting for each concept THREE examples from the Caterpillar case study. (i) A lean supply chain (ii) An agile supply chain (18 marks) (a) There is a wide range of potential factors that may have a positive effect on the demand for Caterpillar s main product range. Examples of macro-economic factors include: reduction in interest rates, cyclical increases in the economic cycle, demand for building materials and construction projects, international demand in emerging markets, political support, and the need for new infrastructure projects. Examples of micro-economic factors include: poor performance of competitors, the development of new and innovative products by Caterpillar, customer service solutions, brand and reputation, CSR performance, and the need for organisations to replace existing equipment. (b) Candidates should in each case demonstrate an understanding of the meaning of the terms lean supply and agile supply. Lean is typified by an emphasis on standardised products, minimal inventory, pull demand systems, economies of scale, standardisation, waste reduction, and a focus on operational efficiency. Agility is characterised by short response times, customer service enhancement, product variety, availability, flexibility, and a focus on market responsiveness. Lean supply examples from the case include: waste reduction initiatives; product rationalisation; stock reduction; supplier rationalisation and collaboration; predetermined product configurations; cost analyses; the integrated supply chain initiative; global sourcing analysis; materials management; outsourcing; load consolidation and trailer utilisation; automation; cross-docking operations; and slower but lower cost transport modes. Agile supply examples include: the rapid response supply chain; customised products; strategic buffer inventories; logistics hubs located near ports, manufacturers and dealers; control towers; product distribution centres; customer software solutions, EDI links, and supplier portals. This question was mostly well-answered. However, in relation to (b), a number of candidates did not discuss the concepts of leanness and agility. Furthermore, it was not always made clear why certain examples were deemed to be lean or agile. There are some commonalities between lean and agile, therefore it is recommended that clearly differentiated examples are used and that they are linked back to the concepts in NOV2015_PD3_EXAM_REPORT_LEARNER_COMMUNITY_TD_FV 4/4
order to justify their choice. Some candidates used the same examples for both lean and agile without further explanation. Strong answers discussed lean and agile theory and provided the requisite number of examples which were clearly linked to the relevant concept. Weaker answers did not discuss the concepts, provided too many or too few examples, or failed to justify their examples as being either lean or agile. NOV2015_PD3_EXAM_REPORT_LEARNER_COMMUNITY_TD_FV 5/4