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L4-05/SA report/May 2012 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 - both those who have sat the examination and those who wish to use as part of their revision for future examinations. Candidates are advised to refer to the Examination Techniques Guide (see the following link: http://www.cips.org/en-GB/Qualifications/study-support/ ) 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

An indication of candidate performance for the examination question Each question has a syllabus reference which highlights the learning objectives of the syllabus unit content that the question is testing. The unit content guides are available to download at the following link: http://www.cips.org/Qualifications/About-CIPS-Qualifications/cipsqualifications/ 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: http://www.supplymanagement.com/

http://www.cips.org/en-GB/Qualifications/study-support/

http://www.cips.org/Qualifications/About-CIPS-Qualifications/cipsqualifications/

http://www.supplymanagement.com/


Q1 (a) Compare the advantages for Bill of operating as a sole trader with those of operating as a private limited company..

(5 marks)

Analysis of the Question Then purpose of this question was to examine the candidate’s ability to compare the advantages of two different forms of organisation and to apply this knowledge to the case scenario. The question expected candidates to consider that a sole trader is comparatively easier than operating as a limited company. Any profits made belong to the owner-but equally so do all loses. By comparison, a limited company offers limited liability for its owners-it has a separate legal entity from its owner/s. It may be easier to raise credit due to published accounts - a limited company may therefore have better access to capital as its finances are relatively public. As a result of registration- may often be seen in a more positive light by creditors and customers and registration may be indicative of growth and stability. All of which would have been important factors as Bill’s business developed and may become even more important as he considers buying from internationally. The difference between incorporated (limited company) and unincorporated (sole trader) should have been discussed.

Analysis of the Answer This question gave candidates a good opportunity to make a confident start. The subject gave plenty of opportunities to raise many advantages for RF as both a sole trader and a private limited company. Most candidates concentrated upon limited liability, overhead cost, administration, establishment, regulations and the availability of finance. The scores achieved were at the high end and demonstrated the depth of knowledge associated with this subject. Exam Question Summary Generally well answered, with no major issues. Most candidates scored well in this part of the question and there were no obvious problems. The main weakness was that some answers did not relate to the case study. Some candidates were confused between Ltd and Plc structures. Q1 (b) Explain how private limited companies such as RF are formed. (5 marks)

Analysis of the Question This question was intended to test the candidates’ knowledge of how a private limited company, such as RF, is formed. Expected knowledge included the following points. A company cannot form itself – it needs a promoter. This may be the owner of the company. The promoter (founder/s) must deliver certain documents along with a small fee to the Registrar of Companies. Basically, a company is formed by the issue of a certificate of registration by the Registrar of Companies in response to the founder/s of the company delivering certain documents. The initial documents are the Memorandum of Association – which sets out the name of the company including Ltd or plc and location of its registered office and The Articles of Association, which sets out the appointment and powers of the directors. In addition ‘a statement in the prescribed form’ (known as form 10) giving the particulars of the first director/s and secretary and of the first address of the registered office. The persons named as directors and secretary must sign the form to record their consent to act in this capacity. The registrar considers whether the documents


are formally in order and whether the objects specified in the memorandum appear to be lawful, since a company may only be registered if it has a lawful purpose. Analysis of the Answer This was a high scoring question where a significant number of candidates achieved excellent marks. It was a question which came straight from the Study Guide. The explanation of the formation centred upon registration, the Memorandum and Articles of Association with the vast majority of candidates demonstrating a sound understanding of the process. Exam Question Summary Most candidates had understood the processes involved and the full five marks were often awarded. Q1 (c) Describe the ownership, control and typical objectives of private limited

companies such as RF. (15 marks)

Analysis of the Question This question was intended to test the candidates’ ability to describe the ownership, control and objectives of a private (incorporated) limited company such as RFs. Five marks were available for each of the three parts of the question. Possible material might have included:

Ownership. As a limited company RF will be owned by two or more shareholders (possibly just one and in this case Bill Smith). They are likely to be owner/managers (as explained in the case) and as any company shares cannot be traded on the stock exchange it is usual, but not necessary, that any shares are owned by partners or family members. RF stakeholders are likely to be limited to its (family) shareholders, employees, suppliers and customers.

Control. Ultimately, control of RF lies with the owner Bill Smith or his appointed directors. However, as the business grows and Bill becomes more reliant on functional heads the day to day control passes to them. Candidates might also explain that if Bill has borrowed money against assets the lender might also exercise control (to influence strategy) to protect their loan. As a private limited company Bill does not enjoy all of the freedom he might have had as a sole trader. A degree of control of the business exists through legal and regulatory obligations.

Objectives. Private limited companies such as RF are likely to have a number of objectives some of which may reflect the personal aspirations of Bill. However, the objectives of companies such as RF are usually commercially based and candidates could describe profit, return on investment / capital employed, market standing, brand awareness and sales volume levels. Stronger answers might reflect case study to discuss securing supply from overseas suppliers.

Analysis of the Answer Once again candidates scored well on this question. Ownership was answered satisfactorily and in context. Control was less well understood and some candidates struggled with the concept. Objectives were identified more satisfactorily as the subject offered a number of possible aims. Most candidates attempted to contextualise their answer. Stronger answers discussed the impact of different stakeholders in terms of ownership and control, rather than just shareholders and managers. The effects of internal and external stakeholders on control and objectives were sometimes analysed and this approach reflected a sound understanding of these issues. Weaker answers did not relate the case scenario to the question and were therefore unable to achieve the higher marks.


Exam Question Summary Most candidates understood the basic requirements of the question, but many lacked the detail and breadth required to achieve full marks. Q2 (a) Explain the benefits of cross-functional team working to RF. (10 marks) Analysis of the Question This question was intended to examine the candidates’ ability to identify and explain the importance of cross-functional team working as a different method of purchasing. The case study clearly states initiatives for improvements are frequently suggested but not taken further. A number of issues were identified in the case, which could have been used as a basis for candidates’ answers. Therefore, as a very minimum, cross functional team working would allow such proposals to be examined and a decision as to their viability taken. Additionally the impact of one decision on another part of the organisation could be discussed by all parties. This may help to prevent sub-optimisation that is decisions that benefit one part of the organisation but not other parts of the organisation being taken. Candidates should develop their answer to state that: cross-functional teams comprise individuals from different organisational functions who work together to achieve a common goal.

Teams make best use of available information; complex decisions require need a wider range of expert support; teams (if managed well) outperform individuals; prevents ‘silo-thinking’ / sub-optimisation.

The importance of cross-functional teams to purchasing might be summarised as:

Improves customer (internal / external) focus

Improves organisational working / cooperation / understanding between functions

Reduction in time taken to get things done

Improves ability to solve increasingly complex problems – different perspectives / skills / insights – resulting in a more balanced outcome

Improves creativity through interaction by individuals from different backgrounds within the organisation

If managed well cross-functional teams should prevent silo-thinking and utilise the specific skills and creativity of the organisation, and lead to more effective decision making than functional decision making alone. Analysis of the Answer This was a high scoring question with most candidates demonstrating a thorough understanding of the subject. Candidates invariably identified the structure, operation and the merits of the cross functional team. The stronger answers included some of the above points in context of the case study and produced analytical answers which discussed the impact of international expansion and internal structure and problems. Strong answers also explained how CFTs could improve the purchasing and other functions. Weaker answers did not relate to the case scenario, whilst a number of answers tended to describe different types of communication or just working together and did not distinguish these from CFTs.


Exam Question Summary There was a varied response but on the whole, despite some confusion, candidates understood the workings of CFTs and made some attempt to put it into context. Q2 (b) Explain THREE possible areas of risk, for RF, when sourcing supplies

internationally and suggest how each may be mitigated. (15 marks)

Analysis of the Question The purpose of this question was to examine the candidate’s ability to analyse the key (risk) considerations when sourcing from another country / countries within the context of a case study. Three possible areas were asked for and up to five marks for each of these areas were available. There were many areas that could have been discussed but possible points that the question was expecting candidates to discuss and to explain were: Quality of labelling, product quality and quantity. For example mention has been made in the case study of sophisticated packaging machinery and the Trading Standards rules to ensure customers know what they are getting and to ensure they actually get it. Therefore a significant source of risk relates to quality of labelling and quality of product including quantity packed. These risks might be mitigated by thorough supplier appraisal process – including country / company visits, clear specification, samples and evidence / insistence on robust supplier quality procedures.

Differences in language and cultural awareness. Lack of knowledge of the nuances of language and or lack of cultural sensitivity may result in unstated assumptions of whom or what may be provided by either party. Longer term buyer / supplier relationships may not develop resulting dissatisfaction, delays and poor quality of service. This risk might be mitigated by cultural awareness training and relationship building. Language difficulties might be overcome through RF appointing interpreters and or an agent within the supply country.

Transport and logistics and the risk arising from extended supply chains. Product availability / short lead times are essential for RF to be able to provide a service to its customers. Extended supply chains constitute a source of risk and to mitigate this risk RF may insist suppliers hold stock, or stock is held at a mid-way point. Additionally, RF may increase its stockholding of high turnover items. There is a cost to this but this cost might be off-set by savings made through lower supply costs.

Transport and logistics relating to passing of title and risk in the carriage of goods. Lack of clarity in specifications and or terms and conditions may lead to goods not being insured or lack of understanding as to when title passes and therefore who is responsible for insurance and onward freight. This risk may be mitigated by the use of INCOTERMS which are internationally recognised terms relating to carriage, insurance and freight

Differences in exchange rates may lead to fluctuations in the actual price paid depending on relative strength (or weakness) of the buyers currency against that of the suppliers. The buyer at RF may seek to off-set this risk by buying forward currency, using a third country currency which is stable against both the buyers and the seller’s currency or agree a fixed rate at the time of entering into the contract.

Political instability, weak economy, social unrest, technical and or underdeveloped infrastructure. The risk may be mitigated by under taking a detailed country analysis using tools such as PEST / PESTLE and undertaking a risk assessment.


Analysis of the Answer Currency fluctuations, logistics, language, culture, incoterms, political instability and quality were the principle subjects covered. Candidates scored well in the main. The only criticism would be the absence of contextualisation which the question demanded. Nevertheless, from a theoretical viewpoint candidates demonstrated a sound understanding of the problems and associated risks. Stronger answers provided evidence of contextualisation and analysed both the problems and the mitigation. Many answers discussed the impact of the problems on the strategy, customers and other stakeholders and gave weighted responses as to the likelihood of the impact and the mitigation. Weaker answers often described PESTLE factors but did not relate the case study. Exam Question Summary A range of answers were given to this question, with most candidates showing a sound understanding of international expansion... Higher scoring answers went beyond simply describing PESTLE and showed their knowledge of the possible implications for purchasing as well as the likely strategic objectives of the organisation. Q3 (a) Outline FIVE differences between goods and services. 5 marks)

Analysis of the Question The purpose of this question was to examine the candidate’s ability to analyse the differences between services and products / goods. Candidates were expected to outline differences based on tangibility, separability, homogeneity and perishability. Analysis of the Answer This was a popular question. It was answered well in the main. The Study Guide clearly identifies the differences and most answers followed this route. There were no real problems here. Many candidates got the full five marks for outlining issues related to the above. Exam Question Summary The question did ask for an outline, not just bullet points provided by a few candidates. Apart from that, most candidates provided sound evidence of knowledge and understanding.

Q3 (b) Q3 (b) Outline FIVE bid evaluation criteria that may be used when assessing a supplier’s offer to provide a service.

(10 marks)

Analysis of the Question

The purpose of this question was to assess the candidate’s ability to identify relevant assessment criteria used in assessing a service providers offer. Candidates were expected to have knowledge of the following evaluation criteria:

Compliance to the statement of work

Competence to deliver the service


Experience of other similar service provision

The price an its breakdown

Financial stability of the service provider

2 marks were available for each criteria outlined.

Analysis of the Answer There was a range of answers to this question, many of which took one of the criteria and broke it down into different components. Candidates were awarded marks for this approach as long as there were sufficient differences between the points raised. Weaker answers often identified criteria used when assessing a supplier’s offer to provide a service, but failed to focus on how it could be evaluated. Stronger answers explained that due to the intangible nature of services many criteria are qualitative assessments requiring evaluative measures rather than quantitative measures based on measurable outcomes. Once again, candidates usually presented an answer which scored well. Most candidates were able to identify the usual culprits of cost, quality, financial stability, skills, experience and recommendations. A sound understanding was demonstrated.

Exam Question Summary Most candidates understood the main criteria and often gave detailed examples from a range of industries.

Q3 (b) Q3 (c) Explain the operation and merits of managed services. (10 marks)

Analysis of the Question The purpose of this question was to examine the candidate’s ability to explain the purpose and merits of managed services. Marks were split between operation and merits (5 marks each). The following points were expected:

OPERATION Managed Services is a relatively new term that applies to a method of structuring complex supply chains. In that the managed service provider takes on the role of managing a number of suppliers to deliver an integrated service solution to the customer organisation. This might also be described as ‘the practice of transferring day-to-day management responsibility as a method for improving effective and efficient operations’. Examples of managed services may be included. For example, IT, telecoms, training, recruitment, marketing and print.

MERITS. Using the expertise of the principle supplier to engage and manage the supply base effectively and efficiently; simpler lines of communication; devolves responsibility to those most capable to manage it; managed service providers can be provide help and assistance with key technical issues and this may result in less delays and costly disputes with suppliers.

However, managed services can add extra management layers and costs to the supply base and may duplicate some of the management and administration. Additionally the MSP removes the client one hierarchy further away from the supply base. This may mean that over time the client has less control of the process and loses market and technical knowledge.


Analysis of the Answer Most candidates gave strong answers to this question and often gave examples of relevant industries. Stronger answers reflected on the advantage that the customer company has just one interface to manage – with the managed service provider-instead of multiple supplier relationships and analysed the effect of this on the business, its costs, strategy and operations. Strong answers also discussed appointment of the MSP because of its expertise in a given market and the impact of this on the success of the business. Candidates had a sound knowledge of managed services and as a result answered the question satisfactorily. Frequently examples were included. Candidates were able to score high marks particularly with respect to the merits of managed services. Exam Question Summary Most candidates had revised this topic well and also produced some sound practical examples.

Q4( a) Q4(a) Outline the purpose of the Charity Commission’s regulatory activities. (5 marks)

Analysis of the Question The purpose of this question was to examine the candidates’ ability to review the different types of third sector organisations with specific reference to regulation and the impact of regulation on purchasing. Candidates were expected to be aware that charities need regulating because of the huge degree of public interest, trust and benefit we place in them and to be able to outline the purpose of the Commission’s activities as follows:

To ensure that charities meet the legal requirements for being a charity, and are equipped to operate properly and within the law

To check that charities are run for public benefit, and not private advantage

To ensure that charities are independent and that their trustees take their decisions free of control or undue influence from outside

To detect and remedy serious mismanagement or deliberate abuse by or within charities

Analysis of the Answer A well answered question, and popular question in section B. Most candidates had revised the topic and understood the material. Some answers showed a sound understanding of the topic and presented further comments on the specific responsibilities of the Charity Commission such as gathering and maintaining information, offering advice and guidance, promoting legal compliance, and intervention and enforcement of the law and examples of recent cases to illustrate their points. This was a question where candidates demonstrated a sound knowledge and invariably scored high marks. It has appeared in previous examinations. Exam Question Summary There was evidence of some well- prepared answers throughout the range of centres.


Q4( a) Q4(b) Explain how regulation of third sector organisations might impact on their purchasing function

(10 marks)

Analysis of the Question The purpose of this question was to examine the candidate’s ability to review the different types of third sector organisations with specific reference to regulation and the impact of such regulation on purchasing. Answers were expected to reflect the principle that Purchasing must act in alignment with the values and culture of the organisation and develop supply chains that reflect the values of the organisation. Analysis of the Answer Most candidates showed evidence of understanding of the third sector regulation and presented relevant points covering the following:

Need for cost-effective and efficient use of the organisation’s resources and spending budgets

Purchasing is accountability to the members, trustees and, in turn, to the regulators

There is a need for probity in all financial transactions

Purchasing activities should focus on the pursuit of ethical, environmental and corporate social responsibility policies in line with organisation’s objectives

There is need for transparent accounting and transactions

Purchasing need to be fully compliant with all legislation and regulations

Strongly developed answers tended to consider how regulation impacts on purchasing activities and gave specific examples, which explained the points above in more detail. Ethical purchasing, transparency, meeting legal requirements, probity and value for money were the issues most commonly addressed by candidates. The question was answered in a way that demonstrated an understanding of the impact on purchasing of regulations in this sector.

Exam Question Summary Generally, a sound understanding of the topic, but often a lack of detail and practical application attracted the middle range of marks.

Q4( a) Q4(c) Explain, using examples, the importance of corporate social responsibility (CSR) to third sector organisations.

10 marks)

Analysis of the Question The purpose of this question was to examine the candidates’ ability to review the different types of third sector organisations with specific reference to the importance of Corporate Social Responsibility (CSR) and subsequent impact on purchasing.

Candidates were expected to describe CSR by referring to issues such as: human rights, equality and diversity, corporate governance, sustainability, impact on society, ethics and ethical trading and biodiversity. Examples expected were possibly:

An environmental group buying furniture from non-sustainable sources

A human rights activist group buying low cost products from suppliers employing child labour


A political party found guilty of fraud

A charity buying expensive luxury items for its trustees

Analysis of the Answer

Whilst weaker answers simply listed different types of CSR issues as above. Stronger answers suggested that within the context of third sector organisations by not adhering to the basic tenet of CSR, the credibility of the third sector organisations would be significantly jeopardised. This in turn would impact on funding, marketing image and supply chain relationships. Consequently CSR gives clear guidance on how funding and third party expenditure needs to be managed.

Exam Question Summary

This was another popular question in Section B, although it does appear that many candidates learn the meaning of CSR but do not always apply it in a purchasing context.

Q5 (a) Q5 (a) Explain the role of a shared services unit (SSU). (10 marks)

Analysis of the Question The purpose of this question was to examine the candidates’ ability to demonstrate an understanding of and subsequently explain the role of a shared service provider. Answers were expected to reflect an understanding that the shared service provider becomes a dedicated provider of services such as; finance, HR, IT and procurement. In the public sector the term ‘corporate procurement’ is frequently used. As the SSU only deals with internal customers the various activities are not outsourced to an external provider but continue to be provided by an internal function. The SSU are required to manage costs and quality of provision, employ their own resources and usually have internal contractual arrangements based on agreed service levels to demonstrate value for money.


The role of the SSU invariably earned close to maximum marks, with several candidates covering the subject at length. This is a question and subject covered in earlier series. Those candidates who chose this question usually scored well. Several candidates incorporated examples from their own work experience which had some relevance. Most answers showed a firm understanding of SSUs and described their functions. Higher scoring answers explained the impact on purchasing activities and on the business strategy as a whole.


Candidates who tackled this question had seemingly revised the topic and most answers showed a sound understanding of SSUs. There were no major problems.


Q5 (b) Q5 (b) Describe FIVE measures of effectiveness for a shared services unit (SSU). (15 marks)

Analysis of the Question The purpose of this question was to examine the candidates’ ability to discuss how such an SSU could be measured for effectiveness. Three marks were available for each of the five measures described.

It was anticipated that candidates would include reference to:

Value for money – costs of the SSU is less than the benefits obtained in terms of cost savings; timeliness of the service provision; quality of the advice / service provided; working with internal customers to ensure their needs are being met and subsequently how well they are being met.

It was also expected that some candidates might discuss;

Relationship with other internal departments

Contribution to cost containment / reduction

Contribution to quality

Purchasing staff – training, motivation, work load – their flexibility and response.

The extent to which the SSU goals and objectives (the reason for it existence) are met.

Benchmarking against other SSU gives a comparison although is not strictly a measure of effectiveness.


The answers were usually strong and achieved high marks.

Stronger answers made a clear distinction between efficiency and effectiveness and gave appropriate examples. High marks were given for answers that demonstrated an understanding of how the purchasing activity was affected. Weaker answers often presented the benefits of SSU but did not describe measures of effectiveness.


This question did not seem to pose any problem for candidates, and gave many the opportunity to illustrate their knowledge with examples from their own work experience. The question was answered impressively and tended to consolidate the high mark in Question 5a. There was plenty of content for the candidate to cover and most took full opportunity to finish on a strong note.

Q5 (b) Q6 (a) Explain, using an example, a benefit-cost analysis (BCA) (10 marks)

Analysis of the Question The purpose of this question was to examine the candidate’s ability to explain aspects of purchasing and financing capital expenditure items.

Candidates were expected to be able to explain that the BCA is a comparison of costs – the cost of doing nothing and standing the cost of repair against the cost of doing something and avoiding the cost of the repair. The cost of taking an action (doing something) should be less than the cost of a later repair resulting from doing nothing.



Stronger answers were developed to explain the BCA leads to a calculation called the benefit / cost ratio and stated that if the benefit / cost ratio is less than 1 the cost of investment outweighs the tangible benefit from the project and there is no immediate financial justification for the investment. If the benefit/cost ratio is exactly 1 the cost of the investment is the same as the tangible benefits from the project there is still no real financial justification for the investment. Marks were awarded where candidates explained that projects may proceed if there are additional contributory factors and where they gave appropriate examples. Some high scoring answers discussed the influence of intangible benefits and illustrated with relevant examples.


Whilst this was not one of the most popular questions those who did answer it had obviously understood the material and were able to focus on the key issues. Many gave numeric examples and where rewarded for appropriate conclusions. Those who attempted the question demonstrated a sound understanding of the subject and included an appropriate example.

Q5 (b) Q6 (b) Discuss public private partnerships (PPPs) as a means of financing public sector capital expenditure.

(15 marks)

Analysis of the Question

The purpose of this question was to examine the candidates’ ability to define the term and to explain the stated advantages of public and private funding initiatives. Answers were expected to reflect an understanding of the benefits and concerns of PPPs. Up to 15 marks were available for a balanced discussion between the stated benefits and the possible risks associated with this form of funding initiative. Analysis of the Answer

Weaker answers tended to describe PPPs and even sometimes to give general benefits to each or either party, but often failed to address the issue of ‘financing public sector capital expenditure’. Higher scoring answers discussed the main advantage of public private partnerships of the creation of value for money based on a number of factors. Stronger answers often evaluated the different factors in context of public funding and accountability and raised issues such as the importance of value for money, the transfer of risk (risk is shared between the public and private sector), the output based specification, long-term nature of contracts, performance measures, increased competition and improved incentives to market forces (increases competition) and the cost efficiencies.

More sophisticated answers highlighted a possible loss of control of the project by the government, the complexity of the relations between the public and private sector, longer term quality concerns and the possibility of increased costs to the public if the market price is charged for the service. Many gave up to date examples.



The candidates who chose this question had knowledge of the history and the politics associated with the subject. A description of PPP’s, their benefits and the types employed were invariably covered in this ‘discussion’ category question. Candidates who chose to answer this question usually understood the features PPPs, but some lost focus on a balanced discussion on this way of financing public expenditure. APPENDIX:

Syllabus matrix indicating the learning objectives of the syllabus unit content that each question is testing

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