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PURCHASING OPERATIONS EXAM ANALYSIS Updated: July 2011 Here we analyse some of the latest exam sittings: what topics were set, where the key pitfalls and easy marks were, what the examiner said – and where you can find material for an answer, in your Course Book. The full text of past exams, marking schemes and Senior Assessors’ reports can be accessed by members at:

http://www.cips.org

CONTENTS May 2008 November 2008 May 2009 November 2009 May 2010 November 2010

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THE MAY 2008 EXAM Section A: case study and two compulsory questions (25 marks each) An NHS Hospital Trust is under pressure to reduce costs, and purchasing has a major role to play in decisions such as outsourcing and capital equipment purchasing.

Q1(a) Two reasons why supplier needs to maintain profit margin See Section 4 of Chapter 5 – noting that the question addresses the supplier’s perspective, not the buyer’s.

6 marks

Q1(b) Steps involved in tendering See Section 4 of Chapter 8 – noting that this is a public sector organisation and presumably (without knowing expenditure thresholds) comes under the Public Contracts Regulations.

15 marks

Q1(c) Contract clause to prevent pricing disputes See Section 4 of Chapter 11.

4 marks

Comments: This question draws on topics across the syllabus – but each part is fairly straightforward if you have revised the Course Book material.

Q2(a) Explain possible discrepancy between specification and ‘right quality’ See Section 1 of Chapter 2 – and use the example given in the case study to illustrate your points.

9 marks

Q2(b) Two costs of not obtaining right quality of a particular item See Section 2 of Chapter 2 for some general points – but remember to address the costs raised by the scenario.

6 marks

Q2(c) Appropriate method of specification for the item We would suggest a performance or functional specification (given the nature of the item): see Section 3 of Chapter 6.

10 marks

Comments: This question addressed the purchase of a medical scanner which turned out to be difficult to use. This meant that it represented ‘specification quality’ – but (due to a failure to consider user needs in the specification) was still less than ‘fit for purpose’ (Q2(a)). This raised specific ‘failure’ costs (Q2(b)) such as the need to train staff to use the scanner; the need to upgrade or replace the scanner to fit it for the user’s needs; lost value through staff reluctance to use the scanner and so on.

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Section B (two questions, 25 marks each)

Q3(a) Five ways of checking supplier-quoted lead time is realistic See Section 4 of Chapter 3.

10 marks

Q3(b) Five factors when selecting a mode of transport See Section 3 of Chapter 4.

10 marks

Q3(c) Purpose of packaging for transportation; two factors in selection See Section 4 of Chapter 4 – noting that the question is about packaging for transportation, not display or marketing.

5 marks

Comments: If you had covered ‘right place’ and ‘right time’, and read the question carefully, this should have been straightforward.

Q4(a) Sources of information used in supplier appraisal Ie how supplier information is gathered: questionnaires, references, site visits. There is no ‘one best’ method: it depends on factors including the importance of the purchased item… See Sections 2 and 3 of Chapter 9 for general ideas.

10 marks

Q4(b) Purpose of five key documents in purchasing, after specification Eg: RFQ, purchase order, advice note, goods received note, invoice. See Sections 3–5 of Chapter 8.

10 marks

Q4(c) Five criteria to pre-qualify a supplier See Section 2 of Chapter 9 for ideas.

5 marks

Comments: Some candidates simply ‘wrote all they knew about how to conduct a supplier appraisal’ – which didn’t answer the questions set.

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Q5(a) Difference between tolerances and specifications Note that a tolerance may be part of a specification. See Section 1 of Chapter 6.

8 marks

Q5(b) Three advantages of performance specification See Section 3 of Chapter 6. Note that this refers to performance (as opposed to conformance) specification – not specification in general.

9 marks

Q5(c) Four elements of performance specification ‘Elements’ could refer to content, stages in development of the specification – or factors and issues to be taken into account: state your assumptions. See Section 3 of Chapter 6.

8 marks

Comments: Make sure that you know the difference between ‘performance’ and ‘conformance’ specification: this continues to be a weakness in this exam.

Q6(a) Five essential elements to form a legally binding contract See Section 2 of Chapter 10.

5 marks

Q6(b) Three ways of preventing the battle of the forms See Section 3 of Chapter 10.

10 marks

Q6(c) Explain ‘liquidated damages’ in the context of a contract See Section 7 of Chapter 10 and Section 4 of Chapter 11.

10 marks

Comments: The legal areas of the syllabus require more focused study and revision (paying attention to specific terms and terminology) than some others.

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General pitfalls There were some very detailed questions, particularly in the legal area, such

as Q1(c) on price variation clauses, and Q6(c) on liquidated damages.

As ever, you had to read the ‘qualifiers’ in the question to avoid confusion of terminology and requirement. For example, Q1(c) addressed the supplier’s need to make a profit – not the buyer’s. Q3(a) addressed ‘packaging for transport’, not packaging for sale or promotion. Q4(b) addressed documents in the purchasing cycle ‘after specification’.

Easy marks There were good marks to be obtained from some mainstream syllabus

topics: the tendering process; costs of quality; specification; transport modes; the purchasing cycle; supplier appraisal; performance specifications; and elements of a contract.

There were some ‘old friend’ topics set, like the battle of the forms and performance specifications – giving an advantage to students who had worked through past exams.

There were plenty of short-answer (5 or 6 mark) knowledge questions, giving you a solid foundation of marks, for not-too-much-effort (as long as you knew your terminology and basic concepts).

What the examiner said The Answer Guidance gives detailed commentary on both exam technique and topic coverage. If you want to attempt this exam as a Mock Exam, you could certainly do worse than downloading the Senior Assessor’s Report in full. The most common weakness of candidates in this exam was a failure to address points in sufficient detail to gain high marks, when asked to ‘explain’ or ‘discuss’ (not just ‘identify’…).

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THE NOVEMBER 2008 EXAM Section A: case study and two compulsory questions (25 marks each) A charitable organisation with a trading arm suffers from financial problems and a lack of purchasing procedures.

Q1(a) Propose five improvements to a standard purchase order The purchase order form failed to specify: purchase order or requisition number, contact details, delivery times, delivery point, authorisation signature, terms and conditions, VAT, total cost per line item, separate delivery cost, or product and cost codes.

5 marks

Q1(b) Provide reasons for each proposed improvement You had to explain why the information gathered by your improvements is useful or necessary for the purchasing cycle.

10 marks

Q1(c) Describe two solutions to problem of recording deliveries This required you to suggest two methods of recording deliveries: eg using goods received notes, or goods inwards book, documented procedures and an authorised signature for receipt: see Section 5 of Chapter 8.

10 marks

Q2(a) Two problems caused by cost-plus pricing See Section 4 of Chapter 5.

8 marks

Q2(b) Two reasons for not placing orders by phone Lack of written confirmation does not invalidate the verbal contract – but can lead to discrepancies, which may cause problems with delivery, late payment, and damage to supplier relationships. There may be disputes over whose terms and conditions should be applied. There is no ‘audit’ trail. And there may be problems forecasting cashflows.

8 marks

Q2(c) How to resolve issues re unpaid invoices In one case, there is no record of goods having been delivered: ‘prove’ delivery (eg via internal stock check), then pay the invoice, with an apology to the supplier. In the other case, the goods supplied are claimed not to conform to sample (entitling rejection under SGA), but with no purchase order, this may be difficult to prove. Negotiation for replacement may be required – or the invoice may be paid, pending resolution of the dispute.

9 marks

Comments: A highly practical, contextual and analytical question.

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Important syllabus clarification As we note in Chapter 8, paragraph 1.6–1.7, the syllabus doesn’t appear to specify the P2P cycle in detail. These case study questions should be taken as a warning: the purchase-to-pay cycle, and associated processes and documents, are examinable in detail. Section B (two questions, 25 marks each)

Q3(a) Differences between supplier appraisal and vendor rating See Section 2 of Chapter 9 and Section 5 of Chapter 8.

8 marks

Q3(b) Five checks on financial status of a new supplier See Sections 2 and 3 of Chapter 9.

10 marks

Q3(c) Advantages of using trade fairs in sourcing See Section 1 of Chapter 9.

7 marks

Comments: Parts (b) and (c) are quite detailed, so this may have been a question to avoid, if you thought you could gather better marks elsewhere.

Q4(a) Purpose of using specifications See Sections 1 and 2 of Chapter 6.

8 marks

Q4(b) Six characteristics of good specification See Section 1 of Chapter 7.

6 marks

Q4(c) Advantages of using standard specification See Section 3 of Chapter 6. Note that ‘standard specification’ refers to specifications based on national and international standards – but it was possible to misunderstand this as a vaguer reference to ‘typical or common specifications’ or to the ‘standardised’ use of specifications. This perhaps accounts for the examiner’s complaint that candidates described the advantages of different types of specifications in general.

11 marks

Comments: You may have struggled to find 8 marks for part (a) and had too much material for part (b) – which only required a ‘list’, without discussion. Good practice for exam time management.

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Q5(a) State EOQ formula and define terms See Section 3 of Chapter 3.

5 marks

Q5(b) Using diagram, explain how EOQ is determined See Section 3 of Chapter 3.

10 marks

Q5(c) Five problems with using EOQ See Section 3 of Chapter 3.

10 marks

Comments: Obviously, if you weren’t confident about EOQ, this was a question to avoid.

Q6(a) Meaning of ‘express’ and ‘implied’ terms See Section 3 of Chapter 11.

6 marks

Q6(b) Purpose of express terms See Section 3 of Chapter 1.

9 marks

Q6(c) Five examples of implied terms Pick terms relevant to purchasing operations – such as the implied terms of the SGA: See Section 3 of Chapter 11.

10 marks

Comments: Another technical area – but this is basic to the legal part of the syllabus, and often examined, so make sure you get to grips with it. General pitfalls There were some highly detailed and practical questions in the compulsory

section, requiring you to solve problems in the P2P cycle. There were some other highly ‘focused’ questions on minor points of the

syllabus, such as Q3(b) on financial status checking and Q3(c) on the use of trade fairs in sourcing.

Question choice may have been an issue, given that there were few ‘soft’ questions in the paper.

As ever, you had to read the questions carefully for instruction and topic key words (eg purpose of express terms, in Q6(b) and examples of implied terms in Q6(c)).

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Easy marks There were good marks to be obtained from some mainstream syllabus

topics: supplier appraisal and vendor rating; specifications; EOQ; and express and implied terms.

The practical P2P questions may have allowed you to use practical purchasing experience to inform your answers.

If you are familiar with formulae and diagrams, and can use them clearly and accurately, questions such as Q5(a) and (b) offer a time-effective source of clear-cut marks.

What the examiner said There is little to add here.

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THE MAY 2009 EXAM Section A: case study and two compulsory questions (25 marks each) A new procurement manager seeks to make purchasing more proactive and has initiated a major exercise to source new stationery suppliers.

Q1(a) Benefits of pre-qualifying potential bidders See Section 2 of Chapter 9. Be clear that ‘pre-qualification’ is (pre-contract) supplier appraisal – not supplier performance appraisal (or vendor rating).

7 marks

Q1(b) Four mistakes made in sourcing exercise Specific mistakes made in obtaining ‘the right price’: eg using existing approved supplier lists, not pre-qualifying suppliers, and allowing insufficient time for sourcing.

8 marks

Q1(c) Five pre-qualification criteria that could have been used See Section 2 of Chapter 5 for examples – but remember to relate them to the stationery scenario. You also needed to note that the question addressed criteria for supplier appraisal, not methods of appraisal – nor vendor rating.

10 marks

Comments: Parts (b) and (c) required a high degree of contextualisation to the scenario – but this is a useful reminder to contextualise all case study answers.

Q2(a) Elements making up a supplier’s price See Sections 1 and 4 of Chapter 5. Note that you are expected to include profit as an element in suppliers’ price (although it isn’t an element in cost). Please get this straight in your mind: confusion on this point routinely annoys the examiner…

8 marks

Q2(b) Why supplier prices may not be related to costs Mainly due to pricing strategies: see Sections 2 and 4 of Chapter 5. You aren’t told how many reasons to discuss: go for few points discussed in more depth of detail – or more points discussed in less depth of detail.

8 marks

Q2(c) Three ways to avoid ‘battle of the forms’ See Section 3 of Chapter 10.

9 marks

Comments: You had to read and think about these questions quite carefully, in order to address them accurately.

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Section B (two questions, 25 marks each)

Q3(a) Meaning of the ‘quality kite mark’ See Section 6 of Chapter 7.

4 marks

Q3(b) Three benefits of specifying kite-marked products Specification by quality mark makes selection easier; provides reassurance of quality to consumers – which may result in increased sales; and offers the supplier product differentiation and assurance of safety and reliability. See Section 6 of Chapter 7 and Section 3 of Chapter 6.

9 marks

Q3(c) Three benefits of using suppliers with ISO 9001 accreditation Specification by ISO 9001 also streamlines selection; can give confidence that suppliers have quality assurance in place (in the more specific form of documented systems and continuous improvement); and can reduce quality problems and failure costs. See Section 5 of Chapter 2 and Section 3 of Chapter 6.

12 marks

Comments: The difference between the advantages of quality marks and quality management systems is quite subtle. You needed to draw out different points to gain the marks.

Q4(a) Two reasons for carrying buffer stock Start with a definition, for easy marks… See Section 1 of Chapter 3.

6 marks

Q4(b) Calculate a re-order level (in a fixed order quantity system) See Section 3 of Chapter 3 for the methodology – but you were given specific usage, lead time and supplier delivery performance data to ‘plug in’ to the formula.

7 marks

Q4(c) Four costs involved in holding stock See Section 1 of Chapter 3.

12 marks

Comments: This should be straightforward. Don’t be nervous of calculation questions: if you know the methodology, and take care, they can gain you full marks.

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Q5(a) Pros and cons of negotiation for resolving contract disputes See Section 2 of Chapter 12.

8 marks

Q5(b) Describe ‘arbitration’ and explain its popularity in international disputes See Section 4 of Chapter 12.

8 marks

Q5(c) Three terms that may be implied into a contract See Section 3 of Chapter 11.

9 marks

Comments: If you have covered the syllabus, this should be straightforward.

Q6(a) Five elements in contract formation See Section 2 of Chapter 10.

5 marks

Q6(b) Roles of parliament and judiciary in the legal system See Section 1 of Chapter 10.

8 marks

Q6(c) Differences between statutes and case law, with examples See Section 1 of Chapter 10 – and don’t forget the examples.

12 marks

Comments: Note that parts (b) and (c) did not specify the number of points to be discussed: use your judgement to make sufficient points in sufficient depth to earn the marks in the time available.

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General pitfalls As ever, you had to read the questions carefully for instruction and topic

key words. There were some detailed questions on ‘minor’ topics, such as the role of

parliament and judiciary, arbitration in international disputes, and kite marks.

Easy marks There were good marks to be obtained from some mainstream syllabus

topics: supplier pre-qualification; pricing decisions; reasons for holding buffer stock; costs of stock holding; dispute resolution methods; sources of English law.

Some ‘popular’ topics were back again, like battle of the forms, elements of contract formation, and implied terms. Again, don’t question spot: but do regard your analysis of past questions as good revision.

If you like calculation, and can ‘plug’ relevant data into learned formulae, questions like 4(b) offer a time-effective source of potentially 100% marks.

What the examiner said The Answer Guidance gives some interesting advice.

Where the number of points (factors, reasons or whatever) is not specified, ‘answers which included fewer points discussed in more depth of detail gained the equivalent marks to those that include more points discussed in less depth of detail.’

If a calculation question asks you to ‘show your workings’, marks can still be gained ‘if some logical – though incorrect – calculations are provided’.

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THE NOVEMBER 2009 EXAM Section A: case study and two compulsory questions (25 marks each) A major seller of electronic spare parts, sourcing informally from a Chinese supplier, has run into problems over alleged design rights infringements, the delivery of faulty products, and pricing issues.

Q1(a) Three methods to ensure quality of replacement deliveries Replacement parts were required ‘quickly’: this suggested solutions such as inspection (at source and/or on receipt), or switching to a more trusted or accredited supplier.

6 marks

Q1(b) Five additional costs arising from quality failures See Section 2 of Chapter 2 for ideas – but remember to contextualise (eg by noting that long delivery distances are involved).

10 marks

Q1(c) How to ensure quality of future supplies See Section 3 of Chapter 2 for general ideas.

9 marks

Comments: You had to distinguish ‘replacement deliveries’ (urgent, in response to the immediate failure) for part (a) and long-term ‘future suppliers’ for part (c), avoiding overlaps in your answers.

Q2(a) Three costs included in selling price See Section 3 of Chapter 5 – and remember that profit isn’t a cost.

6 marks

Q2(b) Explain ‘price inelasticity’ and ‘what the market will bear’ See Section 2 of Chapter 5, plus our Addition notes in the Upgrade section of the Student Resources.

8 marks

Q2(c) Two problems of design specification; more suitable specification type See Section 3 of Chapter 6. We would suggest a performance specification as the suitable alternative, but prototype samples might also have been used in this context. Note that ‘blueprints’ aren’t an alternative, as they are a form of design specification.

11 marks

Comments: Part (b) may have offered a challenge – but you could still have got the bulk of the marks for the question if you ran out of points to make on price inelasticity.

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Section B (two questions, 25 marks each)

Q3(a) Explain ‘privity of contract’, with example See Section 5 of Chapter 11.

6 marks

Q3(b) Exceptions to the privity concept See Section 5 of Chapter 11

12 marks

Q3(c) Three conditions for the Contract, Rights of the Third Parties Act 1999 to be applied See Section 5 of Chapter 11.

7 marks

Comments: If you weren’t confident on legal detail, this was definitely a question to avoid.

Q4(a) Three advantages of involving supplier in specification See Section 2 of Chapter 7.

6 marks

Q4(b) Two disadvantages of involving supplier in specification See Section 2 of Chapter 7.

4 marks

Q4(c) Five methods of specifying, and context in which each used See Section 3 of Chapter 6 – noting the two parts of the question requirement.

15 marks

Comments: This is a straightforward question on this topic.

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Q5(a) Two methods of measuring supplier delivery performance Note that you were asked about the measurement of supplier delivery performance (not supplier performance in general). As in a previous exam in which this question was set, some candidates didn’t associate ‘delivery’ with ‘right time, right place’. Now you know…

4 marks

Q5(b) How used with other measures in a vendor rating scheme See Section 5 of Chapter 3. (This was your chance to discuss other aspects of supplier performance.)

8 marks

Q5(c) Differences between vendor rating and supplier appraisal This is a common source of confusion, and the examiner will keep testing it until students get it right. See Sections 3 and 5 of Chapter 8.

13 marks

Comments: This should be straightforward, if you read the question carefully, although you might have struggled to find 13 marks’ worth of differences in part (c).

Q6(a) Five areas covered by ethical sourcing policies Some candidates wrote about personal ethical codes, whereas the question was concerned with an organisation’s ethical sourcing policy. Get the two (complementary but different) sets of issues straight in your mind… See Section 5 of Chapter 7.

10 marks

Q6(b) Four examples of how CSR policy may impact on purchase specification Start with a definition of CSR for some initial marks. See Section 5 of Chapter 7 for some ideas.

10 marks

Q6(c) Why specification is regarded as the basis of contract See Section 2 of Chapter 6.

5 marks

Comments: This was not a popular question, although it offers some straightforward marks if you read the questions carefully. Ethics and CSR are a priority for CIPS – so look out for questions in this area, even though they seem ‘minor’ in syllabus terms.

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General pitfalls There were some detailed question parts on technical concepts such as price

elasticity and privity of contract. Financial and legal terminology must be revised carefully and in detail.

There were 13-mark and 15-mark questions, which required substantial and well-planned answers.

Easy marks There were good marks to be obtained from some mainstream syllabus

topics: quality costs; quality assurance; pricing decisions; conformance vs performance specification; early supplier involvement; methods of specification; vendor rating and supplier appraisal; sourcing ethics and CSR.

There were plenty of short-answer (4 or 5 mark) question parts to build your confidence and get marks under your belt.

Some often-examined topics cropped up again, advantaging those students who had prepared using past papers.

What the examiner said The Answer Guidance emphasises that there are no excuses for lack of awareness or understanding of clearly-specified syllabus content such as price elasticity or privity of contract. ‘Centres and candidates must study the entire content, as all areas can be and will be examined over time.’

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THE MAY 2010 EXAM Section A: case study and two compulsory questions (25 marks each) A management training and consultancy company selects a contractor to build a new facility, but runs into problems. The building project runs over time, incurring extra costs – but the contractor denies liability.

Q1(a) Four methods of dispute resolution that could have been included in the purchase order Note that the question asks about methods of resolution – not how the dispute could have been avoided. See Chapter 12.

10 marks

Q1(b) How a ‘liquidated damages’ clause could have prevented problems The company has incurred costs, which it needs to recover. Note that liquidated damages incentivise performance – but cannot be used to penalise failure, out of proportion to actual costs incurred (penalty clause). See Section 4 of Chapter 11.

10 marks

Q1(c) How scheduling or phasing of payments to the contractor could have been improved Ie as an incentive to stage completion: a breakdown of key stages should have been agreed and milestones linked to a payment schedule.

5 marks

Comments: A useful reminder that the ‘contract development’ part of the syllabus can be the focus of compulsory questions.

Q2(a) Explain the term ‘overheads’, with an example See Section 3 of Chapter 5.

5 marks

Q2(b) Discuss four mistakes when sourcing the contract Highlighted by the case study eg: disclosing money available; limited specification or brief; limited bid evaluation criteria; use of a standard purchase order; failure to avoid ‘battle of the forms’.

12 marks

Q2(c) Four elements of cost in contractor’s selling price See Section 3 of Chapter 5 – and once again: remember that profit isn’t a cost, though it is an element in price setting.

8 marks

Comments: Part (b) was the major challenge, as it was entirely practical and scenario-specific – but the case study data made the problems clear. You needed to find 3 marks’ worth of comment (eg what could have been done) on each of the four problems identified.

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Section B (two questions, 25 marks each)

Q3(a) Three potential problems of early delivery of goods Eg: lack of storage space; impact on cashflow; risk of damage or pilferage. See Section 4 of Chapter 3.

6 marks

Q3(b) Two ways to prevent early delivery See Section 5 of Chapter 3.

4 marks

Q3(c) Role of the buyer in stages that make up ‘internal lead time’ Ie the purchase cycle from establishment of need to issue of purchase order. Start with a definition for some initial marks. See Section 4 of Chapter 3.

15 marks

Comments: You might not have thought about early delivery being a problem before. If you get such questions, don’t panic: think it through.

Q4(a) Meaning of ‘specifications’ and ‘tolerances’ See Section 1 of Chapter 6.

10 marks

Q4(b) Four purposes of using specifications in procurement See Sections 1 and 2 of Chapter 6.

8 marks

Q4(c) When appropriate to specify using a ‘sample’ See Section 3 of Chapter 6.

7 marks

Comments: This is a straightforward question on this topic. Remember that specification is a major section of the syllabus: it is always going to come up in some form or other.

Q5(a) Three advantages of site visits in supplier appraisal Focus on the advantages of visiting, rather than relying on self-completed questionnaires. See Section 3 of Chapter 9.

9 marks

Q5(b) Five sources of info to identify potential new suppliers See Section 1 of Chapter 9 – focusing on the keyword identify (ie this isn’t about supplier appraisal).

10 marks

Q5(c) Six reasons why a supplier might offer a high quotation Eg little competition, full order books, high production costs, unclear specification, profit-taking, undesirable customer. See Section 1 of Chapter 5.

6 marks

Comments: This was the most popular, and highest-scoring, question in the exam.

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Q6(a) Differences between statute and case law See Section 1 of Chapter 10. You may make more points in less depth, or fewer points in more depth.

10 marks

Q6(b) Five benefits of having a written contract See Section 3 of Chapter 11. A contract doesn’t have to be in writing, but a written contract allows clear setting out of express terms: it is clear, precise, minimises risk of confusion etc.

10 marks

Q6(c) Role of parliament and judiciary in the legal system See Section 1 of Chapter 10.

5 marks

Comments: Contracting is weighted 25% in the unit content: some legal aspect will be examined every year, so it’s worth getting to grips with all topics. General pitfalls There were some detailed question parts on technical concepts such as

liquidated damages and internal lead time.

There were 12-mark and 15-mark questions, which required substantial and well-planned answers.

Easy marks There were good marks to be obtained from some mainstream syllabus

topics: dispute resolution; selling price; specifications; supplier information and sources of law.

Some often-examined topics cropped up again, giving an advantage to those students who had prepared using past papers.

What the examiner said On a small – but significant – point of exam technique, the examiner noted that: ‘Unless the command word states “list”, bullet point answers should not be provided.’ Use your exam question practice to get a feel for how much depth of detail and discussion you need to provide in order to earn 4–5 marks, 8–9 marks, 10–12 marks and so on.

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THE NOVEMBER 2010 EXAM Section A: case study and two compulsory questions (25 marks each) A leading distributor of industrial components has developed a specification for a new fan product. It is selecting suppliers and considering launch strategies. Meanwhile, it is evaluating the performance of existing vendors of axial fans.

Q1(a) From quotation data given, explain which supplier might be selected to provide the new fan You need to manipulate some numbers: set up cost plus unit cost x estimated number of units to be produced (50,000) for each of the three suppliers. One supplier clearly offers best value on this data.

7 marks

Q1(b) Explain four stockholding costs that may result from holding extra pre-launch stock of the new fan See Section 1 of Chapter 4. The case stated that the firm’s purpose-built warehouse had ‘reached capacity’, creating potential for increased back-up storage and transport costs. (Note also that the fan is new: ‘obsolescence’ is unlikely to be a valid stockholding cost.)

8 marks

Q1(c) Explain the concept of ‘skimming’ as a price strategy Identify another price strategy that could be used See Section 2 of Chapter 5. Appropriate alternatives are penetration pricing (building market share for a new product) or cost-based pricing (eg target return pricing, to ensure return on investment).

6 marks 4 marks

Comments: For part (a), you had to read the case and questions carefully, to know where to draw the relevant data from (given that there were two tables of data given, and only one was relevant to the question).

Q2(a) Two improvements to the vendor rating scheme (given) See Section 5 of Chapter 8. The system is fairly basic: you might recommend the use of weightings (ie factor rating method), definitions of measures used (to guide assessment), or additional criteria (such as communication or administration).

6 marks

Q2(b) From vendor rating data given, explain which vendor is likely to be causing most problems The case makes clear that delivery and flexibility are the key problem areas: one supplier in particular scores poorly on these two measures (and also on overall scoring).

7 marks

Q2(c) Four benefits for the buyer of ESI in specification See Section 2 of Chapter 7. The case states clearly that the product is ‘the first of its kind on the market’, so supplier capability and innovation will be important.

12 marks

Comments: Weaker answers fell prey to basic confusions: vendor rating mixed up with supplier appraisal; ESI confused with EBI. Other problems were lack of justification for choices and recommendations, and lack of depth of detail to achieve the marks available.

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Section B (two questions, 25 marks each)

Q3(a) Four potential benefits of adopting ‘zero defects’ approach See Section 2 of Chapter 2 – and Section 1 of Chapter 6 if you want to add a counterbalancing approach.

8 marks

Q3(b) Four benefits for buyers of sourcing from suppliers with certificated quality management systems. Certification streamlines selection; gives confidence that suppliers have quality assurance in place; and can reduce quality problems, inspection costs and failure costs. See Sections 3 and 5 of Chapter 2 and Section 3 of Chapter 6.

12 marks

Q3(c) Two problems of using 100% inspection to ensure the quality of goods Eg: detection, not prevention; does not solve process problems; cost or time spent; and waste process. See Section 4 of Chapter 2.

5 marks

Comments: It may have been a challenge to allocate your time, in view of the varying mark allocations – and doing enough to earn the marks for the 12-mark section.

Q4(a) Two advantages and two disadvantages of using the internet to identify potential suppliers See Sections 1 and 2 of Chapter 9. We have also added some brief notes specifically on this topic in the Additions section of the Upgrade material.

8 marks

Q4(b) Problems arising from use of references to verify supplier information See Section 3 of Chapter 9. You were expected to discuss at least two problems: eg time constraints on written references; potentially biased, defensive or ambiguous information given; and difficulties or costs of verifying data.

7 marks

Q4(c) Five purchasing practices by a supplier that may be perceived as unethical See Section 5 of Chapter 7. You could look at this from an individual (eg bribes, fraud) or corporate level (eg employing child labour, poor labour standards, discrimination). Note that this is supplier-side, not buyer-side (eg fair trade issues).

10 marks

Comments: This was a popular option question, and generally well answered.

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Q5(a) Two aspects of Unfair Contract Terms Act Your two aspects might be the restriction of exclusion or limitation of liability for (a) negligence and (b) breach of implied terms – giving you plenty of opportunity to earn marks with definitions. See Section 3 of Chapter 11.

6 marks

Q5(b) Explain the effect of a supplier declaring force majeure See Section 4 of Chapter 11. Start with a definition, and then explain the impact on procurement: essentially, non-delivery – and supplier release from liability.

7 marks

Q5(c) Two advantages and two disadvantages of using a standard or model form of contract See Section 1 of Chapter 11. Again, start with a definition.

12 marks

Comments: Few candidates attempted this question, and the Senior Assessor will no doubt have taken note that this is a weak area…

Q6(a) Three reasons why it is important to check an order acknowledgement from a supplier See Section 3 of Chapter 10. On a practical level, acknowledgement may contain revised information (eg delivery date), which the buyer needs to know. Legally, acknowledgement is ‘acceptance’ of an offer to buy, which determines the validity and terms of a contract; it may also be the ‘last shot’ in a battle of the forms.

9 marks

Q6(b) Five key components of contract formation Ie: offer, acceptance, consideration, intention and capacity. See Section 2 of Chapter 10.

10 marks

Q6(c) Explain how adjudication could be used to resolve contractual disputes See Section 4 of Chapter 12.

6 marks

Comments: This was a popular topic and well answered.

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General pitfalls There were some detailed question parts on technical concepts such as

adjudication, order acknowledgement, force majeure and 100% inspection – with a particular focus on the legal areas of the syllabus.

There were some 10-mark and 12-mark questions, which required fairly substantial and well-planned answers.

You needed to plan your answers carefully according to mark allocations and command words at different levels (from ‘outline’ to ‘explain or discuss’).

Easy marks There were good marks to be obtained from some mainstream syllabus

topics, including: supplier selection, costs of stock, pricing strategy, vendor rating, ESI, quality management, supplier information gathering, contract terms, contract formation, and dispute resolution.

Some previously examined topics cropped up again, giving an advantage to those students who had prepared using past papers – although, by and large, this paper broke new ground.

What the examiner said ‘Definitions and explanation of key terms is good examination technique’ –

regardless of whether such ‘scene-setting’ material is specifically asked for in the question.

‘Subjective and emotive statements’ are not justifiable and are considered inappropriate in an exam setting. (The example given was that using ISO9001 certification enables the buyer to ‘blame the supplier’ if there are problems.) Keep your tone businesslike, professional and academically credible.

Do your time/mark/length-of-answer calculations. ‘For 8 marks, one page of focused writing should suffice – and certainly candidates should spend no more than 12 minutes answering’.