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/
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SECTION A
Q1 (a)
Q1 (b)
Q1 (c)
Describe the information needed to calculate the current (5 marks)
ratio of the two sandwich suppliers.
Explain the significance of the current ratio and the acid test (12 marks)
ratio, when evaluating potential sandwich suppliers.
Explain why it is important for CTC to know the percentage (8 marks)
of its overdraft facility that the potential suppliers are using.
Analysis of the Question
The case study was based on the Coffee Trading Company (CTC), which operates 180
coffee houses in the United Kingdom and 43 in other European countries. CTC
spends Euros 9 million each year on sandwiches. One of CTC’s assistant buyers has
been monitoring the performance of the current supplier of sandwiches and
discovered areas of poor performance. A decision has been made to change
suppliers and two potential suppliers have been identified, Sandwiches Direct (SD)
and First Class Snacks (FCS). Table 1 of the case study provided financial information
about the two potential suppliers, including their current ratios, acid test ratios and
the percentages of their overdraft facilities being used.
Part (a) asked candidates to describe the information needed to calculate the
current ratios of the two sandwich suppliers.
Part (b) asked for an explanation of the significance of the current ratio and the acid
test ratio, when evaluating potential suppliers.
Part (c) required candidates to explain why it is important for CTC to know the
percentage of its overdraft facility being used by the potential suppliers.
Analysis of the Answer
Answers to part (a) should have stated that the formula for calculating the current
ratio is current assets divided by current liabilities. Current assets consist of debtors,
stock and cash or bank balances. Current liabilities consist of creditors and bank
overdrafts. This information can be found in a company’s balance sheet. It was
essential that candidates referred to the case study information to illustrate.
Stronger answers would have stated that the minimum acceptable current ratio is
1.0:1 and that the data used is historic.
Answers to part (b) should have explained that both the current ratio and the acid
test ratio measure a company’s liquidity and its ability to settle its short term debts.
The acid test ratio differs from the current ratio in that stock is excluded. The current
ratio should be at least 1.0:1. If it is less than this, a company’s current liabilities are
greater than its current assets. The acid test ratio should also be in the region of
1.0:1, as this would mean that it can settle its current liabilities from its cash and
bank balances and its debtors. Again, it was essential that candidates referred to the
case study information to illustrate.
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Stronger answers would have explained why stock is excluded when calculating the
acid test ratio. This is because stock may fluctuate in value and it may be difficult to
realise it at short notice.
Answers to part (c) should have explained the purpose of an overdraft. It is to
finance the operation of a business and to bridge the gap between paying money out
for wages and materials and receiving money from its customers. If a company is
using a high percentage of its overdraft facility, it might mean that it will find it
difficult to enter into new contracts. Conversely, a company using only a small
percentage of its overdraft facility would probably find it easier to enter into new
contracts. Candidates should have referred to the case study information and
pointed out that FCS is using 84% of its overdraft facility while SD is using only 34%
of it and the implications of this.
Exam Question Summary
All three parts of this question were generally answered very well. The majority of
candidates had been well prepared and demonstrated a sound knowledge of the
terms, current ratio and acid test ratio. As a consequence many candidates gained a
high mark. A few candidates demonstrated that they understood the theory, but
didn’t illustrate it by reference to the case study information.
The part that was generally least well answered was part (c) Some candidates did
not demonstrate an understanding of the purpose of an overdraft and simply
repeated case study information.
Q2 (a)
Q2 (b)
Explain to CTC how the following can be used to evaluate (20marks)
potential sandwich suppliers:
(i)
Capacity
(ii)
Commitment
(iii)
Cost
(iv)
CSR
Explain which of the two potential sandwich suppliers might (5 marks)
be awarded the contract, when the present supplier’s
contract ends.
Analysis of the Question
Part (a) was based on the 10 C method of evaluating potential suppliers. Candidates
were asked for an explanation of how four of the criteria might be used in the
evaluation process.
Part (b) required candidates to use the case study information to make a decision as
to which of the two potential sandwich suppliers might be the most appropriate one
to be awarded the contract.
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Analysis of the Answer
Answers should have explained that capacity refers to a supplier’s ability to fulfil the
contract. It shows whether the supplier has sufficient resources, in terms of human,
physical and financial resources. It is essential that information from the case study
was used to illustrate. SD is a large supplier and if awarded the contract, it would
account for less than 10% of its sales turnover. FCS, on the other hand, is a relatively
small supplier and the CTC contract would more than double its sales turnover. A
doubt must be cast, therefore, as to whether FCS would have the capacity to fulfil
the contract.
Commitment refers to the extent to which the supplier values the customer’s
business or the extent to which it is committed to quality. Using the supplier
preferencing model is an appropriate way of assessing commitment. FCS is more
likely to perceive CTC as a core customer, because of the size of the business,
whereas SD is more likely to perceive CTC as a nuisance customer. On the other
hand, SD is more likely to have quality systems in place, having been in business for
41 years, whereas FCS has been in business only 5 years.
Cost refers to the prices that potential suppliers will charge CTC and this will have an
impact on CTC’s margins. The case study information shows that SD is 10% to 15%
cheaper than FCS, mainly because of the economies of scale it achieves.
CSR refers to the potential supplier’s environmental, ethical and diversity policies.
The case study information reveals that SD has a well developed CSR policy, whereas
FCS does not have a policy.
Answers to part (b) would have depended upon which criteria the candidate chose
as being the most appropriate. If cost and capacity were selected, then SD should
have been awarded the contract. If commitment and cash were selected, then FCS
should have been awarded the contract. It was essential that candidates used the
case study information to illustrate.
Exam Question Summary
Again, this question was answered well by the majority of candidates. They
demonstrated a sound knowledge of the terms and used case study information to
illustrate. A few candidates, however, although explaining the terms, did not refer to
the information contained in the case study and appropriate marks were awarded
for this. Most candidates scored high marks for their answers to part (b).
SECTION B
Q3
In a purchasing and supply context, explain how the
following can be used to manage and reduce inventory
costs:
(9 marks)
(a) Economy
(8 marks)
(b) Efficiency
(8 marks)
(c) Effectiveness
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Analysis of the Question
The question was in three parts. Answers should have defined the three concepts,
economy, efficiency and effectiveness and in each case explained how they can
contribute to managing and reducing inventory costs.
Analysis of the Answer
Stronger answers would have started with an explanation of the nature of inventory
costs, in terms of rent and rates, interest charges, insurance, staff wages and
obsolescence.
Answers should then have stated that improving economy can be defined as
achieving the lowest possible costs. It can reduce inventory costs through achieving
best value for money. Examples could include outsourcing inventory management,
introducing a JIT system or using consignment stock.
Improving efficiency can be defined as getting the maximum output from the
resources available. It can reduce inventory costs through improving the
performance of the purchasing and supply function. Examples include using
information technology, in the form of stock databases or an EPOS system. Others
might include better supplier management and reduced obsolescence.
Improved effectiveness can be defined as achieving objectives set. It can achieve
reduced inventory costs through improving the level of service to end users.
Examples include improving service standards, achieving budget targets and better
relationships with internal customers and suppliers, with fewer errors and reduced
costs.
Stronger answers would have introduced examples from the candidate’s workplace,
to illustrate points made.
Exam Question Summary
This was a popular question and it was generally very well answered, with many
candidates being awarded high marks. The stronger answers explained the nature of
inventory costs, defined each of the three terms and went on to give examples of
how they contributed to the management and reduction of inventory costs.
A minority of answers did not define the three terms, economy, efficiency and
effectiveness and gave only a few examples of how inventory costs can be reduced.
Such answers were awarded appropriate marks.
Q4
Describe FIVE ways in which an organisation’s purchasing
function can contribute to its objectives of increasing sales
turnover and profitability.
L4-03/SA report/March 2012
(25 marks)
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Analysis of the Question
This question was based on learning objective 1.1 and tested candidates
understanding of the link between and organisation’s objectives and the objectives
of the purchasing function. The specific objectives identified were increased sales
turnover and increased profitability, which are typical objectives of a private sector
organisation.
Analysis of the Answer
Answers should have stated that an organisation’s purchasing function can
contribute to an increase in sales turnover in several ways. Firstly, it can reduce input
costs, which would mean that the organisation could reduce its selling prices, which
would increase demand for its products. Secondly, it could work with suppliers to
enhance product features or seek different suppliers to achieve this, as a means of
increasing sales.
A purchasing department could contribute to increased profitability by lowering
costs. This might be achieved by outsourcing, adopting Just-in-Time technologies or
using consignment stock. Other possibilities might include the introduction of eprocurement and e-tendering.
Stronger answers would have provided and in depth description of the five ways
chosen, with relevant examples to illustrate.
Exam Question Summary
This was not a popular question and it was answered by a minority of candidates.
Answers were of a mixed standard. There were some strong answers, rewarded by a
high mark, where candidates chose five appropriate ways and provided an in depth
description of each. Some answers, however, lacked depth of detail, with candidates
providing a brief paragraph on each of the ways selected. Appropriate marks were
awarded for such answers.
Q5 (a)
Q5 (b)
Discuss TWO types of buyer performance appraisal.
(10 marks)
Explain how performance appraisals can be used to improve (15 Marks)
the performance of a buyer.
Analysis of the Question
Part (a) of the question was designed to test candidates’ knowledge of different
forms of performance appraisal. Part (b) of the question was a development of part
(a) and required candidates to explain how the buyer performance appraisal process
can be used to improve performance in the workplace.
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Analysis of the Answer
For answers to part (a), candidates should have selected two appropriate types of
performance appraisal and provided an explanation of them. Examples might have
included annual appraisal, ongoing appraisal, 360 Degree appraisal or self
assessment. Because the command word was ‘discuss’, answers should have
referred to the disadvantages of the types of appraisal chosen. For example,
although ongoing appraisal is probably the most effective type of appraisal, it is time
consuming and costly. The self assessment method is the cheapest type, but may not
produce the best results.
Answers to part (b) should have explained how the performance appraisal process
works and how it should result in improved performance. Performance over the
previous time period is reviewed and areas of strength and weakness are identified.
Targets are then set for the next time period, with the aim of overcoming any
weaknesses. Any training needs that are required to provide the buyer with the skills
and knowledge required should also be identified and documented.
Stronger answers would have referred to the candidate’s own workplace, with
examples from their organisation’s performance appraisal process to illustrate points
made in the answer.
Exam Question Summary
This was one of the most popular questions in section B, answered by a large
proportion of the candidates taking the paper. Answers were of a mixed standard. In
their answers to part (a), some candidates selected two appropriate types of
performance appraisal and provided a reasonably sound discussion of them, earning
a high mark. Some candidates selected unusual types, such as qualitative and
quantitative, for which only a small amount of credit was awarded, if they were
justified.
Answers to part (b) were generally strong. The candidates who had selected
appropriate types of performance appraisal for their answers to part (a) were able to
provide sound answers to this question and earned high marks.
Q6 (a)
Q6 (b)
Explain how the development of an individual buyer’s (15 marks)
knowledge, expertise and skills will benefit the employing
organisation.
Discuss ONE measure of performance of an individual buyer (10 marks)
and ONE measure of performance of his/her supplier
Analysis of the Question
Part (a) of the question asked candidates to provide an explanation of the benefits
to an organisation of developing a buyer’s knowledge, expertise and skills.
Part (b) required candidates to discuss one measure of a buyer’s performance and
one measure of a supplier’s performance.
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Analysis of the Answer
Answers to part (a) could have described performance appraisals, where
performance over the last year is reviewed, any weaknesses revealed and objectives
set and the training needs identified. Stronger answers would have described
different types of performance appraisal, such as annual, ongoing and 360 degrees.
They could also describe self assessment, where a buyer is asked to assess their own
performance and the training needs they require
Other methods could include comparing performance against key objectives or the
use of job profiles
Stronger answers would have referred to the candidates own experience in the
workplace, and described how their training needs were analysed
In their answers to part (a) candidates should have explained why an employer
should support the development of a buyer’s knowledge, skills and expertise. There
are many reasons that could be brought forward, and all convincing reasons should
attract marks. Likely grounds would be that the extra skills and abilities will ‘pay for
themselves’ quickly - and potentially many times over - in better deals achieved by
the buyer for the organisation; prices re-negotiated downwards leading to cost
savings for the organisation, better services achieved for internal/external customers
by the buyer, benefiting organisational efficiency. This will lead to improving the
employer’s competitive advantage over its rivals.
Candidates could also introduce qualitative aspects, such as purchasing officers
becoming improved team players and improving relationships with internal
customers and suppliers
There were many opportunities here for candidates to draw on their own work and
everyday life experiences to come up with convincing arguments and evidence.
Answers to part (b) could have focussed on quantitative or qualitative measures of
buyer performance. Examples of quantitative measures could have been the level of
savings achieved or a reduction of the supplier base. Examples of qualitative
measures could have been an improvement in relationships with suppliers or
internal customers. For supplier performance measures, any of the five ‘rights’ could
have been chosen, price, quality, quantity, place or time.
As the command word was ‘discuss’, answers should have mentioned the problems
with setting performance measures. Stronger answers to both parts of the question
would have contained reference to examples from the candidate’s workplace.
Exam Question Summary
This was not a popular question and not many candidates attempted it. In general
terms, those candidates who did attempt it produced strong answers, especially to
part (a). Some answers to part (b) lacked depth of detail and did not comply with the
command word ‘discuss’.
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APPENDIX:
Syllabus matrix indicating the learning objectives of the syllabus unit content that each
question is testing
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