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/
L6-02/SA report/May12
2
SECTION A
Q1 (a)
Explain why McDonald’s may be determined continuously to
improve its social and environmental performance.
(12 marks)
Analysis of the Question
The aim of this question was to test candidates’ understanding of social and environmental
issues, and the benefits of improving CSR performance. The learning objective being tested
was 5.5.
Analysis of the Answer
Corporate social responsibility (CSR) refers to an organisation’s commitment to conduct its
business in a fair and ethical manner which has a positive impact on all stakeholders. It
encompasses a number of principles relating to human rights, labour standards, the
environment, and anti-corruption. EU and national government legislation is increasingly
driving the need for organisations to consider social and environmental outcomes
alongside their commercial goals. Customers are also more aware of the issues and are
basing their purchase decisions on organisations' ethical credentials.
Social and environmental issues are particularly relevant to McDonald’s because it is large,
powerful, high-profile organisation with a global presence. Poor publicity can have a
detrimental effect on sales and profitability. There has been much discussion about the
nutritional value of McDonald’s food and its supply chain practices in the developing
world. Incorporating corporate social responsibility principles into its policies allows
McDonald’s to counteract this negativity and to market itself as a good corporate citizen. It
also acts as a means of differentiation. Recruiting and retaining staff may also be
facilitated.
Adhering to social and environmental principles can also save money, as demonstrated by
the initiatives relating to energy conservation, reduced packaging, waste management, and
green building design. McDonald’s can make an economic case for improving its social and
environmental performance in terms of costs, revenues and profits.
Exam Question Summary
Although it was acceptable to set the scene and to refer to specific initiatives, this question
was primarily about the benefits of adopting CSR. A number of candidates merely copied out
text from the case describing the actions that McDonald’s have taken, rather than focus on
the reasons why. Other candidates discussed altruistic benefits, but the main focus should
have been on the business advantage to McDonald’s. Some answers discussed the
continuous improvement approach mentioned in the question, and this was given the
relevant credit. However, the main focus should have been on identifying the benefits to
McDonald’s of improving its social and environmental performance.
Q1 (b)
Explain how McDonald’s achieves integration throughout its
supply chains and the benefits of doing so.
(13 marks)
L6-02/SA report/May12
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Analysis of the Question
The aim of this question was to test the candidate’s knowledge of supply chain integration
initiatives and their understanding of the benefits of adopting such an approach. The
learning objective being tested was 4.2.
Analysis of the Answer
McDonald’s supply chains are global and fast-moving, therefore supply chain integration is
fundamentally important. There should be consideration of internal integration between
functions, upstream integration with suppliers, and downstream integration with
restaurants and consumers. Physical flows, information flows, and finance flows should all
be considered.
There are a number of initiatives that could be discussed: customer focus groups, customer
relationship management systems, vertical demand information systems linked through
EDI, flatter hierarchies, cross-functional working, project teams, continuous improvement
teams, supplier tiering, early supplier involvement, supplier development, and training and
awareness programmes. The level of planning required and the degree of control exercised
by McDonald’s is demonstrated in the case. The use of strategic suppliers is also very
important.
The benefits of achieving integration throughout the supply chain are likely to be: more
customer focus, better demand information, operational efficiency, flexibility and agility,
an integrated response, better supplier input, better planning, and reduced product
development times.
Exam Question Summary
This question is partly about integration initiatives and partly about benefits. Some
candidates failed to address the benefits. In terms of the initiatives, supplier tiering and
strategic relationships were mentioned, but how these lead to better integration was not
covered in detail. Very few other initiatives were mentioned. Supply chain integration is a
core aspect of this unit’s syllabus, and the general level of understanding appears to be
weak. Candidates should have demonstrated a robust understanding of supply chain
integration and the benefits of achieving it.
Q2
Examine how McDonald’s may manage its different types of
suppliers, using appropriate supply chain relationship and power
theories.
(25 marks)
Analysis of the Question
The aim of this question was to test candidates’ knowledge of different supplier relationship
strategies, supply chain power theories, and their application of concepts to a case study
situation. The learning objectives being tested were 5.4 and 6.2.
L6-02/SA report/May12
4
Analysis of the Answer
McDonald’s has three types of supplier: indirect suppliers, direct suppliers, and strategic
suppliers.
The type of relationship adopted with the indirect suppliers is likely to be that of
adversarial. Adversarial relationship strategies are a market-based approach where the
organisation competes with its suppliers in order to appropriate the commercial value of
the relationship. The main focus is price. It is usually adopted where the organisation is in a
dominant market position, where there is a competitive market, or where standardised
items are purchased in a transactional way. McDonald’s buys many standard items and
ingredients from a myriad of smaller suppliers. This is a leverage purchase where
McDonald’s has the power.
Power is derived from having something unique that differentiates the organisation and is
difficult to replicate or substitute. This is achieved through utility, scarcity, information
asymmetry, barriers to entry, or switching costs. Porter's five forces model is one way of
demonstrating the power relationships in a supply chain. The power balance between
supply chain players will determine the degree to which they can appropriate the value
from the relationship and whether the value needs to be shared. In the case of the indirect
suppliers, the supermarkets have power over the suppliers and therefore appropriate the
value.
Collaborative relationships are also adopted by McDonald’s. Collaborative relationships are
where the organisation works closely with its suppliers to increase functionality as well as
reduce costs. The commercial value of the relationship is usually shared. The approach is
usually adopted where there is a restricted market, where the two parties are
interdependent, or where critical or strategic items are being purchased. This would be the
situation in relation to McCain Foods and the fries supply chain. This is a strategic critical
purchase where the buyer and the supplier have equal power in the relationship and
therefore share the value in a collaborative way.
The relationship approach adopted with the direct suppliers is likely to be that of
adversarial collaborative. McDonald’s collaborates with first-tier suppliers such as LEP at an
operational level in order to achieve supply chain and logistical integration (essential in the
fast food industry), but competes with them commercially in order to appropriate the
value for themselves (subordination to the McDonald’s system). Direct suppliers would
need to innovate and differentiate themselves in order to increase their power in the
supply chain and appropriate more value from the relationship.
Exam Question Summary
The answers to this question were generally weak. A number of candidates failed to
differentiate between different types of relationships, focusing solely on partnerships. Many
answers referred to purchasing portfolio analysis (Kraljic), but the understanding of how
relationships link to this was patchy. The understanding of supply chain power was
superficial. A greater level of understanding needs to be developed in these areas.
Candidates should have demonstrated a robust understanding of supply chain relationship
strategies and the concept of supply chain power in relation to the case study situation.
L6-02/SA report/May12
5
SECTION B
Q3(a)
A Chinese power company is proposing to acquire a mining
company in Namibia for the supply of raw materials.
Evaluate the proposed acquisition from the perspective of both
organisations.
(10 marks)
Analysis of the Question
The aim of this question was to test candidates’ knowledge of company acquisitions and
their ability to evaluate strategic options. The learning objective being tested was 1.5.
Analysis of the Answer
An acquisition is where one organisation purchases a controlling stake in the other. This
external growth strategy will enable the Chinese company to rapidly expand beyond its
current situation without the need to develop internal resources. It is a form of backward
integration in order to secure inputs from its supply markets. This is particularly important
because the location of minerals is concentrated, demand is accelerating, and supply is
finite.
As well as securing sources of supply, the benefits to the Chinese company could include:
the utilisation of specialist knowledge, sharing of resources, co-specialisation, and cost
efficiencies. The benefits to the Namibian company could be access to new markets and
technology transfer. Potential drawbacks could include: significant up-front investment,
poor cultural fit, poor integration, and poor returns. Acquisitions are often driven by the
egos of company CEOs rather than a rational business case. In the case of Chinese
companies, the national government often dictates these strategies.
Acquisitions are expensive and in most cases fail to deliver in terms of bottom-line
performance. To make a merger or acquisition work there needs to be a clear strategic
purpose, cultural compatibility, defined performance expectations in terms of goals,
governance and responsibilities, simple and flexible organisational arrangements, integrity,
openness, discretion, and consistency of behaviour.
Exam Question Summary
The answers to this question were generally good. However, some candidates failed to
evaluate the strategy by looking at both its advantages and disadvantages. Candidates
should have demonstrated a robust understanding of acquisitions in relation to the given
context.
Q3(b)
Assess how the Chinese power company can ensure that its
strategies will be implemented throughout the Namibian
company if the acquisition takes place.
(15 marks)
L6-02/SA report/May12
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Analysis of the Question
The aim of this question was to test candidates’ knowledge of strategy implementation
issues and change management approaches. The learning objectives being tested were 2.1,
2.2 and 2.3.
Analysis of the Answer
The proposed acquisition will require radical change which is likely to meet with resistance.
The business benefits will need to be explicitly demonstrated. The cultural paradigm of the
organisation is likely to be affected and careful implementation will therefore be required.
The vision and mission statements need to be clear, and corporate, business and functional
plans drawn up. Strategy and structure should be aligned and appropriate staff, skills,
styles and systems put in place. Restraining and facilitating forces should be identified and
change management techniques incorporated. The use of change agents should be
considered. Top management support is essential, and the CEO must demonstrate strong
leadership and influencing skills to drive the changes. Reinforcement, monitoring and
review of the chosen strategy must take place.
A communications policy and process should be instigated which covers a number of
communication channels and a range of different media. Individuals need to be
incentivised to ensure that the acquisition succeeds. This can be achieved through personal
development plans linked to a robust performance management system. Employees must
buy into the strategy and be convinced of its message and benefits. This is perhaps the
most difficult area to influence, as it is concerned with the values, norms and underlying
beliefs of the organisation. Training interventions, awareness campaigns and socialisation
processes should be adopted as enablers.
Exam Question Summary
The answers to this question were also generally strong. However, some candidates
discussed the strategic analysis and choice stages, rather than focus on implementation
aspects. Candidates should have demonstrated a robust understanding of implementation
and change management issues.
Q4
Conduct an in-depth PESTLE analysis for an organisation with
which you are familiar (15 marks) and suggest corporate
strategies to address the identified issues (10 marks).
(25 marks)
Analysis of the Question
The aim of this question was to test the candidate’s understanding of broad environment
factors and their ability to undertake a PESTLE analysis. The learning objectives being tested
were 1.3 and 1.7.
L6-02/SA report/May12
7
Analysis of the Answer
A PESTLE analysis considers the broad environmental factors that impact on an
organisation. The PESTLE acronym refers to the way of categorising the factors into the
headings of political, economic, social, technological, legal, and ecological. It is important
that candidates analyse the implications to the chosen organisation, rather than just
identify a list of factors within each heading. The factors identified should be external
challenges or opportunities outside the control of the organisation rather than internal
issues. However, reference to the organisation’s strengths and weaknesses in relation to
the external issues may form part of the analysis. It is more important to assess the level of
analysis, rather than be concerned about which category the identified issues are placed
within.
The corporate strategies that are suggested could be in the form of generic strategies,
strategic directions, or strategic methods. They should be clearly linked to the issues
identified and fully justified.
Exam Question Summary
Those candidates that understood the purpose of a PESTLE analysis and used it in a dynamic
way scored very highly for this question. However, there were a number of responses that
just listed factors without discussing the implications, included internal issues in the analysis,
and clearly did not have a sufficiently detailed understanding of their chosen organisation’s
external environment. Lack of solutions and weak linkage between the analysis and the
solutions were other concerns. Candidates should have demonstrated a robust analysis of
the chosen organisation’s broad environment and suggested appropriate strategies that
addressed the identified challenges and opportunities.
Q5
Demonstrate how procurement and supply chain strategies,
processes and structures can add value to an organisation.
(25 marks)
Analysis of the Question
The aim of this question was to test candidates’ understanding of how procurement and
supply chain management can add value to an organisation. The learning objectives being
tested were 3.3 and 3.4.
Analysis of the Answer
Procurement and supply chain strategies can add value through cost reduction,
standardisation, supplier performance improvement, supply chain integration, and
innovation. A proactive procurement function will gain visibility over spend, align supply
and demand through robust forecasting, planning and scheduling interventions, and
instigate just-in-time systems for supplying goods. Strategic source planning should be
carried out, a category management system adopted, relevant suppliers appraised and
selected, and appropriate relationships adopted. Supply performance monitoring and
relationship management are key on-going activities.
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The status of the procurement department needs to be advanced by appointing a senior
management representative at board level, and by either developing internal capabilities
or recruiting externally. Coordinating purchases across the whole organisation will enable
the company to utilise its scale and achieve leverage over its suppliers. Common purchases
should be centralised, and policies and procedures established to regulate the buying
activities of decentralised activities. Procurement should be involved early in the
specification process.
Supply chain integration should be sought both internally and externally from the initial
supplier to the end customer. Process improvement initiatives, cross-functional
cooperation, integrated planning, forecasting and management information systems, and
joint-working supplier initiatives should all be adopted. Careful planning of hub and spoke
distribution systems is also essential.
Procurement could also be involved in the boundary of the firm decision by identifying
core and non-core activities and conducting insource/outsource analyses. Non-core
activities should be outsourced. A cross-functional approach is essential, and the relevant
costs, benefits, and risks need to be assessed carefully. Robust supplier selection, key
performance indicators and service level agreements linked to effectively managed
incentive contracts are essential requirements. Lean supply is another area where
procurement can add value by driving waste eradication and efficiency improvements
throughout the supply chain.
Exam Question Summary
Some candidates discussed the concepts of value and added value initially and this was
acceptable. However, others spent a lot of time and effort drawing and discussing Porter’s
value chain without demonstrating how this related to the question. This was a poor use of
time. Others discussed corporate strategies, rather than procurement and supply chain
strategies. This was a fairly open question, but candidates should have demonstrated a
robust understanding of how procurement and supply chain principles add value in terms of
strategies, processes and structures.
Q6(a)
Forecasting demand accurately is often very difficult in supply
chains. Assess the likely causes of demand variability (4 marks)
and the means of managing it (8 marks).
(12 marks)
Analysis of the Question
The aim of this question was to test the candidates’ knowledge of demand variability and
demand management techniques. The learning objective being tested was 4.2.
Analysis of the Answer
Some of the causes of demand variability that could be discussed are: seasonality,
promotions, poor planning and scheduling, as well as changing demographics and economic
factors. Variability in demand can lead to the bull-whip effect, where the variance in orders
increases as one moves upstream in the supply chain.
L6-02/SA report/May12
9
Behavioural causes can be mitigated by improving communication through cross-functional
and inter-organisational integration. Non-behavioural causes can be managed by adopting
sophisticated forecasting methods that do not rely solely on past data and take into
consideration environmental changes, seasonality, order batching, and special events such
as price promotions. Operational systems should also be flexible and responsive, and robust
planning methodologies and capacity management techniques adopted.
Specific initiatives that can be implemented to manage variability of demand are: customer
focus groups, customer relationship management systems, vertical demand information
systems linked through EDI, flatter hierarchies, cross-functional working, project teams,
continuous improvement teams, early supplier involvement, and training and awareness
programmes.
Exam Question Summary
This question was related to the operational aspects of matching supply with demand.
Therefore, candidates who discussed growth strategies, strategic directions, and strategic
drift were not credited. Most answers, however, demonstrated a sufficient understanding of
the relevant issues. Candidates should have demonstrated a robust understanding of the
causes of demand variability and the initiatives that can be adopted to manage the
phenomenon.
Q6(b)
Demonstrate how core competence thinking can inform the
strategic make-or-buy decision-making process.
(13 marks)
Analysis of the Question
The aim of this question was to test the candidates’ knowledge of core competence thinking
and how core competence thinking informs the strategic make/buy decision-making
process.
Analysis of the Answer
Core competence thinking dictates that an organisation concentrates on the activities and
processes that enable it to achieve sustainable competitive advantage and outsources
everything else. These activities and processes are likely to be unique, durable, nonsubstitutable, and difficult for competitors to imitate. They are the means of
differentiation for the organisation that must be preserved and deployed. Organisations
need to identify their core, complementary and residual resources, and feed this
information into the strategic make/buy decision-making process.
Core competences should remain in-house because they enable an organisation to achieve
sustainable competitive advantage and are not to be trusted to outside organisations.
Complimentary competences directly support core competences and should be
outsourced only to a strategic supplier within a close collaborative relationship. A
partnership-type relationship can become a core competence in itself over time. Residual
competences are non-core and can therefore be outsourced using a leveraged, marketbased approach and arms-length relationships.
L6-02/SA report/May12
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Exam Question Summary
Most candidates were proficient in answering this question. The stronger answers
differentiated between the three types of competences and the relevant relationships
required to manage them. Candidates should have demonstrated a robust understanding
core competence analysis and how it informs the strategic make/buy decision-making
process.
APPENDIX:
Syllabus matrix indicating the learning objectives of the syllabus unit content that each
question is testing
L6-02/SA report/May12
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