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/
L4-05/SA Report/Jan 2012
2
SECTION A
Q1 (a)
Q1 (b)
Q1 (c)
Describe the ownership and control of BB.
(5 marks)
Outline the difference between a merger and an acquisition and (10 marks)
discuss the advantages and disadvantages of each to BB’.
Explain the likely impact of the profit motive on purchasing at BB. (10 marks)
Analysis of the Question
All Section A questions relate to the case study and should be answered in this context.
(a) The question aims to test candidates’ ability to describe the ownership and control
of a public limited company.
(b) The question aims to test the candidates understanding of the difference between a
merger and an acquisition. It also requires candidates to briefly describe (outline)
the advantages and disadvantages of these transactional activities.
(c) The question asks candidates to explain how the profit motive might impact
purchasing activities within a private sector organisation.
Analysis of the Answer
Part (a) the case states that BB is now a plc with shares traded on the stock exchange. For a
pass grade candidates are required to describe that ownership is in the hands of the many
shareholders and the company is controlled by a board or directors appointed by these
shareholders. Higher marks are gained from more depth in describing the shareholders role
in influencing strategy and raising issues not in the shareholders interests. Shareholders can
take action/control at BB’s AGM to voice concerns and replace directors if necessary.
Candidates may also mention the role of non-executive directors in ensuring probity.
Part (b) the candidates answer might give a brief definition of a merger and an acquisition
showing the difference between the two. An acquisition requires BB to buy ownership of
another company and then integrate it into BB to form a single entity whereas a merger
requires BB and the other company to agree to integrate resources to form a single entity.
There are advantages and disadvantages common to both transactional activities, which
include:
Advantages: consolidates market position by consolidating market share, increases access to
customer groups, economies of scale and synergies between entities, acquisition of skills,
competencies and innovation, increase in assets and to support the strategic direction of the
company.
Disadvantages: Time consuming, costly, wrong strategy, too complex for success, loss of
focus, inappropriate use of shareholders’ capital and possible dilution of BB’s brand.
Part (c) While the question asks about the impact of the profit motive candidates should
show an understanding that although often seen as the sole purpose of private companies profit is one of a broader set of objectives which should include survival, growth and
development. The answer should focus on the link between these because focus only on
profit may not necessarily lead to profit in the longer term if survival is jeopardised.
Therefore a balanced approach is required. If BB exploit the fragile supply market and it is
damaged then in the future prices may increase which will impact BB’s growth/survival.
Examples of the negative impact of purchasing just on price can be included for example –
quality, expensive future upgrades, maintenance and other on costs, lower service levels. All
of this can add remedial costs and damage BB’s reputation.
L4-05/SA Report/Jan 2012
3
Answers can be enhanced by positive purchasing actions to impact the bottom line. For
example cost reduction activities (single sourcing, collaboration, eliminating waste, value
analysis/value engineering, early buyer involvement and supply chain management).
Purchasing activity must also take a balanced approach because the pressure to increase
profit by reducing input prices can generate savings in the short term by exploiting a weaker
supply market but may result in higher prices and damage to suppliers in the longer term.
This presents risk to costs, quality (and ultimately reputation) and supply security for the
buyer.
Lower prices could result in supplier recouping revenue elsewhere e.g. Upgrades and
maintenance.
However, there are a number of initiatives that purchasing can drive to contribute positively
to improving profit such as overall cost reduction, single sourcing or partnerships, waste
management/elimination, value analysis and value engineering, early supplier and buyer
involvement, supply chain improvements. A high scoring answer may also suggest that this
direct impact on profit is moving the perception of the purchasing function from support to
a ‘main-stream’ activity within a business.
Exam Question Summary
Part (a) Candidates gained marks for this straightforward question correctly identifying that
BB is now a plc. Many candidates gained pass marks and a good number of candidates
gained additional marks for depth in the role of shareholders, AGM, non-executive board
members. Some candidates did not simply answer the question but provided a lot of
additional information about structure, regulations, registration of companies and
describing ownership and control of BB as a previously private ltd company, this did not gain
marks and the time cold have been spent on other questions. A few candidates mistakenly
viewed BB as still being a private limited company and incorrectly answered the question.
Part (b) Majority of candidates gained marks for distinguishing between mergers and
acquisitions. Advantages were outlined well and candidates gained marks for disadvantages
although many did not get full marks for this. Higher marks might have been gained through
more depth of answers and considering the more strategic advantages and disadvantages
for BB’s business. Often a lack of context to the case was seen.
Part (c) Most candidates gained marks on this question and many passed but a lack of depth
and breadth of answer lowered marks. The focus in answers was solely on profit motive and
not considering the need to ensure that profit maximisation alone could jeopardise survival,
growth and development that are other important business objectives. Answers often
simply outlined several ways to make cost savings without exploring the detrimental effects
that a focus on price and profit can bring.
Q2 (a)
Q2 (b)
Q2 (c)
Outline the difficulties the buyers at BB are likely to experience (5 marks)
when buying commodities.
Describe TWO ways in which the buyers at BB could bring a (10 marks)
degree of price stability to commodity buying.
Describe FIVE possible benefits a commercially orientated (10 marks)
purchasing team could contribute to the acquisition of capital
equipment at BB.
L4-05/SA Report/Jan 2012
4
Analysis of the Question
Part (a) requires the candidate to outline the difficulties associated with buying commodities
at BB which include foods such as sugar, wheat flour and cocoa.
Part (b) requires the candidate to understand the difficulties caused by volatile prices and
describe TWO ways that BB can try to buy the commodities at a more consistent price.
Part (c) asks candidates to describe the role that the purchasing team at BB can contribute
when purchasing capital equipment.
Analysis of the Answer
Part (a) Commodities occur naturally and are subject to unpredictable conditions that can
make both supply and pricing difficult to manage. Difficulties include location as they are
sometimes only available in limited regions so that a problem in these regions could
disrupt or reduce supplies. Unexpected price fluctuations (by weather, political factors,
strikes), difficult to take compensatory action if supplies are limited, risk of buying volume
at high prices and losing competitive advantage. Also BB is unable to pass on any price
increases of raw materials because the finished product price is fixed which can affect
cash-flow. A lack of expertise in this area can cause difficulties
Part (b) this question relates specifically to price stability. TWO of the following could be
described:
Forward buying: In this instance the buyer at BB will see an advantage in buying ahead of
demand. There are a number of possible reasons for this but in the context the commodity
buyer considers prices are likely to rise in the future. Of course they will have the cost of
holding stock which will have to be off-set against possible savings and the buyer at BB
might get it wrong and prices might drop. Additionally, suppliers expecting a significant
price rise may not want to sell.
Futures contract: With a futures contract the buyer also becomes the seller by buying
forward a commitment to sell on a specific date an equivalent amount of the commodity
that is required for production. In futures contracts losses / gains resulting from price
fluctuations are cancelled out. When the gain from one contract is compensated by the
loss of the other this is called the perfect hedge.
Pound cost averaging: This offers the buyers at BB another method of price stability.
Pound cost averaging works by spreading the risk over a large number of purchases. For
example BB spend (say) £24 million a year on wheat flour. Instead of buying a whole years
supply and risk the price going down, they spend £2million a month over 12 months. As
the price fluctuates in some months BB will receive a relatively large amount and in others
a smaller amount, but over the year the total price they pay is the average of the prices
during the year. However, this method does not reflect commodity shortages resulting in
extreme price fluctuations. Additionally averages may be skewed due to price extremes.
Part (c) In the case BB Purchasing department are not involved in purchasing capital
expenditure items. The result is for example weak or ignored contract terms. Benefits
purchasing can offer include five from the points below or similar:
Emphasis on whole-life costs (key point from case)
Countering bias / prejudice of users towards one particular make of equipment or supplier
which excludes consideration of more innovative suppliers
L4-05/SA Report/Jan 2012
5
Demonstrating professionalism within the workplace will gain the respect of key decision
makers
Assessing supplier capability / financial stability ect
Provision of commercial, contractual and negotiating expertise
Evaluating capital investments
Identification of alternatives such as: leasing, hiring or outsourcing the activity for which
the equipment is required
Seeking regional or central grants that might help fund the acquisition of the equipment
Exam Question Summary
Part (a) Candidates either answered this question very well or lost marks by focussing for
example on difficulties of international purchasing (which might be just one element) or
listing the reasons why prices fluctuate not the difficulties that this then presents the
commodity buyer. Another area to consider is that when a question is set for a particular
market or product (commodity here) then answers should be specific to that and not
difficulties that can be associated with general supply e.g. quality, monopoly suppliers,
transport unless in the right context.
Part (b) this question in general was very well answered with candidates choosing and
describing well TWO of the three methods to try to stabilise commodity pricing. Some
candidates confused forward buying and futures contracts. Exchange rate discussions would
have gained a mark but limited because this is only one potential element of price. Some
candidates lost marks describing solutions of long-term contracts/partnerships at fixed
prices or buying in consortia to gain economies of scale but this is difficult to do in a
commodity market without the risk of no supply or a premium that would leave BB’s costs
uncompetitive. There was a general lack of context to the case.
Part (c) Good marks were gained by candidates recognising in the case that purchasing were
not involved in BBs capital spend acquisitions and that the result was some weak contracts.
Candidates picked up well on whole life costing, specification development, supplier
selection, appraisals and negotiations and also contract terms. Marks were not gained
where answers lacked depth and were not specific to the case or capital spend.
SECTION B
Q3 (a)
Q3 (b)
Explain FIVE key drivers for globalisation.
(10 marks)
Describe the role of the World Trade Organisation (WTO) and the (15 marks)
World Bank in facilitating international trade.
Analysis of the Question
Part (a) the question required candidates to demonstrate an understanding of the drivers of
globalisation and standardisation.
Part (b) this question tests the candidates knowledge of two international organisations and
their roles in facilitating international trade.
L4-05/SA Report/Jan 2012
6
Analysis of the Answer
Part (a) this is a straightforward question and the usual drivers given and expected
include:
•
•
•
Cost savings on low cost labour / economies
Goods may not be available in the domestic market
Sourcing from foreign markets gives access to a broader range of technological
innovation
• May be insufficient in the domestic market
• Strategic reasons such as security of supply
• Comparative advantage of some countries gives them a lower cost of production:
cheaper sources of labour; higher skilled labour; more efficient infrastructure;
greater access to specific raw materials.
• Countertrade agreement
An acceptable alternative approach would be to refer to G Yip in Total Global Sourcing
and describe market globalisation, similar customer needs, transferable marketing, cost
globalisation, scale economies, sourcing efficiencies, globalisation of government
policies, trade policies, technical standards, globalisation of competition and
interdependence.
Part (b) Both the WTO and the World Bank should be described. WTO (previously GATT) is
dedicated to promoting free trade between nations. Its role is to eliminate quota
restrictions, reduce/remove tariff and non-tariff barriers, equal treatment (MFN principle),
and transparency of protectionism. The World Bank promotes long-term economic
development in poorer countries. It provides grants, preferential rate loans and technical
assistance to member countries. In return members must promote democratic ideals, limit
corruption and generally modernise. Higher scoring candidates might make reference to the
contribution of these organisations to economic prosperity and to the potential dangers
resulting from populist short –term protectionism that might, briefly, protect inefficient
domestic producers but longer term damage economies.
Exam Question Summary
Part (a) a popular question and very well answered. Candidates covered a wide range of
drivers and many used G Yips groups to structure their answer. The command word was
followed with strong detail in answers. Some answers failed to attract marks where
examples of areas like transport were provided; this is an enabler rather than a driver.
Part (b) another well answered question. The majority of candidates covered the WTO and
World Bank and gained good marks. Breadth of answers was sometimes an issue which did
not allow the marker to award marks. Some candidates did not include the requirements of
the World Bank in return for its assistance and few candidates explained the importance of
international trade and dangers of protectionism that leads these organisations to exist.
Q4 (a)
Q4 (b)
Discuss the potential benefits for a third sector organisation of (10 marks)
having a corporate social responsibility (CSR) policy.
Describe, from a purchasing perspective, the operational (15 marks)
implications for an organisation, such as a third sector
organisation, of adopting a CSR policy.
L4-05/SA Report/Jan 2012
7
Analysis of the Question
Part (a) Candidates are required to demonstrate knowledge and understanding of CSR and
the benefits of having a policy in a non-profit making organisation.
Part (b) the question requires the candidate to describe the demands and implications a CSR
policy might have on the purchasing function within a non-profit making organisation.
Analysis of the Answer
Part (a) the command word is to discuss. Candidates should start by demonstrating a
knowledge of CSR Without being too prescriptive this could be based on the following: it is
a business principle that encompasses ethical trading, social responsibility and
environmental sustainability. Although it relates to all aspects of organisational activities,
purchasing and supply has particular emphasis on the practices of external party suppliers
and their contracts with the organisation. In discussing the benefits candidates could
include factors such as: enhanced reputation, increased consumer confidence, reduced
likelihood of a lawsuit or media identifying and highlighting weaknesses with subsequent
damage to reputation. The organisation may be viewed as an employer of choice.
Candidates may, correctly discuss the commercial benefits in adopting environmentally
sustainable practices such as recycling and that suppliers will recognise its customer/s
would not tolerate unacceptable practices. The process of developing a CSR policy will in
itself help to identify the likelihood and potential impact of risks and rewards in a changing
and increasingly aware society. In the context of this question candidates should refer to
the fact that Third Sector Organisations are dependent on donations (and in some
instances public funds / tax exempt status) and any behaviour considered unethical would
have serious implications for future funding and or charitable status.
Part (b) Candidates can provide a range of responses to this question and the general
themes will include working with internal departments to understand the needs regarding
CSR to promote it company wide. Also purchasing will develop and implement policy
guidelines for internal and external use. Supplier appraisal and selection will incorporate CSR
requirements that then need to be monitored. Terms and conditions would need to reflect
the policy and suppliers supported to conform to these. Training might be required and the
impact on prices of enforcing CSR requirements understood. Higher marks are awarded to
answers which reflect income / funding streams and vulnerability to changes in customer
perceptions and how that might further influence buyer activities.
Exam Question Summary
Part (a) Candidates who understood the question and its context gained good marks for this
question. Generic answers on the benefits of a CSR policy were awarded marks but higher
marks are awarded for relating the benefits specifically to third sector organisations. It is
important when planning answers to ensure thee is enough of the answer that is
contextualised. Third sector refers to charities and not for profit organisations that rely on
donations, stakeholders support and reputation. Some candidates mistakenly discussed
retail organisations and tertiary sector.
Part (b) some high marks obtained by recognising purchasing role in policies and procedures
and supplier appraisal and selection. Some answers did not go further that this, losing the
opportunity for more marks. Depth and breadth of answers was an issue. Some answers
narrowly concentrated on the negative impact stating it meant more time, cost and
L4-05/SA Report/Jan 2012
8
workload for buyers. Other answers listed the areas (e.g. health and safety, recycling) that
purchasing would deal with internally or ensure suppliers could comply with. This gained
some marks but alone was not broad enough to gain the higher marks and candidates
therefore missed the operational implications associated with these such as changing terms
and conditions, appraising and monitoring suppliers.
Q5
A manufacturer of electrically powered tools for the engineering (25 marks)
industry consists of four separate business units. The business
units produce respectively drilling machines, buffing and polishing
machines, spraying equipment and air compressors. Each of the
four units undertakes its own purchasing activities.
Appraise FIVE benefits of centralising all purchasing activities with
those of retaining the present decentralised structure.
Analysis of the Question
The candidate is required to use the detail in the mini case and appraise (compare the
arguments for) centralisation and decentralisation and then justify their choice.
Analysis of the Answer
Candidates should provide more that a list of advantages of centralisation versus
decentralisation and demonstrate and understanding that this refers to the degree to
which responsibility and authority is delegated. The case for centralisation can be
compelling but there are circumstances that decentralisation can be important. Areas that
might be appraised:
Centralisation:
Ease to communicate decisions, consistency of work easier due to the single location,
control of resource allocation, economies of scale, developing specialist skills, improved
quality and speed of decision making, standard policies ad procedures. Candidates can
support answers by explaining how centralisation benefits from location, common
requirements, supply market structure, savings potential (standardisation), and customer
demands.
Decentralisation:
Responsibility is devolved to local level, better customer service response, knowledge of
local environment, culture and customer needs. Also, purchasing is more visible, local
market access, skills that are required to managed some items e.g. MRO.
Candidates may suggest a hybrid structure which seeks to obtain best of both situations, in
that commonly used items are purchased centrally and the purchase of specific items are
decentralised.
Exam Question Summary
A popular question and well answered by candidates who picked up a variety of advantages
of both centralised and decentralised purchasing structures. Depth and breadth of answer
was an issue even in some of the higher scoring answers. The most common mistake was to
L4-05/SA Report/Jan 2012
9
not appraise many or even ANY advantages of a decentralised structure which immediately
limited the marks that could be awarded. Quite a few candidates drew their appraisal to a
conclusion and also considered (or recommended) a hybrid structure. A lack of context to
the mini case was an oversight by many candidates. The majority of answers referenced the
mini case but as in other questions there was sometimes a lack of reference back to the
content.
Q6 (a)
Q6 (b)
Explain FIVE differences between consumer products and (10 marks)
industrial products.
Explain, using relevant examples, the regulatory framework for (15 marks)
the protection of consumers. Explain, using relevant examples,
the regulatory framework for the protection of consumers.
Analysis of the Question
Part (a) the question aims to test the candidates knowledge and understanding of different
types of products and how the differences affect their acquisition. This question deals with
consumer and industrial products.
Part (b) this question requires candidates to focus on the legal and regulatory frameworks
that exist to protect consumers in a business to consumer transaction.
Analysis of the Answer
Part (a) the question was not intending to review the physical differences, more the
difference in customer requirements. The answer is set in a table form below for
convenience
Characteristics
Industrial products
Consumer products
Purchasing objective
Enable production. May
be either transformed or
consumed
Personal
satisfaction
Purchasing motive
Mainly rational, derived
demand
Emotional though also
rational
Decision making unit
Many
stakeholders
involved, discussion and
agreement
Often impulsive, may not
be any consultation
Negotiation / competitive
bidding
Competitive bidding or
negotiation depending on
sector.
Interaction
between buyer and seller
Often
negotiation
interaction
seller.
Product
and
knowledge
Usually detailed. Buyer
often a specialist in an
area of supply.
Limited product supply
market knowledge except
for certain ‘speciality’
items
Order size and frequency
Often large and frequent
Mostly
small
infrequent
Demand
Derived
Autonomous
market
L4-05/SA Report/Jan 2012
demand,
may
need
without
and little
with the
and
demand.
10
Price elasticity
fluctuate and dependent
on market conditions.
Depending on type of
consumer good (ie food)
may be relatively stable.
Relatively
inelasticchange in price not likely
to affect demand in the
short term
Elastic in that consumers
may have more choice
and can switch product
An acceptable alternative answer will provide the following.
INDUSTRIAL v CONSUMER
•
•
•
•
•
Professional purchasing v untrained no specialist skills required
Derived demand v bought for own (family) consumption
Inelastic fluctuating demand v Relatively elastic brand/product switching common
Large order quantities and large order values v Generally small and infrequent
Relationship and interdependency between buyer and seller v Little interdependence
(Purchasing Management. Van Weele A. J)
An equally valid approach that reflects the study guide for the subject might be based on
the following supported by appropriate examples and explanation.
•
•
•
•
•
Volumes and order quantities
Marketing and branding
Packaging and presentation of the product
Legislation
Payment terms and conditions
Part (b) Consumer protection covers a range of areas including product liability, privacy
rights, unfair business practices, misrepresentation and fraud. Consumer protection
legislation is designed to protect consumers from irresponsible and unscrupulous
suppliers. Candidates should develop their answers to explain that all consumers have a
right to goods that are of satisfactory quality; this is taken to mean free from defects, safe
and durable.
That the goods are fit for purpose; this is taken to mean that the goods should be fit for a
specific purpose made known at the time of the contract.
That the goods are as described: that is the goods should correspond to any description
made about them. Examples of legislation may include:
The Sale of Goods Act 1979 (as amended by the Sale and Supply of Goods Act 1994 and the
Sale and Supply of Goods to Consumers Act 2002). The Sale of Goods Act 1979 possibly
being the most useful and relevant to consumers in day to day purchases.
The Supply of Goods and Services Act 1982 aims to protect consumers against bad
workmanship or the poor provision of services.
Unfair Contract Terms Act (1977 as amended 2003) – inappropriately excluding or limiting
the rights of the consumer. This means that suppliers cannot use standard terms in their
contracts that restrict or exclude liability for breach of contract, providing an inadequate
service, or providing goods that have been misdescribed, not of satisfactory quality or not
fit for purpose. Reference to other relevant pieces of legislation should be acknowledged.
Any other relevant regulatory or legislative guidelines maybe referred to.
Higher scoring candidates will show an understanding of the need for and range consumer
protection, provide at least 3 examples of legislation and explain that it seeks to balance
needs of supplier and customer in proportion to ability (size, technical knowledge etc.).
L4-05/SA Report/Jan 2012
11
Exam Question Summary
Part (a) the structure of the question and guidance to comparing FIVE differences made this
question very straightforward. When planning a question to compare differences it is worth
making notes and then working from the notes to structure the main answer. A good answer
will take a characteristic and describe the difference between consumer and industrial
products then move on to the next characteristic. This helps the marker to see more clearly
that the comparison is done. Many answers concentrated on the obvious characteristics like
the use (purchasing objective), order size and frequency, price and negotiation. Some
candidates used examples to good effect. Some answers repeated a number of features of
the products which gained marks but not for all answers because a broader range of
answers than just physical differences of the products.
Part (b) Candidates gained good passes on this question by demonstrating they understood
the need to protect the consumer from the often more powerful supplier. A good range of
legislation was listed but only sometimes described correctly and in enough detail.
Additional answers to the mark scheme were rewarded such as Trading standards authority,
Data protection act and various watchdogs. Answers failed to gain marks where a lack of
depth in demonstrating an understanding of the need to protect consumers and/or how the
relevant regulation/legislation seeks to provide this protection.
L4-05/SA Report/Jan 2012
12
APPENDIX:
Syllabus matrix indicating the learning objectives of the syllabus unit content that each
question is testing
L4-05/SA Report/Jan 2012
13