CIPS Exam Report for Learner Community: Qualification: Diploma in Purchasing and Supply Unit: D1 Diploma in procurement and supply D1 - Contexts of P&S Exam series: January 2014 Question 1 Learning Outcome 1 (a) Outline, using examples, FIVE elements of the total cost of ownership of capital equipment (b) It is widely believed that it is important to attempt to reduce costs and add value throughout the supply chain. Explain THREE innovative strategies that might achieve such goals. (10 marks) (15 marks) LO1.2 Analyse the different sources of added value in procurement and supply This question tests candidate s knowledge of the various costs involved with a capital purchase and the tests knowledge and understanding of procurement strategies that might achieve cost reduction or added value through the supply chain for any purchases. Part (a) requires a brief outline of FIVE different costs that make up the total cost of a capital purchase with an appropriate example to support each cost. Costs could be five from pre acquisition costs, purchase price, operating costs, maintenance and repair costs, downtime costs and end of life/decommissioning costs. Many answers gained high or full marks for identifying and giving an example of five costs. A few lacked detail or omitted an example. Some answers listed more than the required five, only the first five were marked. Part (b) key words in the question were innovative strategy and supply chain. High scoring answers referenced these elements by explaining strategies such as value engineering, lean supply, agile supply, TQM, JIT and value added negotiations/relationships. However, it was recognised that organisations are at different levels of maturity and therefore candidates experience of innovative JAN14_(D1) 1/5
strategies may differ. Marks would therefore be awarded for a range of strategies that reduced costs/added value even if they are not as innovative as in some more progressive businesses. The majority of answers concentrated on procurement negotiation strategies. Some answers picked up on the references in the question and provided very comprehensive answers gaining higher marks. Others lacked depth of detail for 5 marks per strategy explained. Most answers contained the correct number of strategies asked for in the question. Question 2 Learning Outcome 2 (a) Explain THREE ways in which electronic systems can be used in the sourcing process. (b) Describe FOUR ways in which added value may be created for a buying organisation through an effective sourcing process (9 marks) (16 marks) (a) LO 2.3. Explain how electronic systems can be used at different stages of the sourcing process (b) LO 2.2 Explain the main aspects of sourcing processes Part (a) tested the knowledge of electronic systems within the sourcing process. Answers demonstrated a good knowledge of technology in procurement such as internet, e-tendering (RFI/RFP/RFQ/RFX), e- catalogues, e-auctions and reverse auctions, intranet. The question referred to how systems are used in the sourcing process, which is pre contract award. Answers lost marks where the systems described were not associated with the sourcing process but after sourcing, such as P2P and MRP. Many answers correctly explained the use of three systems and additional marks could have been gained by including more depth to answers. Part (b) required answers to consider the benefits of a structured sourcing process to a buying organisation in terms of added value. A range of answers could be taken from the internal work during the sourcing process and also the value created by involving and working with suppliers during that process. The value added might include cost savings but should also include a variety of non financial ways that procurement can add value to a business. The structured sourcing process has several steps, each can add value as well as the output from the entire process. Value might include getting JAN14_(D1) 2/5
requirement correct first time and covering all requirements, stakeholder engagement and compliance, specifications to avoid rework and pre qualifying only the suppliers capable to meet the business needs. Motivating and including suppliers in the process can encourage longer-term investment, cost reductions, innovation, improved quality, stock and wastage reduction and sharing market knowledge. Answers gained good marks in general with most identifying four ways that value is created. Higher marks were gained where answers gave sufficient depth of detail for 4 marks and demonstrated an understanding of the range of value that procurement can add to an organisation. Most answers linked to the sourcing process although some answers were out of context of the question. Some answers overlapped with Q1b and 2a but marks were awarded if content was valid in terms of this question. Question 3 Learning Outcome 3 (a) Explain THREE advantages to an organisation when adopting a devolved procurement structure (b) Describe FOUR benefits delivered to an organisation by an outsourced procurement function. (9 marks) (16 marks) LO 3.3 Compare the different structures of a procurement or supply chain function Question 3 was in 2 parts both testing knowledge and understanding of governance in the structure of procurement functions. Part (a) asked for advantages associated with a devolved structure for 9 marks and part (b) asked for the benefits for an organisation with an outsourced procurement function for 16 marks. Part (a) a devolved structure places procurement activities back out at individual business units/departments and is a de-centralised structure. Advantages include being close to stakeholders helps build relationships, understand requirements, communication, tap into user expertise. Quicker response to environmental and requirements changes is also an advantage. Closeness to local suppliers helps market knowledge, reduced transport times, cost and general supplier management. Inventories can be reduced CSR use of SME s can be satisfied. Local accountability is improved and if a central procurement team remains, that team can focus on high value activities. Answers to this were generally very good with a few answers incorrectly interpreting devolved as developed or delegated structures and so answering incorrectly. A minority described the advantages of a JAN14_(D1) 3/5
centralised structure. Part b provided many good answers again demonstrating a good understanding of why organisations outsource and what the benefits are. Higher scoring answers provided depth and detail including benefits of expertise, skills, access to aggregated volumes (with other customers) leading to cost reductions, business can focus on core competencies, quality and service assured through KPIs and flexibility to resource through peaks and troughs in requirements. As previously a lack of depth in detail caused some answers not to gain higher marks. The command word and the mark allocation are good indicators of the content/depth required. A few answers described shared services, an internal concept and while leniency allowed some marks for correct points made some internal driven benefits could not be awarded marks. Question 4 Learning Outcome 4 Discuss FIVE ways in which the objective of profitability in a private sector organisation might impact on its procurement activities. (25 marks) LO 4.3 Analyse the impact of the private sector on procurement or supply chain roles This was a 25 marks question testing knowledge and understanding of profitability as an organisational objective and its impact on procurement activities. The command word discuss indicates a detailed answer and can include positive and negative impact. Five was for 5 marks each. Higher scoring answers explored a variety of ways that procurement is affected, not just in the focus to reduce costs but also a proactive approach to create value that might in turn enhance sales and therefore profitability. Some content might include; pressure to focus on price and cost reduction, conflict with quality and CSR, adversarial approach to negotiations and transactional relationships, missed opportunities to create value. On the other hand a proactive approach might include VA/VE activities, waste reduction, SCM and stakeholder involvement and cross-functional teams. Many candidates discussed the five rights perhaps because the question asked for five, this gained marks where the answer was in context and clearly explained the link to profitability however, sometimes the answers were descriptions of process and did not gain marks as such. Other common errors included spending time describing profitability and/or public versus private organisation structures and objectives. Both of these are unnecessary, did not attract marks and took up valuable time that could have been spent on the correct answers. JAN14_(D1) 4/5
As a single question for 25 marks, higher scoring answers appeared to have benefitted from planning the answer beforehand which meant that the answer was structured (and did not digress), had five clear answers and that content and detail were at appropriate levels for the marks allocated. Quite a number of answers were a maximum of 1 to 1.5 pages in length, short for a 25 marks question. JAN14_(D1) 5/5