L5-02 SA Report Nov12

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November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

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L5-02/SA report/November, 2012 Series/ 2

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.documents/ExaminationtechniqueguideNovember2012.pdf ) 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/studyqualify/cipsqualifications/syllabuses/

ADDITIONAL SOURCES OF INFORMATION

The Supply Management magazine is a useful source of information and candidates areadvised to include it in their reading during their study. Please see the following link to the

Supply Management website: http:/www.supplymanagement.com/

http://www.cips.documents/ExaminationtechniqueguideNovember2012.pdfhttp://www.cips.documents/ExaminationtechniqueguideNovember2012.pdfhttp://www.cips.documents/ExaminationtechniqueguideNovember2012.pdfhttp://www.cips.org/studyqualify/cipsqualifications/syllabuses/http://www.cips.org/studyqualify/cipsqualifications/syllabuses/http://www.supplymanagement.com/http://www.supplymanagement.com/http://www.supplymanagement.com/http://www.supplymanagement.com/http://www.cips.org/studyqualify/cipsqualifications/syllabuses/http://www.cips.documents/ExaminationtechniqueguideNovember2012.pdf

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SECTION A

Q1 (a) Outline the importance of analysing key supply chain risks and

vulnerabilities before Globe-Span Energy establishes any long

term alliance.

(10 marks)

Q1 (b) Prepare high level guidelines, which, if followed, could mitigaterisk of contract failure for Globe-Span Energy when entering an

alliance.

(15 marks)

Candidates were required to answer TWO mandatory section (A) questions related

specifically to the case study.

Question 1

This was a two part mandatory question worth 25 Marks in total.

Analysis of the Question

This mandatory two part question sought to test candidate knowledge of the importance ofanalysing key supply chain risks and exposures before establishing any long term alliance.

Additionally, candidate ability was tested with regard to preparation of high level guideline

advice on mitigating actions which if followed would help reduce the risk of contract failure.

Syllabus reference 3.4 refers.

Analysis of the Answer

For part a)

Candidates were expected to discuss the importance of analysing key supply chain risk and

exposures prior to entering into a long term alliance contract. Without proper analysis of the

contractor landscape and market intelligence there is a risk of misunderstanding the

circumstances when it is appropriate to have a contractual alliance relationship. If ananalysis reveals that competition amongst customers is fierce to secure the services of a

particular contractor that is in short supply, then that is an indicator of a longer term alliance

deal being more appropriate.

The converse would apply if there was no shortage of possible suppliers in a competitive

market. Under such circumstances routine short term contracts would be appropriate,

where the market could be regularly tested. From the client perspective, where he is heavily

reliant upon a contractor to support his business then that contractor should be regarded as

a critical contractor, even more so, if high amounts are being spent. Again, these are

analytical indicators pointing to the formation of an alliance to secure the services of a

critical contractor. An alliance will give added security to secure the services of the

contractor thereby reducing that exposure. It is important to also recognise the need to

analyse things from the contractor’s perspective. Contractors are interested in longer term

relationships with clients that are more attractive or easy to work with and that give more

revenue to the contractor through greater volumes of work commitment. The converse is

true where clients are a nuisance or problematic (i.e. don’t pay on time or don’t spend

much). This type of relationship would likely only be short term. There are therefore risks

and exposures to be managed by both client and contractor - which implies that any long

term alliance must carry benefits to both parties before being meaningful to enter into.

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For part b)

Candidates were expected to articulate high level guideline points such as: establishing the

client’s most desirable outcome from the alliance in terms of contractor performance,

acknowledging the likely need for trade off or compromise. Similarly, establishing what the

contractor considers is a reasonable level of service provision. Early alignment between the

two parties is prior to executing a contract is key to the success of any alliance. To achievethis there needs to be a means by which to capture and compare any potentially serious

areas of misalignment. By so doing, the risk of contractual disputes are reduced because

there has been time and effort expended up front by both parties to align on what they

want out of the alliance. This may need all parties to an alliance to be prepared to share risk

and manage it together. Equally this can extend to include sharing upside reward. For this

reason many alliance contracts are based on incentivised risk/reward sharing agreements.

There also has to be trust and more openness between the parties to make an alliance work

properly. That it not to say there can’t be disagreement from time to time, however there

has to be a mechanism to resolve any conflict. This can usually be achieved by means of an

alliance improvement steering group comprising senior representatives from both parties

with clear terms of reference, governance and decision making authority.

Exam Question Summary For part a)

Most candidates were able to give a reasonable pass answer to this mandatory question. In

the main, candidates provided clear statements about the importance of conducting risk

management in general with better candidates analysing the specifics of the organisations in

the case study as demanded by the question. Many candidates grasped words or phrases

from the question and wrote all they know about those things. By doing so, this was at the

expense of properly answering the question and in some instances resulted in failure to

achieve a pass. Some candidate answers mentioned the need for alignment of objectives,

avoiding issues that will cause reputational or financial damage. Those answers were a veryreasonable interpretation of the question and were marked as a pass. Those candidates who

simply reproduced the listed issues from the case study and figure tended to score less.

For part b)

Again most candidates were able to produce a satisfactory pass answer. However many

failed to appreciate the need for, or the meaning of the high-level guidelines called for by

the. For example some candidates simply listed out the 4 T’s with no substance and no

reference to the context of the case study. There was also a lack of appreciation of the need

to work in harmony in an alliance. Additionally, many candidates focussed on contract terms

and conditions without considering higher level issues

A common issue noted was the tendency for some candidates to write a lot more for part a)

(which was worth just 10 marks) by comparison to par b) (which was worth 15 marks). The

mark weighting is a useful indicator to candidates on the amount they should put into each

component of a multiple part question. Too few candidates focussed on the context of the

case study and answered the questions in general terms, and not “in the context of the

information provided” as is clearly stated on the exam paper.

Question 2

This was a single mandatory question worth 25 marks.

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Q2 Propose and justify a risk management strategy differentiating

between approaches for critical (15 marks) and non-

critical (10 marks)contractor services for Globe-Span

Energy.

(25 marks)

Analysis of the Question This mandatory question sought to test candidate knowledge of risk management strategy

development in the context of the GSE case study and also the ability to articulate different

approaches depending on whether the contractors’ services are critical or non-critical.

Syllabus reference: 2.1 refers.


Candidates were expected to recognise that GSE’s risk management strategy will stem from

a high level vision or overview to a policy and procedure which can be utilised. There will

likely be different risk management strategy options for critical and non-critical services,

however both can be generically shaped by using the 4T’s concept (namely Treat, Transfer,

Tolerate and Terminate). Risk strategy comprises treating, transferring, tolerating or

terminating risks so that Globe-Span Energy can benefit from recognition of potential

vulnerabilities or opportunities. Additionally, candidates were expected to capture the

rationale behind when it is appropriate and under what circumstances companies should

considering entering into a long or short term contract building on their answers to

mandatory Q1). This rationale can be illustrated simply by use of adapted Kraljic matrix.

The risk management approach for GSE towards its critical contractor services should

comprise: Treating the risk by entering into a long term relationship with the contractor to

reduce the exposure to GSE of not having access to a contractor that is in great demand .

Tolerating the long term lock-in by having managed GSE’s risk down to an acceptable level.Transferred part of the risk to the Contractor under a long term risk/reward incentivised

contract. The risk management approach for GSE towards its non-critical services should

comprise: Treating the risk of not taking advantage of a competitive market by routinely

tendering short term needs to the marketplace where there is apparently high levels of

competition and no shortage of suppliers. Short term contracts are indicated in such a

business environment. Tolerating the uncertainty of different suppliers because of the

ability to frequently change our suppliers due to the competitive nature of the market. This

is an acceptable level of risk to take. Transferred some part of the risk to the Contractor,

albeit short term.

Exam Question Summary Answers to this mandatory question varied in quality. Although most managed to achieve a

pass, others could have achieved more marks. For example - some candidates mentioned

the 4T’s but seemed to have no recognition that each of the 4T’s could be used to address

risks for both critical and non-critical suppliers but in different ways. Better answers which

scored higher marks, did so through the application of a proper strategy often detailing the

stages of identification, assessment etc. Many candidates failed to differentiate between

strategies for critical and non-critical contractor management and there were many

instances where answers only focussed on an explanation of Kraljic’s portfolio management

matrix and mentioned nothing but the creation of an alliance as their strategy.

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SECTION B

Candidates were required to answer TWO from a choice of FOUR optional Section B

questions of a more general nature across the L5-02 Risk Management & Supply Chain

Vulnerability syllabus.

Question 3This was an optional single part question worth 25 marks.

Q3 Analyse and explain the use of FIVE key performance indicators

(KPIs) as a business tool to help reduce supply chain risk

and vulnerability.

(25 marks)

Analysis of the Question This optional question sought to test candidate knowledge and understanding of FIVE

different key performance indicators (KPIs) and evaluate their relevance as a business tool in

helping to reduce supply chain risk and vulnerability. Syllabus reference: 1.4 refers.


Candidates were afforded great flexibility and choice in terms of being able to choose from a

wide range of KPI’s such as - parameters around Service & Product quality, Health, Safety &

Environment, Sub contract management performance, On time delivery performance,

Interface management performance, Quality assurance performance, Financial capability

performance, Available capacity and resources, Organisational & facility capabilities etc - the

list not being exhaustive. Ideally, candidates should be able to refer to the need to ensure

strong reliable performance linkage down and across a critical supply chain as being an

inherent success measure of cascading KPI’s.

Exam Question Summary This was the least popular of the optional question answered by candidates.

Answers to this optional question varied in quality with a mixture of pass and fails. The

common observation by the assessment team was that some candidates were unable to

give an adequate explanation of how a set of KPI’s can assist in the management of risk,

albeit that most answers managed to identify 5 different KPI’s (and sometimes more

which was not indicated and attracted no additional marks) and areas of performance

that can be measured. Most were at least able to recognise the use of KPI’s even if their

relevance to risk management was poorly explained.

Question 4

This was an optional single part question worth 25 marks.

Q4 (a) Discuss the rationale behind the development of CSR policies and

procedures by larger organisations (either public or

private) to mitigate supply chain risk.

(25 marks)

Analysis of the Question This optional question sought to test candidate ability to explain the rationale behind the

development of CSR policies and procedures by public and large private sector organisations

to mitigate inherent supply chain risk. Syllabus reference: 3.1 refers.

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What was indicated here was answers which articulated what CSR means in the context of

a public or private sector purchasers business environment (e.g. a possible description

might make reference to Corporate & Social Responsibility having a wide ranging agenda

which involves businesses looking at how to improve their social, environmental and local

economic impact, their influence on society, social cohesion and human rights).Additionally, candidates were expected to recognise the importance for companies to have

a CSR policy covering their visible operations. This policy must demonstrate organisational

capability in terms of having plans, procedures and the necessary corporate infrastructure

to deal with issues such as:

o Responsible behaviour of its management and employees which if not adhered to

Might impact on the company’s reputation in the public eye.

o Health, Safety & Environment - duty of care to workers & the wider community.

o Emergency response to an incident (having in place systems & resources that will

be effective.

The CSR policy should also be interested in the manner in which the supply chain

approaches corporate governance and ethical issues as it might well impact on the

company if there is CSR failure down its supply chain.

Exam Question Summary This was a reasonably popular optional question amongst candidates. The quality of answers

for those that did attempt it was good with most showing a clear understanding of the

constituents of CSR and its contribution to the management of risks in the supply chain.

Sometimes there was not always a clear discussion that considered the disadvantages, but

overall the assessment team were generally pleased with the quality of these answers.

More marks were achieved by candidates that recognised that irresponsible behaviours and

poor organisational CSR procedures (or lack of them) can ultimately result in a high cost to

the organisation (e.g. public reputation, bankruptcy, loss of shareholder value, criminal and

or civil prosecutions, loss of credit rating and of course loss of reputation and confidence in

the company). Loss of reputation is one of the greatest threats to any organisation - public

or private!

Question 5

This was an optional single part question worth 25 marks.

Q5 Evaluate how effective management of stakeholders can help

reduce organisational risk to business.

(25 marks)

Analysis of the Question This optional question sought to test candidate understanding of a ‘wider stakeholder

community’ and ability to identify and discuss the groups which may be part of this

community and how they might be impacted if poorly managed. Syllabus reference: 1.6

refers.

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What was indicated here was a discussion which identified the different organisational

stakeholder types and subsequent evaluation of how effective management of them can

reduce exposure to uncertainty. Candidates were afforded great flexibility in choice of

stakeholders - examples might include but not necessarily be limited to:

Shareholders: who expect improvement in share value coupled with reasonable return

on investment. Effective risk management benefits shareholders by decreasing the

probability of lower returns.

Employees: Effective risk management has obvious benefits to employees because if their

employing company fails to perform employees could be out of a job.

3rd

Pty suppliers and contractors: Suppliers and contractors benefit from effective risk

management because late or irregular payments to suppliers might result if an

organisation has cash flow difficulties; hence effective risk management should increase

the likelihood of on time payments.

Customers: There are obvious benefits of risk management to users of an organisation’sgoods or services that want quality and continuity of supply or service and the company

wants to retain customer loyalty. Good risk management reduces the likelihood of an

organisation failing to provide its goods/services

Government: Both local and central Government benefit from effective risk management

when we consider that for example: lack of profits will affect organisation’s tax returns

and local business rates might suffer if the organisation goes out of business.

Neighbours: will also benefit from effective risk management in that local organisations

which obtain a significant part of their income from the spending of an organisation’s

employees might feel the effect if, as a result of unnecessary exposure to risk.

Exam Question Summary

This was a popular optional question amongst candidates. Almost all of the candidates were

able to identify a number of internal (connected) and external stakeholders and most were

able to state clearly how they could be managed in such a way as to mitigate risks. Not all of

candidates mentioned ‘Mendelow’, but they still gave sufficient evidence of understanding

to gain pass marks. Although a handful of answers were a bit thin, most candidates were

able to cover at least three pages with a good discussion and with appropriate approaches

to the different segments, often giving pertinent examples and relating the approach to the

mitigation of risk.

Stronger answers acknowledged the importance of supply chain interdependencies - up,down and across the supply chain as part of a stakeholder network. Many companies are

critically reliant upon such networks.

Question 6

This was an optional two part question worth 9 marks for part a) and 16 marks for part b)

bringing out 25 marks in total.

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Q6 (a) Outline the key stages of a typical risk management process for

an organisation.

(9 marks)

Q6 (b) Discuss TWO different methods for identifying, assessing and

quantifying risks in the context of an organisations

external environment.

(16 marks)

Analysis of the Question This optional question sought to test candidate knowledge of the key stages of a typical risk

management process for an organisation and also different methods for identifying,

assessing and quantifying risks in the context of an organisations external environment.

Syllabus reference: 2.2 refers for both parts a) and b).


For part a)

What was indicated was for candidates to capture a risk management process framework

around: risk identification, risk analysis/evaluation and risk

treatment/reporting/monitoring. Effectively looking at: How risks are identified, Howinformation about probability and impact is obtained, How risks are quantified, How

options to deal with them are identified, How decisions on risk management are made,

How these decisions are implemented, How actions are evaluated for their effectiveness,

How effective communication mechanisms are established and supported and How

stakeholders are engaged on an on-going basis.

For part b)

Candidates were afforded a degree of flexibility in that they can choose any 2 methods

from: Use of risk registers to assess & review risks pertaining to the external environment;

Appraisal systems like SWOT analysis to identify strengths, weaknesses, opportunities &

threats and appropriate positioning in the context of an organisations external

environment; Statistical process control - on-going data collection on external environment

(SPC); Control & risk self- assessment (CRSA); PESTLE / PERT / 3 Ts; Brainstorming; Scenario

analysis; Business studies/External research/market intelligence etc…

There are so many methods to choose from, however candidates were expected to expand

on their choices by articulating the method of capture, assessment and comment on on-

going monitoring & related organisational positioning.

Exam Question Summary

This was the most popular optional question amongst candidates.

For part a)

Most candidates were able to give a very good outline of a proper risk management

approach, either listing the key headings or, in some cases, giving a fuller explanation of at

least three stages. The majority of candidates scored between 5 and 7 out of 9, meaning

that almost all candidates gained a pass for this part of the question..

For part b)

More marks could have been achieved by many candidates in their answer to this relatively

straightforward 2nd part question. PESTLE and SWOT were the most commonly explained

methods, though without much discussion or reference to their use in risk management.

Some candidates opted for Benchmarking or Ishikawa’s fishbone. A few candidates gave six

or more suggested tools which simply wasted time and diverted effort and marks from twodecent suggestions.

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For many candidates - this turned out to be the ‘rescue’ questions the answers to which

enabled them to squeeze past the overall pass mark.

General observations

A large number of candidates were presented for the November, 2012 core L5-02 unit in

Risk Management & Supply Chain Vulnerability. Returns from examination centres revealedsome candidate absenteeism at the actual examination. On-going monitoring of this is

indicated for centres where this is higher.

Overall, the centre cohorts for this series showed a reasonable understanding of the unit

topic. In the main, the majority of candidates passed at ‘normal pass’ level and to a lesser

extent at ‘credit pass’ level. The level of fails was consistent with previous series for this unit.

There were very few distinction passes.

Consistent with findings for this unit from previous examination series, there were general

areas where many candidates could have achieved more marks - for example if they had:

Written in response to the specifics of the question, instead choosing to write about

what they generally knew about the topic.

Not repeated answers on topics across several questions. Such overlap between

answers to different questions is evidence that some candidates did not study the

questions properly.

Not included lengthy preambles before getting into the answering the specifics of the

question. Not only does this not attract marks, its also wastes valuable time in answering

the overall paper.

Included more content relevant to the unit being tested. Some answers were light in

content on risk management and supply chain vulnerability. This core L5-02 unit requires

a demonstration of knowledge and understanding in the areas of risk management and

supply chain vulnerability. Answers that were more generic achieved fewer marks.

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APPENDIX

The matrix indicating the learning objectives of the new revised syllabus unit content for L5-

02 that each of the questions in the paper tested is summarised in the following appendix

table:

L5-02

Paper Ref

Question No.Learning

Objectivea b c a b c a b c a b c a b c a b c

1

1.1

1.2

1.3

1.4 x

1.5

1.6 x

1.7

1.8

2

2.1 x

2.2 x x

2.3

2.4

2.5

2.6

2.7

2.8

3

3.1 x

3.2

3.3

3.4 x x

Total marks

allocated to

question

CTLL

4

0

RISK MANAGEMENT AND SUPPLY CHAIN VULNERABILITY

Marks

distribution

by section1

62

SYLLABUS MATRIX

Nov-12

0 0

0

Managing risk and vulnerability

0 0 0 0

Author

Instructions: Complete a matrix grid for each question paper by i nserting marks value agai nst the appropriate learning objective for each pa rt of the question.

For example, if question 1 pa rt (a) is worth 5 marks and corresponds to l earning objective 1.3, place 5 in the appropriate box. Each question total should be 25

marks, as calcul ated by the row at the foot of this page. Please submit to CIPS electronically a s a MS Excel document with the question paper and marking

scheme.

0

Understanding the nature of risk in purchasing and supply

Risk management processes and structures

SECTION BSECTION A

53

Documents

L5-02 SA Report Nov12