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CIPS Scope and Influence of Procurement and Supply Sample Questions (Q48-Q53):

NEW QUESTION # 48
What is a Code of Ethics? What should an Ethical Policy Contain? What measures can an organisation take if there is a breach of their Ethical Policy? (25 points)

Answer:

Explanation:
See the solution in Explanation part below.
Explanation:
- Firstly give a short definition of Code of Ethics: a document that sets out moral principles or values about what is right and wrong.
- What an Ethical Policy should contain: Condition of workers, Environment, H+S, Discrimination, Gift / Bribery Policy, Whistleblowing, Confidentiality, Fair Dealings, Declaration of Conflict of Interests. You won' t have time to go into depth on all of these, so pick a few where you want to give an example.
- Measures to take if there is a breach: depending on what the breach is and who breached it this could include: education/ training, sanctions, blacklisting, reporting to authorities, publicise the issue, use a performance improvement plan, issue warnings, dismissal.
Example Essay:
A code of ethics is a formal document or set of principles that outlines the values, ethical standards, and expected conduct for individuals within an organization. It serves as a guide for employees and stakeholders, shaping their behaviour and decision-making to align with the organization's ethical framework. It may take the form of a Mission Statement, Core Values, Specific Guidelines or established reporting mechanisms. The purpose of the Code is to establish standards, promote integrity, mitigate risks and build trust- with both internal and external stakeholders.
A Code of Ethics may contain the following:
- Condition of workers - stating what the company will provide to the employees to make sure the environment is safe. This could include the physical environment but also hours worked, opportunities for breaks etc. Depending on the sector it could detail shift patterns, expectations regarding overtime and compensation.
- Environment - this section would discuss compliance with legislation regarding pollution, disposal of waste materials etc. Depending on the company's goals- they may have higher commitments to the environment than those imposed by the government. Additional commitments may include NetZero targets or the use of renewable sources of energy.
- H+S- Health and Safety. Ensuring that the working environment is free of hazards and that workers have the training and equipment they need to complete the work safely. E.g. PPE
- Discrimination- a promise not to discriminate based on any characteristic. Aligns with the Equalities Act.
Policy should include how the company would handle situations, for example if an employee reports an issue of discrimination or harassment. This may involve the use of a whistleblowing hotline or details on how to contact HR.
- Gift / Bribery Policy - this area of the code of conduct would explain whether the company allows staff members to receive gifts (e.g. from suppliers) and the processes to complete if they do (e.g. return the item, complete an internal document, donate the gift to charity). Different companies and industries will have different rules surrounding this, the Public Sector is much more likely to reject gifts from suppliers for example.
- Declaration of conflict of interests- this explains what staff should do if there is a conflict. For example if they are running a tender and their father owns one of the suppliers who is bidding for the work. The conflict of interest policy will explain what the person should do, how to report it and have mechanisms in place to ensure that nothing untoward could come of the situation. This may be having another member of staff mark the tender to ensure unbiasedness.
Measures to take in case of a breach
A response to a breach will depend on who breached the policy - whether this is an employee or a supplier. It will also depend on the severity of the breach.
Remedies for a supplier breach could include: education / training if the breach is minor. Supplier development if the relationship with the supplier is very important (for example if there are no other suppliers the buyer could turn to) and the breach is minor. If the breach is major such as fraud or misappropriation of funds, a buyer could look to issue sanctions, claim damages and dismiss the supplier. There could be options to claim liquidated damages if this is included in the contract. For very serious offenses the buyer may blacklist the supplier- never use them ever again and could also report the issue to the police if the breech is also criminal (e.g. modern slavery or fraud).
Remedies for an employee breach could include: for minor breaches training may be required, particularly if it was a junior member of the team and it was an innocent mistake like forgetting to fill out a form when they received a Gift. The employee could be carefully monitored and put on an Improvement Plan. If internal issues are found, such as several staff are breaching the Code of Ethics, senior management could look to review policies to make sure issues are being flagged and responded to in the best way. Employees who fail to follow the Ethical Policy, either through routinely failing to adhere to it or through a major breach could be dismissed from the organisation. There would need to be strong evidence of this.
In conclusion it is important for all organisations regardless of size of industry to have an Ethics Policy.
Sharing the code of ethics with staff is a fundamental step in embedding ethical principles into the organizational culture. Regular communication and training reinforce these principles, fostering a shared commitment to ethical behaviour across all levels of the organization.
Tutor Notes
- In an essay like this it's always a good example to use examples. They can be hypothetical - you don't have to know any company's Ethics policy off by heart. E.g. If a supplier breached a buyer's Ethical Policy by employing Child Labour in their factories, an appropriate measure for the buyer to take would be to cancel the contract and find another supplier. This is because not only is Child Labour illegal, the buyer will not want to be associated with this supplier as it will have negative repercussions on their image. The best response would therefore be to distance themselves from the supplier.
- Code of Ethics and an Ethics Policy are the same thing. Just different language. The terms can be used interchangeably
- Study guide p. 128

NEW QUESTION # 49
Explain how a focus on each of the 'five rights of procurement' can be used to meet Fast Fashion's objectives.
Fast Fashion is a national retailer of a variety of lower-priced clothing items, which are sold to men, women and children. It currently has 50 stores across different parts of the country and these are primarily based in the centres of towns and cities.
Fast Fashion buys its finished products, that are packaged ready for sale, from a range of global clothing manufacturers and then these are shipped directly from these suppliers to the stores. Fast Fashion then label and price the products in the stockrooms of each store, before putting them into the shops' retail areas for sale to their customers.
As its stores are located in high-cost city and town centres, it has limited space for storage and rely on its suppliers to deliver on time and in the required quantities. Although Fast Fashion can compete with similarly priced physical high-street retailers, it is facing increased competition from global online sellers, who often buy the same product from the same suppliers, but can charge less due to the lower costs in their overall supply chain. In addition, some of its global suppliers have threatened to increase their prices, stating that their labour costs are rising in the developing economies in which they operate.
In order to meet Fast Fashion's objectives of effectively and efficiently managing the spend with its supply base, you have been recruited as an experienced procurement and supply manager.

Answer:

Explanation:
See the solution in Explanation part below
Explanation:
The 'five rights of procurement' are: right quality, right quantity, right place, right time, and right price. Focusing on each of these can help Fast Fashion meet its objective of managing spend effectively and efficiently with its suppliers.
1. Right Quality
Fast Fashion must ensure that the clothing it purchases meets the quality expectations of its customers. As a retailer of lower-priced fashion, the quality must be fit for purpose, durable enough for use, and consistent across batches.
By working closely with global suppliers and setting clear specifications, Fast Fashion can reduce issues such as defective goods or returns, which would increase costs. For example, poor-quality garments could damage brand reputation and lead to lost sales.
Therefore, achieving the right quality helps to:
Reduce waste and returns
Maintain customer satisfaction
Avoid unnecessary costs
2. Right Quantity
Due to limited storage space in city-centre stores, ordering the correct quantity is critical. Overstocking would lead to storage problems, while understocking could result in lost sales.
Fast Fashion should use demand forecasting and sales data to order appropriate quantities and possibly adopt just-in-time (JIT) delivery approaches.
For example, frequent smaller deliveries from suppliers would help balance stock levels and reduce holding costs.
This ensures:
Efficient use of limited space
Reduced inventory holding costs
Availability of products for customers
3. Right Place
Products must be delivered directly to the correct store locations, as Fast Fashion's model relies on suppliers shipping directly to stores rather than central warehouses.
Ensuring delivery to the right place reduces handling costs and delays. If goods are sent to the wrong location, it would create additional transport costs and operational inefficiencies.
For example, accurate logistics coordination and clear delivery instructions can ensure goods arrive at the correct store first time.
This helps:
Improve operational efficiency
Reduce unnecessary transport costs
Ensure products reach customers quickly
4. Right Time
Timing is especially important in the fast fashion industry, where trends change quickly and stores have limited storage.
Fast Fashion depends heavily on suppliers delivering on time, as delays can lead to stockouts and missed sales opportunities. Late deliveries may also result in outdated stock that is no longer in demand.
For example, implementing supplier performance monitoring and agreements (such as SLAs) can help ensure timely deliveries.
This enables:
Continuous product availability
Reduced risk of lost sales
Better response to changing fashion trends
5. Right Price
Fast Fashion faces strong competition from online retailers with lower operating costs, as well as increasing supplier prices due to rising labour costs.
To achieve the right price, procurement must focus on:
Negotiating with suppliers
Building long-term relationships
Exploring alternative or lower-cost suppliers
Considering total cost of ownership (not just purchase price)
For example, consolidating orders or forming strategic partnerships may help secure better pricing.
This supports:
Cost control and profitability
Competitive pricing in the market
Efficient spend management
Conclusion
By focusing on the five rights of procurement, Fast Fashion can improve efficiency across its supply chain. This will allow the company to control costs, improve supplier performance, and remain competitive against online retailers, while meeting customer expectations.

NEW QUESTION # 50
Explain FIVE differences between capital expenditure and operational expenditure categories of spend for an organisation.
(25 marks)

Answer:

Explanation:
See the solution in Explanation part below.
Explanation:
When discussingcapital expenditure (CapEx) and operational expenditure (OpEx)in the context of procurement and supply, it is essential to understand how they impact an organization's financial planning, decision-making, and procurement strategy. Below arefive key differencesbetween CapEx and OpEx:
1. Definition and Nature of Spend
* Capital Expenditure (CapEx):Refers to investments made by a company to acquire, upgrade, or maintain physical assets such as property, machinery, or equipment. These are typically large, one-time purchases that provide long-term benefits.
* Operational Expenditure (OpEx):Involves day-to-day expenses required to run the business, such as salaries, rent, utilities, and consumables.These costs are necessary for ongoing operations.
2. Accounting Treatment
* CapEx:Considered a long-term investment, it is capitalized and recorded as an asset on the balance sheet. Depreciation or amortization is applied over the useful life of the asset.
* OpEx:Fully expensed in the profit and loss statement in the accounting period in which it is incurred. It directly impacts the organization's profitability in the short term.
3. Budgeting and Approval Process
* CapEx:Requires substantial financial planning, detailed justification, and approval from senior management due to its high-cost implications.It often involves long-term financial commitment.
* OpEx:Generally included in the organization's operating budget and does not require extensive approval processes, as it consists of routine expenses necessary for daily business functions.
4. Impact on Cash Flow and Financial Planning
* CapEx:Affects cash flow significantly as it requires large upfront payments. Organizations often finance CapEx through loans, leasing, or long-term financial strategies.
* OpEx:Represents smaller, recurring costs that are easier to manage and predict within the financial year, allowing for more flexibility in cash flow management.
5. Examples of Procurement and Supply Considerations
* CapEx Examples:Purchasing manufacturing equipment, acquiring new office buildings, upgrading IT infrastructure (e.g., servers, data centers).
* OpEx Examples:Office supplies, utility bills, employee salaries, maintenance and repair costs, software subscriptions.
Conclusion
Understanding the distinction betweencapital expenditure and operational expenditureis essential for procurement and supply professionals to make informed financial decisions, align with corporate strategy, and ensure efficient resource allocation. Procurement teams must consider factors such as cost-benefit analysis, funding sources, and long-term value when determining the best approach for an organization's spending strategy.

NEW QUESTION # 51
What is a Code of Ethics? What should an Ethical Policy Contain? What measures can an organisation take if there is a breach of their Ethical Policy? (25 points)

Answer:

Explanation:
See the solution inExplanation partbelow.
Explanation:
- Firstly give a short definition of Code of Ethics: a document that sets out moral principles or values about what is right and wrong.
- What an Ethical Policy should contain: Condition of workers, Environment, H+S, Discrimination, Gift / Bribery Policy, Whistleblowing, Confidentiality, Fair Dealings, Declaration of Conflict of Interests. You won't have time to go into depth on all of these, so pick a few where you want to give an example.
- Measures to take if there is a breach: depending on what the breach is and who breached it this could include:
education/ training, sanctions, blacklisting, reporting to authorities, publicise the issue, use a performance improvement plan, issue warnings, dismissal.
Example Essay:
A code of ethics is a formal document or set of principles that outlines the values, ethical standards, and expected conduct for individuals within an organization. It serves as a guide for employees and stakeholders, shaping their behaviour and decision-making to align with the organization's ethical framework. It may take the form of a Mission Statement, Core Values, Specific Guidelines or established reporting mechanisms. The purpose of the Code is to establish standards, promote integrity, mitigate risks and build trust- with both internal and external stakeholders.
A Code of Ethics may contain the following:
- Condition of workers - stating what the company will provide to the employees to make sure the environment is safe. This could include the physical environment but also hours worked, opportunities for breaks etc. Depending on the sector it could detail shift patterns, expectations regarding overtime and compensation.
- Environment - this section would discuss compliance with legislation regarding pollution, disposal of waste materials etc. Depending on the company's goals- they may have higher commitments to the environment than those imposed by the government. Additional commitments may include NetZero targets or the use of renewable sources of energy.
- H+S- Health and Safety. Ensuring that the working environment is free of hazards and that workers have the training and equipment they need to complete the work safely. E.g. PPE
- Discrimination- a promise not to discriminate based on any characteristic. Aligns with the Equalities Act.
Policy should include how the company would handle situations, for example if an employee reports an issue of discrimination or harassment. This may involve the use of a whistleblowing hotline or details on how to contact HR.
- Gift / Bribery Policy - this area of the code of conduct would explain whether the company allows staff members to receive gifts (e.g. from suppliers) and the processes to complete if they do (e.g. return the item, complete an internal document, donate the gift to charity). Different companies and industries will have different rules surrounding this, the Public Sector is much more likely to reject gifts from suppliers for example.
- Declaration of conflict of interests- this explains what staff should do if there is a conflict. For example if they are running a tender and their father owns one of the suppliers who is bidding for the work. The conflict of interest policy will explain what the person should do, how to report it and have mechanisms in place to ensure that nothing untoward could come of the situation. This may be having another member of staff mark the tender to ensure unbiasedness.
Measures to take in case of a breach
A response to a breach will depend on who breached the policy - whether this is an employee or a supplier. It will also depend on the severity of the breach.
Remedies for a supplier breach could include: education / training if the breach is minor. Supplier development if the relationship with the supplier is very important (for example if there are no other suppliers the buyer could turn to) and the breach is minor. If the breach is major such as fraud or misappropriation of funds, a buyer could look to issue sanctions, claim damages and dismiss the supplier. There could be options to claim liquidated damages if this is included in the contract. For very serious offenses the buyer may blacklist the supplier- never use them ever again and could also report the issue to the police if the breech is also criminal (e.g. modern slavery or fraud).
Remedies for an employee breach could include: for minor breaches training may be required, particularly if it was a junior member of the team and it was an innocent mistake like forgetting to fill out a form when they received a Gift. The employee could be carefully monitored and put on an Improvement Plan. If internal issues are found, such as several staff are breaching the Code of Ethics, senior management could look to review policies to make sure issues are being flagged and responded to in the best way. Employees who fail to follow the Ethical Policy, either through routinely failing to adhere to it or through a major breach could be dismissed from the organisation. There would need to be strong evidence of this.
In conclusion it is important for all organisations regardless of size of industry to have an Ethics Policy.
Sharing the code of ethics with staff is a fundamental step in embedding ethical principles into the organizational culture. Regular communication and training reinforce these principles, fostering a shared commitment to ethical behaviour across all levels of the organization.
Tutor Notes
- In an essay like this it's always a good example to use examples. They can be hypothetical - you don't have to know any company's Ethics policy off by heart. E.g. If a supplier breached a buyer's Ethical Policy by employing Child Labour in their factories, an appropriate measure for the buyer to take would be to cancel the contract and find another supplier. This is because not only is Child Labour illegal, the buyer will not want to be associated with this supplier as it will have negative repercussions on their image. The best response would therefore be to distance themselves from the supplier.
- Code of Ethics and an Ethics Policy are the same thing. Just different language. The terms can be used interchangeably
- Study guide p. 128

NEW QUESTION # 52
Explain 5 stages of the sourcing cycle that occur in the pre-contract stage (25 points)

Answer:

Explanation:
See the solution inExplanation partbelow.
Explanation:
How to approach this question:
- The Sourcing Cycle is the first half of the CIPS Procurement Cycle and includes these steps:
1) Define Business Need
2) Market Analysis + Make vs Buy
3) Develop Strategy and Plan
4) Pre-Procurement Market Testing
5) Develop Documents and Specification
6) Supplier Selection
7) Issue Tender
8) Bid Evaluation
9) Contract Award and Implementation
Your response should detail 5 of these. It is a good idea to pick the ones you know most about and where there is more to write about. You won't get any extra points for naming more than 5 so focus on getting as much detail down about 5, rather than explaining more of them.
Essay Plan
Introduction - explain what the sourcing cycle is - the stages of the procurement cycle before a contract is signed. It describes the steps an organisation will take to source/ procures goods or services.
Paragraph 1 - Define the business need
How is the need identified? E.g. by end user, stores department, ERP system.
Procurement should challenge this - is it really necessary? Suggest alternatives - this could be a key source of added value
Put together business case / requisition / project initiation document
What type of purchase? Straight rebuy, modified rebuy, new purchase
Decide on what type of specification would be best - Conformance vs performance specification
This stage may include early supplier involvement
Paragraph 2 - Market Analysis and Make vs Buy Decision
Create an Analysis by segmenting the market by buyer, product, distribution channel, geography, customer market etc.
Make vs Buy - use Carter's Matrix to decide whether the organisation should make vs buy.
Also consider outsourcing at this stage
Paragraph 3 - Documents and Specification
Draft documents. These may include a RFQ or ITT, a specification and a proposed form of contract
Specification may be conformance or performance based
A contract sets out the roles, rights, responsibilities and obligations of the parties and shows intention to enter into 'legal relations'
This stage defines the 'offer' which becomes binding once other party accepts
Documentation may also include proposed KPIs and SLAs
Paragraph 4 - Supplier Selection
For a new purchase, supplier selection is very important - investigation should be proportionate to the value of the procurement. For rebuys or low-risk purchases you could use the same supplier or a list of pre-approved suppliers.
You can locate potential suppliers by; catalogues, websites, trade registers, market exchanges and review sites, trade or industry press, fairs and conferences, networking and recommendations/ referrals.
You can shortlist suppliers by sending out a pre-qualification questionnaire. This adds value by reducing wasted time / costs / risks to entering into a contract with the wrong supplier.
Other criteria for supplier selection include using Carter's 10 Cs (competency, consistency, capability, control, cost, cash, clean, communication, culture, commitment), thesupplier's financial standing (e.g. liquidity and gearing), references and considering their CSR policy.
Paragraph 5 - Issue Tender
Competitive bidding should only be done when there's sufficient time and resources available, there's sufficient suppliers in the marketplace, they're keen to win business (ie that there's appetite for competition) and there is a strong specification
Best practice is to issue tenders electronically as it ensures equal treatment of suppliers and transparency
Consider open vs closed procurement processes
Use a cross-functional team - particularly when marking responses
Conclusion - you could mention here that different sourcing activities may require more or less effort at each of the stages e.g. procuring a new item may require more market analysis than a re-buy.
Tutor Notes:
- If you want to add in extra details, you could think about ways procurement can add value at each stage
- In the old syllabus, CIPS were a bit obsessed with Michael Porter. In the Market Analysis bit you could talk about using Porter's 5 forces (buyer and supplier power, threat of new entrants, threat of substitutions, supplier rivalry) and Porter's 3 generic strategies for competing (cost leadership, differentiation, niche segment). This has been removed from the study guide so it's not essential to know this for this module, but if you've seen it before it's a nice one to throw in.
- You could also mention that there are differences between the public and private sector procurement at the different stages. E.g. Public Sector requires open competitions for contracts of a certain value and must follow the rules set out in Public Contract Regulations - the private sector doesn't have such strict regulations so there is much more flexibility in how tenders are completed. Also in the public sector, the evaluation criteria needs to be agreed beforehand and presented in the ITT- not the same for the private sector.
- Study guide p.71

NEW QUESTION # 53
......

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