L4M4 Ethical and Responsible Sourcing Question and Answers

Explanation

In a 'Credit Account' payment mechanism- the supplier receives payment after the goods are delivered, in line with agreed payment terms (which may be 30 days or something like that).

Public sector sourcing prioritises maintaining service levels within budget constraints and often mandates competitive tendering to promote transparency and fairness. These principles align with ethical sourcing practices, ensuring responsible expenditure and fair competition among suppliers.

Explanation

Most Economically Advantageous Tender (MEAT) is the Public Sector's go to evaluation criteria.

NOTE that this is changing from October 2023. Public Sector Procurement is currently based on legislation called PCR 2015 which itself is based on EU Procurement Directives. Now the UK has officially Brexited, we're making our own laws and the new Procurement Bill will be coming into effect in November 2024. One of the major changes is that MEAT is changing to MAT (most ad-vantageous tender - without the economical bit).

If you're sitting this exam until July 2024- you're fine- learn what the study guide says. If you're taking the exam from November 2024 I'm not sure what students are expected to do. The entire section on public sector procurement is incorrect for you. My best guess is CIPS may removequestions this section as the study guide will be wrong, but I really don't know how they plan to handle this.

The new Procurement Bill - MEAT to MAT - Hempsons - Hempsons

Financial assessments help ensure a supplier can meet the demands of a high-value contract without disruptions. This aligns with responsible sourcing principles by promoting stable supplier relationships and reducing the risk of supply chain interruptions due to financial instability.

The withholding of passports is a potential indication of modern slavery, and the offer of a discount to avoid reporting this is a form of bribery. Reporting these ethical concerns aligns with responsiblesourcing practices and is critical for maintaining a supply chain free from human rights abuses.

Incoterms clarify responsibilities between buyers and sellers, reducing certain risks but not eliminating them entirely. Responsible sourcing requires recognising that Incoterms are only part of risk management in international trade, and other factors, such as supplier reliability and quality, must be considered.

Questions about equal opportunity and anti-bribery policies assess the supplier's commitment to social and ethical standards. These aspects are part of the ESC criteria, which align with responsible sourcing practices by ensuring suppliers maintain ethical workforce practices and governance.

Explanation

Carry out due diligence is the correct answer. The other answers are incorrect:

- ensure all 46 suppliers publish an Anti Slavery Statement in line with the Modern Slavery Act is wrong because the question states that some suppliers are international. The legislation is UK, meaning international suppliers don't have to do the statement. It also only applies to companies with a turnover of £36m, and some of Zeb's suppliers may be smaller than this.

- work with less suppliers to reduce the risk of slavery entering the supply chain is a silly answer be-cause Zeb probably needs all of his suppliers. There's probably a reason he uses that many.

- ask all suppliers to get Fair Trade accredited is also a silly answer. Fair Trade only exists in some industries such as cocoa and bananas. Zig Zag Zips is in manufacturing so it's probably not going to be able to fairtrade accredit some of the stuff it buys.

The Triple Bottom Line framework evaluates an organisation's impact on social, environmental, and economic factors. Financial and environmental performance are critical components, along with social metrics, aligning with responsible sourcing goals to promote sustainability and ethical practices.

Explanation

The correct answers are 'it is easy to drive down costs' (as you can pit the suppliers against each other) and 'low risk of failure to supply' (if one supplier can't provide what you need, the other supplier might be able to).

Economies of scale and supplier loyalty are advantages of single-sourcing.

There is a risk of failure to supply is a risk associated with single sourcing.

There's a useful table of advantages and disadvantages of single / multi sourcing on p.22. Types of sourcing is a key topic for the exam.

Professional magazines, economic indices, and supplier websites provide secondary data that can be useful in understanding market trends and supplier performance. Responsible sourcing often relies on a mix of primary and secondary data sources to make informed decisions about supplier selection.

Conducting periodic audits by third-party specialists is a reliable way to monitor compliance with ethical standards, as these audits provide an objective assessment. This aligns with ethical sourcing practices, as it promotes accountability and ensures continuous adherence to agreed-upon standards.

Explanation

the correct answer is 'Yes- a low gearing ratio means the company's finances are made up of equity rather than debt'.

Remember low gearing = good (based on equity), high gearing = bad (based on debt). Anything over 50% is considered high.

The two no answers are therefore incorrect and you can discount these straight away. The other yes answer is one of those answers which COULD be true, but isn't always true, and we'd need more information to know for sure. When you get options like this there will be one that is always right and one which is sometimes right - so always pick the always right one.

Dealing with supply chain disruptions is complex, and depending what the disruption is, how big it is, what the industry is etc determines whether a supplier can handle it or not. Because there's more factors to consider than just gearing, this isn't the right answer.

Questions about equal opportunity and anti-bribery policies assess the supplier's commitment to social and ethical standards. These aspects are part of the ESC criteria, which align with responsible sourcing practices by ensuring suppliers maintain ethical workforce practices and governance.

Explanation

Incoterms can replace lengthy contract clauses as they replace the need for contracts to detail which party is responsible for organising transport, paying duties, having the insurance etc.

Incoterms is an odd one for exam topics- some students say it was a huge part of their exam and there were many questions on this. Others said there were just one or two. Questions get randomly assigned from the bank so it's completely random how many you'll get on this topic.

A full competitive tendering process ensures fairness by treating all suppliers equally, allowing them to compete on a level playing field. This aligns with ethical sourcing principles, especially in the public sector, where transparency and equal opportunity are paramount.

Evaluating total life-cycle costs, including initial purchase price and long-term maintenance, aligns with ethical sourcing by promoting cost-effective and sustainable procurement. It ensures value for money and supports environmentally and financially responsible sourcing practices.

Explanation

Incoterms describe who out of the buer and seller; organises transport and what type of transport this is, who pays for insurance, and who organises duty / tariff arrangements when the goods go through customs. See p.131. Note- some students report a lot of questions on Incoterms in the exam, some say they only had 1. If you can, I'd learn them just to be safe.

Defining corrective actions and running supplier development programs are effective remedial actions following an audit. These approaches support continuous improvement, aligning with responsible sourcing by helping suppliers meet ethical and performance standards.

Explanation

they are stock markets.

What is the FTSE 100 Index? Complete Beginner's Guide (moneycheck.com)

BSE SENSEX – Wikipedia

A full competitive tendering process ensures fairness by treating all suppliers equally, allowing them to compete on a level playing field. This aligns with ethical sourcing principles, especially in the public sector, where transparency and equal opportunity are paramount.

Competitive tendering is ideal for high-value contracts where technical expertise is essential. This method supports responsible sourcing by ensuring quality and aligning the supplier’s capabilities with the buyer’s needs, as required in more complex procurement scenarios.

Accepting an invitation under such circumstances would violate ethical standards, as it could create a conflict of interest. Ethical sourcing and procurement practices require impartiality, and any perceived favoritism or bias can harm the organisation's integrity.

Explanation

One of the biggest advantages to making an item over buying it is 'improved quality control'.

When you make the product yourself, you can set the quality parameters you require and aren't re-stricted to, or dependant on, what the supplier does. The other options are incorrect- making stuff inhouse would mean you hold more inventory. If the supplier has a higher skillset than you, you would outsource. Threat of substitutions wouldn't impact this decision.

For a list of pros and cons relating to the 'make or buy' decision see p.5. This is a hot topic for the exam.

Explanation

Intracompany trading is when two departments in the same company do trading. AND when two companies owned by the same parent company do trading.

INTRA means 'within' - so it's doing business with yourself.

Explanation

EBITDA stands for 'earnings before interest, tax, depreciation and amortization'. This is a profitability ratio and would show how profitable a business is.

EBITDA: Definition, Calculation Formulas, History, and Criticisms (investopedia.com)

Ordering in November, when demand is lowest, may allow the buyer to secure better pricing and availability, aligning with responsible sourcing by optimizing purchase timing to achieve cost savings and reliable supply.

Incoterms are grouped as E (Ex Works), F (Free Carrier), C (Carriage Paid To), and D (Delivered Duty Paid), reflecting various stages of responsibility transfer between buyer and seller. Understanding Incoterms is critical for responsible sourcing, as it clarifies logistics and cost responsibilities.

Explanation

A credit rating generates a score which reflects 'the level of risk an organisation poses when dealing with other businesses'. It's saying how risky it is to loan them money or do business with them by looking at how good they are at paying people. So a high credit rating will say they're good at paying back their loans and paying their suppliers on time. A poor credit rating will say they often miss payments or pay late.

A credit rating will not tell you how much money they have, or details on their prices. Credit scores looks at purely financial data so wouldn't help you analyse whether their business practices are ethical or not.

Multi-sourcing allows organisations to diversify their supply base, providing flexibility, and reducing risk by having multiple suppliers. It is an effective strategy to prevent over-dependence on a single source and allows for competition among suppliers, promoting quality and ethical standards in the supply chain.

Explanation

energy, agriculture, metals, livestock are the four trading categories on the stock exchange. Some-times there's a 5th category added which is 'environmental credits'. This is a fairly new thing and you don't need to know anything about this for this exam.

Question no commodities will mainly centre around characteristics of commodities and factors that affect pricing.

Commodities are discussed much more in detail in L5M4. At level 4 you just need a basic overview.

Explanation

Phishing is a type of fraud where IT users are sent a link (usually by email) which exposes them to activities of expert cybercriminals.

Explanation

security, consultancy and cleaning are services which are often tendered as they tend to be high value and complex opportunities.

Office supplies and raw materials have less variables so you could use a RFQ for these instead.

A hint for this is also the word services. Security, consultancy and cleaning are services. Raw Materials and Office Supplies are goods.

Explanation

The correct answers are; lead times, product competition and changes in the marketplace.

You wouldn't expect to receive samples or costings from a Request for Information - rather, these should be expected as part of the Tender Competition

CIPS members who adhere to the CIPS Code of Conduct gain insight into ethical business practices and retain their membership and access to CIPS resources. This commitment to ethical standards supports responsible sourcing by fostering a community of professionals who value integrity and best practices.

Explanation

You should investigate automatically low tenders by clarifying the bid with the supplier. It could be they have misunderstood the requirement. Or the bid could be genuine and they can really provide best value for money. But without enquiring, you just don't know.

Explanation

The correct answer is 'no- quoting in the supplier's currency increases the risk for the buyer'. This questions comes up in a variety of formats in the exam. Remember; if the price is in your own currency (most examples in the exam are given in £) there is less risk than if the prices are quoted in a foreign currency. This is because exchange rates fluctuate; if the price is in £ you always know what you're paying, if it's in another currency the price can change daily depending on if the exchange rate compared to £ has gone up or down.

Explanation

cash in advance is the most beneficial to a supplier.

Open account /credit account is the most beneficial to the buyer. Learn this as it's a known exam topic.

Explanation

According to p.75 "a RFQ attempts to assess which supplier can achieve the Five Rights of Procurement". Although price is the only factor considered when using a RFQ- it's important to consider this price in detail; can the supplier deliver the right QUALITY of product for this price?, can they deliver the item WHEN we need it for this price? etc.

The answer is not 'who will deliver it the cheapest' because Jamilla might not pick the cheapest sup-plier. If the cheapest supplier has inferior quality paper, or can only make deliveries every other Tuesday then Jamilla may not select them.

Porter's Five Forces and the STEEPLED model are valuable tools for analyzing supply markets. These models help identify external pressures and market dynamics, supporting responsible sourcing by enabling buyers to understand and respond to market influences effectively.

Total Quality Management (TQM) practices and ISO 9001 certification are indicators of a supplier’s commitment to quality. Responsible sourcing evaluates these factors to ensure suppliers meet high-quality standards and continuous improvement expectations.

Explanation

ILO = the International Labour Organisation.

ISO is the International Standardisation Organisation- they also come up in this exam.

Fair Trade is about paying suppliers properly.

WWF is the World Wildlife Foundation, or if you watched wrestling in the 90s, the original WWE. You do not need to know about wildlife or wrestling for this exam.

Prohibiting trade union membership is a violation of workers' rights and international labor standards. Such a practice indicates potential non-compliance with ethical sourcing principles and necessitates further investigation. Ensuring that suppliers respect workers' rights to association is fundamental to ethical procurement.

Explanation

Cleaning and Facilities Management are the most appropriate items to outsource. They would not outsource the making of confectionary products as this is the 'core' business.

See p.4 for "what is outsourcing?"

Evaluating total life-cycle costs, including initial purchase price and long-term maintenance, aligns with ethical sourcing by promoting cost-effective and sustainable procurement. It ensures value for money and supports environmentally and financially responsible sourcing practices.

Explanation

weighted points systems for assessments should add up to 100. This is 100%.

An example is how this would work is

Price = 50%

Health and Safety questions= 30%

Qualifications = 20%

Explanation

Price and Quality are the two considerations when marking a competitive tender.

Location, distribution and reputation may be considered for SOME tenders, but these would be sub-categories that fall under 'quality questions.

Explanation

A supplier who follows the CIPS Code of Conduct is more likely to meet the buyer's needs is the correct answer.

The other options are wrong:

1) Compliance with Codes of Conduct from professional bodies is optional. E.g. CIPS - no organi-sation is forced to comply with CIPS.

2) Unethical behaviour is not impossible to detect, it may be difficult but with correct due diligence and things like audits it's completely possible

3) ISO 14001 is quality management so is irelevent.

Explanation

The correct answer is the CIPS Code of Conduct. This is a voluntary document about doing 'good procurement' i.e. treating suppliers with respect.

EU Procurement Directive is legislation, so isn't voluntary

ISO9001 is about quality management

ILO is an organisation rather than a document

Explanation

EBITDA stands for 'earnings before interest, tax, depreciation and amortization'. This is a profitability ratio and would show how profitable a business is.

EBITDA: Definition, Calculation Formulas, History, and Criticisms (investopedia.com)

Explanation

The best way to deal with potential Conflicts of Interest is to openly declare these. Just because you have a relationship with someone doesn't mean this is going to be an issue or lead to fraud, but it is a good idea to keep a written record of these.

It wouldn't be a risk register, because how can you rate someone's risk of doing something dodgy? Risk registers are for objective risks such as Health and Safety.

Loss of control and loss of private information are significant risks in outsourcing. Responsible sourcing involves mitigating these risks by setting clear agreements, monitoring, and safeguarding sensitive information to maintain control over outsourced activities.

Intra-company trading aims to optimize internal resources by enhancing production capacity utilization and offsetting fixed costs. By supplying goods or services internally, organizations can achieve economies of scale and better allocate resources. However, compensating for less effective technology or ensuring superior internal technology over external suppliers are not primary objectives of intra-company trading.

Explanation

The correct answer is 'demand is exceeding supply'- If everyone wants to buy something, the sup-pliers will likely increase the price.

If there was little demand or there were threats of substitutions, this would likely result in a price decrease.

Incorporating standards within specifications provides clear guidelines for suppliers, reducing ambiguity and helping ensure consistency in quality and performance. This aligns with ethical and responsible sourcing practices by promoting transparency and setting consistent expectations for suppliers.

Addressing human rights issues collaboratively by developing an action plan allows for improvement and correction. This approach is consistent with ethical sourcing principles, which encourage responsible intervention to correct and improve supply chain practices rather than punitive measures that may not lead to long-term change.

Explanation

When single sourcing, you should aim to have a collaborative relationship with the supplier. They're the only ones who provide you with glass, which is a vital part of windows. So you need to make sure you have a good relationship with them and work with them to overcome any issues such as supply chain disruptions. If not- you've got no windows to sell!

Incoterms, short for International Commercial Terms, were introduced by the International Chamber of Commerce (ICC) in 1936. These standardized terms are used globally to define the responsibilities of buyers and sellers in international trade, helping to avoid misunderstandings by clarifying tasks, costs, and risks involved in the delivery of goods.

Explanation

The C category is the 'tail spend' - it represents a large number of suppliers of small value items.

I recommend giving this a read ABC Classification & ABC Method | CIPS