L5M5 Managing Ethical Procurement and Supply Question and Answers

When a supplier’s conduct breaches expected standards, the appropriate tools are Root Cause Analysis (to identify why the issue occurred) and a Corrective Action Plan (to detail how the supplier will fix and prevent recurrence). The L5M5 study guide (p.228) emphasises that KPIs should already be established at the start of the contract, and a single conduct issue may not mean performance indicators are being missed. SWOT analysis is not suitable in this scenario, as it is a strategic tool rather than a compliance or corrective measure. Corrective actions ensure continuous improvement and supplier accountability, which are essential for ethical supply chain management.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.228

The L5M5 study guide (p.185) explains the distinction between regulatory documents. Guidelines are advisory documents providing best practice but are not legally binding. Regulations and statutes (A and C) are legally binding, and directives (B) are binding once incorporated into national legislation. Procurement professionals must be able to differentiate between binding legislation and advisory guidelines to ensure compliance. While guidelines help shape ethical practices, failure to follow them usually does not carry legal penalties.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.185

The International Labour Organization (ILO) sets global labour standards, and freedom of association is one of its fundamental rights. According to the L5M5 study guide (p.249), this right allows workers to form or join trade unions and workers’ organisations to collectively defend their interests. It ensures employees can negotiate working conditions, pay, and rights without discrimination or retaliation. This principle underpins fair labour practices and corporate social responsibility. Other options such as "having a second job" or "avoiding slavery" are separate issues covered under different ILO conventions, but they do not define freedom of association.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.249

Adjudication is a formal ADR method, widely used in construction and supply disputes. The L5M5 study guide (p.237) outlines its key features: it is designed to be faster than court proceedings and legally requires that a decision is reached within 28 days of referral. Decisions made can also be legally binding. Contrary to option A, adjudication is not informal; it follows structured legal processes. Option D is also incorrect, as adjudicator decisions may carry binding authority unless overturned later in arbitration or litigation. The process ensures disputes are resolved promptly, preventing long project delays.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.237

The L5M5 study guide highlights several tools procurement can use to embed ethics and sustainability into supply chains. These include benchmarking (A), which compares practices against best-in-class organisations; supply chain mapping (C), which provides visibility of all tiers of suppliers to identify risks; and on-site audits (D), which verify supplier compliance with ethical standards directly. Supplier preferencing (B) is a portfolio analysis tool used to understand suppliers’ perspectives, not specifically an ethical improvement tool. Cost analysis (E) is primarily financial and does not ensure ethical compliance. Procurement professionals must apply tools like mapping and audits to identify risks such as forced labour, environmental harm, or corruption.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, section on supplier evaluation and sustainability tools

The UN Global Compact is based on ten principles derived from UN declarations. According to the L5M5 study guide (p.249), the areas covered are: human rights (A), labour standards, environment (B), and anti-corruption (C). "Racism" (D) is not listed specifically; instead, the Compact addresses non-discrimination as part of labour rights. "Minimum wage" (E) is not a universal standard in the Compact, though labour standards cover fair conditions of work. Procurement professionals should align supply strategies with these principles to support global sustainability and ethical practice.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.249

Stakeholders are categorised based on their relationship to the organisation. The L5M5 study guide (p.105) explains that connected external stakeholders are outside the organisation but directly linked through financial or contractual relationships. Banks (financiers), investors (shareholders), and consumers (customers) fall into this category. Internal stakeholders (A) include employees and management, while external stakeholders (B) are broader groups such as regulators and communities without direct contracts. "Connected internal stakeholders" (C) is not a valid classification. Procurement professionals must identify and manage stakeholder expectations to maintain ethical, transparent supply chains.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.105

A compliance audit evaluates whether an organisation adheres to regulatory requirements, security policies, and internal risk management procedures. The L5M5 study guide (p.207) highlights that this is distinct from external audits (conducted by outsiders), third-party audits (commissioned independently), and benchmarking audits (comparing against industry peers). Procurement professionals must use compliance audits to ensure suppliers meet legislative and regulatory standards, reducing risks of non-compliance, fines, and reputational damage.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.207

The UN’s 17 Sustainable Development Goals (SDGs) form the 2030 Agenda for Sustainable Development. They cover areas such as ending poverty (A), reducing inequality (B), and combatting climate change (C). However, eradicate unethical business practices (D) is not one of the listed goals. The L5M5 study guide (p.4) stresses that while business ethics are important, the SDGs are broader, covering social, environmental, and economic development priorities. Procurement professionals should be able to identify the SDGs, as supply chain policies are increasingly aligned with them to support global sustainability efforts.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.4

The disadvantage of subcontracting is less control over performance. The L5M5 study guide (p.156) notes that while subcontracting allows access to specialist expertise, it creates additional risks for project delivery, as the main contractor remains accountable for subcontractor performance. Problems such as delays, quality issues, or non-compliance can occur, and these are more difficult to manage indirectly. Increased costs (A) are not always true since subcontracting can be cost-effective, while lower quality (B) depends on subcontractor capability. Compliance with the law (D) is a requirement, not a disadvantage. Procurement professionals must carefully manage subcontractors through clear contracts, monitoring, and accountability measures.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.156

Expert Determination is a dispute resolution process in which parties appoint an independent expert to decide on a technical matter. According to the L5M5 study guide (p.236), this method is best for disputes involving specialist knowledge, such as intellectual property, chemical formulas, or engineering specifications. The expert’s decision is legally binding. It is not chosen based on contract value (A), geographic scope (B), or interpersonal disputes (D). Procurement professionals should recognise Expert Determination as an efficient way to resolve highly technical disputes without lengthy litigation.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.236

Child labour often occurs in the production stage (e.g., farming, mining) and manufacturing stage (e.g., garment sweatshops). According to the L5M5 study guide (p.252), these unethical practices create risks for procurement, as organisations may face reputational damage, legal consequences, and disrupted supply chains. Retailers and suppliers are indirectly affected but are not the primary locations where child labour is found. Procurement professionals must ensure thorough supply chain due diligence, audits, and supplier codes of conduct to prevent child labour risks in procurement decisions.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.252

Insider trading occurs when individuals use confidential or non-public information to gain an unfair advantage in stock market trading. The L5M5 study guide (p.3) identifies insider trading as an example of unethical business behaviour. It is illegal in most jurisdictions because it undermines market fairness and investor confidence. Bribery (A) and kickbacks (B) involve corrupt practices in procurement, while "greasing the wheels" (D) refers to facilitation payments. Procurement professionals must avoid insider trading directly and indirectly (e.g., suppliers disclosing confidential financial information) to maintain ethical compliance and governance.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.3

Procurement often considers Whole Life Cycle Costing (WLCC) rather than upfront cost alone. The L5M5 study guide (p.7) explains that while a product may be more expensive initially, it may be cheaper in the long term due to lower maintenance costs, greater durability, and reduced energy use. This approach supports sustainability by balancing financial and environmental impacts. Options A, B, and D cannot be assumed from the scenario since no evidence supports them. WLCC ensures procurement delivers long-term value, aligning with sustainability goals.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.7

The STEEPLED analysis tool examines external macro-environmental factors: Social, Technological, Economic, Environmental, Political, Legal, Ethical, and Demographic. The L5M5 study guide (p.55) confirms that “D” stands for Demographic, reflecting population trends, age structures, and workforce availability. This addition evolved from the earlier PESTLE model, later extended to STEEPLE and STEEPLED. Procurement professionals use this tool to assess external risks and opportunities that may affect supply markets and ethical sourcing.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.55

The ILO defines child labour as work that deprives children of their childhood, education, or well-being. According to the L5M5 study guide (p.252), light work, such as assisting in a family business outside school hours, is not considered child labour if it does not interfere with education or harm physical and mental health. Charlie is attending school, completing homework, and only helping part-time in a family-owned shop. Therefore, this is not classified as child labour. The ILO guidelines make clear distinctions between exploitative labour (such as sweatshops or hazardous industries) and permissible family assistance.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.252

Social Security in the UK provides benefits such as sick pay, redundancy support, pensions, and maternity/paternity payments. The L5M5 study guide (p.93) specifies that payments can be made in cases of sickness (A), loss of employment (B), and retirement (C). Benefits are not provided simply for changing jobs (D) or marriage (E), as these do not affect financial or employment security. Procurement professionals need to understand social security systems, especially when working with international suppliers, since welfare provisions differ globally and affect labour conditions.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.93

A Retention of Title Clause states that ownership of goods remains with the seller until full payment is made. According to the L5M5 study guide (p.190), Orange Ltd legally retains ownership of the fruit delivered until Juicy Boots settles payment. This clause protects suppliers, particularly SMEs, from non-payment risks. Signing for delivery does not override the clause, and timely delivery is irrelevant. Retention of Title is an important risk management tool in procurement contracts.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.190

The ILO Fundamental Principles of Human Rights apply to governments, as ILO conventions must be ratified and enforced at the national level. The L5M5 study guide (p.271) contrasts this with frameworks aimed at businesses: UN Global Compact (A), SA8000 (C), and OECD Guidelines for Multinational Enterprises (D). Governments are responsible for implementing and enforcing ILO standards, while businesses align with other voluntary or certification frameworks. Procurement professionals must understand which standards apply to suppliers and which are obligations for governments when working internationally.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.271

The World Fair Trade Organisation (WFTO) has a set of 10 principles designed to ensure fair and sustainable trade. These include providing opportunities for disadvantaged producers, ensuring the payment of a local living wage, promoting gender equity, and rejecting child labour and forced labour. The L5M5 study guide (p.295) confirms that the WFTO focuses on disadvantaged producers in developing countries, differentiating it from organisations like the ILO, which sets broader labour standards, and the OECD/EU, which focus on economic or political cooperation. Procurement professionals may encounter WFTO-certified suppliers, especially in commodities like coffee, cocoa, and handicrafts.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.295

A touch point is defined in the L5M5 study guide (old p.85, new p.112) as a stage in the supply chain where risks or problems may occur, impacting costs or performance. Examples include transport (risk of damage or loss) and quality control (risk of defective goods). Identifying touch points enables procurement professionals to implement risk mitigation strategies, such as insurance, supplier audits, or contingency planning, thereby strengthening supply chain resilience.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.112

The International Labour Organisation (ILO) has defined core labour standards. According to the L5M5 study guide (old p.60, new p.88), these include freedom of association (A) and payment of a living wage (B). Other standards include the right to unionise, elimination of forced labour, and restriction of child labour. Equal opportunities (C) and protection from job insecurity (D) are important labour rights but not classified as core ILO standards. Procurement professionals must ensure suppliers comply with these standards to avoid reputational, legal, and operational risks.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.88

ISO14001 is an international standard for environmental management systems. According to the L5M5 study guide (p.277), one disadvantage is that ISO does not set environmental performance targets itself; instead, it requires organisations to define their own targets. This means some organisations may set very easy or minimal goals, limiting actual environmental improvement. Option A is incorrect as ISO14001 applies consistently across industries. Option C is a requirement, not a disadvantage. Option D is an overgeneralisation—while some firms misuse it for "greenwashing," many genuinely use it to improve sustainability.

📖 Reference: Managing Ethical Procurement and Supply (L5M5) Study Guide, p.277