November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

INFORMATION FOR CANDIDATES

The senior assessors 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 assessors report.
The senior assessors 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 are
advised to include it in their reading during their study. Please see the following link to the
Supply Management website: http:/www.supplymanagement.com/

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November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

SECTION A
Q1 (a)

Q1 (b)

Outline the importance of analysing key supply chain risks and

vulnerabilities before Globe-Span Energy establishes any long
term alliance.
Prepare high level guidelines, which, if followed, could mitigate
risk of contract failure for Globe-Span Energy when entering an
alliance.

(10 marks)

(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 of
analysing 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 an
analysis 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 contractors 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. dont pay on time or dont 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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Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

For part b)
Candidates were expected to articulate high level guideline points such as: establishing the
clients 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 achieve
this 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 cant 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 very
reasonable 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 Ts 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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November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

Q2

Propose and justify a risk management strategy differentiating

between approaches for critical (15 marks) and noncritical (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.
Analysis of the Answer
Candidates were expected to recognise that GSEs 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 4Ts 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 GSEs 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 4Ts but seemed to have no recognition that each of the 4Ts 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 Kraljics portfolio management
matrix and mentioned nothing but the creation of an alliance as their strategy.

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November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

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 3
This was an optional single part question worth 25 marks.
Q3

Analyse and explain the use of FIVE key performance indicators (25 marks)
(KPIs) as a business tool to help reduce supply chain risk
and vulnerability.

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.
Analysis of the Answer
Candidates were afforded great flexibility and choice in terms of being able to choose from a
wide range of KPIs 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 KPIs.
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 KPIs can assist in the management of risk,
albeit that most answers managed to identify 5 different KPIs (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 KPIs 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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Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

Analysis of the Answer

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
o
o

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

Might impact on the companys reputation in the public eye.
Health, Safety & Environment - duty of care to workers & the wider community.
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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Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

Analysis of the Answer

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 organisations
goods 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 organisations 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 organisations
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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November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

Q6 (a)
Q6 (b)

Outline the key stages of a typical risk management process for (9 marks)
an organisation.
Discuss TWO different methods for identifying, assessing and
(16 marks)
quantifying risks in the context of an organisations
external environment.

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).
Analysis of the Answer
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, How
information 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 ongoing 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 Ishikawas fishbone. A few candidates gave six
or more suggested tools which simply wasted time and diverted effort and marks from two
decent suggestions.

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Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

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 revealed
some 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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November, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability

APPENDIX
The matrix indicating the learning objectives of the new revised syllabus unit content for L502 that each of the questions in the paper tested is summarised in the following appendix
table:

RISK MANAGEMENT AND SUPPLY CHAIN VULNERABILITY

SYLLABUS MATRIX
Nov-12

L5-02

Paper Ref

CTLL

Author

Instructions: Complete a matrix grid for each question paper by inserting marks value against the appropriate learning objective for each part of the question.
For example, if question 1 part (a) is worth 5 marks and corresponds to learning objective 1.3, place 5 in the appropriate box. Each question total should be 25
marks, as calculated by the row at the foot of this page. Please submit to CIPS electronically as a MS Excel document with the question paper and marking
scheme.

SECTION A
Question No.
Learning
Objective
1

1
a

SECTION B
3

2
c

4
c

5
c

6
c

Marks
distribution
by section

Understanding the nature of risk in purchasing and supply

1.1
1.2
1.3
1.4

1.5
1.6

1.7
1.8
2

Risk management processes and structures

2.1

2.2

2.3
2.4

2.5
2.6
2.7
2.8
3

Managing risk and vulnerability

3.1

3.2

3.3
3.4
Total marks
allocated to
question

x
0

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