L4M4 Ethical and Responsible Sourcing Questions and Answers

Explanation

So you can immediately discount the options starting with yes.

Quoting in GBP / £ rather than the supplier's currency reduces the risk to the buyer. It will not re-duce the cost of the import, and will probably increase it as the supplier is then taking on the risk of currency fluctuations.

Explanation

they are stock markets.

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

BSE SENSEX – Wikipedia

Explanation

Pregnant women and children are considered 'disadvantaged' by the UN. The other groups the UN call disadvantaged include; the elderly, the immunocompromised, those with disabilities and those living in poverty. This is the list given in the study guide.

A company could help disadvantaged groups in several ways. Firstly by offering employment (obviously not to the children). It could also include helping these groups as part of a Social Value out-come or community benefit scheme.

Explanation

Primary data includes trade fairs and exhibits, and phone calls to current suppliers. The others are examples of secondary data.

Remember primary= you do it yourself, Secondary = someone else did it.

Explanation

the correct answer is 'marketplace competition'.

Ethical practice is about prohibiting corrupt and unfair practice, rather than issues of supply and demand. Although being in a cartel is 'unethical behavior' this option doesn't fully answer the question which talks about limiting supply- this is related to marketplace competition.

Explanation

ISO9001 is Quality Management so is therefore the correct answer. The other options can be used to appraise suppliers but do not link directly or fully to Quality Management.

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.

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

Explanation

An ITT would include details on the awarding body (usually a brief overview of the buyer), the deadline (bids must be received by a certain date) and qualifications required (such as ISO requirements or competency certificates of staff members if it's a service contract). You wouldn't find pricing schedules in an ITT (this would be provided by the supplier in response to the ITT), nor would you find risk assessments (a supplier might be asked to provide one as part of the quality assessment of the tender though).

Invitation To Tender Simply Explained I Thornton & Lowe (thorntonandlowe.com)

Explanation

Social value is about benefitting the local community / society. Therefore of those options listed, use of local labour is the most appropriate to consider.

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.

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.

The 'people' element of the triple bottom line focuses on social responsibility, including fair labor practices and community engagement. A supplier's demonstrated commitment to a labor industry code of conduct indicates adherence to ethical labor standards, such as fair wages, safe working conditions, and respect for workers' rights, aligning with the social sustainability goals of the project.

Exact Extract from Study Guide:

"The triple bottom line – profit, people and planet

• Adopt sustainable practices, standards and specifications in the supply chain

• Consider the social impact of the organisation’s behaviours

• Design procurement processes to deliver social outcomes as well as, or as an alternative to, normal economic measures of value"

Explanation

the right to change nationality is not included in the UN Declaration of Human Rights. There are 30 in total but you're not expected to know them all. You should know the big ones though which are; life, security, belief, equal treatment, free speech and expression. A summary can be found here: Universal Declaration of Human Rights | United Nations

Employee working conditions, a code of ethics, and a carbon emissions policy are all indicative of a supplier's commitment to ESG standards. Assessing these factors aligns with responsible sourcing practices, which prioritize sustainability and ethical considerations.

Payment history and financial stress scores provide insights into a supplier’s financial health and stability. This information is crucial for procurement professionals in assessing whether a supplier can fulfill long-term commitments, supporting responsible sourcing by mitigating financial risks.

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.

In addition to price, factors like lead times, add-on costs, and past performance are important to ensure the supplier meets the buyer's requirements sustainably and reliably. These criteria align with ethical sourcing by promoting value and accountability beyond just cost considerations.

Explanation

The CIPS Code of Conduct says to adhere to all laws of countries in which I practice. So if you're in the UK and procure stuff from China, you need to abide by both UK and Chinese laws, not just UK laws.

There's no international procurement laws- these are all different for different countries.

ILO doesn't publish laws.

Compliance with fair trade standards demonstrates the supplier's commitment to social responsibility, including fair wages and ethical working conditions. This aligns with responsible sourcing practices, ensuring that suppliers maintain ethical labor standards, as advocated in the principles of ethical sourcing.

The balance sheet and profit and loss account provide a comprehensive view of an organisation’s financial health, showing assets, liabilities, and profits. These statements are essential in evaluating a supplier’s financial capacity, aligning with responsible sourcing practices for financial stability.

In the public sector, procurement activities exceeding certain financial thresholds are required to undergo competitive tendering processes. The anticipated expenditure of £950,000 surpasses the threshold that mandates a formal tendering procedure to ensure compliance with public procurement regulations, promote competition, and achieve value for money.

Exact Extract from Study Guide:

"Public sector procurement activities that exceed specified financial thresholds must follow formal competitive tendering procedures to ensure transparency and compliance with regulations."

Explanation

Social value is about benefitting the local community / society. Therefore of those options listed, use of local labour is the most appropriate to consider.

Explanation

Damian works in the Public Sector- it is against the law for the public sector to conduct 'post tender negotiation' after a contract has been awarded. This is because it's not transparent and equal opportunities, which are founding principles of public sector procurement.

Private sector can do whatever they want. They can do post-tender negotiations.

NOTE: this is currently the rules as per Public Contract Regulations 2015. These are being superseded in October by new legislation. The study guide doesn't mention this, but it's happening. At the time of writing (January 2023) we don't have the full details about what the new rules are but I doubt they will change on this particular topic. You can find out more about the changes to Public Sector Procurement here: Transforming Public Procurement - GOV.UK (www.gov.uk)

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.

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

gross profit = total revenue - cost of sales.

Learn all you can about financial ratios and financial statements for the exam- it's a very common topic

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).

Advertising in a local newspaper for a specialized requirement can lead to irrelevant bids, delaying the process. Efficient sourcing practices recommend targeted advertising to reach qualified suppliers, ensuring timely responses and reducing assessment time, especially for urgent needs.

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.

Explanation

The Consumer Rights Act 2015 is about product safety and making sure products sold on the market are fit for purpose. It gives buyers rights and protections. The Consumer Rights Act 2015 - Citizens Advice

There's a long list of legislation on p.105. I wouldn't worry about memorizing them all but just have an idea of what legislation relates to what area. E.g. GDPR is about Data Protection and the Com-petitions Act is about Marketplace competition. Most of them are quite obvious from the name.

Explanation

shareholder equity = the owner/s of the organisation's residual claim once all debts have been paid. What Is Shareholder Equity (SE) and How Is It Calculated? (investopedia.com)

Explanation

The correct answer is Invitation to Tender. This is sent out to suitable suppliers inviting them to bid for the opportunity.

A PQQ - pre-qualification questions naire- is sent to suppliers to see if they are suitable. The QUESTION NO: states these suppliers have already been deemed suitable, so they've already passed PQQ

A RFQ - request for quotation- would be used when the only variable is price, so is not suitable for complex tenders.

RFT isn't a thing. I made the last one up.

For low-value, routine purchases where price is the primary consideration, employing a weighted points system may not be necessary. Such systems are more suitable for complex procurements where multiple factors, such as quality, delivery, and sustainability, need to be evaluated alongside price. In the case of purchasing standard items like pens, a straightforward price comparison is typically sufficient.

Financial stability and supplier reliability are quantifiable factors suited to weighted points systems, allowing procurement professionals to objectively assess and compare suppliers. This method aligns with ethical sourcing practices by promoting fairness and transparency in supplier selection.

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)

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.

Explanation

This is sole sourcing as there is only one supplier in the marketplace.

Be careful not to confuse single sourcing and sole sourcing. Single sourcing is when a buyer chooses to work with only one supplier (usually to achieve economies of scale), sole sourcing, on the other hand, is when the buyer doesn't have a choice- they work with one supplier because there is only one supplier in the market.

Types of sourcing is a key concept for this exam.

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.

Response times should be tailored to the complexity of the tender. Responsible sourcing encourages flexibility in setting realistic timelines that allow suppliers adequate time to prepare, supporting efficient and effective sourcing without unnecessary delays.

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

tactical is the correct answer; items that are short-term or low value are considered tactical.

Strategic sourcing is long term and high value.

Outsourcing is moving a key business function to an external company.

Insourcing is bringing a previously outsourced part of the company back in-house.

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

To maintain integrity and avoid conflicts of interest, Tracey should declare the conflict and remove herself from the tender process. Ethical sourcing practices emphasize transparency and fairness, which prevent potential biases and maintain trust within procurement processes.

Explanation

At supplier selection stage, unsuitable suppliers should be removed (those that do not add value or pose a risk). At develop strategy stage you're not even looking at suppliers yet- you're just deciding what you need. At contract award and asset management it's too late.

CIPS procurement cycle - Procurement Supply Cycle | CIPS

Explanation

Incoterms describe the point at which an item is considered 'delivered' and explains who has the risk of what during the transport of the goods.

Explanation

An ITT would include details on the awarding body (usually a brief overview of the buyer), the deadline (bids must be received by a certain date) and qualifications required (such as ISO requirements or competency certificates of staff members if it's a service contract). You wouldn't find pricing schedules in an ITT (this would be provided by the supplier in response to the ITT), nor would you find risk assessments (a supplier might be asked to provide one as part of the quality assessment of the tender though).

Invitation To Tender Simply Explained I Thornton & Lowe (thorntonandlowe.com)

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.

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.

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.

Implementing full anti-bribery training, policies, and procedures demonstrates a proactive stance against bribery and corruption. Ethical sourcing principles encourage organisations to institutionalise comprehensive anti-bribery measures to ensure transparency, fairness, and compliance within the supply chain, reducing the risk of corrupt practices.

Explanation

New organisations or those with no loans/ credit cards may have low credit scores. This is simply because they do not have enough financial history to make their scores good. That means banks au-tomatically class them as higher risk, because they simply don't know that they're trustworthy yet.

Under FOB (Free on Board), the buyer assumes responsibility once the goods are loaded onto the ship, including costs and risks beyond this point. This Incoterm is commonly used in international trade, helping both parties clarify responsibilities and promote fair risk distribution.

In the sourcing process, obtaining necessary approvals (such as drawings for the invitation to tender) is critical to ensure clarity and readiness before engaging with suppliers. Responsible sourcing emphasizes structured preparation, ensuring compliance and accuracy in supplier expectations.

Weighted criteria allow the buyer to evaluate multiple factors, not just price, to make a fair and balanced decision. This approach ensures responsible sourcing by considering quality, sustainability, and other relevant factors alongside cost, which aligns with public procurement ethics and standards.

Explanation

a factory ordering a new machine is the correct answer.

Strategic sourcing is for high value, high risk items. The other options given are tactical sourcing as they are low value (eggs, paper and plastic cups).

See p.3 for the differences between tactical and strategic sourcing

Explanation

A Category spend is high value and strategic suppliers. C category is low value, high volume of spend aka tail spend. The bits in the middle are B category.

For example when you have a baby you have to buy lots of stuff for it. Your A spend is the big, important and expensive purchases like the pram, cot, carseat. You spend a lot of time in this category because they're important purchases you want to get right. The Tail Spend / C are all thelittle bits like nappies, baby shampoo, sippy cups. The B category are the bits in between - the purchases are kinda important but aren't as strategic or important as A category. Toys may fall into this category.

Phishing is categorized as fraud because it involves deceptive practices to gain sensitive information or financial benefits. Responsible sourcing includes ensuring that cybersecurity measures are in place to prevent fraud and protect sensitive information within supply chains.

Regularly checking supplier policies and conflict of interest registers helps ensure that suppliers are upholding ethical standards, which supports responsible sourcing practices. This governance activity aligns with ethical guidelines to promote transparency and prevent conflicts that could affect the integrity of the supply chain.

Explanation

The correct answer is bribery, corruption and the environment.

ESG stands for environmental and social governance. It's the new buzzword for CIPS and is basically everything to do with ethical procurement- so areas such as bribery and corruption are included as well as the environment.

Option 4 is incorrect as economic doesn't come into it.

Profitability and asset levels indicate a supplier’s financial stability and ability to meet contract demands. Responsible sourcing practices include assessing financial capacity to reduce risk in the supply chain and ensure long-term supplier viability.