Advanced Diploma in

Purchasing and Supply

Risk Management and
Supply Chain Vulnerability

LEVEL 5

L5-02

Senior Assessors Report

November 2009

SECTION A
Q1

Evaluate the issues which could influence how EGN

develops a CSR policy for managing risk and
vulnerability in its complex international supply chain.

(25 marks)

Analysis of the Question

The mandatory question sought to test the candidates ability to evaluate issues from a
case study which could influence how an organisation develops a CSR policy for
managing risk and vulnerability in a complex international supply chain in an ethical and
professional way. (Syllabus references: 1.7, 2.1 & 3.1 apply)
Analysis of the Answer
Candidates were expected to give an outline description of what CSR means in the
context of Ethical Gemstones business environment - making reference to CSR being a
wide ranging agenda and involving looking at how to improve the companys social,
environmental and local economic impact, its influence on society, social cohesion &
human rights. What was indicated was recognition of the importance for Ethical
Gemstones to develop a CSR policy covering its highly visible operations in the global
diamond industry. Such a policy must demonstrate organisational capability and have
plans, procedures and the necessary corporate infrastructure to deal with issues such as:

Responsible behaviour of its management and employees and lack of integrity of

suppliers across the supply chain.
Health, Safety & Environment - duty of care to workforce across Ethical Gemstones
operations and also to the wider local communities
Control measures around conflict diamonds offering reassurance that products meet
the required ethical standards.

Better answers will recognise that irresponsible behaviors and poor company procedures
can ultimately result in a high cost to the company (e.g. 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).
Exam Question Summary
This mandatory question was generally reasonably well answered by most candidates
although some missed the opportunity to define CSR at outset which was surprising.
Some candidates unfortunately did not fully evaluate the issues without being repetitive
making observations and descriptions rather than analysis. Some candidates opted to
impart their knowledge of how to apply an overall risk management methodology rather
than responding to the specifics of the question in the context of vulnerability. Some
good answers discussed in detail the loss of reputation and the ten transitions.

L5-02/SA report/Nov 2009/N. McLennan

Q2

Recommend and justify appropriate measures for EGN to

ensure its CSR policy is complied with by its suppliers,
thereby reducing risk and vulnerability.

(25 marks)

Analysis of the Question

The question sought to test application of knowledge of the steps or measures an
organisation could take to ensure its CSR policy, once developed, is complied with by all
its key suppliers thereby reducing risk and vulnerability. (Syllabus references 2.2 & 3.1
apply)
Analysis of the Answer
Candidates were expected to recognise that Ethical Gemstones CSR policy must also be
interested in the manner in which its potential or existing supply chain approaches
corporate governance and ethical issues as it might well impact back on Ethical
Gemstones there is CSR failure down its supply chain. Candidates should have captured
possible steps or measures that could be taken such as: contractual obligations on
suppliers to adopt complementary CSR practices, development of Key KPIs, auditing,
appropriate PR considerations, introduction of an ethical code of practice for Ethical
Gemstones supply chain and renegotiation of existing supplier arrangements to ensure
compliance. Better answers will discuss why these supplier control measures will help
reduce risk and vulnerability and why it is important to consider to CSR alignment when
selection / sourcing suppliers at outset.
Exam Question Summary
Answers to this mandatory question revealed that most candidates were able to
demonstrate the basic approaches to compliance - visits, audits, etc., but some were weak
and lacked detail on the overall policy deployment across the supply network, and/or
how to tie in compliance with KPIs. Additionally, some candidates missed the
opportunity to say "why" this was important and to make full use of the information
provided in the case study to demonstrate the development of a CSR policy
Overall though - most candidates were able to give a sufficiently good answer to achieve
a pass.
Better answers choose to discuss the international supply chain, training, developing
relationships and ensuring CSR policy was implemented at the start. More marls would
have been achievable had answers done this rather than tending to focus on auditing and
risk strategies like the 4Ts rather than compliance.

L5-02/SA report/Nov 2009/N. McLennan

SECTION B
Q3

Outline the term risk appetite and explain its relevance

in assessing the influence and power of different
stakeholders in an organisation.

(25 marks)

Analysis of the Question

The question sought to test knowledge and understanding of risk appetite and its
relevance in assessing the influence and power of different stakeholders to an
organisation. (Syllabus references: 1.1 & 1.6 apply)
Analysis of the Answer
Candidates were expected to be able to explain risk appetite as being the propensity of an
organisation or individual to accept a certain amount of risk. Risk appetite usually has a
basis in the culture of the organisation dealing with the risk. Risk aversion refers to the
attitude that we should minimise the taking of risk and the possibilities of loss, whilst risk
enthusiasm recognises risks and evaluates them with an eye to the opportunities which
may be presented. These concepts are important when assessing the influence and power
of different stakeholders to an organisation and in this regard - candidates would be
expected to expand their answers to cover stakeholder analysis in the context of a
stakeholder analysis matrix capturing influence and impact.
Exam Question Summary
This was a very popular optional question which was usually reasonably well answered.
Most candidates gave an acceptable description/definition of the term risk appetite.
Some used the power/influence grid whilst others described it without using the grid and
were given credit for doing so even if no diagram was included.
The scope and clarity of the descriptions of external and internal stakeholders varied
significantly - clearly some candidates had a better understanding of the role and
influence of stakeholders.
Better answers to this question were able to give examples of internal and external
stakeholders and their relative influence and impact on risk decision quality. More marls
would have been achievable had candidates more clearly related their answers to
stakeholder mapping using an appropriate model or matrix. Weaker answers tended to
focus too much on risk appetite or risk aversion.

L5-02/SA report/Nov 2009/N. McLennan

Q4 (a)

Define what is meant by supply chain vulnerability.

(5 marks)

Q4 (b)

Discuss how organisations may take a different approach to

purchasing in a critical bottleneck market as opposed to a
leveraged acquisition market.

(20 marks)

Analysis of the Question

Part a) of this question sought to test candidates understanding of the term Supply chain
vulnerability (Syllabus reference 1.4 applies)
Part b) of this question sought to test candidates knowledge of taking different
approaches to purchasing from a critical or bottle-neck market as opposed to a leveraged
or acquisition market. Again, syllabus reference 1.4 applies).
Analysis of the Answer
For part (a)
What was indicated was a discussion around the supply chain being a network of
interdependent organisations with processes and data moving in many different
directions between many of the participating processes and players. The payers involved
will have certain reliances on others and it is when these break down or are at risk then
we can say that there is a supply chain vulnerability. Better answers will give examples of
vulnerabilities that they have observed within critical supplier networks.
For part (b)
Candidates were expected to discuss the use of an adapted Kraljic matrix to
demonstrate categorisation between bottleneck/critical and leveraged positions. The
discussion should capture risk/citicality and spend- recognising the categories of: High
value strategic impact (Strategic criticality), High dependency bottleneck (Strategic
security), Routine items and Important leverage items. Candidates were also expected to
capture the approaches which are relevant under each these categorisations. For example
possible approaches being: Rigorous selection of supplier - medium/long term contracts
clear work scope devised, performance driven, incentive based & ensure value gain; Long
term contracts - clear work scope devised, strong relationships & ensure value gain, high
performance required; Simple relationship- very competitive, easily changed out delivery & non conformance measures; Short to medium term contracts - uncomplicated
relationships / competitive
Exam Question Summary
This was a popular optional question but with a wide variation in quality of answers from
candidates.

L5-02/SA report/Nov 2009/N. McLennan

For Part (a)

Most candidates gave a good description/explanation of the term supply chain
vulnerability. Better answers were supported by the use of examples.
For part (b)
Answers were varied, albeit that the majority of candidates achieved a pass grade.
There was a wide variation of versions of the Kraljic model drawn and described by
candidates, with different axis labels and different proposals for how the quadrants might
best be managed. This is perhaps reflective of the many different variations and
adaptations of the model, the axis labels and the intepretations in different published
learning texts. Most candidates managed to identify the different organisational
requirements when dealing leverage suppliers and bottleneck suppliers. Better answers
captured the criticality of the supplies, relationship development and the fact that
leverage suppliers are often in highly competitive markets.
Q5

Compare and contrast FIVE different types of insurance

as a means of protecting an organisation against
exposure to risk and uncertainty.

(25 marks)

Analysis of the Question

This question sought to test the ability to compare and contrast FIVE different types of
insurance as a means or protecting an organisation against exposure to risk and
uncertainty. (Syllabus reference 2.7 applies).
Analysis of the Answer
What was indicted here was a brief outline of five typical types of insurance or insurances
to protect against risk and uncertainty. For example insurances such as: Suppliers/
Contractors all risk insurance, Employers liability insurance, Public liability insurance,
Professional indemnity insurance, Third party risks Insurance, Insurance against damage,
and Self insurance. Better answers will see candidates building on their lists / outlines of
insurances comparing and contrasting what type of risks they are dealing with and also
covering perhaps the decision to self insure as an alternative and how that reflects the
specific risk appetite of an organization and perceptions of external factors occurring
which might be out with that organizations control
Exam Question Summary
Surprisingly, this optional question was not so popular (only about 1 in 5 candidates
answering). It was generally well answered although there were occasionally examples of
candidates choosing to answer this question who clearly did not have a clear
understanding of the different types of insurance and who consequently did not gain the
pass mark.
It should have been possible for candidates to generate relatively easy marks but many
candidates tended to ignore evaluation, comparison, and analysis and those who did

L5-02/SA report/Nov 2009/N. McLennan

tended to focus on captive and self insurance for comparisons at the expense of other
insurance types.
Most candidates were able to identify five different types of insurance although in many
cases the answers lacked explanation.
Q6

Discuss measures that could be taken to protect an

organisation if one of its key suppliers is rumored to be
in financial difficulties.

(25 marks)

Analysis of the Question

This question sought to examine knowledge and understanding of measures to safeguard
your company if one of its key suppliers is rumoured to be in financial difficulties.
(Syllabus reference 3.4 applies).
Analysis of the Answer
Candidates were expected to first of all recognise the need to apply discretion to establish
if indeed the key supplier is actually in financial difficulties (may in fact be no substance
to the rumours - therefore establish facts! If the rumours are substantiated, then initial
thoughts might turn to offering supportive business measures to ensure that your own
supplies from that company are met and that ownership and title to any goods to be
supplied vest with your company (if payment has been made). This can be dealt with by
pre-assignment legal documentation. Other considerations might be: Ensuring
contingency measures for a back up supplier, Calling in any performance bonds or
guarantees in place with the supplier or other contractual measure to secure
performance, Review any insurances in place to protect your company in the event of
supplier default, Payment only on delivery of items, Ownership of materials off site (not
yet delivered to you but which have been paid for already!)
Better answers will consider the broader picture to validate accuracy of rumours and not
necessarily default to defensive and/or contractual measures, but nonetheless ensure they
are available if needed.
Exam Question Summary
This optional question was very popular and generally well or adequately answered, with
safeguards often similar to those shown in the mark scheme, although candidates often
missed out the step of checking at outset whether the rumours were true. Many
candidates were able to identify finding alternative suppliers and engaging with the
supplier to improve payment terms. It was pleasing to note that some answers identified
the need to increase stock levels in the short term and even re-engineering the product or
considering whether it could be eliminated altogether. More marks would have been
achievable had candidates discussed a number of other alternative solutions as opposed
to narrow focus.

L5-02/SA report/Nov 2009/N. McLennan

General observations
Some candidates:

Did not practice effective time management in terms of answering the paper in its
entirety. Often too long was spent on early questions resulting in candidates running
out of time to complete or undertake later questions.
Did not write about the specifics of the question, instead choosing to write about
what they generally knew about the topic. There was also evidence of repetition of
answers on topics across several questions. These two areas suggest that some
candidates did not study the question properly.
Were able to demonstrate 'higher' levels of appropriate knowledge resulting in
corresponding higher marks. Most candidates passed at normal pass level and (less
of them) at credit pass level. There were also some distinction passes which was
pleasing to see. There were fails across most examination centres albeit that these
were not in significant numbers.

Overall, the paper and responses to it were at an acceptable level for this core unit.
APPENDIX
The matrix indicating the learning objectives of the new revised unit content for L5-02
that each of the questions in the paper tested is summarised in the attached appendix
table.

L5-02/SA report/Nov 2009/N. McLennan

APPENDIX
The following matrix summarises the learning objectives of the syllabus unit content that
each of the questions in the paper tested.

QuestionNo.
Learning
Objective
1

SECTIONA
1
a

SECTIONB
3

2
b

4
b

5
b

6
b

Understandingthenatureofriskinpurchasingandsupply

1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

Riskmanagementprocessesandstructures

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8

Managingriskandvulnerability

3.1

3.2

3.3

3.4

L5-02/SA report/Nov 2009/N. McLennan