May, 2012 Examination series Level 5 Unit 02 Risk ... Report May 12... · Level 5 Unit 02 Risk...

May, 2012 Examination series

Level 5 Unit 02 Risk Management & Supply Chain Vulnerability



L5-02/SA report/May, 2012 Series 2

INFORMATION FOR CANDIDATES The senior assessor’s 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.org/en-GB/Qualifications/study-support/ ) as well as this senior assessor’s report. The senior assessor’s 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/Qualifications/About-CIPS-Qualifications/cipsqualifications/ 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/

http://www.cips.org/en-GB/Qualifications/study-support/

http://www.cips.org/Qualifications/About-CIPS-Qualifications/cipsqualifications/

http://www.supplymanagement.com/




SECTION A Candidates were required to answer TWO mandatory Section A questions related specifically to the case study. Question 1 This was a single mandatory question worth 25 Marks.

Q1 Analyse, using the segmentation tool in Fig 1, why industries in the four boxes

view supply chain risk and vulnerability differently. (25 marks)

Analysis of the Question The mandatory question sought to test candidate ability to test candidate ability to analyse the application of a segmentation matrix to understand why certain industries place more strategic importance on the discipline of Supply chain risk and value management. (Syllabus reference(s): 1.4). Analysis of the Answer

Candidates were expected to give brief and logical analysis of why each of the four industries in Fig 1 tend to have a different focus regarding strategic importance of supply chain risk management. The traditional construction industry is fiercely competitive and operates at very low profit margins. As a sector, there is a huge reliance on outsourced third party suppliers and subcontractors. With these features present is clear why this sector would place critical importance on the strategic significance of supply chain, value and risk management. The Oil and Gas industry - normally has high profits margins (when the oil price is high). As a sector, there is a high reliance on outsourced third party suppliers. When on occasions the oil price drops or there is an adverse change in government fiscal regime on oil and gas companies then profit margins are reduced. With these features present this sector places cyclical importance on the strategic significance of supply chain, value and risk management. The Finance/Banking industry has high profit margins and traditionally there is has not been much reliance on outsourced third party spend in relation to overall outlays, consequently with these features present this sector has a tendency to place transactional level importance on the strategic significance of supply chain, value and risk management. The Household Products industry is fiercely competitive and operates at average to low profit margin levels. As a sector there is some reliance on outsourced third party suppliers but this is not high. With these features present this sector would place operational level importance on the strategic significance of supply chain, value and risk management.

Exam Question Summary

This mandatory question was reasonably well answered by candidates with most managing to achieve a normal pass. Candidates by and large seemed to give competent answers in the form of an analytical discussion on the dynamics of the four industry sectors. There were instances where some candidate answers were very generic with limited linkage to the case study. These candidates obtained lower scores. More marks would have been achieved by




many candidates had they clearly articulated that when profit margins change in an industry sector and likewise when the degree of outsourced third party spend varies then behaviours change in terms of the relationship between customers and suppliers. If a customers profit margins are being squeezed down by other factors then it is highly likely that there will be a shift in focus toward the organisation having sharper focus on supply chain and value and cost management matters. In a high profit margin environment this is less so.

Question 2 This was a single mandatory question worth 25 marks.

Q2 Analyse each of the pre-contractual activities in Fig 2 as a solution to help Heavy Oil mitigate risk associated with international sourcing and the selection of global suppliers in the future.

(25 marks)

Analysis of the Question

This mandatory question sought to test candidate depth of knowledge of activities and solutions associated with: Supplier appraisal & selection as a substantive element associated with international sourcing and also best practice strategic approach, key steps for success and security of supply.

(Syllabus Reference(s): 3.1, 3.3 & 1.7). Analysis of the Answer

Candidates were expected to focus their analytical discussion on pre-contract activities associated with selection of a critical global category supplier to support an organisation’s international sourcing efforts.

Indicative discussion areas for each of the 6 simple steps exhibited in Fig 2 of the case study are as follows: Step 1 - segmentation analysis, criticality analysis, strategy team & stakeholder selection and business case development. Step 2 - compliance requirements, technical options selection, expedite process, demand management questions and review. Step 3 - analyse the supplier market, contractor landscape locally and internationally, supply market analysis, supplier analysis. Step 4 - leverage & portfolio analysis, strategic source planning and then selection, review market testing options, select suppliers for market test, sourcing strategy business cases. Step 5 - supplier evaluation methodology, bid development process, bid evaluation process, Step 6 -

negotiation & contract award.


Answers to this mandatory question varied in quality. Although many scored well, others could have achieved more marks had they expanded their answers to analyse the complexities of sourcing and the need to allocate time and effort up front to determine the optimum international sourcing strategy and applying it only where the product/ service line category is suited to a global contractual arrangements. Better answers recognised that not




all are! The sourcing options selection stage is vital in terms of understanding the contractor landscape, leverage points etc.

As with question 1, there were instances where some candidate answers were very generic with limited linkage to the case study. Again, these candidates obtained lower scores.

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

Q3 Distinguish between direct physical loss and indirect consequential loss, giving

examples from a supply chain of your choice. (25 marks)

Analysis of the Question This optional single (25 mark) question sought to test candidate knowledge, understanding of the difference between direct physical loss and indirect consequential loss from a supply chain or opportunity situation of their choice. (Syllabus Reference(s): 1.2) Analysis of the Answer Candidates were expected to focus their discussion around: the definition of loss being consequential direct and indirect. Loss or damage is often converted into financial figures in order to have a constant to allow measurement and prioritisation. Loss represents the impact of the hazard being suffered. Additionally, opportunity cost can be a loss. In describing or defining direct physical loss and indirect consequential loss may do so by means of a number of examples or scenarios. Candidates were afforded a degree of flexibility in terms of the examples they give however the underpinning definition and understanding of the terminology must be accurate

Exam Question Summary This was a reasonably popular optional question amongst candidates which was generally answered reasonably well More marks would have been achieved by many candidates had they discussed how consequential loss is viewed and treated in a business sense (e.g. sometimes consequential loss is strong point of protracted negotiations during contract formulation).




Question 4 This optional single (25 mark) question sought to test

Q4 Discuss ‘supply chain risk appetite’ and its relevance in assessing the influence and

power of different stakeholders in a situation of your choice.

(25 marks)

Analysis of the Question This optional single (25 mark) question sought to test candidate knowledge, understanding knowledge and understanding of the terminology ‘supply chain risk appetite’ and its relevance in assessing the influence and power of different stakeholders to an organisation.. (Syllabus Reference(s): 1.1, 1.6) Analysis of the Answer

What was indicated here was answers which discussed risk appetite being the propensity of an organisation or individual to accept a certain amount of risk. This definition should be expanded upon in terms of giving a substantive example or examples of different risk appetite cultures. 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. The terminology and associated concepts are important when assessing the influence and power of different stakeholders to an organisation and in this regard - candidates were expected to expand their answers to cover stakeholder analysis – preferably in the context of a stakeholder impact and influence matrix.


This was a popular optional question which was answered by a large proportion of candidates. Most managed to achieve either normal pass or credit scores with better answers giving examples of internal and external stakeholders across a broad supply chain spectrum and their relative influence and impact on risk decision quality and that influence cascades across the supply chain.




Question 5

Q5 Compare and contrast quantitative versus qualitative risk analysis techniques to

enable better decision making, using examples.

(25 marks)

Analysis of the Question This optional question sought to test candidate ability to ability to compare and contrast a Quantitative versus a Qualitative Risk Analysis Technique in terms of their effectiveness to ensure optimal decision quality. (Syllabus Reference: 2.8) Analysis of the Answer

What was indicated here was answers which recognised that Risk analysis can be undertaken using either qualitative techniques or quantitative techniques. QUALITATIVE or subjective techniques are usually based on an individual’s perception of risk which is shaped by numerous influences including experiences, psychological factors, cultural factors, and social factors. In other words and individuals judgement is brought to bear. QUANTITATIVE or objective techniques use statistical analysis which aid the measurement of risks and rely on the thesis that risks are readily quantifiable as long as appropriate numerical values can be assigned to the probability of a risk event occurring and its impact on the supply chain or organisational setting. Both methods are aimed at the same objective - getting as good an idea as possible of the scale and exposure of the threats which may be faced.

Qualitative methods are often used first in risk analysis to obtain a general indication of the risk issues and will certainly be used when there is insufficient numerical data or where it is difficult to obtain. These methods are general simple descriptors like High, Medium or Low which are assigned to the probability of risk occurring and the impact it may have. Quantitative methods by comparison appear to take the subjectivity out of the risk assessment and can rank risk by using a single rating comprising the financial value of the risk multiplied by a weighted factor.

Candidates were expected to identify/use high level examples of qualitative and quantitative techniques bringing out how some techniques relate to analysis of upside risk and others to analysis of downside risk.


This was not such a popular optional question amongst candidates. The quality of answers varied for those that did attempt it. Some good answers were evident imparting a good comparative discussion of the two risk analysis techniques. There were however some weak answers that failed to expand the discussion by giving examples of where the techniques could be applied to aid decision making. Candidates were afforded great flexibility here from the many available techniques to chose from such as: Upside risk analysis - Market surveys, Prospecting, Test marketing, Research &development; Downside risk analysis - Threat




analysis, Fault tree analysis, Failure modes & effect analysis, Both - Dependency modelling, SWOT analysis, Event tree analysis, Business continuity planning, PESTLE analysis, Real option modelling, Statistical inference

Question 6

Q6 Propose and justify the key stages and methodology you would include in a new risk management process to ensure its effectiveness in a dynamic external environment for a supply chain of your choice.

(25 marks)

Analysis of the Question This optional question sought to test candidate knowledge and understanding of the key components of a risk management process and how if designed effectively is can be a helpful tool in managing risk and vulnerability in dynamic external environments. (Syllabus Reference: 2.2) Analysis of the Answer

What was indicated here was a risk management process framework discussion by candidates around: 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, How stakeholders are engaged on an on-going basis.

Additionally, candidates should discuss the methodology within their proposed process for identifying, assessing and quantifying risks in the context the external environment or supply chain chosen for the answer. For example - the use of risk registers to assess and review risks pertaining to the external environment or the use of Appraisal systems like SWOT analysis to identify strengths, weaknesses, opportunities and threats and appropriate positioning in the context of an organisations external environment. Again a degree of flexibility was afforded to answers here as there are so many methods to choose.


This was an unpopular optional question amongst candidates.

The quality of answers varied for those candidates who did attempt it. Many missed key components of the process outlined above and lost marks because of this. Additionally, more marks would have been achieved by many candidates had they managed to justify why their chosen methodology was important.

APPENDIX

May, 2012 Examination series Level 5 Unit 02 Risk ... Report May 12... · Level 5 Unit 02 Risk...

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