Q1(a) : MARK SCHEME

Question aims:

To test application of knowledge the contract term ‘caveat emptor’ to appraise a contract problem.

Syllabus Reference(s): 4.4

Core answer content is likely to include:

No need to state that it is a Latin term but there needs to be some understanding of ‘buyer beware’ in that -A bad agreement is still an agreement and the buyer will usually be legally obliged to carry out his/her obligations.

Additional relevant content might also include: (This content is likely to result in:)

Caveat emptor is a Latin term meaning “let the buyer beware”; this is an underlying principle of all business.

Unless the terms and conditions are unreasonable they will be binding!! The courts will not set aside a poor commercial deal - answers were expected to give this definition and then explain that a buyer needs to apply due diligence to his/her transactions and cannot rely on the Courts to protect him/her from his/her own errors.

The Courts assumes that a person in a position of authority will be trained and should therefore behave appropriately, using care and attention, when making financial commitments.

Some understanding of concept 3 marks, good understanding and application of concept 3 marks

Total 6 marks

Q1(b) : MARK SCHEME

Question aims:

To test the knowledge and application of relevant legislation to help resolve contractual problems.

Syllabus Reference(s): 4.4

Core answer content is likely to include:

This question expected candidates to recognise that Hitesh could use the Sale of Goods Act 1979 or possibly the Sale and Supply of Goods Act 1994. There is an increasing amount of statutory protection, implying a range of minimum performance criteria into contracts, not least the Sale of Goods Act, the Health & Safety at Work Act etc. These statutes do state the seller’s minimum obligations and this does usually reduce the risks for the buyer, though much of this legislation is designed to protect members of the public, rather than corporate buyers.

Additional relevant content might also include: (This content is likely to result in:)

Stronger answers may recognize may include a discussion about the unfair contract terms act as to whether the contract term is reasonable and could mention ‘caveat emptor’.

3 marks for some recognition those terms may be implied by sales of goods act, 3 marks for good understanding and explanation, 3 marks for analysis of other factors that are relevant to the scenario.

Total 9 marks

Q1(c) : MARK SCHEME

Question aims:

To test the candidates knowledge and application of the use key contract terms in defining a contract.

Syllabus Reference(s): 4.3

Core answer content is likely to include:

These contract terms might include title/property; defects liability; payment terms; liquidated damages; sub contracting clauses; variation; termination; resolution dispute; time; rejection; applicable law; and many more. 5 marks for listing 5 relevant terms with limited explanation.

Additional relevant content might also include: (This content is likely to result in:)

Explanation of meaning and significance of each term clearly provided. Additional 5 marks

Total 10 marks

Q2(a) : MARK SCHEME

Question aims:

To test application of knowledge of appropriate criteria to appraise the suitability of potential suppliers

Syllabus Reference(s): 3.3

Core answer content is likely to include:

Criteria that may have been suggested (as from the unit content)

• Financial status

• Capacity of the company to produce

• Technical capability

• Environmental Management and ISO14001

• Adherence to systems and procedures , ISO9001

• Corporate Social Responsibility (CSR)

• Conformance to legislation

• The supplier’s supply chain

• The supplier’s customer base

• The culture of the company

• The identified costs of the proposed purchase

1 mark per relevant criteria identified with limited explanation.

Additional relevant content might also include: (This content is likely to result in:)

Additional 1 mark for more detailed explanation of use of criteria such financial status assessed by using financial ratios such as profitability, gearing, current and acid test. Also there should be application to the case scenario

Total 10 marks

Q2(b) : MARK SCHEME

Question aims:

To test application of knowledge of Incoterms to appraise problems of establishing the costs of purchase.

Syllabus Reference(s): 1.4

Core answer content is likely to include:

Recognition that ‘Ex-works’ means the purchaser has to arrange collection from the suppliers works. The purchaser will have to arrange suitable insurance and also arrange handle export and import documentation.(customs clearance).

It can be very expensive to have small consignments collected from overseas and the buyer will have no knowledge of suitable logistics contractors.

It can be very difficult to build up a true delivered price to compare all quotations. There can be many hidden or unknown costs.

Additional relevant content might also include: (This content is likely to result in:)

Recognition that ‘Ex-works’ is an Incoterm that means the purchaser has to arrange collection from the suppliers works. The purchaser will have to arrange suitable insurance and also arrange handle export and import documentation.(customs clearance)

It can be very expensive to have small consignments collected from overseas and the buyer will have no knowledge of suitable logistics contractors.

It can be very difficult to build up a true delivered price to compare all quotations. There can be many hidden or unknown costs.

Part shipments or less than full container load means goods have to ‘share’ transport with other purchaser’s goods. This could lead to damage and or delays in shipment.

Risk in transit is with the buyer and hence why arranging insurance is important.

Hitesh is new to this type of business, lacks contacts, and simply, doesn't have the resources to manage domestic transfers/transit issues, then an FOB, or even CIF price would be more appropriate.

Some understanding of the problems 3 marks, good understanding 3 problems 2 additional marks.

Total 9 marks

Q2(c) : MARK SCHEME

Question aims:

To test application of knowledge of good practice to ensure the right time is achieved

Syllabus Reference(s): 1.4

Core answer content is likely to include:

Some might Recognition that suppliers are required in 1 week.

Considerations could include whether to use air freight to secure supplies from the new supplier. Cost of air freight and suitable packaging should be discussed.

Additional relevant content might also include: (This content is likely to result in:)

Alternatives methods of transport could also be discussed. Express overland freight might be suggested.

Candidates might also suggest some form of meeting with the existing supplier to try and secure urgent supplies.

Discussion of one relevant approach in detail or two approaches in less depth.

Total 6 marks

Q3(a) : MARK SCHEME

Question aims:

To test candidates knowledge and understanding of break-even analysis

Syllabus Reference(s): 1.6

Core answer content is likely to include:

Some understanding that profit is made when revenue are higher than costs. (2 marks)

Some understanding that break-even is where costs = revenue and profit or loss depends upon output (2 marks)

The chart should have correctly labelled axis (vertical Costs/Revenue and horizontal as Output/Quantity) and the TR and TC line must be identified along with the B/E point. (4 marks)

Additional relevant content might also include: (This content is likely to result in:)

Stronger answers will recognise the total cost line cuts the y axis at the level of fixed costs or recognises there are fixed and variable costs that make up a suppliers total costs. This could then include a discussion about how it could help in price negotiations to secure the ‘right’ price’.

(4 marks)

Total 12 marks

Q3(b) : MARK SCHEME

Question aims:

To test candidates knowledge and understanding of ‘psychological pricing’

Syllabus Reference(s): 1.6

Core answer content is likely to include:

Some understanding that this is a strategy adopted to make the purchaser think they are getting value for money. Instead of charging £5.00 the product would be charged at £4.99.

A definition or explanation of psychological pricing should be provided that emphasises it is where businesses recognise the psychological effect of their prices on consumers. It therefore bases the price on customers’ expectations about what to pay.

Or a suitable example where products e.g. are priced at £199.99 rather than £200 was also expected.

Additional relevant content might also include: (This content is likely to result in:)

Many businesses use a psychological tactic in pricing their product or service; sometimes unknowingly. It's an effective strategy because buyers use price as a measurement of quality: to buyers, high price equals high quality or high value, and low price equals low value. So charging a high price is an example. Used to encourage purchases that are based upon emotional rather than rational responses.

A good answer would recognise that a high price might be charged to make people think the product is of high quality.

3 marks for brief explanation 1 mark for example. 2 marks for more detailed overview such as it encourages emotional rather than rational decision making or that a high price could also be used.

Total 6 marks

Q3(c) : MARK SCHEME

Question aims:

To test candidates knowledge and understanding of price elasticity.

Syllabus Reference(s): 1.6

Core answer content is likely to include:

Definition or explanation of price elasticity such as’ it is a measure of the responsiveness of the quantity demanded to a change in the price’ (3 marks)

Additional relevant content might also include: (This content is likely to result in:)

This should then be linked to the effect it can have on a suppliers demand and revenue. (2 marks)

Stronger answers may discuss what impacts upon the PED such as the number of substitute products. (2 marks)

Total 7 marks

Q4(a) : MARK SCHEME

Question aims:

To test candidates knowledge and understanding of ‘Corporate Social Responsibility’.

Syllabus Reference(s): 2.1

Core answer content is likely to include:

Answer should recognise that ethical sourcing and operating to a code of professional ethics can be seen as part of CSR. (3 marks)

Additional relevant content might also include: (This content is likely to result in:)

Good answers will recognise that it is more than the above point and could include a definition of corporate social responsibility such as “A collection of related disciplines, all of which combine to represent an organisation’s overall ethos: its personality, philosophy and character, as regards its role in the world in the largest sense.” Or the definition from the unit acronyms. (2 marks)

Total 5 marks

Q4(b) : MARK SCHEME

Question aims:

To test knowledge and understanding of how CSR impacts upon supplier assessment

Syllabus Reference(s): 3.3

Core answer content is likely to include:

Do you employ children or anyone under the age of 16?

Do you allow freedom of collection (Unions)

Do you have heath and safety policies

Is all machinery safely guarded

What is the average wage per hour?

Do you record all accidents?

Do you have an environmental policy

There any many relevant questions that could be suggested but they must relate to CSR

Up to 2 marks per suitable question.

Additional relevant content might also include: (This content is likely to result in:)

Explanation of purpose of question and possible link Ethical codes/standards such as the Global Compact

Total 12 marks

Q4(c) : MARK SCHEME

Question aims:

To test knowledge and understanding of two advantages and two disadvantages of using references as part of supplier assessment.

Syllabus Reference(s): 3.4

Core answer content is likely to include:

Advantages

• Can be used in conjunction with other methods to give a holistic overview.

• Can be a cost effective way especially with overseas suppliers

Disadvantages

• Can be a problem with written references if there is limited time available.

• Supplier may only give selected references that do not provide a true picture.

• The validity of the reference is hard to establish unless you follow up directly.

Up to 2 marks for two advantages and disadvantages explained.

Additional relevant content might also include: (This content is likely to result in:)

More detailed explanation and links to other methods of supplier assessment such as visits and third party approvals.

Total 8 marks

Q5(a) : MARK SCHEME

Question aims:

To test the candidates knowledge of two advantages and two disadvantages of using ‘brand’ names to specify requirements

Syllabus Reference(s): 2.3

Core answer content is likely to include:

Advantages:

• No need to write a specification

• Easy to source as usually well known

• Or similar

Disadvantages:

• Specification can change without knowledge of purchaser

• Can be more expensive than unbranded products

• Or similar

Up to 2 marks per advantage or disadvantage with limited explanation

Additional relevant content might also include: (This content is likely to result in:)

Examples of ‘brands’ and clear explanation of two advantages and disadvantages.

Total 8 marks

Q5(b) : MARK SCHEME

Question aims:

To test the candidates understanding of costs that can occur through ‘over specification’ of a product or service.

Syllabus Reference(s): 2.1

Core answer content is likely to include:

• features that are not required or used;

• machining operations to produce unnecessarily tight tolerances;

• additional cost of using the product;

• additional maintenance.

• delay in delivery through unnecessary work

Up to 2.5 marks for each additional cost clearly explained (if only one cost is explained up to 3 marks)

Additional relevant content might also include: (This content is likely to result in:)

Two additional costs clearly explained- 3 marks

Total 5 marks

Q5(c) : MARK SCHEME

Question aims:

To test knowledge and understanding of how buyers and suppliers can contribute towards effective specification development

Syllabus Reference(s): 2.4

Core answer content is likely to include:

Buyers can contribute by:

• questioning how a specification is being written to ensure that the specification is not written around a specific product;

• their knowledge of the supply market;

• encouraging use of a standard product;

• use of market knowledge to advise whether a specification has been written for a product that does not exist or will be difficult to source;

• commercial input into the specification to prevent or, at least, limit over-specification;

• advise on the appropriate type of specification to be used;

• knowledge of which standards, legislation, and company policies need to be considered;

• communication of draft specifications to potential suppliers

Suppliers can help by using their knowledge to reduce unnecessary tolerances, suggesting alternative methods or processes, suggesting alternative products etc

It can result in lower costs, better quality and innovation.

Answers are typically expected to place equal emphasis on buyers and suppliers. Up to 6 marks for content to each. Validate alternative approaches would be awarded appropriate marks.

Additional relevant content might also include: (This content is likely to result in:)

Stronger answers will include benefits of involving both the buyer and the supplier and discuss ESI and EBI as recognised techniques. 2 or3 benefits in depth or several in less detail.

Total 12 marks

Q6(a) : MARK SCHEME

Question aims:

To test knowledge and understanding of how legislation and company policy may impact upon the development of purchasing specifications.

Syllabus Reference(s): 2.6

Core answer content is likely to include:

At least one clearly explained example of how specifications can be impacted upon by company policy or legislation . The legislation or company policy should be clearly outlined.

Additional relevant content might also include: (This content is likely to result in:)

Examples of how legislation impacts upon specifications could be provided. Examples could include the need for CE marking or other forms of testing. The banning of CFCs and other chemicals could be used as examples. Specific legislation should be quoted.

Impact of company policy on recycling and sustainability could be explored in some detail.

Up to 6 marks for limited outline of relevant content, and 6 marks for a developed answer.

Total 12 marks

Q6(b) : MARK SCHEME

Question aims:

To test the candidates understanding of a legal advantage of using performance specifications.

Syllabus Reference(s): 2.3

Core answer content is likely to include:

A performance specification defines the function to be achieved, and details the input parameters; but they do not state how the function should be achieved. As a result they are often relatively brief documents. Some understanding of a performance specification and or a brief explanation of one legal advantage. (2 marks)

Additional relevant content might also include: (This content is likely to result in:)

Answer should provide good explanation and recognise that the liability for non-performance lies with the supplier.

Total 4 marks

Q6(c) : MARK SCHEME

Question aims:

To test candidates understanding of the methods of resolving contractual disputes.

Syllabus Reference(s): 4.6

Core answer content is likely to include:

Three approaches from:

Litigation – the term used to describe dispute resolution in the courts. Should recognise that this is costly and a last resort.

Arbitration – more formal than adjudication, and resembles litigation, although it will be generally less costly. It is a semi-judicial process, with evidence being heard.

Adjudication – this is a process of expert determination. The expert is appointed by agreement between the parties, either generally or to decide a particular issue.

Negotiation – The vast majority of claims and disputes can be settled by amicable negotiation leading to an agreement. This is the quickest and least costly method of settling disputes.

Additional relevant content might also include: (This content is likely to result in:)

Litigation – the term used to describe dispute resolution in the courts. Tends to be a time consuming, costly and complex process, and is often used only as a last resort.

Arbitration – more formal than adjudication, and resembles litigation, although it will be generally less costly. It is a semi-judicial process, with evidence being heard. Unlike the adjudicator, an arbitrator cannot be sued for negligence. If the parties to a contract are to settle a dispute by arbitration, then they will often include for arbitration arrangements in the contract. The parties may agree on an arbitrator at the outset of the contract. The arbitrator should always be a suitably qualified professional.

Adjudication – this is a process of expert determination. The expert is appointed by agreement between the parties, either generally or to decide a particular issue. Provided the expert keeps within the terms of appointment and shows no bias, there is no restriction on the way the decision can be reached. Adjudication is less formal, and generally quicker and less costly than arbitration or litigation. If the contract provides for expert determination to be final and binding, a court will not interfere with the decision reached.

Negotiation – The vast majority of claims and disputes can be settled by amicable negotiation leading to an agreement. This is the quickest and least costly method of settling disputes

1 mark per method identified up to 3 methods and 2 marks per explanation that should include cost and speed.

Total 9 marks