CIPS L4M4 Ethical and Responsible Sourcing Exam Practice Test

Explanation

The correct answer is 'yes- because a low credit rating would indicate the supplier is financially un-stable'.

The two options beginning with no should automatically be discounted. The other option is incor-rect because credit ratings are private and would therefore not affect reputation.

Explanation

Intracompany trading is when two departments in the same company do trading. AND when two companies owned by the same parent company do trading.

INTRA means 'within' - so it's doing business with yourself.

Liquidity ratios, such as the current and quick ratios, evaluate a company's ability to meet short-term liabilities with current assets. This metric is crucial for assessing a supplier’s financial stability, ensuring continuity and reliability in the supply chain, which aligns with ethical and responsible sourcing principles.

In a restricted tender process, only pre-qualified suppliers are invited to bid, ensuring that participating suppliers have met necessary qualifications. This approach helps in managing high-value contracts by focusing on capable suppliers. Ethical and responsible sourcing in the public sector demands supplier pre-qualification to ensure compliance, transparency, and quality.

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

Gearing measures how much of an organisation's long-term funding is made up of long term debt and loans. Therefore the correct answers are 'shareholder equity' and 'long term debt'.

There are many question about financial ratios that can come up on the exam. If you're unsure on them I suggest doing further reading outside of the study guide as this will help. I like this youtube video (I'm not associated with the makers of this video but think they're really good at explaining things to beginners) Gearing Ratio explained (youtube.com)

Explanation

Cleaning and Facilities Management are the most appropriate items to outsource. They would not outsource the making of confectionary products as this is the 'core' business.

See p.4 for "what is outsourcing?"

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.

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.

Explanation

ethics and environment are not a 'right of procurement'.

The 5 rights are price, quality, quantity, time and place.

Incoterms are grouped as E (Ex Works), F (Free Carrier), C (Carriage Paid To), and D (Delivered Duty Paid), reflecting various stages of responsibility transfer between buyer and seller. Understanding Incoterms is critical for responsible sourcing, as it clarifies logistics and cost responsibilities.

Accepting an invitation under such circumstances would violate ethical standards, as it could create a conflict of interest. Ethical sourcing and procurement practices require impartiality, and any perceived favoritism or bias can harm the organisation's integrity.

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.

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

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

A RFI typically finds the following information from potential suppliers; ethical and sustainability policies and their capacity / capability to fulfil a contract. It could also include financial position, mission and vision.

Explanation

Ex-Works has the lowest risk to the supplier- in Exworks the buyer collects the items directly from the supplier - so they have all the issues and risks of transporting it back home.

There are many question on Incoterms CIPS can ask. But as there's such a huge bank of questions it's really hit or miss if you'll get one of those question. Two students sitting the exam at the same time in the same study centre can get different question sets. One person can get 3 Incoterm questions and the other gets 0.

I would learn the major ones- the ones at the ends of the table in particular because these are the ones question are likely to be about. Ex works / Free carrier and Delivered at Place Unloaded/ De-livered Duty Paid in particular.

I like this graph as I'm a visual person. I think it makes it easier to understand than the study guide:

Shipping Incoterms: the Complete Guide - Guided Imports

Engaging with business managers while making sourcing recommendations ensures that the buyer considers multiple perspectives, reducing potential biases and improving decision-making. This approach aligns with ethical sourcing practices by promoting collaboration and transparency in tender decisions.

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.

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

This is an Invitation to Tender.

The only other real document listed in Request for Quotation. This is incorrect because the document asks questions relating to how they will deliver the service. This means price isn't the only factor, which is the case for a RfQ.

Request for Tender and Invitation to Quote are not real things.

Explanation

weighted points systems for assessments should add up to 100. This is 100%.

An example is how this would work is

Price = 50%

Health and Safety questions= 30%

Qualifications = 20%

Explanation

security, consultancy and cleaning are services which are often tendered as they tend to be high value and complex opportunities.

Office supplies and raw materials have less variables so you could use a RFQ for these instead.

A hint for this is also the word services. Security, consultancy and cleaning are services. Raw Materials and Office Supplies are goods.

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

If tenders are received by electronic submission exclusively, the buyer can reduce the timescale. On average the time for a standard tender submission can be reduced by 5 days if bids are submitted electronically.

*Note* this is based off current PCR Regs 2015 which are being superseded in October 2024 by new legislation. We currently don't know what the new regs will say on this. If it's different, my best guess is CIPS will remove any question about it from their exam- because the study guide would be wrong and that would lead to complaints.

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

current assets, current liabilities and equity can be found on a balance sheet. Net and gross sales will be found on a profit and loss account.

Unscheduled audits can provide an unbiased view of supplier practices and help identify compliance issues that might be hidden during scheduled audits. This approach supports responsible sourcing by ensuring accurate assessments of ethical and quality standards.

Explanation

This is accommodating: the supplier puts the buyer's interest above his own.

This is from the Thomas Killman model of conflict resolution. There are 5 strategies; competitive, collaborative, avoiding, accommodating and compromising. In the study guide it doesn't mention the name of the model but you do need to know the 5 strategies. The model comes up a lot in other modules so is a good one to learn. Particularly L5M1 which is about management theory.

Explanation

"Meet current liabilities" is a posh way of saying "can you pay your bills". You're therefore looking for a liquidity ratio- a ratio that looks at assets vs liabilities (i.e. money in the bank vs money owed out). The Acid Test is a liquidity ratio. It's sometimes called the 'quick ratio'. Both terms come up on the exam. The other options are financial ratios but aren't for liquidity.

Explanation

A supplier who follows the CIPS Code of Conduct is more likely to meet the buyer's needs is the correct answer.

The other options are wrong:

1) Compliance with Codes of Conduct from professional bodies is optional. E.g. CIPS - no organi-sation is forced to comply with CIPS.

2) Unethical behaviour is not impossible to detect, it may be difficult but with correct due diligence and things like audits it's completely possible

3) ISO 14001 is quality management so is irelevent.

Explanation

The buyer should seek a 'collaborative' relationship. Transactional and arms-length relationships are more suited to tactical sourcing. Partnerships are reserved for joint-ventures.

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.

Explanation

Eamon should use a cross-functional team (this rules out two of the options). The purpose of using a cross-functional team is to use the knowledge of people from other departments as they may better understand the service required and help assess any technical questions. Therefore a cross-functional team of procurement personnel, isn't cross-functional (they're all the same function). Yoyos is a bit of a silly example, the exam questions are a little more serious- but the learning outcome is the same; use a cross-functional team to evaluate bids.

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

According to p.75 "a RFQ attempts to assess which supplier can achieve the Five Rights of Procurement". Although price is the only factor considered when using a RFQ- it's important to consider this price in detail; can the supplier deliver the right QUALITY of product for this price?, can they deliver the item WHEN we need it for this price? etc.

The answer is not 'who will deliver it the cheapest' because Jamilla might not pick the cheapest sup-plier. If the cheapest supplier has inferior quality paper, or can only make deliveries every other Tuesday then Jamilla may not select them.

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)

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

The Pareto Principle can be used when considering changing a supplier. It helps to categories suppliers by how strategically important the item is that they provide to the business.

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.

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.

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.

Explanation

The correct answer is 'gearing ratio'.

Gearing measures how much of a company's funding is based on long-term debt or loans- this would be affected by a steep rise in inflation. If a company has a mortgage on their offices or facto-ry and they need to remortgage and inflation has gone up a lot- they'll be paying a lot more on their mortgage. This will severely effect the gearing ratio as they'll have more outgoings than incoming.

Gross profit margin COULD be affected by inflation, for example if you've got hyper-inflation and the country goes into recession and people stop buying your product. However, this answer isn't al-ways right and depends on many factors- the industry, the product, the company etc, so for the purpose of CIPS should be discounted. There are many industries which are immune to inflation.

Explanation

These are 'not-for-profit' organisations. You don't need to know much on not-for-profit procurement for this exam. Just that procurement can be regulated in this sector by bodies such as Charities Commission.

Explanation

Open tenders should be used when the buyer expects there to be little interest / fewer bids. The opportunity is advertised widely allowing any supplier that wishes to submit a bid the opportunity.

The other options limit the number of suppliers and Ji Yuan doesn't want to do that, because he risks getting no interest and no supplier.

P.23

Explanation

Reasons to outsource include; 'overheads can be kept as effective as possible' and 'the reduction in the need to continually invest in new machinery'.

When you outsource, you transfer the costs of overheads to the supplier and it is their responsibility to buy new machinery as and when is required. For example if you outsource cleaning, the cleaning company is responsible for replacing the hoovers and floor cleaner

The other two options would be reasons to keep something 'in-house'.

Explanation

Coercion is not a type of fraud. The other three are.

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.

An Invitation to Tender (ITT) is typically used for complex, high-value procurements where the quality and specific features of the goods or services are of paramount importance. This approach ensures that ethical and responsible sourcing criteria are met, aligning with best practices in procuring specialised goods or services.

Single sourcing can be appropriate when set-up costs are high, making it impractical to involve multiple suppliers. This aligns with responsible sourcing principles, particularly for high-value or specialised items, where relationship management and collaboration with one supplier can enhance quality and efficiency.

Explanation

total life-cycle costs include; acquisition costs, maintenance and training.

Added value and functional fit are quality criteria that should also be evaluated when selecting a supplier, but do not fall under total life-cycle costs.

Note: total life cycle costs and whole life asset management are the same thing. You may see both terms used in the exam. I think CIPS is moving more towards Whole Life Asset Management now as the preferred vocabulary but they're the same thing.

Under the EXW (Ex Works) Incoterm, the buyer assumes responsibility for transportation and export clearance from the seller’s premises. This term aligns with cost-saving measures and the buyer’s internal capabilities for logistics, supporting efficient and responsible sourcing.