L4M4 ETHICAL SOURCING QUESTIONS

L4M4 ETHICAL AND RESPONSIBLE SOURCING
Questions: Chapter 1
1 Which one of the following is a characteristic of outsourcing?
A Buying services that the organisation is not capable of sourcing in-house
B Long-term and continuing nature of the arrangement
C Acquiring in-house competencies
D Buying raw materials from foreign suppliers
2 A parcel delivery firm is facing a temporary (seasonal) surge in demand from customers, and
to deal with this problem it has employed a number of extra staff and hired extra vehicles
for a two-week period. This hiring of staff and vehicles is an example of:
A temporary sourcing
B outsourcing
C subcontracting
D strategic sourcing.
3 When is manufacturing components in-house likely to be preferable to buying the

components from external suppliers?
A When the organisation has limited financial resources for investment
B When security of supply of the components is not a concern
C When there are a restricted number of suppliers in the market
D When suppliers are more skilled at making the components

4 Which of the following are commonly used as criteria for supplier selection in a pre-
qualification process? Select TWO that apply.
A Track record
B Low prices
C Independence
D Financial stability
E Product range
5 Which of the following are most likely to be factors contributing to the growth in
outsourcing? Select TWO that apply.
A Protectionism in global trade
B Growth in unemployment numbers
C Need to overcome shortage of in-house capabilities
D Offloading operational problems on to suppliers and service providers
E Policy of focusing on the core business
6 A potential disadvantage of multiple sourcing for a product is:
A greater risk of disruption to supply
B lack of flexibility in supply arrangements
C requirement to use every pre-qualified supplier
D variation in delivered quality.
7 Which one of the following is a key characteristic of partnership sourcing?
A Knowledge sharing and openness in communications
B Relevant expertise in the same areas of competence
C Independent operational systems
D Mutual acceptance of a win-lose approach to negotiations

8 Which of the following are requirements for a successful tendering process? Select TWO
that apply.
A Selection of least-price bid
B A high value of supply contract
C Open tendering
D Sufficient time for the tendering process
E A limited number of bidders
9 An organisation operates as a group of companies with a parent company and a number of

operating subsidiary companies. Each subsidiary is a profit centre that is expected to achieve
a target level of profitability each year in its operations. Some subsidiaries within the group
supply goods or services to other subsidiaries. Should the group have transfer pricing
arrangements?
A No, because transfer pricing arrangements give rise to disputes between profit
centres
B No, because there is no value in pricing goods and services delivered between
different parts of the same organisation
C Yes, in order for subsidiaries to earn a profit from delivering goods or services to
other subsidiaries
D Yes, because all goods and services in business should have a price
10 A company is in the process of vetting a new supplier for possible inclusion in a list of pre-
qualified suppliers who may be invited to bid for supply contracts in the future. The
company wants evidence of the supplier’s quality assurance. Which one of the following
should be the most reliable source of such evidence?
A A track record of on time and in full deliveries
B A reference from the supplier’s bank
C The supplier’s system of checking for defective output
D A certificate of compliance with a quality management standard

11 A company is in the process of vetting a new supplier for possible inclusion in a list of pre-
qualified suppliers who may be invited to bid for supply contracts in the future. The
company wants evidence of the supplier’s technical capability. Which one of the following
would be a suitable method of checking this?
A Checking compatibility of IT systems
B Physical inspection of the supplier’s premises and operations
C Supplier’s willingness to agree to a JIT purchasing arrangement
D Checking the existence of a quality management system
12 Before approving a new supplier for selection, a company wishes to assess the supplier’s
financial stability. This would be an assessment of the supplier’s:
A financial ability to withstand any problem that might arise in its business
B ownership of a large amount of capital assets, such as machinery and equipment
C ability to manage cashflows carefully
D willingness to allow suitable credit terms to its customers.
13 Before deciding to include a new supplier on its list of pre-approved suppliers, a company
should:
A audit the supplier’s financial statements
B develop a formal business case for selecting the supplier
C undertake due diligence on the supplier
D look for undisclosed information about the supplier.
14 Which one of the following types of financial ratio is an appropriate measure of the ability of
a supplier to meet its obligations to pay its creditors?
A Gearing ratio
B Profitability ratios
C Return on investment ratio
D Liquidity ratio
15 Your organisation is considering several suppliers of shopfitting services, some of which will
be asked to tender for a contract to fit out a large upmarket fashion shop in a major city. You
have four criteria to apply at the supplier selection stage and/or at the contract award stage:
Criterion I Each supplier’s financial capacity
Criterion 2 The level of quality specified by each supplier for how it will meet the design
for the shop
Criterion 3 The technical knowledge and skill level of each supplier’s shopfitting staff
Criterion 4 How long each supplier has been operating in the shopfitting market
Which of these could be applied as award criteria?
A Criteria 1 and 2
B Criteria 2 and 3
C Criteria 3 and 4
D Criteria 1 and 4
16 Your organisation has historically awarded the contract for a fleet of new vans on the basis
of the lowest purchase cost. You have now decided to base the award on the total lifecycle
cost of the fleet. Which of the following costs will be included in total lifecycle cost which
would not have been included in purchase cost?
A The disposal value of the fleet when scrapped
B Delivery costs
C Price
D Installation cost
17 A procurement consultant has made the following two statements about technical merit as
an award criterion.
Statement 1: the technical merit of a bid is the level of innovation offered by the supplier.
Statement 2: to have technical merit, a bid must exceed the buyer’s specification.
Are these statements true or false?
A Both statements are true
B Statement 1 is true but statement 2 is false
C Statement 2 is true but statement 1 is false
D Both statements are false
18 You are assessing bids for a contract in terms of value for money. You have identified that
Bid Z has a higher purchase price than others and will require a new process to be
implemented in your organisation. However, Bid Z ensures that your organisation’s
objectives will be better met than if other bids are chosen.
In terms of which of the following factors does Bid Z offer better value for money than the
other bids?
A Economy
B Efficiency
C Effectiveness
D Ecology
19 Your organisation is using value in addition to the lifecycle cost as criteria to score then rank
bids for the award of a contract for a new office building on the basis of Most Economically
Advantageous Tender (MEAT).
Which one of the following is most likely to have the highest score or weighting as a
criterion?
A Technical merit
B Sharing of risk between the supplier and your organisation
C Deliverability within timescales
D Lifecycle cost
20 For which one of the following reasons might a company record information about its
spending on individual products and external suppliers?
A To make decisions about awarding supply contracts
B To monitor changes in market prices and predict price changes
C To establish whether appropriate amounts are being spent on individual products

and suppliers
D To measure the profitability of the business
21 Which one of the following will often collect data to share information about conditions in a
market or industry?
A Trade association
B Suppliers’ websites
C Supplier catalogues
D Trade fair
22 For what purpose might a company pay for a credit score or credit report about a supplier
from a credit reference agency or bureau?
A To obtain a recommendation about whether or not to use the supplier
B To establish how much credit the supplier can afford to give to the company
C To establish the total amount of credit available to the supplier
D To assess the possibility that the supplier will get into financial difficulty shortly
23 Which one of the following methods is most likely to be used by a company to receive
regular notifications about upcoming procurement contracts?
A Advertising on its buyer website
B Using a procurement portal
C Looking for advertisements in newspapers
D Sending emails to potential buyers
24 Which of the following are among the purposes of using a specialist procurement portal?
Select TWO that apply.
A To attract potential suppliers
B To generate invoices automatically
C To attract potential buyers
D To issue invitations to tender
E To pre-approve suppliers
25 A company wishes to purchase replacement windows for one of its buildings. It knows
exactly what it wants and has prepared conformance specifications accordingly. It expects to
award the contract to the bidder who meets the specifications and submits the lowest-
priced bid. Which of the following documents is it likely to send out to pre-identified
potential suppliers?
A RFI
B ITT
C RFQ
D RFP
26 Which of the following are commonly applied rules or procedures for tendering for a large
procurement contract in the public sector? Select TWO that apply.
A Late bids are accepted, but only in exceptional circumstances.
B Questions from suppliers are allowed during the period for submitting tenders.
C The criteria for awarding the contract are not disclosed in the invitation to tender.
D Details of bids received should be disclosed to potential bidders.
E The buyer should give reasons why it has awarded the contract to the successful
bidder.
27 For which one of the following reasons might an organisation wishing to award a large
procurement contract dispense with a formal tendering process?
A The size of the contract is extremely large.
B There is no urgency in awarding the contract.
C There is only one known supplier.
D Detailed terms for the contract will need to be negotiated.
28 Which one of the following should be the most important aspect of a supplier’s bid for a
contract to supply a product item?
A Technical merit
B Price
C Financial stability
D Fitness for purpose

29 Which of the following criteria may be applied when considering and making a
recommendation about the source of supply for a product item? Select TWO that apply.
A Continuity of supply
B Sustainability
C Global sourcing
D Business relationships
E Product specifications
30 Which one of the following aspects of a supplier’s financial position might be assessed from
measurement of its liquidity ratios?
A Profitability
B Cash position
C Debt position
D Productivity
31 Which one of the following might be used as a method to assess the value added in tenders
from rival suppliers for a procurement contract?
A Financial analysis of suppliers
B Requests for quotations
C Weighted points system
D Supplier selection procedures
32 In an e-procurement system, what triggers an e-requisition for re-supply of a standard

product stock item?
A Using an e-catalogue for the item
B Inventory quantity falling to its reorder level
C A request from the user department
D A framework agreement with the supplier

33 What is the overall purpose of e-sourcing of products?
A To obtain bids and purchase products via a single portal
B To buy products from an e-marketplace
C To locate and evaluate suppliers for pre-approval
D To issue electronic RFQs and ITTs
34 For which of the following purposes is purchasing low-price from e-catalogues most
commonly used?
A Buying frequently replenished direct goods
B Buying frequently replenished indirect goods
C Buying infrequently replenished direct goods
D Buying infrequently replenished indirect goods
35 Which of the following are requirements for a reverse e-auction? Select TWO that apply.
A Establishing minimum order sizes
B Winning bids must be the lowest-priced bids
C Notification in advance to potential suppliers
D Transparency around the identity of bidders
E Details in advance of product specifications and likely purchase quantities
36 A buyer in the public sector has commented that e-tendering is a very fast process that
enables the tendering process to be completed quickly. Do you agree with this view?
A Yes, because digital communication is much faster than exchanges of paper
B Yes, because potential bidders are able to communicate regularly with the buyer
during the process
C No, because an audit trail of the tendering process is still required
D No, because suppliers must be given adequate time to prepare and submit their bids
37 In which of the following ways does procurement in the public sector typically differ from
procurement by companies in the private sector?
A Compliance with procurement regulations
B A more limited range of stakeholders
C A more limited range of goods and services purchased
D Buying at the lowest available prices
38 Which one of the following factors is most likely to discourage an SME from tendering for a
large supply contract?
A Lack of technical knowledge
B Lack of administrative experience
C Lack of financial resources
D Lack of IT resources
39 For which of the following reasons might a commercial buyer choose to avoid putting a large
procurement contract out to competitive tendering?
A To save time and effort
B Preference for dealing with a trusted supplier
C To avoid the need for a contract specification
D Difficulty in identifying potential suppliers
40 The Krajic matrix distinguishes between products according the amount spent on
procurement of the product and the supply risk for the product. For which of the following
categories of product would competitive tendering be the most appropriate approach to
awarding procurement contracts?
A Routine products
B Strategic products
C Bottleneck products
D Leverage products
41 Which of the following are typically features of competitive tendering for procurement
contracts in the public sector? Select TWO that apply.
A Restricted tendering
B Requirement to advertise contracts
C Limited transparency in the procurement process
D Non-discrimination between suppliers
E No requirement for an audit trail
42 Which of the following is a particular feature of a negotiable bill of lading in international

trade?
A It gives its holder legal title to the goods.
B It provides evidence of delivery of the goods to the buyer or buyer’s agent.
C It can be sold.
D It is evidence of delivery of the goods in good condition to the carrier.
43 Which one of the following documents is commonly used in international trade to provide
documentary evidence of goods that are being transported by road freight?
A Certificate of origin
B Insurance certificate
C CMR consignment note
D Export licence
44 For which of the following reasons might an importer of goods put the goods into a bonded
warehouse?
A To delay accepting the delivery of the goods from the supplier
B To provide security for a loan to finance the purchase of the goods
C To await inspection of the goods by the customs authorities
D To suspend payment of import duty on the goods

45 What is a letter of credit in an international trade transaction?
A A contract for the purchase of goods
B A conditional undertaking to pay for the goods
C An insurance contract for the safe delivery of the goods
D Payment for the goods with a bill of exchange
46 Which of the following incoterms places the greatest responsibilities on the supplier for the
costs of delivering goods to a foreign buyer?
A EXW
B DDP
C FCA
D CPT
47 What might be the consequences for a company of using suppliers that are known to engage
in unethical business practices? Select TWO that apply.
A Legal liability
B Larger carbon footprint
C Damage to reputation
D Damage to rights of organisation’s own employees
E Higher procurement costs
48 What is the purpose of a code of ethics for an organisation’s employees?
A To reduce the incidence of fraud
B To comply with international standards of behaviour
C To establish disciplinary procedures
D To demonstrate commitment to ethical business practices
49 Which of the following are requirements for the successful adoption by suppliers of a buying
organisation’s ethical code of procurement? Select TWO that apply.
A Higher prices
B Monitoring
C More detailed product specifications
D Clear standards and policies
E Training suppliers’ employees
50 Which of the following is an essential requirement for a whistleblowing system in which

employees have confidence?
A Anonymity
B Reporting allegations to an external body
C A code of ethics
D Rewards
51 Which of the following are examples of unethical practices in procurement after a supply
contract has been awarded and is performed? Select TWO that apply.
A Offer of bribes
B Whistleblowing allegation
C Authorisation of false invoices
D Reporting a suspicion of fraud to a line manager
E Incorrect recording of quantities of goods received
52 The CIPS Code of Conduct sets out a number of improper (unethical) practices that members
must avoid, in order to maintain the highest standards of integrity. Which of the following
are improper practices identified in the Code? Select TWO that apply.
A Failing to ensure that information given to others is accurate
B Failing to declare a possible conflict of interest
C Wrongly claiming credit for work done by others
D Failing to keep promises
E Failing to report unethical behaviour by colleagues
53 Is it appropriate for a company’s code of ethics to indicate that disciplinary action may be
taken against any employee found to have breached the code?
A No, because a code of ethics applies to suppliers and other external stakeholders,
not just to employees
B No, because not all unethical behaviour is illegal
C Yes, because a company needs to demonstrate its commitment to upholding ethical

practices
D Yes, because without the threat of disciplinary action, an ethics code will be ignored
54 How might an organisation seek to ensure that its suppliers maintain standards of ethical
behaviour?
A Hold regular meetings with all suppliers to discuss ethical conduct
B Require employees of a supplier to report to the organisation instances of unethical

behaviour, via the organisation’s whistleblower procedure
C Specify in a procurement contract that failure by the supplier to respect human

rights will constitute a breach of contract
D Ask for evidence of ethical business practice as a condition of awarding a

procurement contract
55 How might an organisation include a clause in a procurement contract requiring the supplier
to comply with an ethical standard of behaviour?
A Require the supplier to undergo regular inspections by an independent auditor
B Require the supplier to provide a certificate of compliance with a recognised

international ethical standard
C Include a requirement in the contract that the supplier’s business practices must not
damage the buyer’s reputation
D Include a requirement for ethical conduct by the supplier in the organisation’s

standard terms and conditions of purchase
56 Which of the following is likely to be the most effective way of gathering information about a
supplier’s ethical business practices prior to awarding a supply contract or adding a supplier
to a pre-approved list?
A Pre-qualification questionnaire
B Credit report on the supplier
C Supplier’s trade association
D Internet search
57 If a company receives a serious allegation of unethical behaviour by a supplier in connection

with a procurement contract, from an employee of the supplier, what action should the
company take in the first instance?
A Ignore the allegation because it comes from someone outside the company
B Remove the supplier from the company’s list of pre-approved suppliers
C Meet with the supplier to establish whether the allegation may be true
D Investigate the allegation
58 Which one of the following is an essential requirement of an ethics audit (social audit) by a
company into its own systems and practices?
A A recognised standard of ethical behaviour
B The consent of employees
C An internal audit capability
D A financial audit to complement the ethical audit
59 A company should have regular meetings with a supplier about ethical business conduct:
A only when there is limited trust between the company and the supplier
B only if the supplier is a long-term or key supplier
C only when ethical standards must be improved
D only before agreeing any procurement contract.
60 When a system is established with a supplier for recognising and dealing with unethical
practices by the supplier, which of the following items should be recorded? Select TWO that
apply.
A The cost of remedial action
B The root cause of the problem
C The number of people affected
D An identification number for the problem
E The person responsible for remedial action

61 A conflict of interest arises whenever:
A two close family members work in different companies that have a trading
relationship with each other
B an individual is likely to be rewarded in connection with successful negotiation of a

procurement contract
C an individual offers a bribe to an employee of a potential customer in order to win a

contract
D an individual is in a position to gain personally by making a decision that is against

the employer’s best interests.
62 In the CSR pyramid of responsibilities, which is the highest level of CSR responsibility for a
company?
A Legal responsibility
B Discretionary responsibility
C Ethical responsibility
D Economic responsibility
63 Which of the following have been recognised as key sustainability concerns in the supply
chain? Select TWO that apply.
A Minimising the use of renewable materials
B Maximising value from limited resources
C Minimising traffic congestion and noise
D Managing waste
E Measuring a carbon footprint

64 Which of the following are social issues in the triple bottom line for company (and supply
chain) performance? Select TWO that apply.
A Healthy living
B Economic regeneration
C Protection of ecosystems
D Urban planning
E Gender equality
65 According to the Standard ISO 26000, which of the following are key principles of social
responsibility? Select TWO that apply.
A Sustainability
B Transparency
C Corporate governance
D Minimisation of waste
E Respect for stakeholder interests
66 In which of the following ways might the principle of reducing waste be included in product
specifications? Select TWO that apply.
A Design and specify products that are durable
B Make products smaller
C Specify the minimum packaging required for product protection
D Use standard components in products
E Design products to minimise whole-life cost

Solutions and Feedback: Chapter 1
1 Answer B
An outsourcing agreement is a long-term arrangement, and not a temporary or short-term contract.

An activity might be outsourced when it is difficult to acquire the skills in house (such as IT services),
but not impossible. Services that an organisation is incapable of sourcing in-house include banking
services and management consultancy services: these cannot be done internally and so cannot be
‘outsourced’. Buying materials from foreign suppliers is known as ‘global supply’.
Reference Chapter 1 Sections 1.1–1.2
2 Answer A
It is a short-term (temporary) arrangement for sourcing labour and vehicles.
Reference Chapter 1 Section 3.1
3 Answer C
The possibility of a supply shortage due to a limited number of suppliers could be a reason for
‘make’ rather than ‘buy’. The other circumstances in the question would make an organisation more
inclined to ‘buy’ rather than ‘make’.
4 Answer A and D
Evidence of a reliable track record and of financial stability are commonly used criteria for supplier
pre-selection. Prices will be a criterion in awarding purchase orders to suppliers, but not for the pre-
qualification process.
5 Answer C and E
A combination of focusing on the core business and a possible shortage of in-house skills are two key
factors contributing to the growing use of outsourcing.

6 Answer D
A possible disadvantage of multiple sourcing is variation in product quality, since the quality
provided from each supplier may differ. With multiple sourcing there should be less risk of
disruption to supply, and greater flexibility in supply arrangements. There is no contractual
requirement to award contracts to every pre-qualified supplier for a product.
7 Answer A
Partnership sourcing is a close single sourcing relationship that requires knowledge sharing and
openness in communications to be successful. There should also be relevant expertise in
complementary areas of expertise, integrated operational systems, and a win-win approach to
negotiations
8 Answer B and D
For successful tendering, the value of the contract must be sufficiently high to justify the time and
effort required for the process, and there should be sufficient time to carry out the process – for
example to allow bidders time to prepare their bids. Tendering may be restricted rather than open,
but a limited number of bidders is not a prerequisite for a successful tendering process. A contract is
not necessarily awarded to the least-price bid.
9 Answer C
Transfer pricing is a means of ‘rewarding’ subsidiaries for goods or services supplied to other
subsidiaries within the group, so that they can earn a profit on this work. Transfer prices are also
costs to subsidiaries receiving the goods or services: they should not receive value from other
subsidiaries ‘for nothing’. In summary, transfer pricing is a way of distributing profits between
companies in a group or profit centres within a company.

10 Answer D
The supplier can provide evidence of quality assurance by showing a certificate of compliance with a
quality management standard such as ISO 9001. A system of checks for defective output is
concerned with quality control, not quality assurance (prevention of quality problems). A new
supplier cannot demonstrate a track record of OTIF deliveries.
11 Answer B
Technical capability can be checked by inspecting the supplier’s operations. IT system compatibility is
an aspect of system capability. The existence of a quality management system would be evidence of
quality assurance.
12 Answer A
Financial stability is concerned with financial strength and an ability to withstand setbacks when they
occur. Careful cash management is evidence of financial capability, but not necessarily financial
strength.
13 Answer C
Due diligence is a comprehensive appraisal of a business undertaken by a prospective buyer,

including its financial strength.

14 Answer D
Liquidity ratios are a way of measuring and assessing the ability of a company to meet its obligations
to creditors from its holdings of cash and its current assets that should soon generate cash for the
business. A cashflow statement, if available, is another way of monitoring the cash position and
liquidity of a business.
15 Answer B
The level of quality specified by each supplier for how it will meet the design for the shop (2) is a
specific award criterion applied when the bids have been received, in order to make the contract
award. The technical knowledge and skill level of each supplier’s shopfitting staff (3) is also an award
criterion though it could be applied as a selection criterion at the earlier stage of supplier selection.
Criteria 1 and 4 can only be usefully applied at the supplier selection stage.
16 Answer A
If the fleet is disposed of for a scrap value at the end of its useful life to the organisation (A) then this
is deducted from total lifecycle costs to arrive at a net total lifecycle cost. Price (C) is the most basic
element of the purchase cost. Delivery and installation costs (B and D) would be included in
purchase cost as well as in total lifecycle cost.
17 Answer D
The technical merit of a bid (1) is the supplier’s ability to meet the buyer’s specification – it is not a
measure of innovation as such. Although the bid may exceed the specification (2), it does not lack
technical merit of it only meets it rather than exceeding it.
Reference Chapter 4 Section 3

18 Answer C
An effective bid is one which helps the buyer achieve its objectives better (C). A bid that achieves
economy (A) minimises the cost of resources used. A bid that achieves efficiency (B) ensures that
operations are running better so costs are reduced.
19 Answer D
While the criteria A to C are important and will certainly have a weighting, the lifecycle cost of the
building from purchase, commissioning and eventual decommissioning is likely to have by far the
most substantial weighting.
20 Answer C
Information about spending on individual products and suppliers can be used to monitor whether
appropriate amounts are being spent on them. The information recorded need not include price
data and measurements of business profitability do not require this data.
21 Answer A
A trade association may ask its members to submit data about the conditions that they are finding in
the industry (for example on purchasing activity). It will then combine the data to produce an
assessment of the general state of the market or industry, and publish its findings to members.
22 Answer D
Companies might want to check the financial stability of a supplier before deciding to use it.
Obtaining a credit report from a specialist agency is a convenient way of obtaining information.
Agencies provide information about financial stability or creditworthiness, but they do not give
advice.

23 Answer B
To receive notifications about procurement contracts that may be of interest, a company will
probably use several methods, including looking for advertisements in newspapers. However, of the
methods listed in the question, using a procurement portal is likely to be the most effective way of
receiving regular notifications.
24 Answer A and D
A specialist procurement portal attracts potential suppliers who may be interested in bidding for
procurement contracts, because the portal is a known site for advertising contracts. Suppliers
interested in submitting a bid can download ITT documents from the portal site.
25 Answer C
When the buyer is clear about the specifications for a purchase and is looking for the lowest-priced
bid, it will issue requests for quotations.
26 Answer B and E
Questions from suppliers are allowed during the period for submitting tenders, and answers should
be disclosed to all potential bidders. The buyer should give reasons why it has awarded the contract
to the successful bidder, and the criteria that will be used in the decision to award the contract
should be made known in advance, as part of the ITT documentation.
27 Answer C
If there is only one known supplier, a tendering process would have no purpose.

28 Answer D
Important issues in the assessment of suppliers’ bids include price and also the supplier’s financial
stability and the technical merit. However, a fundamental requirement is that the product that the
supplier provides must be fit for its intended purpose. There is no merit in buying an item for a low
price if the item does not fulfil its intended purpose.
29 Answer A and B
‘Sourcing of supply’ refers to where the product item should be purchased (and possibly also which
product item should be purchased, when there are alternatives). Ensuring continuity of supply, or
sustainability, or giving preference to local suppliers may affect a recommendation.
30 Answer B
Liquidity is concerned with the ability of an organisation to obtain the cash to meet its obligations to
pay its suppliers, workforce and other creditors. This might be assessed from liquidity ratios or (if the
supplier prepares one) a cashflow statement.
31 Answer C
Value added can be obtained from different aspects of a supplier’s bid for a contract. One way of
assessing all aspects of value is to use a weighted points system of assessment.
Reference Chapter 7 Section 7.2: also, sections 1.2 and 2.1
32 Answer B
An automatic e-requisition for a standard item will be issued when the quantity in stock falls to its
reorder level. Other purchases may be made online, but are not triggered by an e-requisition.

33 Answer A
Buying online, locating and evaluating suppliers and issuing e-RFQs and e-ITTs are all aspects of e-
sourcing, but do not explain its overall purpose.
34 Answer B
E-catalogues are most often used to buy indirect goods such as stationery and cleaning products.
They are used more often for frequently purchased items than infrequently purchased items.
35 Answer C and E
Potential bidders need to be notified in advance about the date and time of the auction, and how to
‘attend’. They also need to know in advance what the buyer wishes to purchase and in what
(probable) quantities. During the auction process there is transparency around details of the current
best bid and the winning bid, but not the identity of bidders.
36 Answer D
E-tendering is faster than ‘manual’ competitive bidding systems, but it is still not very fast. In the
public sector, the process may also be lengthened by an appeal by an unsuccessful bidder.
37 Answer A
In the public sector there are typically procedural rules and regulations that must be followed in the
procurement of goods and services. Public sector organisations typically have a wide range of
stakeholders and purchase a very wide range of items (although some large companies do so too).
The procurement objective is value for money rather than lowest price.

38 Answer C
Any of the factors in the question might conceivably prevent an SME from bidding for a large
contract, but lack of sufficient resources, including financial resources, is the most likely deterrent in
the sense that it will apply to most SMEs in most cases.
39 Answer B
Companies might prefer to develop a long-term relationship or partnership with a trusted supplier,
and choose to buy from this partner rather than put a contract out to competitive tendering.
40 Answer D
Leverage products are those for which the amount of spending on purchases is high, and where
there is widespread available supply, and so no supply risk. In such conditions, a buyer should be
able to obtain the best value by putting contracts out to competitive tendering.
41 Answer B and D
Typically, procurement contracts in the public sector must be advertised and the buyer must not
discriminate between bidders by giving preference to some over others. There is often a
requirement for open tendering and the procurement process is largely transparent. All actions and
decisions should be recorded, and there must be an audit trail for each awarded contract.
42 Answer A
A negotiable bill of lading has several purposes, but one of these is that it gives its holder legal title
to the goods. A foreign buyer cannot take possession of goods shipped by a supplier until it has
possession of the bill of lading.

43 Answer C
A consignment note is commonly used as a transport document for shipments by road, instead of a
bill of lading or a waybill.
44 Answer D
When imported goods are put into a bonded warehouse (customs warehouse) the importer does
not pay import duty until they leave the warehouse. If the goods are re-exported, the need to pay
import duty is avoided.
45 Answer B
A letter of credit is a conditional undertaking to pay for goods. The undertaking is conditional on the
supplier complying with terms set out in the letter of credit for the delivery of specified documents
(eg shipping documents) by a specified date. The undertaking to pay is usually provided by the
buyer’s bank and may be ‘confirmed’ by a bank in the supplier’s own country.
46 Answer B
DDP makes the supplier responsible for the costs of carriage and insurance for the goods, and
payment of duties, in delivering the goods to the buyer’s premises. EXW specifies that the buyer
must collect the goods from the supplier’s premises. The other incoterms specify how the costs of
carriage, insurance for carriage and payment of duties are split between the supplier and the buyer.
Reference Chapter 10 Section 7
47 Answer A and C
Damage to the organisation’s reputation and the risk of legal consequences are specified as
consequences in the Guidelines of the British Institute of Facilities Management.

48 Answer D
A code of ethics demonstrates the commitment of the organisation and its leaders to ethical
business practices. An ethical code is not the basis for a disciplinary code, and measures to reduce
fraud are primarily internal controls, not a requirement for compliance with a code.
49 Answer B and D
For suppliers to agree to a buyer’s ethical code for procurement, the buyer’s standards and policies
should be set out clearly, and the buyer must also be seen to implement a system for monitoring the
supplier’s behaviour.
50 Answer A
Whistleblowers must have confidence that their identity will not be disclosed, and that they will not
suffer from discrimination as a consequence of reporting an allegation of misconduct.
51 Answer C and E
Unethical (fraudulent) practices include the deliberate authorisation of false invoices and incorrect
recording of quantities of goods received (so that the organisation pays for goods that it has not
received). Similar practices may apply to the procurement of services as well as goods. The offer of
bribes is unethical (and may be criminal) but this happens before a procurement contract is
awarded. A company’s procedures for reporting suspicions of unethical behaviour will often require
reporting to a line manager in the first instance.
Reference Chapter 11 Sections 2.2 and 3.1
52 Answer A and B
The Code specifies the need to ensure that information given to others is accurate and to report any
possible conflict of interests. A different section of the Code also requires members to promote the
eradication of unethical business practices, but failure to report unethical practices in others is not
itself unethical.

53 Answer C
An ethics code may indicate that unethical behaviour by an employee may lead to disciplinary
action, because this indicates the company’s commitment to its ethical policies. Disciplinary action
may follow a breach of the code by an employee, but this in itself is not a reason for making a
reference to disciplinary measures in a code of ethics.
54 Answer D
Obtaining evidence of ethical practices by a supplier can be made part of the due diligence process
in sourcing suppliers. A supplier’s employees cannot be required to comply with a buyer’s
whistleblowing procedures. Holding regular meetings with suppliers will take up time and effort. A
contract term requiring a supplier to respect human rights would be difficult to enforce in practice,
and would be likely to result in contractual disputes.
55 Answer B
A contract may include a requirement for the supplier to have certification of compliance with an
ethical standard such as SA 8000. Regular inspections might be a contractual requirement, but these
would be carried out by the buyer’s own staff: using an independent auditor would be expensive and
probably less effective. A general requirement for ethical behaviour in standard terms and
conditions of purchase would be impossible to enforce, and the buyer’s standard terms are not used
in all contracts with suppliers.
56 Answer A
Suppliers can be asked direct questions about their ethical and CSR policies using pre-qualification
questionnaires (PQQs). An internet search can also be used, but this is ‘hit-and-miss’ and will not
necessarily provide much useful information so it is less effective than using PQQs.

57 Answer C
If the allegation is serious, it should not be ignored. However, it cannot be investigated without the
supplier’s cooperation, so in the first instance there should be a meeting with the supplier.
Removing the supplier from the pre-approved list would be premature, until more information has
been obtained.
58 Answer A
An audit involves a comparison of what is happening or has happened against what ought to
happen. There must be a standard or benchmark of acceptable behaviour. In an audit, this may
involve compliance with established internal controls and policies.
59 Answer B
Regular meetings with a supplier about ethical conduct are only appropriate if the supplier is a long-
term or key supplier, and if there is a high level of trust between the organisations. Meetings should
be held to check that ethical standards are being maintained, as well as when improvements are
required.
60 Answer B and E
An organised system for dealing with problems of unethical behaviour by a supplier should include a
record-keeping system. For each problem a record should be made (over time) of the nature of the
problem, its root cause, the remedial action required, the person responsible for taking this action,
the action actually taken and the results of the action. The record system should not require a coding
or numbering system for problems, as there should not be a sufficiently large number of them to
require this

61 Answer D
In most cases, a conflict of interest involves an individual who is in a position of authority or a

position to influence a decision. The conflict arises when the individual (or someone closely
associated with the individual, such as a family member) stands to benefit from making a decision
that would not be in the best interests of the employer.
62 Answer B
The pyramid consists of four levels of responsibility. These are, from bottom of the pyramid to top:
Economic, Legal, Ethical and Discretionary. Discretionary responsibility involves contributing to
society and improving the welfare of local communities and society as a whole.
63 Answer C and D
Key sustainability concerns in the supply chain include minimisation of waste and minimising traffic
congestion and noise. Another concern is to minimise the use of NON-renewable materials. Another
is to reduce the carbon footprint of organisations: methods already exist for measuring carbon
footprint.
64 Answer A and E
Social concerns in the triple bottom line include well-being and equality of treatment. Economic
regeneration is an economic issue. Protection of ecosystems and urban planning are environmental
issues.
65 Answer B and E
Key principles of social responsibility include respect for stakeholder interests and transparency (and
accountability). Social responsibility is an aspect of sustainability, and corporate governance is an
aspect of ESG (environmental, social and governance) issues.

66 Answer A and C
‘Reduce’ is one of the 3Rs – three approaches to reducing waste. ‘Re-use’ and ‘recycle’ are the other
two. Designing products with a longer useful life (duration) means that the need to throw them out
and replace them is less often. Minimising packaging is another way of reducing the use of materials,
but packaging must be sufficient to do its job of protecting the product.

L4M4 ETHICAL SOURCING QUESTIONS

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L4M4 ETHICAL SOURCING QUESTIONS

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L4M4 ETHICAL AND RESPONSIBLE SOURCING

1 Which one of the following is a characteristic of outsourcing?

A Buying services that the organisation is not capable of sourcing in-house

B Long-term and continuing nature of the arrangement

C Acquiring in-house competencies

D Buying raw materials from foreign suppliers

3 When is manufacturing components in-house likely to be preferable to buying the

A When the organisation has limited financial resources for investment

B When security of supply of the components is not a concern

C When there are a restricted number of suppliers in the market

D When suppliers are more skilled at making the components

A Protectionism in global trade

B Growth in unemployment numbers

C Need to overcome shortage of in-house capabilities

D Offloading operational problems on to suppliers and service providers

E Policy of focusing on the core business

6 A potential disadvantage of multiple sourcing for a product is:

A greater risk of disruption to supply

B lack of flexibility in supply arrangements

C requirement to use every pre-qualified supplier

D variation in delivered quality.

7 Which one of the following is a key characteristic of partnership sourcing?

A Knowledge sharing and openness in communications

B Relevant expertise in the same areas of competence

C Independent operational systems

D Mutual acceptance of a win-lose approach to negotiations

A Selection of least-price bid

B A high value of supply contract

D Sufficient time for the tendering process

E A limited number of bidders

9 An organisation operates as a group of companies with a parent company and a number of

A A track record of on time and in full deliveries

B A reference from the supplier’s bank

C The supplier’s system of checking for defective output

D A certificate of compliance with a quality management standard

A Checking compatibility of IT systems

B Physical inspection of the supplier’s premises and operations

C Supplier’s willingness to agree to a JIT purchasing arrangement

D Checking the existence of a quality management system

B ownership of a large amount of capital assets, such as machinery and equipment

C ability to manage cashflows carefully

D willingness to allow suitable credit terms to its customers.

A audit the supplier’s financial statements

B develop a formal business case for selecting the supplier

C undertake due diligence on the supplier

D look for undisclosed information about the supplier.

C Return on investment ratio

Criterion I Each supplier’s financial capacity

Which of these could be applied as award criteria?

A The disposal value of the fleet when scrapped

Are these statements true or false?

A Both statements are true

B Statement 1 is true but statement 2 is false

C Statement 2 is true but statement 1 is false

D Both statements are false

B Sharing of risk between the supplier and your organisation

C Deliverability within timescales

A To make decisions about awarding supply contracts

B To monitor changes in market prices and predict price changes

C To establish whether appropriate amounts are being spent on individual products

D To measure the profitability of the business

A To obtain a recommendation about whether or not to use the supplier