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CIPS
CIPS Level 5 Advanced Diploma in Procurement and Supply
L5M2
Managing Supply Chain Risk Questions and Answers

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Questions # 1:

A supplier of non-critical items has a low credit score, Which of the following actions should be taken? Select TWO options.

Options:

replace the supplier as quickly as possible with a more financially stable supplier

conduct a benchmarking exercise

create a risk assessment and mitigation plan

inform the CEO of the company

Answer

B, C

Explanation

The correct answers are conduct benchmarking and create a risk assessment. This supplier provides low value and low risk products - therefore the fact they have a bad credit rating isn't too much of a risk to your company. It's worth doing a benchmarking exercise to compare their position to others in the market to see if there are any industry-wide trends, and to create a risk assessment and mitigation plan. This could involve working with the supplier to help them improve their credit score, for example by using more favourable payment terms so they have a better cash flow. There's no need to replace them immediately, and there's no need to tell the CEO- they probably have more important things to think about than a singular supplier of non-critical items See p.81

Questions # 2:

Which of the following will you put into box 6?

Options:

audit

monitor

insurance

dual sourcing

Answer

Explanation

The correct answers are as follows:

Table Description automatically generated with low confidence

Questions # 3:

Company X is a large company which is traded on the UK stock exchange. According to the Companies (Miscellaneous Reporting) Regulations 2018- is it obligatory for Company X to follow a Corporate Governance Code?

Options:

yes- all companies in the UK must follow this

yes- all companies trading on the stock exchange must do this

no- corporate governance codes are not mandatory

no- but if it doesn't follow a Corporate Governance Code it must explain the reasons why not

Answer

Explanation

The correct answer is 4 - the policy is 'comply or explain' - basically say which code you follow, or explain (publicly) why you're not following one. See p. 145 for more information on this

Questions # 4:

In probability theory, the chances of a coin landing on heads would be expressed in what way?

Options:

50%

one half

0.5

50-50

Answer

Explanation

0.5 - in probability theory, the likelihood of an event is represented as a number between 0 and 1. Therefore this would be written as 0.5. See p. 125

Questions # 5:

Standard Deviation is the measure of the variation between the values in a range of data. From which of the following could you calculate Standard Deviation?

Options:

normal distribution

binomial distribution

poisson distribution

value at risk

Answer

Explanation

This is calculated from normal distribution. In normal distribution most of the values are concentrated around the middle of the data set- standard deviation identifies how far a data point is from this average. See p.128 for more information

Questions # 6:

Which of the following will you put into box 4?

Options:

hazard

financial

strategic

(Correct)

operational

Answer

Explanation

Anything to do with currency is a financial risk.

Questions # 7:

ISO 20400 represents what area of business?

Options:

Quality Management

Supply Chain Security

Risk Management

Sustainable Procurement

Answer

Explanation

ISO 20400 is Sustainable Procurement. This is from p. 51 of the study guide- as well as learning what the ISO numbers are, do also learn the key areas of each ISO as these come up in the exam.

Questions # 8:

Rabbit Manufacturing operates several factories which create stuffed animals. As these stuffed animals are mainly bought for children, it is extremely important that the quality of the product is assured, and there are no dangerous or small parts which could become choking hazards. Which of the following are appraisal costs that the company should undertake in order to mitigate the risk of poor quality products entering the market?

Options:

quality control inspections

using a pro-active quality management system

introduce a 0 defect approach

staff training to ensure higher quality products are made

Answer

Explanation

Of these four answers only one is an appraisal cost and that is answer 1. The other three options are prevention costs. There is a table of appraisal costs and prevention costs on p. 26 Appraisal costs are reactive- they're done after the product is manufactured. Preventative costs are actions taken in quality assurance.

Questions # 9:

Which of the following will you put into box 6?

Options:

strategic

intellectual property

environment

operational

Answer

Explanation

The correct answers are as follows:

Table Description automatically generated

Questions # 10:

Which of the following risks is associated with sourcing from low-cost countries? Select TWO:

Options:

operational risks

reputational risks

geopolitical risks

financial risks

Answer

B, C

Explanation

The correct answers are reputational risks and geopolitical risks. This is according to p. 77 of the study guide. Although I personally feel this is a bit presumptive, painting all 'low-cost' countries with the same brush (are all 'low-cost countries' politically unstable and allow dodgy things that will affect your reputation?, this is what the textbook says ...

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