L4M4 Ethical and Responsible Sourcing Questions and Answers

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

Robert should look at the supplier's ESG policy. This stands for Environmental Social Governance. So covers both his requirements for community (social) and environmental factors.

ISO 9001 is about Quality Management and ISO27000 about Information Security so these are in-correct answers. An Anti-Slavery Policy would not discuss the environment.

In public sector procurement, maintaining service levels within value and cost parameters is essential to ensure efficient use of public funds. Additionally, a competitive tendering process is encouraged to promote transparency, fairness, and value for money. While long-term supplier relationships can be beneficial, they are not always feasible or emphasized in the public sector due to regulations requiring periodic re-tendering. Confidentiality is important, but public sector procurement often requires a degree of transparency that precludes complete confidentiality in dealings.

The acid test, also known as the quick ratio, measures a company's ability to cover its current liabilities with its most liquid assets, excluding inventory. It is a stringent indicator of short-term financial health. By requesting this ratio, the company can assess whether a potential supplier has sufficient liquidity to meet its obligations, which is crucial when procuring strategic items.

When evaluating quotations, responsible buyers must look beyond headline price. Lead times (1) affect operational continuity. Add-on costs (2) (e.g., packaging, delivery, handling) can significantly change total cost. Past performance (4) demonstrates reliability and quality, crucial for ethical and sustainable sourcing. Wastage rates (3) may be relevant but are typically assessed in performance monitoring, not initial quotation evaluation. This holistic view aligns with the total cost of ownership (TCO) approach promoted by CIPS, ensuring procurement decisions account for both direct and indirect impacts.

The balance sheet and profit and loss account provide a comprehensive view of an organisation’s financial health, showing assets, liabilities, and profits. These statements are essential in evaluating a supplier’s financial capacity, aligning with responsible sourcing practices for financial stability.

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

A credit rating is one of many tools used to assess a supplier’s financial health. Responsible sourcing requires a comprehensive assessment of suppliers, considering multiple factors, to ensure a balanced and ethical approach to supplier selection.

Outsourcing critical functions like cybersecurity can lead to a loss of in-house expertise, which is a strategic cost. This loss may impact the organization's ability to respond swiftly to security threats, innovate, and maintain control over sensitive operations. Retaining core competencies is vital for sustaining competitive advantage and ensuring long-term resilience.

Exact Extract from Study Guide:

"Outsourcing core activities risks – loss of in-house skill, loss of key staff to competitors, risk that supplier cannot be found, loss of control over operating activities, risk of loss of control over confidential information/IP.

CIPS members who adhere to the CIPS Code of Conduct gain insight into ethical business practices and retain their membership and access to CIPS resources. This commitment to ethical standards supports responsible sourcing by fostering a community of professionals who value integrity and best practices.

In the initial evaluation of non-domestic vendor supply proposals, understanding and applying the correct Incoterm classifications is crucial. Incoterms (International Commercial Terms) define the responsibilities of buyers and sellers in international transactions, including the point at which risk transfers from seller to buyer. Evaluating these terms early ensures clarity in logistics, costs, and risk management.

Exact Extract from Study Guide:

"When sourcing from international suppliers, it is important to be aware of the key legislative and regulatory requirements in both the home country as well as the country of origin. Depending on product and service type, for example, you may need to consider product safety measures, industry regulations, and environmental regulations. In terms of organizational requirements, it is important to pay attention to details such as applicable payment terms and local labor practices."

An open tender is advertised publicly and open to all interested suppliers. For it to be effective, there must be a sufficient supplier market (A) to justify competition. If supplier numbers are too low, restricted or negotiated procedures may be more appropriate. Pre-qualification applies to restricted tenders, not open ones. Price-only evaluation breaches responsible sourcing principles, which require balanced criteria. Responsible sourcing highlights that open tendering ensures transparency and fairness but must be used appropriately depending on market conditions.

Addressing human rights issues collaboratively by developing an action plan allows for improvement and correction. This approach is consistent with ethical sourcing principles, which encourage responsible intervention to correct and improve supply chain practices rather than punitive measures that may not lead to long-term change.

An RFI is an exploratory tool, used to gather information before specifications or tendering. It is appropriate for obtaining indicative pricing (A), understanding the range of products/services (C), and confirming certifications like environmental or quality standards (D). RFQs, by contrast, request firm pricing based on defined specifications. RFIs are not used to renegotiate existing contracts (E) or agree payment terms (B). Responsible sourcing emphasises using RFIs to identify suppliers aligned with ethical, environmental, and operational expectations before moving to a formal competitive process.

Competitive tendering is ideal for high-value contracts where technical expertise is essential. This method supports responsible sourcing by ensuring quality and aligning the supplier’s capabilities with the buyer’s needs, as required in more complex procurement scenarios.

Explanation

GDP = gross domestic product = "the monetary value of goods and services manufactured or sup-plied in a financial period". People use it to say whether a country's economy is strong or weak.

Stock markets look at the value of public limited companies within a country.

Commodity indices look at the value of commodities such as steel, oil and wheat at a point in time

Average changes in price over a year can be measured by CPI or PPI

A full competitive tender ensures fairness, transparency, and equal treatment of all suppliers. Each bidder has an equal opportunity to compete, and award decisions are based on pre-published criteria. This builds trust, prevents corruption, and strengthens market confidence. It is not quick or informal (A), nor does it disclose competitor bids (B). Decision-making is collective and accountable, not unilateral (D). Responsible sourcing stresses fairness and transparency in supplier engagement, ensuring a level playing field and compliance with ethical procurement standards.

Explanation

economic indices and comparison websites are secondary sources of data. The other three are examples of primary sources of data.

Primary= you get the data yourself

Secondary = you find the data from somewhere else

For low-value, routine purchases where price is the primary consideration, employing a weighted points system may not be necessary. Such systems are more suitable for complex procurements where multiple factors, such as quality, delivery, and sustainability, need to be evaluated alongside price. In the case of purchasing standard items like pens, a straightforward price comparison is typically sufficient.

Outsourcing can create risks such as loss of control over a project (1) since operations are managed externally, and loss of private information (4) if data security and confidentiality are not managed effectively. Loss of assets (2) typically refers to internal asset disposal, not outsourcing. Loss of future business opportunities (3) is more linked to strategic misalignment, not a core outsourcing risk. Responsible sourcing emphasises that outsourcing should include robust governance, contractual protections, and supplier monitoring to manage risks of data leakage, reduced oversight, and potential ethical breaches.

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.

Thecurrent ratiomeasures a supplier’s ability to meet short-term financial obligations and is calculated astotal current assets divided by total current liabilities. Current assets include cash, receivables, and inventory, while current liabilities include overdrafts, trade payables, and short-term debt. Equity capital relates to ownership, not liquidity, and sales income and cost of goods sold appear in the income statement, not the balance sheet. Ethical and responsible sourcing requires procurement professionals to assess supplier liquidity to reduce the risk of supply disruption caused by cash-flow problems.

Internal production is often justified when a company has the necessary competencies and capacity. This approach aligns with responsible sourcing by leveraging internal capabilities for better control over quality, cost, and compliance with ethical and environmental standards.

Phishing is a form of fraud, where deception is used to gain financial advantage or access to sensitive data. It is not corruption (misuse of power), bribery (offering inducements), or a human rights issue. Procurement professionals must be alert to fraud risks in supply chains, including cyber-enabled risks such as phishing and invoice fraud. Responsible sourcing extends to protecting organisational data and finances against such attacks, often through robust controls, training, and supplier verification procedures.

Explanation

tactical is the correct answer; items that are short-term or low value are considered tactical.

Strategic sourcing is long term and high value.

Outsourcing is moving a key business function to an external company.

Insourcing is bringing a previously outsourced part of the company back in-house.

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%

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.

The growth in international sourcing has been significantly supported by theexistence of trading blocs and the reduction of trade barriers, such as tariffs and quotas. Trading blocs encourage cross-border trade by simplifying regulations, reducing duties, and improving market access between member countries. Exchange rate fluctuations, cultural differences, and varying legal frameworks representchallenges, not drivers, of international sourcing. Ethical and responsible sourcing requires procurement professionals to understand how global trade agreements and reduced barriers create opportunities for cost savings, supplier diversification, and access to global expertise, while still managing associated risks.

Incorporating recognized standards into procurement specifications provides clear guidelines for suppliers, reducing ambiguity and ensuring that products or services meet predefined quality and safety criteria. This is particularly important in sectors like healthcare, where equipment must adhere to strict standards to ensure patient safety and operational efficiency.

Explanation

you would use a restricted approach when interest is likely to be high. The buyer needs a method of de-selecting unsuitable bidders and creating a shortlist of acceptable organisations.

For complex requirements you could use both an open or restrictive tender- the difference between the approaches is about how many bids you're likely to get rather than the complexity of it.

Including ESG criteria in tender analysis helps ensure suppliers align with the buyer’s sustainability initiatives (1) and helps identify risks within the supply chain (4), such as unethical labour practices or environmental harm. Improving workflow (2) and spend monitoring (3) are operational concerns but not ESG drivers. Responsible sourcing requires procurement professionals to integrate ESG into decision-making, ensuring not only cost-efficiency but also ethical compliance, resilience, and long-term value. This reflects the growing importance of corporate social responsibility (CSR) and stakeholder expectations.

The Pareto principle (80/20) shows that around 80% of spend is often concentrated with 20% of suppliers. It is relevant for identifying strategic suppliers (D) that require close management and opportunities to improve or change relationships (E) for greater value. Contract expiry dates (B) and payment frequency (A) are administrative details, not Pareto analysis outputs. Cost variation (C) relates to performance analysis, not spend concentration. Responsible sourcing uses Pareto analysis to allocate resources effectively, focusing attention on the most impactful supplier relationships.

Explanation

Completing Due Diligence checks will help guard against concerns about unethical business practices.

Not all companies will have a published Anti-Slavery policy- this is only required for large companies.

Known suppliers might have issues that you don't know about so you should always do due-diligence checks on everyone you work with

Formal tenders won't sort out ethical issues unless specifically addressed within the tender and strong contract management is put in place afterwards.

Protectionist measures are policies implemented by governments to protect domestic industries from foreign competition. One common protectionist measure is the imposition of import duties, which are taxes levied on imported goods. These duties make imported products more expensive, encouraging consumers to buy domestic products instead. Buyers sourcing internationally must be aware of such duties as they directly impact the total cost of procurement.

Exact Extract from Study Guide:

"Furthermore, there are many potential cost considerations when importing goods which can include taxes & duties or storage costs. By understanding all key legal, regulatory and organizational requirements prior to sourcing from international suppliers, businesses can ensure compliance while also maximizing cost savings."

The decision to make a product internally rather than sourcing it externally is influenced by several factors. One of the primary considerations is the availability of in-house competencies and capacity. If an organisation possesses the necessary skills, technology, and resources to produce the required goods or services efficiently, it may opt for internal production to maintain control over quality, reduce costs, and protect proprietary information.

Exact Extract from Study Guide:

"Make or buy decisions take into account: product/service is core, the organisation's capacity to make, current market (cost saving with economy of scales and/or logistics), amount of competition."

Explanation

Exchange rates and tariffs are associated with international sourcing.

The other options are concerns for both local sourcing and international sourcing.

Under theFOB (Free on Board)Incoterm, the seller is responsible for delivering the goods onto the vessel at the named port of shipment. Once the goods are on board, the risk and responsibility transfer to the buyer. From that point onward, the buyer assumes all costs and risks associated with the transportation of the goods, including freight charges, insurance, unloading, and delivery to the final destination.

This interpretation aligns with the Incoterms® 2020 rules set by the International Chamber of Commerce (ICC). It's crucial to note that FOB is applicable only for sea or inland waterway transport and is not suitable for containerized cargo, where theFCA (Free Carrier)term is more appropriate.

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

At supplier selection stage, unsuitable suppliers should be removed (those that do not add value or pose a risk). At develop strategy stage you're not even looking at suppliers yet- you're just deciding what you need. At contract award and asset management it's too late.

CIPS procurement cycle - Procurement Supply Cycle | CIPS

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.

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

ABC should do a 'root cause analysis' to find out where the issue has come about, and why. From there, once they know what the breach is and how serious it is, they can suggest corrective action.

They can't jump straight to terminating the contract or seeking damages as it's not the supplier itself but rather the subcontractor. Also that would be really hasty considering we don't know what the issue is and what the market conditions are like. That supplier may be the only one who can provide the product. We also don't know if the supplier knows about the issue themselves.

Explanation

A credit rating generates a score which reflects 'the level of risk an organisation poses when dealing with other businesses'. It's saying how risky it is to loan them money or do business with them by looking at how good they are at paying people. So a high credit rating will say they're good at paying back their loans and paying their suppliers on time. A poor credit rating will say they often miss payments or pay late.

A credit rating will not tell you how much money they have, or details on their prices. Credit scores looks at purely financial data so wouldn't help you analyse whether their business practices are ethical or not.

For urgent, low-value local services, targeted sourcing (e.g., RFQs to pre-vetted suppliers) is more efficient than open advertising that can create excess, low-quality responses and slow down delivery. Responsible practice also considers proportionality and timely risk control.

Ordering in November, when demand is lowest, may allow the buyer to secure better pricing and availability, aligning with responsible sourcing by optimizing purchase timing to achieve cost savings and reliable supply.

Explanation

Most Economically Advantageous Tender (MEAT) is the Public Sector's go to evaluation criteria.

NOTE that this is changing from October 2023. Public Sector Procurement is currently based on legislation called PCR 2015 which itself is based on EU Procurement Directives. Now the UK has officially Brexited, we're making our own laws and the new Procurement Bill will be coming into effect in November 2024. One of the major changes is that MEAT is changing to MAT (most ad-vantageous tender - without the economical bit).

If you're sitting this exam until July 2024- you're fine- learn what the study guide says. If you're taking the exam from November 2024 I'm not sure what students are expected to do. The entire section on public sector procurement is incorrect for you. My best guess is CIPS may removequestions this section as the study guide will be wrong, but I really don't know how they plan to handle this.

The new Procurement Bill - MEAT to MAT - Hempsons - Hempsons

Prohibiting trade union membership is a violation of workers' rights and international labor standards. Such a practice indicates potential non-compliance with ethical sourcing principles and necessitates further investigation. Ensuring that suppliers respect workers' rights to association is fundamental to ethical procurement.

Explanation

liquid = the ability to pay short and medium term debts. In simple terms do you have more in stuff (money, assets) than you owe in debt?

Understanding Liquidity and How to Measure It (investopedia.com)

This is a hot topic for the exam. Learn everything in this section.

Explanation

A bribe is anything that is of value to the recipient. It’s commonly money, but could also be an item such as a car, or doing someone a favour such as hiring their son.

Explanation

The correct answer is financial stability (this is done by using all of those lovely ratios in chapter 1.3) and capacity and capability (which are part of Carter's 10 Cs).

At PQQ stage you're looking purely at whether the supplier is good or bad (to put it simply). You don't give them details of your requirement yet, so they're not providing a quote / pricing structure / price schedule at this point in time. That would be at the next stage, IF they pass PQQ, when you issue the tender competition.

Explanation

The correct answer is importation rules and tariffs. This is because in offshoring some of the manufacturing will be done in another country then shipped back to the UK. The products will have to go through customs so may be subject to tariffs and duties.

Steff's not exporting anything in the scenario and paying electronically and getting lower costs are not RISKS.

A weighted scorecard provides astructured, objective, and transparentmethod of evaluating supplier bids against pre-agreed criteria such as price, quality, sustainability, and delivery. Weightings reflect the relative importance of each criterion, ensuring decisions are aligned with organisational priorities and value-for-money principles. This approach reduces bias, improves consistency, and creates an auditable record of the decision-making process. It does not focus solely on price, nor does it increase subjectivity when designed correctly. Ethical and responsible sourcing promotes the use of weighted scorecards to support fair competition, transparency, and defensible procurement decisions.

The Universal Declaration of Human Rights (UDHR) Article 23(2) states that "Everyone, without any discrimination, has the right to equal pay for equal work." This underscores the principle of equality in the workplace, ensuring that employees are treated equally regarding pay and conditions. Therefore, employees raising concerns about unfair pay compared to their colleagues are exercising their right to be treated equally.

An Invitation to Tender (ITT) is used when requirements are complex, high-value, or strategic, requiring detailed supplier submissions, robust evaluation, and structured governance. RFQs are better for low-value, straightforward purchases where price is the main factor. ITTs ensure fairness, transparency, and comprehensive evaluation when the stakes are high. It is not chosen simply because of oligopolies or time pressure. Responsible sourcing requires matching the sourcing process to the complexity and risk of the procurement, ensuring appropriate competition and governance.

Explanation

the correct answer is 'Yes- a low gearing ratio means the company's finances are made up of equity rather than debt'.

Remember low gearing = good (based on equity), high gearing = bad (based on debt). Anything over 50% is considered high.

The two no answers are therefore incorrect and you can discount these straight away. The other yes answer is one of those answers which COULD be true, but isn't always true, and we'd need more information to know for sure. When you get options like this there will be one that is always right and one which is sometimes right - so always pick the always right one.

Dealing with supply chain disruptions is complex, and depending what the disruption is, how big it is, what the industry is etc determines whether a supplier can handle it or not. Because there's more factors to consider than just gearing, this isn't the right answer.

Public sector procurement is bound by transparency, fairness, and value-for-money principles. Once minimum thresholds are met, evaluation must be based on pre-published weighted criteria (often combining price, quality, sustainability, and social value). Sole reliance on price or location would breach fairness and equal treatment obligations. Weighted scoring ensures that decisions are objective, defendable, and aligned with responsible sourcing principles. This also allows ethical and sustainability considerations to be formally scored alongside commercial ones, reinforcing good governance.

Explanation

A cash flow statement shows the money coming in and out. This would therefore show whether a supplier has enough money coming in, to be able to pay some of it out to a subcontractor.

P&L and Balance Sheets look more broadly at finances, rather than saying what's physically in the bank at a specific given time.

Do learn the difference between these three financial documents for the exam.

Balance Sheet: Explanation, Components, and Examples (investopedia.com)

Profit and Loss Statement Meaning, Importance, Types, and Examples (investopedia.com)

Cash Flow Statement: How to Read and Understand It (investopedia.com)

Employee working conditions, a code of ethics, and a carbon emissions policy are all indicative of a supplier's commitment to ESG standards. Assessing these factors aligns with responsible sourcing practices, which prioritize sustainability and ethical considerations.

Explanation

The C category is the 'tail spend' - it represents a large number of suppliers of small value items.

I recommend giving this a read ABC Classification & ABC Method | CIPS

Explanation

Raja should send out a RFI- request for information; this will allow him to gain feedback from the marketplace prior to tender.

Speaking only with current suppliers will not provide all the information Raja requires.

He should not send out a request for quotation since he is still conducting market research

An open competition would be how he can procure, after he's completed his research

Explanation

ISO 20400 is sustainable procurement.

14000 is environment

9001 is quality management

27001 is information security

Competitive bidding is most appropriate when there is asufficient number of capable suppliersto create genuine competition and whenadequate timeis available to conduct the process fairly and transparently. These conditions allow suppliers to prepare robust bids and enable buyers to evaluate proposals properly. Competitive bidding is less suitable where specifications are unstable or urgent decisions are required. Ethical and responsible sourcing emphasises proportionality and fairness, ensuring competition is used where it adds value and does not compromise delivery, governance, or stakeholder needs.

Sourcing relates to identifying suppliers (E) and requesting quotations (D) as part of the market engagement stage of the procurement cycle. By contrast, creating call-off orders, raising requisitions, and goods receipting are post-contract operational activities. Responsible sourcing highlights that supplier identification and quotations are key to ensuring ethical, competitive, and compliant supply chains. These activities help ensure alignment with organisational goals, supplier diversity, and sustainability objectives.

The acid test (quick ratio) is an effective measure of a supplier's ability to meet short-term liabilities, providing insights into financial stability. This aligns with responsible sourcing by ensuring the supplier is financially capable of fulfilling a strategic contract.

Explanation

The three pillars of sustainability are profit, people and planet. This may also be referred to as social, economic and environmental.

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.

Explanation

So you can immediately discount the options starting with yes.

Quoting in GBP / £ rather than the supplier's currency reduces the risk to the buyer. It will not re-duce the cost of the import, and will probably increase it as the supplier is then taking on the risk of currency fluctuations.

Explanation

energy, agriculture, metals, livestock are the four trading categories on the stock exchange. Some-times there's a 5th category added which is 'environmental credits'. This is a fairly new thing and you don't need to know anything about this for this exam.

Question no commodities will mainly centre around characteristics of commodities and factors that affect pricing.

Commodities are discussed much more in detail in L5M4. At level 4 you just need a basic overview.

Explanation

the right to change nationality is not included in the UN Declaration of Human Rights. There are 30 in total but you're not expected to know them all. You should know the big ones though which are; life, security, belief, equal treatment, free speech and expression. A summary can be found here: Universal Declaration of Human Rights | United Nations

An ATA Carnet is an international customs document that allows temporary duty-free movement of goods for exhibitions, trade fairs, or professional use. It is not a certificate of origin, which proves where goods are manufactured, nor is it insurance. Carnets reduce administrative barriers and duties for temporary imports/exports. Responsible sourcing requires buyers to understand the correct use of trade documents to ensure compliance and avoid penalties, while distinguishing between documents that confirm origin, provide insurance, or facilitate temporary movement.

Explanation

The correct answer is 'the supplier is able to work at the same technical level as the buyer'. It's about being able to integrate the businesses together in terms of IT systems and such like.

In the sourcing process, obtaining necessary approvals (such as drawings for the invitation to tender) is critical to ensure clarity and readiness before engaging with suppliers. Responsible sourcing emphasizes structured preparation, ensuring compliance and accuracy in supplier expectations.

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.

Exchange rate fluctuations can significantly affect the cost of international contracts. The most direct way to eliminate this risk is to agree prices in the buyer’s home currency (GBP Sterling). This passes the risk to the supplier, who must manage currency exposures through hedging or local arrangements. Using the exchange rate at delivery (C) retains exposure for the buyer, while financial analysis (A) and competitive tendering (B) don’t address exchange risk. Responsible sourcing requires buyers to consider financial risk-sharing mechanisms as part of contract negotiations.

Explanation

Price and Quality are the two considerations when marking a competitive tender.

Location, distribution and reputation may be considered for SOME tenders, but these would be sub-categories that fall under 'quality questions.

Tariffs/import duties increase the landed cost of imports, which shields domestic producers by making foreign alternatives relatively more expensive. They do not go to the foreign supplier and typically do not lower consumer prices.

In addition to price, factors like lead times, add-on costs, and past performance are important to ensure the supplier meets the buyer's requirements sustainably and reliably. These criteria align with ethical sourcing by promoting value and accountability beyond just cost considerations.

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.

Conducting periodic audits by third-party specialists is a reliable way to monitor compliance with ethical standards, as these audits provide an objective assessment. This aligns with ethical sourcing practices, as it promotes accountability and ensures continuous adherence to agreed-upon standards.

In an open tender process, any supplier can submit a bid, and there is no pre-qualification stage. This approach is suitable when the requirements are well-defined, and there is a sufficient number of suppliers in the market to ensure competition. However, if too many suppliers respond, it can lead to an overwhelming number of bids to evaluate. Therefore, it's essential to consider the number of potential suppliers in the market before opting for an open tender.

Exact Extract from Study Guide:

"Open procedure – used for well-specified requirements and there is no pre-qualification of bidders. Many suppliers could submit a bid, which could result in lots of bids to assess, so the open procedure is normally only used where the number of potential bidders is expected to be relatively low."

Intra-company trading aims to optimize internal resources by enhancing production capacity utilization and offsetting fixed costs. By supplying goods or services internally, organizations can achieve economies of scale and better allocate resources. However, compensating for less effective technology or ensuring superior internal technology over external suppliers are not primary objectives of intra-company trading.

Multiple sourcing is particularly beneficial when requirements are time-sensitive and availability is critical. By engaging more than one supplier, the buyer ensures supply continuity, reduces dependency on a single provider, and improves responsiveness to urgent needs. While sole or single sourcing may suit high-cost strategic components or unique expertise, these arrangements increase dependency risks. For short-notice requirements such as consumables or basic components, multiple sourcing provides resilience and flexibility. CIPS L4M4 stresses that sourcing strategy should reflect risk, demand variability, and supply criticality, and multiple sourcing directly addresses supply risk mitigation.

Liquidity ratios assess a company's capacity to meet its short-term obligations using its most liquid assets. These ratios, such as the current ratio and quick ratio, provide insight into the financial health of a company by indicating whether it has sufficient resources to pay off its immediate liabilities without raising external capital.

Exact Extract from Study Guide:

"Liquidity ratios: − Typical ratios: current ratio, quick ratio, cash flow ratio, etc. − Formulae of those ratios − Implications of liquidity ratios

Supplier selection is about ensuring that suppliers are capable and suitable to meet the buyer’s requirements, including quality, reliability, and alignment with ethical standards. It also focuses on identifying, from a pool of pre-qualified suppliers, which supplier offers the best overall outcome. Financial stability and culture are considered earlier in pre-qualification, not during final selection. Similarly, “time-efficiency” in tender response is not a primary factor in supplier selection. Responsible sourcing emphasises due diligence, capability, and alignment with sustainability and ethical practices as part of selection decisions.

The most effective way to demonstrate zero tolerance is by embedding a comprehensive anti-bribery framework: clear policies, mandatory staff and supplier training, reporting channels, and monitoring. Simply requesting suppliers’ policies or avoiding known offenders is reactive, not proactive. Requiring suppliers to read policies without internal enforcement lacks substance. CIPS highlights that robust governance structures, supported by recognised frameworks such as the UK Bribery Act or FCPA, reinforce organisational credibility, protect reputation, and ensure compliance. This builds trust across supply chains and ensures ethical standards are maintained.

Requesting suppliers to quote in GBP Sterling removes exchange rate risk by fixing the cost in the buyer’s local currency. This strategy aligns with responsible sourcing practices by providing cost stability and protecting the procurement budget from currency fluctuations.

Multiple sourcing is most suitable for strategically important, high-value requirements such as raw materials. This approach reduces dependency on a single supplier, improves resilience, and increases competition. One-off requirements like machinery (A) are not suited to multiple sourcing, while options B and D describe disadvantages, not benefits. Responsible sourcing requires risk mitigation strategies tailored to the category, and multiple sourcing is effective where continuity and bargaining power are critical.