L5M2 Managing Supply Chain Risk Questions and Answers

Anything to do with currency is a financial risk.

Explanation

This could be for cultural reasons within the company. P. 135 states that sometimes causes of risk are not recorded as this could lead to a blame culture within the company.

Explanation

Indemnity clauses transfer risk from one party to another. It is an arrangement whereby one party promises to compensate the other party for a trigger event. An example of an indemnity clause could be a construction firm is building a new bridge and the project is supposed to be completed by 1st June. An indemnity clause may state that should the bridge not be ready by this date, the construction firm will compensate the buyer by X amount. See p.61 for more information on indemnity.

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The company should ensure they have the correct levels of Employer's Liability insurance as staff are getting injured. This transfers the risk to the insurance company. (I mean they should probably do something to stop the staff getting hurt too... but this is just an imaginary example question....)

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A forward contract would fix the exchange rate at a certain level, allowing for cost certainty. This mitigates the risk of the currency getting any weaker.

Explanation

The LILAC Model is; Leadership, Involvement, Learning, Accountability and Communication. P. 149

Explanation

This is from ILO- the International Labour Organisation - see p.49 of the textbook. You should recognise all four of these acronyms as they come up in this module UN= United Nations - they have the Guiding Principles, ISO = produce standards for business practices and ETI = Ethical Trading Initiative - they have a base code for labour practices.

Explanation

3 4 and 5 are the correct answers. This is from p. 79 of the textbook - each of these three areas is then covered in detail throughout chapter 2.2.

Explanation

The correct answers are as follows:

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Explanation

Insurable Interest means that it is not possible to insure someone else's factory. The study guide explains that you can only take out insurance where you have at least partial ownership of that risk. Therefore option 3 is also correct as you have a partial risk if something were to happen to your supplier's factory. You can take out CBI insurance for this. see p.100-101 for further explanations of Legal Principles of Insurance

Explanation

1 and 5 are correct- it is the most common type of distribution and it looks like a bell curve when it's drawn as a graph. There's one on p.127 to look at. The other three statements are incorrect- it's a bell shape rather than a curve, it requires a large number of data points and most of the data points correlate around the middle.

Explanation

The correct answers are as follows:

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Standardised payment terms would help with cashflow. For example every client must pay within 30 days.

Explanation

The correct answers are as follows:

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Cashflow issues can lead to serious financial problems and the company going bust. Therefore this risk must be treated.

Explanation

Answers 2 and 4 are correct. A Business Continuity Plan is held at the top level, not a disaster recovery plan. This can be held at the department level- or whoever would have the ability to enact this if a disaster were to happen. A company is likely to have several Disaster Recovery Plans for different departments and different scenarios so several people within the organisation may be accountable for these. Option 3 is incorrect as the focus is on recovering systems (e.g. getting people back online) not on profit. P.155

Explanation

2 'increase security of supply risks as there is less buffer stock held on site' is the correct answer. With Lean manufacturing there is little or no buffer stock held. This means that if a supplier doesn't deliver on time, the whole manufacturing process will have to come to a stop until new supplies arrive. A risk of Lean Manufacturing is that you become too reliant on suppliers, and if there is a scarcity of resources or an issue with the supply chain, you are more exposed. See p.26-27 for more information on Security of Supply Risks.