ADVANCED DIPLOMA LEVEL 5

L5M2 – MANAGING SUPPLY CHAIN RISKS

REVISION QUESTIONS
Q1. Which of the following is a definition of a risk?

a. Health and safety issues in a workplace

b. A degree of uncertainty on an objective
c. The level of exposure faced by the supply chain
d. Harmful issues to avoid in the workplace

Q2. Which of the following are examples of hazards in a supply chain?

1. Probability of lost sales due to geopolitical threats

2. Transporting chemical containers to the buyer’s warehouse
3. Unsafe warehouse practices
4. Loss of stock due to poor security measures

a. 1 and 2
b. 2 and 4
c. 2 and 3
d. 1 and 4

Q3. It is always important to consider the risk appetite level of an organisation before taking
any risk. Is this statement correct?

a. No, because some risks are less harmful and do not require consideration of the
organisation’s risk appetite.
b. Yes, because risk appetite consideration allows the organisation to understand the
sources of risk for proper mitigation
c. No, because risk appetite is simply an analysis and documenting of the risk which can be
done using a risk register.
 d. Yes, because considering risk appetite level help the organisation in understanding the
level of risk they are comfortable taking.

Q4. Procurement managers should always avoid taking the risks that face their departments in
order to trade profitably. Is this statement correct?

a. No, because other risks are worth taking as they can result in positive consequences
b. Yes, because any degree of uncertainty can cause negative impact on the organisation’s
profitability
c. Yes, because if a risk of any kind is not avoided, the organisation’s reputation will be
significantly damaged
d. No, because a risk always result in positive outcomes for the organisation if it is well
managed

Q5. A fire at the depot of a transport company destroys its vehicle fleet. It is insured and so in
time the vehicles can be replaced. However, in the short-term it cannot fulfil its customer
orders and so loses business. This loss of business is known as which of the following?

a. Direct loss
b. Positive loss
c. Standard loss
d. Consequential loss

Q6. Which of the following are types of direct loss? Select the TWO that apply.

a. Stock burnt in fire

b. Reputational damage
c. Loss of future customers
d. Loss of sales
e. Damage to assets

Q7. Which of the following are the correct characteristics of an indirect loss?

1. Indirect loss cannot be easily quantified

2. Indirect loss can be easily documented
 3. Indirect loss is difficult to insure against
4. Indirect loss requires a lot of money to insure

a. 2 and 4
b. 1 and 3
c. 2 and 3
d. 1 and 4

Q8. Which of the following is an example of a supply chain’s internal risk?

a. Breakdown of information and communications technology (ICT)

b. New entrants to the market increasing the intense of industrial competition
c. Political threats and imbalances
d. Change of legislation and regulations

Q9. Which of the following are examples of fraud in a supply chain? Select the three that apply.

a. Giving money to a procurement officer to influence his decision

b. Having a coffee with the supplier’s manager before a negotiation
c. Asking probing questions to put more pressure on the supplier
d. Setting a high invoice price to get the share of the money paid
e. Quoting higher prices to account for costs of production
f. Misuse of company assets for personal gain

Q10. Procurement managers always have a role to play in effective abolition of fraud in the
supply chain. Is this statement true?

a. No, because procurement managers only needs to focus on the procurement tasks that
contributes towards overall business strategy
b. Yes, because fraud gives organisation an opportunity to implement policies to improve
their competitive advantage
c. No, because subordinates are the only people who can see fraud taking place
d. Yes, because fraud is a source of financial risk for the organisation and must be
eliminated at all costs
Q11. Which of the following are potential technology risks for the procurement organisation?

1. Under-investment
2. Cyber-crime
3. Ransomware attack
4. Cargo theft

a. 1 and 4
b. 2 and 3
c. 3 and 4
d. 1 and 2

Q12. Which of the following are regarded as the pre-condition for fraud in the supply chain?
Select the TWO that apply.

a. Due diligence of suppliers

b. Poor financial controls
c. Motive for fraudulent activities
d. Tight security measure
e. Effective logistical strategies

Q13. CBEF Manufacturers is a German mobile phone producer supplying its products to a
significant number of countries around the world. They use international sourcing strategy to
acquire most of their inputs for manufacturing. Which of the following are likely to affect CBEF
Manufacturers when acquiring their inputs?

1. Language and cultural difference

2. Quality issues
3. Higher input prices
4. Exchange rate risk

a. 1 and 4
b. 1 and 3
c. 2 and 4
d. 3 and 4
Q14. ManCo Inc is a global manufacturing organisation. It has a highly integrated supply chain.
All parties are interconnected with the result that data availability and transparency are high.
ManCo’s CPO is particularly concerned about the technological risk this approach may cause.
Which of the following is such a risk for ManCo?

a. Global economics
b. Labour standards
c. Economic uncertainty
d. Cyber crime

Q15. Which of the following are the steps that the procurement manager can take to mitigate
currency risks?

1. A buyer can the request to use its own currency

2. Insuring the goods that have to be transported
3. Using a forward exchange contract
4. Avoid fixing the rate of currency

a. 3 and 4
b. 2 and 3
c. 1 and 3
d. 2 and 4

Q16. The Sarbanes-Oxley regulations are mostly focused on...

1. Investor protection
2. Corporate financial disclosure
3. Clear commercial advertising
4. Product quality

a. 1 and 3
b. 2 and 4
c. 1 and 2
d. 2 and 3
Q17. Insolvency is one of the obvious reasons for the supplier’s inability to perform the contract
satisfactorily? Which of the following are the reasons for supplier insolvency? Select the THREE
that apply.

a. Low volumes of business from a particular supplier

b. Loss of a major customer affecting cash flow
c. Fraudulent activities by supplier’s employees
d. Tight financial controls and corporate governance
e. High employee retention for the supplier
f. Large fines from failure to comply with regulations

Q18. Which of the following ratios assess the supplier’s financial risk determining the supplier’s
ability to meet its short term liabilities using its current assets?

1. Profitability ratios
2. Acid test ratio
3. Gearing ratio
4. Current ratio

a. 1 and 4
b. 2 and 4
c. 2 and 3
d. 1 and 3

Q19. Is it a good practice to encourage whistle-blowing amongst employees working in the

supply chain if they suspect unethical behaviour in the supply chain?

a. No, because in many countries this will be illegal as it is confidential information

b. Yes, because they will always know if there is unethical behaviour
c. No, because there is usually no means of them doing so confidentially
d. Yes, because these staff are more likely to be aware of such malpractices

Q20. A risk associated with brand is likely to affect which of the following for an organisation?
 a. Positioning
b. Compliance
c. Competitors
d. Assets

Q21. Which of the following is a sustainable procurement standard?

a. ISO 14001
b. ISO 9000
c. ISO 31000
d. ISO 20400

Q22. Is it always necessary to include a force majeure clause into a contract of services with a
supplier?

a. No, because force majeure clause can only be used in a contract of goods
b. No, because a force majeure clause limits the liability of the supplier in the event of
breach
c. Yes, because a force majeure will suspend the parties obligation in case of
unforeseeable and uncontrollable events
d. Yes, because a force majeure states the money that have to be paid by the defaulting
party

Q23. What is the name of a contractual clause that must be included in a contract to reduce the
risk of being supplied with a defective product?

a. Indemnity clause
b. Inspection and testing clause
c. Inspection clause
d. Liability clause

Q24. . Model form contracts are popular because they offer additional protections to suppliers. Is this
statement correct?
 a. No, they are popular because they are widely accepted and understood in industries that use
them
b. Yes, in industries that use model form contracts they protect a buyer from all supplier conditions
c. No, they are popular because it is a legal requirement to use them if available in that industry
sector
d. Yes, in those industries that use model form contracts considerably limit supplier liability

Q25. Which of the following are types of intellectual property protection?

1. Copyright
2. Indemnity
3. Insurance
4. Trademark

a. 1 and 2
b. 2 and 3
c. 3 and 4
d. 1 and 4

Q26. Unforeseen events that arise during a contract will be treated as ‘force majeure’ and all parties will
be excluded from liability. Is this correct?

a. No, a contract is legally binding and the parties cannot be excluded from any liability
b. Yes, but only if the event is genuinely beyond the control of one or all the parties
c. Yes, all parties will be excluded from liability even if only a minor problem arises in the contract
d. No, it is not possible to exclude responsibility for liability that might arise under a contract.

Q27. Which of the following contractual clause would be used in the case of a hurricane that stopped a
factory from manufacturing and delivering goods to the point of consumption?

a. Force majeure clause

b. Exclusion clause
c. Liability
d. Indemnity

Q28. Which of the following is not an advantage of using a standard form of contract?
 a. It is tried and tested so it is more predictable
b. It is innovative and cover the latest concepts
c. It balances the risk between the buyer and supplier
d. It is widely accepted by a particular industry

Q29. Best practice audits should be undertaken in which of the following ways? Select the TWO that
apply.

a. Best practice audits should involve scheduled audits to the supplier premises
b. All relevant documentation should be reviewed
c. Private interviews with employees should be avoided
d. Risk registers should be used to document any sources of risk in the buyer organisation
e. They should include audits below the first tier

Q30. A procurement manager is responsible for a high-risk and medium value contract for which the
procurement organisation is critically dependent on an outsourced supplier. The procurement manager
has requested that the supplier submits a disaster recovery plan. Is a disaster recovery plan appropriate
in this scenario?

a. No, the procurement manager is responsible for creating the disaster recovery plan
b. Yes, the plan will show how the supplier will continue to operate and deliver the service in a
disaster situation
c. Yes, a disaster recovery plan, but not remedial actions, should be required for all supplier on all
contracts
d. No, disaster recovery planning is only require on high-risk and high-value contracts

Q31. TURNIT Inc is a chemical manufacturing company. It has employed a large number of employees
across their different department. However, a significant number of its employees are found in the
production department. Due to health and safety hazards that employees operate in, TURNIT Inc have
an insurance that covers the organisation in the event that the employee makes a claim for a work
related injury or disease. Which of the following is the type of insurance that TURNIT Inc is using?

a. Product liability insurance

b. Trade credit
c. Employer’s liability insurance
d. Employee liability insurance
Q32. Damage to the supplier’s premises and property triggers which of the following insurance?

a. Business interruption
b. Public liability insurance
c. Professional indemnity
d. Contingent business interruption

Q33. Which of the following are the phases of a contingency plan? Select the THREE that apply.

a. Incident response
b. Evaluation phase
c. Mitigation phase
d. Disaster recovery plan
e. Control phase
f. Business continuity plan

Q34.in the contingency plan, which of the following is used days after the disaster has occurred that
severely affected the organisation’s operation?

a. Business continuity plan

b. Incident response
c. Mitigation
d. Disaster recovery plan

Q35. RN Co has entered into an agreement with a customer to manage its logistics operations. When
drawing up the contract with the customer it has decided to include a force majeure. Which of the
following is an example of a force majeure?

a. RN Co Ltd experience staff shortages of drivers and warehouse staff

b. RN Co. Ltd delivery vehicle breaks down for the third time in a week
c. RN Co. Ltd unable to deliver due to an administrative error by its accounts department
d. RN Co. Ltd unable to deliver due to heavy flooding and hurricanes

Q36. The principle of utmost good faith lies at the heart of contracts for the provision of insurance. Is
this correct?

a. No, it is always assumed that there are no material facts unless they are expressly stated
b. Yes, it places the burden of responsibility on the insurance company to check the facts
 c. Yes, all relevant information must be fully disclosed otherwise the insurance will be void
d. No, caveat emptor is the fundamental principle of all insurance related contracts

Q37. Which of the following are examples of external risks that may impact on the organisation’s
performance? Select the THREE that apply.

a. Equipment breakdown
b. Lack of availability of personnel
c. Geopolitical risks
d. Changes in legislation
e. Exchange rate risks
f. Procurement fraud

Q38. Which of the following are used to assess the risks that affect the supply chain?

1. Probability
2. Intensity
3. Impact
4. Mitigation measures

a. 1 and 4
b. 2 and 4
c. 1 and 3
d. 3 and 4

Q39. Which of the following type of distribution is possible in a situation where the number of possible
outcomes is fixed at two?

a. Normal distribution
b. Binary distribution
c. Binomial distribution
d. Poisson distribution

Q40. The probability of discrete events with only couple of outcomes would be a description of the focus
of which type of probability distribution?

a. Scalar distribution
 b. Binomial distribution
c. Correlated distribution
d. Adverse distribution

Q41. Company A has been trying to manage risk more effectively. The management team have decided
to use a risk probability/impact matrix. The purpose of the matrix is to plot...

a. Likelihood of occurrence against seriousness of impact

b. Likelihood of occurrence against length of occurrence
c. Rate of occurrence against length of occurrence
d. Seriousness of occurrence against reason for occurrence

Q42. Which of the following is true about the concept of ‘normal distribution’? select the THREE that
apply.

a. It is depicted as a straight line

b. It is based on probability
c. It is symmetric ion shape
d. The values are evenly distributed
e. It shows the variation in extreme points
f. Most values are around the mean

Q43. Which of the following is used by the organisation to identify and document the risks that are likely
to affect the organisation?

a. Risk assessment grid

b. Risk mitigation plan
c. Risk register
d. Risk analysis

Q44. It is important to include the risk owner in a risk register when documenting an identified risk. Is
this statement correct?

a. No, the risk must be owned by every employee and member of the organisation
b. Yes, this will determine who was responsible for identifying the risk
c. Yes, authority should be allocated as to who will lead in monitoring and managing the risk
d. No, this will result in unnecessary cost by hiring the person who will own the risk
Q45. Which of the following actions can be taken by an organisation to improve its structural flexibility?

1. Asset sharing
2. Asset loaning
3. Rapid manufacturing
4. Inventory control

a. 1 and 2
b. 1 and 3
c. 2 and 4
d. 3 and 4

Q46. Which of the following are recognised standards for risk management?

1. ISO 14001
2. ISO 31000
3. ISO 26000
4. ISO 28000

a. 1 and 3
b. 2 and 3
c. 2 and 4
d. 3 and 4

Q47. Which of the following activities are associated with quality control to reduce the risk of an
organisation delivering poor quality products to its customers? Select the THREE that apply.

a. Testing
b. Training
c. Zero defects approaches
d. Physical inspection
e. Checking materials upon arrival
f. Proactive quality management system
Q48. Which of the following standard indicates the organisation’s commitment to delivering systematic
security management to its customers?

a. ISO 9001
b. ISO 28000
c. ISO 34001
d. ISO14001

Q49. Risk ownership in an organisation or company must reside with...

1. A risk manager regardless of position or level

2. A senior level of management within the company structure
3. The individual that initially identified the risk
4. Individuals with the authority to take actions

a. 1 and 4
b. 2 and 3
c. 2 and 4
d. 3 and 4

Q50. Which of the following is the reason for the organisation externally reporting their risk on the
corporate accounts?

1. Reporting risks on external accounts helps in improving supplier relationships

2. Reporting risks on external corporate accounts ensures a high level of transparency in the
organisation’s operations
3. Reporting risks on external corporate accounts attracts potential investors
4. Reporting risks on external corporate accounts ensure the organisation’s controls face closer
scrutiny

a. 2 and 4
b. 1 and 3
c. 2 and 3
d. 3 and 4
Q51. Which of the following are the risk mitigation strategies that the organisation can use?

1. Transfer
2. Translate
3. Transition
4. Tolerate

a. 1and 4
b. 2 and 3
c. 1 and 3
d. 3 and 4

Q52. Which of the following are the elements of supply chain business continuity planning?

1. Awareness
2. Prevention
3. Control
4. Measuring

a. 1 and 3
b. 2 and 4
c. 3 and 4
d. 1 and 2

Q53. A loss that cannot be easily linked to the risk event is known as which of the following

a. Direct risk
b. Consequential loss
c. Serious loss
d. Controllable loss

Q54. What action should be taken to mitigate the risk that an organisation cannot afford to take at all?

a. Tolerate
b. Translate
 c. Transition
d. Terminate

Q55. Which of the following are examples of strategic risks for an organisation? Select the TWO that
apply.

a. Lack of sales in a new market

b. Lone workers in unsafe conditions
c. Negative exchange rate impact
d. Machinery breakdown
e. Lack of investment in new technology

Q56. Which of the following are possible reasons for a contract failure between the parties?

1. Changes within the contract not provided in the contract

2. Stringent contract terms
3. Period performance and contract management
4. Poor understanding of the implications of law

a. 1 and 4
b. 2 and 3
c. 1 and 2
d. 3 and 4

Q57. Which of the following is a recognised international standard to ensuring that customers get
products and services that consistently conform with what their requirements are?

a. ISO 14001
b. ISO 31000
c. ISO 26001
d. ISO 9000

Q58. Which of the following are the guiding principles for ISO 31000? Select the THREE that apply.

a. Risk management can create value

 b. Risk management should be an integral part of management
c. Risk management should allocated sufficient resources for execution
d. Risk management responsibility should be allocated to top management only
e. Risk management should be once-off process
f. Risk management should be systematic, structured and available at the right time

Q59. Which of the following are potential risks that are directly associated with a company's
brand? Select TWO that apply.

1. Positioning
2. Reputation
3. Perception
4. Value

a. 1 and 2
b. 3 and 4
c. 2 and 3
d. 1 and 4

Q60.