AD2/March 2017

Advanced diploma in procurement and supply

Managing risks in supply chains

Date Monday 6 March 2017

Time Start 14:00 End 17:00 Duration 3 hours

QUESTION PAPERINSTRUCTIONS FOR CANDIDATES

This examination has FOUR compulsory questions worth 25 marks each.

1. Do not open this question paper until instructed by the invigilator.

2. All answers must be written in the answer booklet provided.

3. All rough work and notes should be written in the answer booklet.

QP04

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You are advised to allow 20 minutes to read carefully and analyse the information in the case study before attempting to answer the questions.

CASE STUDY – RAIL INFRASTRUCTURE DEVELOPMENTS (RID)

The Etihad Rail project is a new railway planned to connect six Gulf states, linking the Kingdom of Bahrain, the State of Kuwait, Oman, Qatar, the Kingdom of Saudi Arabia and the United Arab Emirates. The company Rail Infrastructure Developments (RID) is well placed to expand its operations throughout the Middle East with its involvement in this project.

RID’s procurement team operates from its central office in Dubai and is currently involved in the early stages of the project, selecting contractors and suppliers for the construction of new stations and new track. Mohamed Samak, the head of procurement for RID, is mindful of the risks that can impact on the success of the project.

According to a recent report in Supply Management, variations and claims from contractors can adversely affect the achievement of both targeted costs and timescales. According to the report, disputes for major construction projects in the region can typically last for 15.5 months. RID is seeking to minimise any potential disruptions which can stem from its supply chain activities.

RID originated in Germany and its operations soon developed across Europe with the increase in privatisation of rail networks.

RID’s current standard procurement process prequalifies contractors through the use of a questionnaire that requires various details of finances, company structure and registration. Mohamed appreciates that for the Etihad project, the prequalification process and approach to managing risks will need to be more rigorous to ensure completion of work packages to time, cost and quality. For this new project, potential contractors will need to demonstrate proven capabilities in project management as well as in other important aspects, such as in their policies and procedures for health and safety.

Mohamed is also considering whether to require contractors to hold a certified international standard for risk management as part of the selection process.

With regard to contracts that are to be set up with the contractors in the region, Mohamed wants to ensure that straightforward and unambiguous contract terms are used to address the major risks in the project.

The appointment of contractors is expected to take place over the next few months; subsequently, RID will work with these contractors to formulate work packages and to prepare project plans.

Mohamed believes that a shared approach to risk management is an important requirement for RID. Standard templates for the assessment and management of risks will need to be issued to suppliers and agreed, so that all firms in the supply chain operate to the same risk management process.

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QUESTIONS

These questions relate to the case study and should be answered in the context of the information provided. You are advised to spend 40 minutes on each question.

Q1 The Etihad Rail project is complex and is spread over six Gulf states.

Explain FIVE potential operational risks for RID in relation to a project of this nature. (25 marks)

Q2 Explain the reasons why RID should use project planning tools when managing potential risks in its supply chains. (25 marks)

Q3 Explain FIVE key contractual provisions that should be included within RID’s procurement contracts. (25 marks)

Q4 (a) When selecting potential suppliers for the Etihad project, RID wants to ensure that these suppliers have developed a culture to manage risks by using international standards and risk assessment process.

Explain the benefits of using international risk management standards for the Etihad project. (15 marks)

(b) Propose ONE suitable risk assessment mechanism that could be used by RID, applying appropriate material from the case study. (10 marks)

END OF QUESTION PAPER

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