L4M4 CIPS Ethical and Responsible Sourcing Free Practice Exam Questions (2025 Updated)

Explanation

The correct answer is bribery, corruption and the environment.

ESG stands for environmental and social governance. It's the new buzzword for CIPS and is basically everything to do with ethical procurement- so areas such as bribery and corruption are included as well as the environment.

Option 4 is incorrect as economic doesn't come into it.

Explanation

shareholder equity = the owner/s of the organisation's residual claim once all debts have been paid. What Is Shareholder Equity (SE) and How Is It Calculated? (investopedia.com)

Loss of control and loss of private information are significant risks in outsourcing. Responsible sourcing involves mitigating these risks by setting clear agreements, monitoring, and safeguarding sensitive information to maintain control over outsourced activities.

Explanation

The correct answer is 'demand is exceeding supply'- If everyone wants to buy something, the sup-pliers will likely increase the price.

If there was little demand or there were threats of substitutions, this would likely result in a price decrease.

Explanation

ethics and environment are not a 'right of procurement'.

The 5 rights are price, quality, quantity, time and place.

Explanation

ISO 20400 is sustainable procurement.

14000 is environment

9001 is quality management

27001 is information security

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

Request for Quotations can include more details than just prices. They can include specs and technical drawings and samples. It's like saying 'we can give you this price with these conditions'.

The other no answer is wrong because RfQ don't always include samples. A sample wouldn't be possible for a quote for an IT consultancy piece of work.

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.

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.

Explanation

security, consultancy and cleaning are services which are often tendered as they tend to be high value and complex opportunities.

Office supplies and raw materials have less variables so you could use a RFQ for these instead.

A hint for this is also the word services. Security, consultancy and cleaning are services. Raw Materials and Office Supplies are goods.

A current ratio below 1 suggests that the supplier may not have sufficient current assets to cover short-term liabilities, which could pose a risk to the buyer. Assessing financial stability aligns with responsible sourcing practices, as it ensures suppliers can fulfill contracts without disruption.

To facilitate the legal movement of goods across borders, specific documentation is required. An export or import license authorizes the shipment of goods to or from a particular country. A customs declaration provides details about the goods being transported, ensuring compliance with the importing country's regulations. Non-disclosure agreements and conflict of interest declarations are related to confidentiality and ethical considerations, not the physical movement of goods.

Exact Extract from Study Guide:

"Documents and systems that allow the movement of goods within the EU:

• T1 Documents

• Import/Export Licence

• Single Administrative Document

• New Computerised Transit System

• Customs Declaration Service"

Explanation

EXW- exworks is a suitable incoterm for transporting goods both by rail and boat. It can be used regardless of the mode of transport. The other three are for transport over water. P. 143 Shipping Incoterms: the Complete Guide - Guided Imports

Some students report a lot of questions on Incoterms in the exam, some say they only had 1. Best bet is to learn them if you possibly can.

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

Items of 'Non-Preferential Origin' are subject to tariff quotas and other customs commercial regulations. 'Preferential Origin' goods have no duties or tariffs.

The good news is CIPS have significantly simplified section 3.2 of the syllabus. The new study-guide is much lighter on names of documents and protocols for importing and quotas etc. The focus of this Learning Outcome has shifted more to Inco Terms so I would focus on that for revision, but do make sure you have a basic understanding of documents, law and jurisdiction.

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.

An Invitation to Tender (ITT) is typically used for complex, high-value procurements where the quality and specific features of the goods or services are of paramount importance. This approach ensures that ethical and responsible sourcing criteria are met, aligning with best practices in procuring specialised goods or services.

Explanation

The correct answer is 'gearing ratio'.

Gearing measures how much of a company's funding is based on long-term debt or loans- this would be affected by a steep rise in inflation. If a company has a mortgage on their offices or facto-ry and they need to remortgage and inflation has gone up a lot- they'll be paying a lot more on their mortgage. This will severely effect the gearing ratio as they'll have more outgoings than incoming.

Gross profit margin COULD be affected by inflation, for example if you've got hyper-inflation and the country goes into recession and people stop buying your product. However, this answer isn't al-ways right and depends on many factors- the industry, the product, the company etc, so for the purpose of CIPS should be discounted. There are many industries which are immune to inflation.