CIPS L4M4 - Ethical and Responsible Sourcing

Under EXW (Ex Works) the seller prices only for making goods available at their premises; the buyer bears transport, export formalities, main carriage, and risk from collection. Because the seller’s obligations are minimal, the quoted unit price is typically the lowest. Delivered terms (DAP/DDP/CPT) add seller costs and risk, raising the price.

Financial assessments help ensure a supplier can meet the demands of a high-value contract without disruptions. This aligns with responsible sourcing principles by promoting stable supplier relationships and reducing the risk of supply chain interruptions due to financial instability.

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"

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

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

Organisations may choose to outsource IT when they have limited financial investment capability and internal resources. Outsourcing allows access to specialist expertise, up-to-date technology, and scalable services without the need for large capital expenditure. Limited manufacturing capacity is irrelevant to IT, increased costs would discourage outsourcing, and internal conflict is not a valid sourcing rationale. Ethical and responsible sourcing requires outsourcing decisions to be based on clear business needs, value creation, and risk management, ensuring continuity of service and effective use of organisational resources.

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)

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.

Demand and currency fluctuations affect commodity pricing. November shows lowest demand, which usually reduces price pressure. Conversely, May (high demand) and months with strong supplier currencies (January, April) would increase costs. By ordering in November, the buyer leverages demand cycles to obtain lower prices. Responsible sourcing requires buyers to monitor market intelligence and seasonal trends to time purchases effectively, mitigating risks of price volatility while ensuring supply continuity. This reflects CIPS’s emphasis on category management and proactive procurement planning.

Incoterms define the allocation ofcosts, risks, and responsibilitiesbetween buyer and seller in international trade. They must be agreedbefore the contract is finalised, as they form a fundamental part of the contractual terms. Considering Incoterms early ensures clarity on delivery obligations, customs responsibilities, insurance, and transport costs. Selecting Incoterms after contract agreement or at order placement would create ambiguity and risk disputes. Ethical and responsible sourcing requires clear contractual definitions to prevent misunderstandings, ensure compliance, and fairly allocate risk in global supply chains.