L4M2 – Test 1

Q1. A procurement team is categorising their purchased items into four quadrants of Kraljic's supply chain portfolio matrix. They realise that
there are some low-value items which come from very few suppliers in the market. The organisation is critically dependent on these suppliers.
The team plans to reduce the dependence by finding alternative sources. Is this a right course of action?

A. No, the organization should run a competitive bidding to exploit the competition
B. Yes, this action will dramatically increase the suppliers bargaining power
C. No, there is no way to escape the dependency
D. Yes, the organization needs to reduce the supply risks

Answer: D (LO2, AC 2.1)

Q2. Which of the following factors might prompt an organisation to procure an alternative product? Select THREE that apply:

A. Threat of retaliation
B. Brand loyalty
C. Relative value of money between options
D. Buying organizations propensities to change
E. Easy access to distribution channel
F. Switching cost

Answer: C, D and F (LO2, AC 2.2)

Explanation

According to Michael Porter, the threat of substitution, is a function of three factors:

• The relative value/ price of a substitute compared to an industry’s product

• The cost of switching to the substitute

• The buyer’s propensity to switch

Q3. Robert is a senior buyer at MMC Construction Ltd. His company is doing multiple development projects in the country, which increases
procurement workload significantly. Meanwhile, most of the tasks are handled manually, which causes bottlenecks in the workflows. The
procurement team is overwhelmed by the workload and complains from other departments. From previous experience, Robert knows that
electronic system may help his procurement team. He writes a business case to submit to the senior management, in which he insists on the
possible productivity improvement by adopting e-system in procurement. Is Robert's action reasonable?

A. No, there is no need to make a business case for new purchase

B. Yes, his reason may appeal the senior management
C. Yes, productivity improvement is a mandatory element in every business case
D. No, adopting to e-system may make procurement department jobless

Answer: B (LO1, AC 1.1)

Explanation
Composing a compelling business case requires the proposer to write in the language of the approvers. Generally, approvers are business
executives or important shareholders whose major interest is the profitability of the firm. Business case proposer may embed the following
contents:
- Return on investment: according to Investopedia, Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an
investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular
investment, relative to the investment’s cost. A business case would seem more attractive if the proposal is expected to have high ROI.
- Time to market: Time-to-market (TTM) refers to the time from which a company initially conceives a product or service idea to the point when
the actual product or service is accessible to buyers in the market (Afonso et al., 2008). The speed at which companies can introduce products
into the market is critical for sustaining competitive advantage, and the reduction of product development cycle time has become a strategic
objective for many technology-driven firms.
- Customer satisfaction: Keeping existing customer to stay in the business can affect greatly on the profit margin of a firm. A new proposal that
finds the way to innovate while keeping the current customers satisfied may gain the interest of senior management.
- Improving productivity: Productivity is the measure of how efficient and effective a firm is. Improving the productivity means that with the
same or lesser input, better output is generated. Increasing productivity also improves the profitability of a company.
- Risk management: Any business activity contains inherent risks. For example, for a mining company to be truly responsible, it must keep all of
its workers safe, healthy and motivated, meet the expectations of the local community and government for the region in which it is operating,
ensure it impacts on the environment positively if at all, as well as achieve the financial objectives set by its investors for both the short and long
term. Managing risks well improves the production throughput and maintains customer satisfaction.

In the scenario, Robert is trying to convince the senior management to adopt e-procurement system by insisting on potential productivity
improvement. This is the right approach. A business plan should engage and please senior management and directors. An appealing business
case tells them how important things to the business (such as productivity, return on investment, customer satisfaction or costs) are affected by
the plan.

Q4. Which of the following is the structured approach for defining customer requirements and translating them into technical specification?
A. Kano Model
B. Quality Function Deployment
C. Thomas Kilmann Model
D. Mendelow’s Matrix
Answer: B (LO1, AC 1.2)

Explanation
Quality function deployment (QFD) is a method to transform qualitative user demands into quantitative parameters, to deploy the functions
forming quality, and to deploy methods for achieving the design quality into subsystems and component parts, and ultimately to specific
elements of the manufacturing process.
Kano model of excitement and basic quality (Kano et al, 1984; Berger et al, 1993; Matzler et al, 1996) brings a different perspective for the
analysis of improvement opportunities in products and services because it takes in consideration the asymmetrical and non-linear relationship
between performance and satisfaction. The Kano model classifies customers requirements in five categories: basic requirements, performance
requirements, attractive requirements, indifferent requirements and reverse requirements.
Mendelow’s Matrix is a tool that may be used by an organisation to consider the attitude of their stakeholders at the start of a project or when
they are setting out strategic objectives.
The Thomas Kilmann model identifies two dimensions when choosing a course of action in a conflict situation, these are assertiveness and
cooperativeness. Assertiveness is the degree to which you try to satisfy your own needs. Cooperativeness is the degree to which you try to
satisfy the other person’s concerns.

Q5. What is the document that defines the activities, deliverables and timelines a supplier must carry out during contract performance?
A. Framework agreement
B. Project initial document
C. Statement of work
D. Work instruction

Answer: C (LO3, AC3.1)

Q6. Sealines Inc is developing its fleet of cargo ships. The company is planning to build a new ship powered by natural gas. Brian, the
procurement manager at Sealines, suggests the project team to develop a through-life specification before engaging with the supplier. Is this a
correct approach?

A. Yes, the approach with lower the total cost of ownership

B. No, the company just needs to select the lowest bidder
C. Yes, decommissioning and disposal costs will not be accounted in this approach
D. No, a ship is used only once, through-life management is unnecessary

Answer: A (LO3, AC 3.2)

Explanation
Through-life management is a approach applied to capital asset. According to Ward and Graves, Through-life Management involves the life-cycle
management of the products, services and activities required to deliver a fully integrated capability to the customer, while reducing the cost of
ownership for the customer. According to CIPS study guide, through-life management comprises of 6 parts:
1. Design
2. Manufacture
3. Installation
4. In-service support
5. Decommission and disposal
6. Customer support
In this scenario, the company is planning to procure a ship, which is a capital asset. Through life management is a good approach. Sealines can
start with developing through-life specification. This approach may have several benefits:
- It lowers the costs over the whole life of the asset
- It lowers the risks as there is a single company accountable for costs and service over the life of the asset
- A closer match between the asset delivered and the users' needs
- Development of capability over the life of the asset as the supplier continues to get experience of the users' needs and can adapt services to
meet them.

Q7. Which of the following are typically included in a conformance specification? Select TWO that apply.
A. Product Dimension
B. Packaging requirements
C. List of outcome
D. Product function
E. Brand name

Answer: A & B (LO3, AC 3.1)

Explanation
A conformance specification is a specification that defines the technical and physical characteristics and/or measurements of a product, such as
physical aspects (e.g. dimensions, colour, and surface finish), design details, material properties, energy requirements, processes, maintenance
requirements and operational requirements.
On the other hand, performance specification typically includes list of output or outcome or functional requirements. Brand name can be a part
of performance specification because brand is a reminder of quality that customers remember. For example, when talking about Roll Royce,
people will think about an elegant Car

Q8. British Steel needs to source a set of instruments that will improve quality of steel. Without these instruments British Steel will loss control
of the temperature. The bucket may freeze up, or if it is too hot it leaks out of the casting process, damaging the machine. There is limited supply
on the market and quality varies greatly. Which of the following will be the most appropriate managing approach to procure these items?

A. Leverage market competition to drive down the cost

B. Bundle these instruments into larger contracts
C. Seek continuity of supply
D. Form partnership with supplier
Answer: D (LO2, AC 2.1)

Q9. Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:

A. To provide an outline business case for the specification

B. To shape and manage the supply market
C. To decide whether there will be sufficient surplus funds to reinvest in the business
D. To find cost reduction opportunities by optimizing the components used
E. To determine the value of each component used
Answer: D & E (LO3, AC 3.4)

Q10. Housing Ltd is inviting a number of contractors to a tender for the construction of a commercial building. In the attachment to the
invitation to tender, there is a document which describes the required materials and installation methods. This document is known as...?

A. Performance specification
B. Functional specification
C. Drawings
D. Prescriptive specification

Answer: D (LO3, AC 3.1)

Explanation
This question mentions about specification in construction. In this sector, specifications are written documents that describe the materials and
workmanship required for a development. They do not include cost, quantity or drawn information and need to be read alongside other contract
documentation such as quantities, schedules and drawings.
Specifications vary considerably depending on the stage to which the design has been developed, ranging from performance (open)
specifications that require further development by a contractor or supplier, to prescriptive (closed) specifications for which the design is already
complete when the project is tendered.
Prescriptive specifications typically contain detailed descriptions of the following components:
- General requirements relating to regulations and standards.
- The type of products and materials required.
- The execution and installation methods required.
Prescriptive specifications give the client much more certainty about the end product when making investment decisions (such as when they
appoint the contractor), and place a greater burden on the designer to ensure proper installation rather than the contractor.

Q11. XYZ Ltd is producing an engine which consists of many components. The procurement manager wants to find cost reduction opportunities
and minimise part varieties. Which of the following may help her to achieve these objectives?

1. Value analysis

2. Segment analysis

3. Variety reduction

4. Standardization

A. 2 and 3

B. 1 and 3

C. 1 and 4

D. 3 and 4

Answer: C (LO3, AC 3.4)

Explanation

Value analysis is often defined as a systematic process for improving the value of a product, service or project. It is typically used in the following
ways:

- To determine the value of each component used

- To find cost reduction opportunities by optimising the components used

Segment analysis helps procurement and supply to shape and manage the supply markets.

There is no concept known as Variety reduction.

Standardisation is the process which is used to reduce varieties of products or parts.

In this scenario, the company's objective is cost reduction, then value analysis or value engineering is more likely to be applied. Also the
company aims at reducing variety, standardisation can be combined with value analysis to produce the best results.

Q12. Which of the following indicates types of waste that procurement department concentrates on when adopting Lean methods?

A. OWN-IT

B. SCAMPER

C. VA/VE

D. DOWNTIME

Answer: D (LO3, AC 3.4)

The following 8 lean manufacturing wastes, mostly derived from the TPS, have a universal application to businesses today. The acronym for the
eight wastes is DOWNTIME. Downtime stands for:

- Defects
- Overproduction

- Waiting

- Not utilizing talent

- Transportation

- Inventory excess

- Motion waste

- Excess processing

OWN-IT is the acronym for the process of collecting and analysing the data and information needed in any field

SCAMPER is acronym for options addressing the underlying issues and achieving target

VA/VE is value analysis and value engineering

Q13. The position of a product in its life cycle can affect the price that suppliers set. Is this statement correct?

A. No, in market economy, the state decides the price of all goods and services

B. Yes, it is always the only factor determining the price

C. No, customers perception of value is the ultimate determinant of suppliers price

D. Yes, each stage in product life cycle requires different levels of investment in promotion and distribution

Answer: D (LO2, AC 2.2)

Q14. Which of the following sources of information are considered as primary data? Select TWO that apply.

A. Reports in business magazines

B. The collection of data from surveying customers

C. RFI

D. The information about specific market sectors from trade associations

E. Commercial publishers of market reports

Answer: B & C (LO1, AC 1.2)

Q15. Which of the following standards specifies requirements for a quality management system?

A. ISO 9001:2015

B. ISO 27001

C. ISO 22000:2018

D. ISO 14001:2015
Answer: A (LO3, AC 3.1)

Explanation

ISO 9001:2015 specifies requirements for a quality management system.

ISO 14001:2015 specifies the requirements for an environmental management system that an organization can use to enhance its environmental
performance. ISO 14001:2015 is intended for use by an organization seeking to manage its environmental responsibilities in a systematic manner
that contributes to the environmental pillar of sustainability.

ISO 22000:2018 specifies food safety management systems — Requirements for any organization in the food chain

ISO 27001 provides requirements for an information security management system.

Q16. Thani Ltd is a fast-growing logistics company with a fleet of 20 tractors. To meet Net Zero objective, the company needs to electrify its fleet.
Angelica is assigned to investigate the market price of electrifying services. After the investigation, she realises that the current market price is
very expensive and unsustainable for her company. She decides to break down the costs before negotiating with the suppliers. Which internal
stakeholders may help Angelica estimate the breakdown of costs? Select TWO that apply.

A. Sales and Marketing Department

B. Commercial Agency

C. Finance Department

D. Engineering Department

E. Suppliers
Answer: C & D (LO2, AC 2.3)

Explanation

Despite of its importance, cost analysis is often a daunting task for procurement professionals. In order to analyse supplier's costs effectively,
procurement may need the input from other departments. Normally, technical (or engineering) department may help them to identify the direct
costs of the product/service (how much material is required to make the product, or how many people are needed to perform the job, etc),
while finance (or accounting) department may have ideas on the overheads of the supplier.

In this scenario, engineering department may provide insights on the components needed and the tasks to perform. Similarly, finance may know
how much supplier pays for the overheads.

On the other hand, while commercial agency and suppliers are external stakeholders, Sales and marketing is unlikely to provide valuable
information in this case.

Q17. A procurement manager includes provision on recovery from natural disaster into a through-life specification. Some suppliers suppose that
provision is unnecessary. Is procurement manager’s action justified?

A. No, because with current technology, natural disaster can’t disrupt supply chain

B. Yes, because natural disasters may cause risks in organizations supply chain

C. No, because this provision will incur unnecessary cost to supplier

D. Yes, because the regulations require contract to have recovery provision

Answer: B (LO3, AC 3.2)

Q18. What does the acronym RAQSCI stand for?

A. Regulatory, availability, quality, service, cost, Innovation

B. Regulatory, ability, quality, service, cost, inventory

C. Relationship, availability, quantity, sustainability, cost, innovation

D. Regulatory, availability, quantity, sustainability, inventory

E. Relationship, ability, quantity, Service, cost, innovation

Answer: A (LO1, AC 1.1)

Q19. At which stage of through-life contract management, procurement team needs to identify sources of risk and the ways to mitigate them?

A. Tendering Stage

B. Supplier Relationship Stage

C. Contracting Stage

D. Specification Stage
Answer: D (LO3, AC 3.2)

Q20. A purchaser is looking for alternative supplies if there is a major disruption to their supply chain, including logistics, manufacturing and all
support services. Which of the following method is that purchaser applying?

A. Tolerance to Risk

B. Treat the Risk

C. Terminate the Risk

D. Transfer the Risk

Answer: B (LO3, AC 3.3)

Explanation

Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it
occur. CIPS preferred way to determine your risk control strategy is to use the four T’s Process:

Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the
risk on behalf of the organization
Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation
activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business. Even when these risks are
tolerated they should be monitored because future changes may make it no longer tolerable.

Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its
occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred. Finding an
alternative supplier is an example of treating the risk.

Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the approach that should be most favored where
possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same
can be used when reviewing practices and processes in all areas of the business.

If an item presents a risk and can be changed or removed without it materially affecting the business, then removing the risk should be the first
option considered; rather than attempting the treat, tolerate or transfer it.

Q21. Which of the following are the causes of material cost variance?

1. The buyer updates purchase-to-pay system to track payment and delivery

2. An unprocessed goods received note is missing

3. The employees must work overtime to catch up with the customers' orders

4. The purchase is made in emergency

A. 1 and 3

B. 1 and 4

C. 2 and 4

D. 2 and 3

Answer: C (LO1, AC 1.4)

Q22. Which of the following is the new technology that has impact on manufacturing sector?

A. Robotics

B. Blockchain

C. Social Media

D. E-commerce

Answer: A (LO2, AC 2.1)

Explanation

Robots in manufacturing help to create jobs by reshoring more manufacturing work. Robots protect workers from repetitive, mundane and
dangerous tasks, while also creating more desirable jobs, such as engineering, programming, management and equipment maintenance.

Q23. Which of the following are recognised competitive strategies?

1. Winning new business at all cost

2. Getting more customers’ attention

3. Creating stand-out products and brands

4. Focusing on niche market

5. Acquiring competitors

A. 3 and 5

B. 3 and 4

C. 1 and 2

D. 2 and 5

Answer: B (LO2, AC 2.1)

Explanation

"A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental
basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a
firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm
seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation,
and focus." (Reference: Porter, Michael E., "Competitive Advantage".

Q24. A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in
specification are higher than ISO standards, her company can achieve greater cost-savings. Is the procurement manager’s opinion correct?

A. Yes, because optimizing specification is the only method to achieve value for money

B. No, because higher requirements in specification, the greater bargaining power of buying organization

C. No, because higher specification may incur additional costs for the buyer

D. Yes, because higher requirements will help buying organization find the best supplier

Answer: C (LO3, AC 3.1)

Q25. A CPO is making a business case for acquiring a new computer system. He has set out objective, generated options, cost and benefit of each
option and implementation plan. Which of the following elements should be included in the business case?

A. Invitation to tender

B. Risk assessment
 C. Contract management

D. Operation management

Answer: B (LO1, AC 1.3)