CIPS.L4M2.v2023-07-01.

q49

Exam Code: L4M2

NEW QUESTION: 1
Which of the following always impact negatively on a company's cash flow? Select TWO that ap-
ply
A. Increasing revenue
B. More inventory
C. Depreciation of fixed asset
D. Supplier shortens their payment period
E. Customers agree to pay immediately
Answer: (SHOW ANSWER)
To answer this question, candidates are required to remember the cash flow cycle and cost
entries as well as the impact of their timing on a business.
Source: https://cfoperspective.com/free-your-cash-trapped-in-the-cash-conversion-cycle/ Shorter
payment term and more inventory are likely to have negative impact on the cash flow be-cause
the buyer has to pay sooner and greater.
"Customers agree to pay immediately" will increase the organisation's bank account sooner.
Depreciation has no impact on cash flow as it is only listed in Profit and Loss statement.
Increasing revenue may have negative or positive impact on cash flow, depending on the real
situation.
Reference:
LO 1, AC 1.4

NEW QUESTION: 2
Which of the following methods will enable a company to eliminate waste, lost time and lost
material from its processes?
A. Lean principles
B. Over specification
C. Agile principles
D. Tendering process for routine items
Answer: (SHOW ANSWER)
Lean design is about maximising the value that a customer receives and at the same time
minimis-ing waste in delivering that value.
For an organisation to be 'lean' it must have had all non-essential resources removed (ie.
anything that does not add value, see below). This is efficient and cost effective, in that the
value/supply chain can theoretically do exactly what is needed of it and no more, but requires
sound forecasting and planning of demand and supply. It is most suitable for industries with
stable product specifications, long lead times and few impulse purchases.
Organisations which are 'agile' react as quickly as is practicable to provide a cost effective
response to customer demand. This is based on flexibility in design, supply, production and
distribution. It is most appropriate for products such as fast fashion and foodstuffs which must be
on display and available when wanted by the customer.
Reference:
- CIPS study guide page 153-156
- Agile Supply (cips.org)
LO 3, AC 3.3

NEW QUESTION: 3
Which of the following is a risk to buying organization when using conformance specification?
A. Buyer is responsible for product failure
B. Buyer may face liquidity risks
C. Buyer cannot control the inputs
D. Time to produce specification is shortened
Answer: (SHOW ANSWER)
When using conformance specification, the buying organisation is responsible for the
performance of the purchase. If the product fails due to poorly designed specification, the buyer is
wholly responsible for it. It cannot blame the supplier for the failure because they still provided 'fit
for purpose' product.
'Time to produce specification is shortened': Conformance specification requires details on dimen-
sion, materials, design, etc. With such requirements, time to produce a complete conformance
specification is often longer than producing performance specification.
'Buyer cannot control the inputs': Conformance specification is a list of inputs from buyer, so
buyer has control over the inputs that will make the product. It also means that buyer is
responsible for any product failure.
'Buyer may face liquidity risks': Liquidity means that how quick a business turns its assets into
cash. This is a financial term, it does not link directly with specification failure.
Reference:
LO 3, AC 3.1
NEW QUESTION: 4
Which of the following might be consequences of over-specification? Select TWO that apply:
A. Reducing motion waste
B. Higher cost due to inessential features
C. Limiting competition in supply market
D. Lack of essential features
E. Better contract management
Answer: B,D (LEAVE A REPLY)
Over-specification can cause problems to buying organisation, include the following:
- Higher expense due to unnecessary features embedded into the product
- Stifle competition because higher requirements will lead to fewer suppliers in the market are
able to supply
- Harder to evaluate the trade-offs between different features and attributes in the specification
Reference:
LO 3, AC 3.3

NEW QUESTION: 5
Which of the following indicates types of waste that procurement department concentrates on
when adopting Lean methods?
A. DOWNTIME
B. VA/VE
C. OWN-IT
D. SCAMPER
Answer: A (LEAVE A REPLY)
Copious amounts of waste can occur in the workplace, particularly in a manufacturing process,
but do you know what the eight most commons wastes are and how they impact your
organization?
Taiichi Ohno, considered the father of Toyota Production System, created a lean manufacturing
framework, which was based on the idea of preserving (or increasing) value with less work. Any-
thing that doesn't increase value in the eye of the customer must be considered waste, or "Muda",
and every effort should be made to eliminate that waste. The following 8 lean manufacturing
wastes, mostly derived from the TPS, have a universal application to businesses today. The acro-
nym 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 LO 3, AC 3.4

NEW QUESTION: 6
Which of the following are most likely to negatively affect the suppliers' bargaining power in a
specific market? Select TWO that apply:
A. Many suppliers are intent on integrating buyers into their business
B. Substitute products are readily available in the market
C. There are no differences among suppliers' products
D. Buyers incur high cost when they change their suppliers
E. There are almost no threats of backward integration
Answer: B,C (LEAVE A REPLY)
The bargaining power of supplier is a major determinant of the structure of an industry and also
how much profit is available to organisation operating in that industry. Supplier is weak if:
- Substitutes are available and easy to access
- Suppliers are small and fragmented
- The industry is important to the seller
- The sellers' product or service is not an important of the industry's value chain
- The sellers' product or service is undifferentiated
- There are no significant switching costs
- There is no threat of forward integration.
Suppliers may have more power:
- If they are in concentrated numbers compared to buyers.
- If there are high switching costs associated with a move to another supplier.
- If they are able to integrate forward or begin producing the product themselves.
- If they have specific expertise or technology needed to manufacture goods.
- If their product is highly differentiated.
- If there are many buyers and none make up significant portions of sales.
- If there are no substitutes available.
- If there are strong end users who can exert power over the organization in favor of a supplier
(This can be the case in labor situations).
In all of these cases, the bargaining power of suppliers is high to demand premium prices and set
their own timelines.
LO 2, AC 2.2

NEW QUESTION: 7
A drawing is an example of...?
A. Statements of work
B. Technical specifications
C. Output specifications
D. Outcome specifications
Answer: (SHOW ANSWER)
A technical specification details the standards that a product or service must meet. Drawings
(often called engineering drawings or technical drawings) are complementary to technical
specifications Reference:
LO 3, AC 3.1

NEW QUESTION: 8
Which of the following is an advantage of competitive benchmarking over other types of bench-
marking?
A. Limited access to competitor's data
B. Similarity among processes
C. Different corporate culture
D. Cost effectiveness
Answer: B (LEAVE A REPLY)
Competitive benchmarking
Competitive benchmarking is a direct competitor-to-competitor comparison of a product, service,
process, or method. This form of benchmarking provides an opportunity to know yourself and
your competition better; combine forces against another common competitor. An example of
competitive benchmarking within the Department of Defense, might include contrasting Army and
Air Force supply systems for Joint initiatives. Within the private sector, two or more American car
companies might benchmark for mutual benefit against common international competitor; or, rival
chemical companies benchmark for environmental compliance.
Benefits
- Comparing like processes
- Know your competition better
- Possible partnership
- Useful for planning and setting goals
- Similar regulatory issues
Challenges
- Difficult legal issues
- Relatively low performance improvement
- Threatening
- Limited by trade secrets
- May provide misleading information
- May not get best-in-class comparisons
- Competitors could capitalize on your weaknesses
Source: USN Benchmarking Handbook
Reference:
LO 1, AC 1.3
NEW QUESTION: 9
Which of the following is a tool to define roles and responsibilities of a project team?
A. RACI Matrix
B. Monte Carlo model
C. STEEPLE Analysis
D. SCAMPER Method
Answer: A (LEAVE A REPLY)
A responsibility assignment matrix[1] (RAM), also known as RACI matrix[2] (/relsi/) or linear
responsibility chart[3] (LRC), describes the participation by various roles in complet-ing tasks or
deliverables for a project or business process. RACI is an acronym derived from the four key
responsibilities most typically used: responsible, accountable, consulted, and informed.[4] It is
used for clarifying and defining roles and responsibilities in cross-functional or departmental
projects and processes.[5] There are a number of alternatives to the RACI model.
Role distinction[edit]
There is a distinction between a role and individually identified people: a role is a descriptor of an
associated set of tasks; may be performed by many people; and one person can perform many
roles. For example, an organization may have ten people who can perform the role of project
manager, although traditionally each project only has one project manager at any one time; and a
person who is able to perform the role of project manager may also be able to perform the role of
business analyst and tester.
R = Responsible (also recommender)Those who do the work to complete the task.[6] There is at
least one role with a participation type of responsible, although others can be delegated to assist
in the work required (see also RASCI below for separately identifying those who participate in a
sup-porting role).
A = Accountable (also approver or final approving authority)The one ultimately answerable for the
correct and thorough completion of the deliverable or task, the one who ensures the prerequi-
sites of the task are met and who delegates the work to those responsible.[6] In other words, an
accountable must sign off (approve) work that responsible provides. There must be only one
accountable specified for each task or deliverable.[7] C = Consulted (sometimes consultant or
counsel)Those whose opinions are sought, typical-ly subject-matter experts; and with whom there
is two-way communication.[6] I = Informed (also informee)Those who are kept up-to-date on
progress, often only on completion of the task or deliverable; and with whom there is just one-way
communication.[6] Very often the role that is accountable for a task or deliverable may also be
responsible for com-pleting it (indicated on the matrix by the task or deliverable having a role
accountable for it, but no role responsible for its completion, i.e. it is implied). Outside of this
exception, it is generally recommended that each role in the project or process for each task
receive, at most, just one of the participation types. Where more than one participation type is
shown, this generally implies that participation has not yet been fully resolved, which can impede
the value of this technique in clarifying the participation of each role on each task.
Reference:
- CIPS study guide page 17
- Responsibility assignment matrix - Wikipedia
LO 1, AC 1.1

NEW QUESTION: 10
Buyers in the same industry with the same understanding of relative value and price may still
make different decisions about whether to switch. Which of the following factors may prompt a
buying organization to incline toward substitute products?
1. There is potential for backward integration
2. Access to financial resources
3. The switching cost is high
4. The substitute fits organisation's strategy
A. 1 and 4 only
B. 3 and 4 only
C. 1 and 2 only
D. 2 and 4 only
Answer: D (LEAVE A REPLY)
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
Buyers with different circumstances and in different industries do not all have equal propensities
to substitute when faced with a comparable economic motivation. Differences in their
circumstances lead buyers to respond to a given relative value to price (RVP) and switching cost
differently. While such differences might be treated as factors that modify RVP or switching costs,
it is more helpful in practice to isolate them.
Resources. Substitution often involves up-front investments of capital and other resources.
Access to such resources will differ from one buyer to another.
Risk Profile. Buyers often have very different risk profiles, the result of such things as their past
history, age and income, ownership structure, background and orientation of management, and
nature of competition in their industry. Buyers prone to risk taking are more likely to substitute
than buyers that are risk-averse.
Technological Orientation. Buyers experienced with technological change may be less concerned
with some kinds of substitution risks, while extremely aware of others that a less technologically
sophisticated buyer would be oblivious to.
Previous Substitutions. The second substitution may be easier for a buyer than the first, unless
the first substitution has been a failure. The buyer's uncertainties over undertaking a substitution
may have diminished if a past substitution has been successful, or risen if a past substitution has
led to difficulties. In the soft drink industry, this seems to have worked to the benefit of aspartame.
Intensity of Rivalry. Buyers under intense competitive pressure and searching for competitive ad-
vantage will tend to substitute more quickly to gain a given advantage than those that are not.
Generic Strategy. The RVP of a substitute will have different significance depending on the com-
petitive advantage that industrial, commercial, or institutional buyers are seeking or the value of
time and particular performance needs of the household buyer. A substitute that offers a cost
saving will tend to be of more interest to a cost leader than a differentiator, for example.
Many of these factors that shape the buyer's propensity to substitute will be a function of the
particular decision maker who is involved in the purchase decision.
Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p.
278-289). Free Press. Kindle Edition.
Reference:
LO 2, AC 2.2

NEW QUESTION: 11
Product development consists of various stages, including planning and analysis, design develop-
ment, pre-production, production and maintenance. At which stages the opportunities for cost re-
duction will be the greatest?
1. Planning stage
2. Pre-design stage
3. Detail design stage
4. Production stage
5. Logistics support stage
A. 2 and 3 only
B. 2 and 5 only
C. 1 and 2 only
D. 1 and 4 only
Answer: C (LEAVE A REPLY)
Writing a specification and then procuring and using the product or service has a number of
stages. The further on in the process you are, the less potential there is for cost reductions.
Therefore, opportunities for cost reduction will be greatest in the two first stages: planning stage
and pre-design stage.
LO 3, AC 3.1

NEW QUESTION: 12
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. Risk assessment
B. Operation management
C. Invitation to tender
D. Contract management
Answer: A (LEAVE A REPLY)
Before a project commences (either capital purchase or switching to a new supplier), a business
case should be developed. The business case outlines the why, what, how, and who necessary
to decide if it is worthwhile continuing a project.
Basically, the following criteria can be applied to the assessment of a business case:
1. Objectives
This part describes why you are doing the project. The business objective answers the following
questions:
- What is your goal?
- What is needed to overcome the problem?
- How will the project support the business strategy?
2. Option identification and selection
Identify the potential solutions to the problem and describe them in enough detail for the reader to
understand.
For instance, if the business case and proposed solution makes use of technology, make sure to
explain how the technology is used and define the terms used in a glossary. Since most problems
have multiple solutions an option appraisal is often needed. This will explore the potential
solutions and recommend the best option.
When writing the initial business case the option appraisal is likely to contain a long list of options
and will cover many possibilities. As the project continues a number of options will be rejected.
The final business case may contain three to five options - the short list - that includes a do
nothing or benchmark option.
3. Benefits and limitations
The benefits and limitations section describes the financial and non-financial benefits in turn. The
purpose is to explain why you need a project.
For instance, to:
- Improve quality
- Save costs through efficiencies
- Reduce working capital
- Generate revenue
- Remain competitive
- Improve customer service
- Align to corporate strategy
The business case should also include any limitations since these present potential risk to the
pro-ject.
4. Risk management
The risk assessment summarizes the significant project risks and opportunities and how they are
managed. The risks included should cover those that could arise from your project or the
organiza-tion's ability to deliver change.
This section answers the following questions:
- What risks are involved?
- What are the consequences of a risk happening?
- What opportunities may emerge?
- What plans are in place to deal with the risks?
- Every project should include a risk log.
When writing a business case, make sure this is included as it explains how risk and opportunity
are managed.
5. Implementation plan
The outline plan provides a summary of the main activities and overall timescale - project
schedule - for the project.
Ideally, the project should be divided into stages with key decisions preceding each stage. Use
this section to answer the following questions:
- What is required?
- How is it done?
- Who does what?
- When will things happen?
This outline plan lists the major deliverables and includes a brief project description plus
accountabilities for each activity.
In the scenario, the CPO has set out objective, generated options, cost and benefit of each option
and implementation plan. In order to make the business case more compelling, he should
reinforce it with risk management.
Reference:
LO 1, AC 1.3

NEW QUESTION: 13
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, decommissioning and disposal costs will not be accounted in this approach
B. Yes, this approach will lower the total cost of ownership
C. No, a ship is used only once, through-life management is unnecessary
D. No, the company just needs to select the lowest bidder
Answer: B (LEAVE A REPLY)
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.
Reference:
- CIPS study guide page 130-131;
- Through-life management: The provision of total customer solutions in the aerospace industry,
by Yvonne Ward and Andrew Graves LO 3, AC 3.2

NEW QUESTION: 14
Why should procurement professionals develop business case before seeking approval to
purchase capital equipment?
A. Using business case will prevent new entrants from entering the supply market
B. A business case can be used as a replacement of purchase order
C. Business case is a tool that eliminates all risks associated with the project
D. Devising business case may prompt the procurement to consider different options
Answer: D (LEAVE A REPLY)
A business case is developed during the early stages of a project and outlines the why, what,
how, and who necessary to decide if it is worthwhile continuing a project. One of the first things
you need to know when starting a new project are the benefits of the proposed business change
and how to communicate those benefits to the business.
Preparing the business case involves an assessment of:
- Business problem or opportunity
- Benefits
- Risk
- Costs including investment appraisal
- Technical solutions
- Timescale
- Impact on operations
- Organizational capability to deliver the project outcomes
These project issues are an important part of the business case. They express the problems with
the current situation and demonstrate the benefits of the new business vision. Making business
case with multiple options and choices also prompts the procurement and senior management to
consider alternatives. As a result, the organisation may opt out the best option.
The business case brings together the benefits, disadvantages, costs, and risks of the current
situa-tion and future vision so that executive management can decide if the project should go
ahead.
Reference:
- CIPS study guide page 19-21
- How to Write a Business Case - Template & Examples | Adobe Workfront
LO 1, AC 1.1

NEW QUESTION: 15
To improve the productivity, Plantation Ltd is planning to purchase a tractor, which it has never
bought before. The project must be quick to catch up with the next growing season. Leanne, a
jun-ior procurement staff at the company, assumes that she could skip market analysis stage to
save time. Is this assumption reasonable?
A. No, the company assesses supplier's performance solely based on market analysis
B. Yes, Leanne just needs to purchase the tractor from her friend's company
C. No, market analysis will inform the company of the pricing as well as latest technology trends
D. Yes, the company has extensive experience in purchasing tractor
Answer: C (LEAVE A REPLY)
Market analysis is a stage in CIPS Procurement and Supply Cycle. This stage informs the
purchaser about the number of suppliers, the average pricing, and product trends. Even urgent
purchase should undergo market analysis. Without undertaking this stage, the buying
organisation may not purchase the right product, or they may purchase at higher price.
Reference:
LO 2, AC 2.1

NEW QUESTION: 16
In 2016, ANA Airlines had to cancel some of its flight. The airline said it had discovered the cracks
to the jet engine turbine blades. What should ANA procurement team do next to solve this
problem?
A. Collect data to identify the root cause
B. Generate options addressing the issue
C. Analyse the situation and draw conclusion
D. Assess the risks
E. Define the ideal solution
Answer: A (LEAVE A REPLY)
Cracks on the jet engine is a closed-end problem. A typical problem solving process has 8 steps:
Step 1: Define the Problem
- What is the problem?
- How did you discover the problem?
- When did the problem start and how long has this problem been going on?
- Is there enough data available to contain the problem and prevent it from getting passed to the
next process step? If yes, contain the problem.
Step 2: Clarify the Problem
- What data is available or needed to help clarify, or fully understand the problem?
- Is it a top priority to resolve the problem at this point in time?
- Are additional resources required to clarify the problem? If yes, elevate the problem to your
leader to help locate the right resources and form a team.
- Consider a Lean Event (Do-it, Burst, RPI, Project).
- Ensure the problem is contained and does not get passed to the next process step.
Step 3: Define the Goals
- What is your end goal or desired future state?
- What will you accomplish if you fix this problem?
- What is the desired timeline for solving this problem?
Step 4: Identify Root Cause of the Problem
- Identify possible causes of the problem.
- Prioritize possible root causes of the problem.
- What information or data is there to validate the root cause?
Step 5: Develop Action Plan
- Generate a list of actions required to address the root cause and prevent problem from getting
to others.
- Assign an owner and timeline to each action.
- Status actions to ensure completion.
Step 6: Execute Action Plan
- Implement action plan to address the root cause.
- Verify actions are completed.
Step 7: Evaluate the Results
- Monitor and Collect Data.
- Did you meet your goals defined in step 3? If not, repeate th 8-Step Process.
- Were there any unforeseen consequences?
- If problem is resolved, remove activities that were added previously to contain the problem.
Step 8: Continuously Improve
- Look for additional opportunities to implement solution.
- Ensure problem will not come back and communicate lessons learned.
- If needed, repeat the 8-Step Problem Solving Process to drive further improvements.
ANA has already known what is going on, the next step they should adopt is collecting more infor-
mation on the problem. If the airline is hurry to the solution, it may choose 'Generate options ad-
dressing the issue'. The crack on turbine blade can be welded, or the airline replaces a new
blade. However, jumping to solution without knowing the root cause does not completely solve
the prob-lem. The root cause is unaddressed, then it may occur in the future. Therefore, the
airline should still collect information to find the root cause, then remove it.
Reference:
LO 1, AC 1.1

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NEW QUESTION: 17
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 disaster may cause risks in organisation's supply chain
C. Yes, because the regulations require contract to have recovery provision
D. No, because this provision will incur unnecessary cost to supplier
Answer: B (LEAVE A REPLY)
Risks like natural disasters - fire, flood, or weather-related event, and cyber-attacks can disrupt
the supply chain seriously. Threats and disruptions mean a loss of revenue and higher costs,
which leads to a drop in profitability. And businesses can't rely on insurance alone because it
doesn't cover all the costs and the customers who move to the competition. Risks must be
identified early and supplier should have a plan that ensures continuous operations during
disasters.
There are several steps many companies must follow to develop a solid business continuity plan.
They include:
- Business Impact Analysis: Here, the business will identify functions and related resources that
are time-sensitive. (More on this below.)
- Recovery: In this portion, the business must identify and implement steps to recover critical
business functions.
- Organization: A continuity team must be created. This team will devise a plan to manage the
disruption.
- Training: The continuity team must be trained and tested. Members of the team should also
complete exercises that go over the plan and strategies.
Reference:
LO 3, AC 3.2

NEW QUESTION: 18
A company is analysing its existing product's components and aims at reducing costs without
damaging customer value proposition. They want to check which components are critical and
which are unnecessary. Which of the following should be adopted by the company?
A. Under specification
B. Value engineering
C. Value analysis
D. Variety reduction
Answer: (SHOW ANSWER)
In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a
vendor promises a customer will receive in return for the customer's associated payment (or other
value-transfer).
Value analysis is concerned with existing products. It involves a current product being analysed
and evaluated by a team, to reduce costs, improve product function or both. Value Analysis
exercises use a plan which step-by-step, methodically evaluates the product in a range of areas.
These include costs, function, alternative components and design aspects such as ease of
manufacture and assembly.
Value engineering is concerned with new products. It is applied during product development. The
focus is on reducing costs, improving function or both, by way of teamwork-based product evalua-
tion and analysis. This takes place before any capital is invested in tooling, plant or equipment.
In this scenario, the company's objective is cost reduction, then value analysis or value
engineering is more likely to be applied. The products are existing, so value analysis is the best
option.
LO 3, AC 3.4

NEW QUESTION: 19
Dana is an automobile manufacturer. It has a new electrification strategy that aims at making eco-
friendly electric pick-up trucks. To implement this strategy, the procurement department must
source new categories of parts that make motors, sensors, solenoids and stators. He starts to
analyse the market by identifying specific supply market segments for those parts and finding
suppliers who have the best capabilities in those segment. He intends to segment the market
based on specific features of the products. Which variable is used by Dana procurement manager
to shape and manage supply market?
A. Buyer segments
B. Channel segments
C. Geographical segments
D. Product segments
Answer: (SHOW ANSWER)
In sales and marketing, market segmentation is the process of trying to understand clusters of
cus-tomers in terms of their buying behavior and their buying characteristics. There are some
traditional segmentation approaches: geography, demography, types of industry and the benefits.
Then there are newer segmentation approaches: behavioral, situational, and psychographic.
Procurement professionals can learn market segmentation from sales and marketing.
Segmenting the market can help them to shape and manage the supply market effectively.
According to Michael Porter, a market can be segment with array of products and buyers.

Source: Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior
Performance (p. 234). Free Press. Kindle Edition.
In the scenario, the products that Dana needs to source is distinct in their features. The best way
is to segment the market by product varieties.
Reference:
LO 2, AC 2.1

NEW QUESTION: 20
OMK is a Russian steel firm that is expanding market abroad. It plans to build a steel plant in a
foreign country. Due to intricate technical requirements, the plant design will be very complex.
Procurement department or technical department alone cannot draft the specification. OMK
senior management decides that this task must be treated as a project. Which of the following
should be done before writing the specification for new steel plant?
A. Develop the performance framework for the supplier
B. Draft the terms and conditions for plant construction contract
C. Invite suppliers to the tendering process
D. Develop project initial document
Answer: D (LEAVE A REPLY)
The writing of a complex specification should be treated as a project because it requires the brain
power from different stakeholders. Many tools and processes of project management can be
applied to complex specification development. Before engaging with the stakeholders and
implementing the project, the project initial document should developed.
A Project Initiation Document (PID) is one of the most important components of project manage-
ment, which forms the foundation for a company project. It is a reference point during the entire
project, for the client as well as for the project team.
A PID bundles documentation into a logical reference work that collects all important information
needed to start and run a project from a good foundation. After that, Project Initiation Document
must be transferred to all stakeholders, including business sponsors.
This forms the basis for the project management. The documentation from which the PID is com-
posed include the business case in which the project's justification can be found, the communica-
tion plan and the project plan.
The PID is composed out of collected information and includes, among others, the following com-
ponents:
- Project goal(s); what do you want to achieve with the project?
- Project size; how large is the project, how long does it take and how many people are involved?
- Project organisation; who are involved in the project, what are their tasks, responsibilities and
authority?
- Limits and risks; what can cause a project to stagnate and are there risks related to the project?
- Stakeholders; who has a stake in the success of the project?
- Project checks and frame reporting; by carefully taking into account evaluation moments, it is
clear to everyone what sample tests can be carried out during the process.
In addition, it is important that the Project Initiation Document also contains the following infor-
mation:
- The background and occasion of the project, which together provide information about the con-
text.
- The project organisational structure, which describes who has which management responsibility
in the project.
- The project quality plan, describing who controls the quality of the products to be delivered and
how it will take place.
- The total project planning, including the duration of all activities.
- The exception process, which describes how exceptions are dealt with and the steps of the
escalation procedure.
- The risk log, including the measures that will be taken when there are unforeseen risks.
- The documentation structure of the project, in which the encoding and storage of all documents
and products to be provided by the project has been recorded in advance.
Reference:
- CIPS study guide page 148
- Project Initiation Document (PID), a project management tool | ToolsHero LO 3, AC 3.3

NEW QUESTION: 21
One of the disadvantages of using standards in specification is that...
A. Standards lengthen the time to produce a specification
B. Standards tend to be rigid and they often don't encourage innovation
C. Standards don't allow the buyers to add health and safety requirements into the specification
D. Standards tend to be inaccurate and ambiguous, causing confusion among suppliers
Answer: B (LEAVE A REPLY)
Using standards in specification is very convenient. They reduce the time and effort to produce.
They tend to be very accurate with correct technical terminologies. They are well recognised and
accepted by a wide range of suppliers and buyers. However, since a standard is very specific,
complex and lengthy, it requires a lot of time to be drafted and approved. Therefore, standard
tends to be static and don't encourage innovation. It may also not accommodate latest technology
and trends.
Reference:
LO 3, AC 3.1

NEW QUESTION: 22
Daytona Ltd is developing a new product which is more environmental friendly. Though the
objectives are set, the project team has no idea on which functions will be customers' favourites.
Which of the following will help them decide the 'should-have' functions of the new product?
A. Kano model
B. Taguchi method
C. Thomas-Kilmann model
D. Six Sigma
Answer: A (LEAVE A REPLY)
The Kano model is useful in gaining a thorough understanding of a customer's needs. You can
translate and transform the resulting verbatims using the voice of the customer table that, subse-
quently, becomes an excellent input as the whatsin a quality function deployment (QFD) House of
Quality.
The model involves two dimensions:
Achievement (the horizontal axis), which goes from the supplier didn't do it at all to the supplier
did it very well.
Satisfaction (the vertical axis), which goes from total dissatisfaction with the product or service to
total satisfaction with the product or service.
Dr. Noriaki Kano isolated and identified three levels of customer expectations: that is, what it
takes to positively impact customer satisfaction. The figure below portrays the three levels of
need: expected, normal, and exciting.

The Thomas-Kilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool
developed to measure an individual's response to conflict situations.
Genichi Taguchi, a Japanese engineer, proposed several approaches to experimental designs
that are sometimes called "Taguchi Methods." These methods utilize two-, three-, and mixed-level
fractional factorial designs. Large screening designs seem to be particularly favored by Taguchi
adherents.
Six Sigma is a method that provides organizations tools to improve the capability of their business
processes. This increase in performance and decrease in process variation helps lead to defect
re-duction and improvement in profits, employee morale, and quality of products or services.
Source:
- CIPS study guide page 171-172
- WHAT IS THE KANO MODEL?
LO 3, AC 3.4

NEW QUESTION: 23
Buyers are more powerful than the supplier when they are purchasing from monopoly market. Is
this statement true?
A. False, the buyer will be unable to track and manage supplier's performance
B. False, buyer will lack negotiating power on cost if the supplier has a monopoly in the market
C. True, suppliers in monopoly market produce homogenous products
D. True, in monopoly market, buyer's switching costs from the incumbent supplier to an-other are
relatively low
Answer: B (LEAVE A REPLY)
A monopoly is a market with a single seller (called the monopolist) but with many buyers. In this
market, the bargaining power of supplier is higher than of buyer since the supplier is the only
seller.
Reference:
- CIPS study guide page 88-92
- Bargaining Power of Suppliers - Factors that Give Suppliers Power (corporatefinanceinsti-
tute.com)
- Monopoly - Understanding How Monopolies Impact Markets (corporatefinanceinstitute.com) LO
2, AC 2.2

NEW QUESTION: 24
Which of the following are main focuses of ISO 27001:2013 standard?
1. Confidentiality
2. Logistics
3. Process
4. Life cycle
A. 1 and 3 only
B. 3 and 4 only
C. 2 and 3 only
D. 2 and 4 only
Answer: A (LEAVE A REPLY)
This International Standard (ISO 27001:2013) has been prepared to provide requirements for
establishing, implementing, maintaining and continually improving an information security
management system. The adoption of an information security management system is a strategic
decision for an organization. The establishment and implementation of an organization's
information security management system is influenced by the organization's needs and
objectives, security requirements, the organizational processes used and the size and structure of
the organization. All of these influencing factors are expected to change over time.
The information security management system preserves the confidentiality, integrity and
availability of information by applying a risk management process and gives confidence to
interested parties that risks are adequately managed.
It is important that the information security management system is part of and integrated with the
organization's processes and overall management structure and that information security is
considered in the design of processes, information systems, and controls. It is expected that an
information security management system implementation will be scaled in accordance with the
needs of the organization.
This International Standard can be used by internal and external parties to assess the
organization's ability to meet the organization's own information security requirements.
The order in which requirements are presented in this International Standard does not reflect their
importance or imply the order in which they are to be implemented. The list items are enumerated
for reference purpose only.
ISO/IEC 27000 describes the overview and the vocabulary of information security management
systems, referencing the information security management system family of standards (includ-ing
ISO/IEC 27003[2], ISO/IEC 27004[3] and ISO/IEC 27005[4]), with related terms and defini-tions.
Reference:
- ISO/IEC 27001:2013 Information technology - Security techniques - Information security
management systems - Requirements LO 3, AC 3.1

NEW QUESTION: 25
Which of the following problems may be identified as closed problems? Select TWO that apply:
A. A cyber attack takes down whole company's IT system
B. Shortage of key medicines in healthcare industry
C. There are not enough data for procurement analytics
D. Logistics costs incur a large portion in wholesale prices
E. The suppliers don't comply with the company's policy on underage labour.
Answer: (SHOW ANSWER)
Closed problem is something happens that should not have happened. To solve this type of prob-
lem, procurement professional should find a way to correct the situation or try to adapt to it. On
the other hand, open ended problem is a obstacle to your short-term objective. You will need to
overcome this obstacle.
Shortage of key medicines is a situation in which procurement must find a substitution or try to
save the current stock.
In case of cyber attack, procurement should find a way to recover the IT system as soon as
possible.
Otherwise, 'There are not enough data for procurement analytics' is an open-ended problem be-
cause it prevents company to conduct procurement analytics (an objective).
'Logistics costs incur a large portion in wholesale prices': In this situation, logistics costs are hur-
dles that prevent companies to reach lower wholesale.
'The suppliers don't comply with the company's policy on underage labour': In this situation, pro-
curement should seek ways to help supplier comply with the company's labour policy.
LO 1, AC 1.1

NEW QUESTION: 26
Which of the following specific markets is most likely to have product shortage by nature?
A. Retail
B. Financial
C. Construction
D. Services
E. Agriculture
Answer: (SHOW ANSWER)
Products used in agriculture can be subject to shortage due to natural disasters.
Reference:
LO 2, AC 2.1

NEW QUESTION: 27
Apple's CPO is planning a budget for purchasing carbon-free aluminium next year. There are
27.4 tonnes of aluminum in stock, while Apple will need 200 tonnes for production next year and
double inventory for production in the following year. How much aluminum will Apple need to
purchase in next year?
A. 172.6 tonnes
B. 117.8 tonnes
C. 282.2 tonnes
D. 227.4 tonnes
Answer: D (LEAVE A REPLY)
The quantity of aluminium Apple needs to buy is calculated as follows:
Quantity needed for production + the inventory needed at the end of the year - inventory at start
of the year That formula is quantified as: 200 + 54.8 - 27.4 = 227.4 Reference:
LO 2, AC 2.3

NEW QUESTION: 28
Synergy Ltd is a fast-growing tool and hardware retailer. The company's customer services team
has been using Excel worksheets to manage customer relationships. When the company is
expend-ing its market presence, this way of working leads to poorer customer services as the
database is scattered around in spreadsheet, leading to patchy and inconsistent conversations
with customers. The company decides to purchase a CRM system. What requirement should
Synergy's procurement team take into account in the specification for CRM system?
A. Total number of the supplier's employees
B. The ability to import bulk data from Excel spreadsheets
C. The relative size of the potential suppliers to Synergy
D. The form and reference number of the purchase order
Answer: B (LEAVE A REPLY)
The purpose of this Question:
to actionable requirements before communicating with the suppliers. The scenario suggests that
Synergy Ltd's customer services team is using Excel spreadsheets, they lack a centralised
customer database. This leads to problems in communications with customers.
A CRM system can solve the communication problem. But a Question: 100
will the previous data be imported? If the CRM system can support bulk import from Excel tables,
it will save a lot of time.
Reference:
LO 1, AC 1.1

NEW QUESTION: 29
Datong is a defence and law enforcement equipment supplier. They are developing new product
but largely concerns about the detailed specifications of components and the capability of supply
market. Which of the following approach should Datong adopt in order to optimise the
specification and shorten time to market?
A. Request for quotation from potential suppliers
B. Invite the supplier to tendering process
C. Early supplier involvement
D. Control the budget tightly
Answer: (SHOW ANSWER)
To improve production process and reduce supply risk, Datong should collaborate with suppliers
early in procurement cycle. Collaborating with suppliers in this way is often referred as Early
Supplier Involvement (ESI)
'Request for quotation from potential suppliers': Quotations should only be requested if the buyer
know exactly what they need. In this scenario, Datong is not yet sure about the specifications of
product's components, request for quotation is not a good idea.
'Mapping out business plan': A business plan, as defined by Entrepreneur, is a "written document
describing the nature of the business, the sales and marketing strategy, and the financial back-
ground, and containing a projected profit and loss statement." A business plan is not appropriate
with improving production process and reducing supply risk.
'Budget controlling': Budget controlling largely concerns with dealing with budget variances.
Tighter budget alone cannot lead to improved processes and fewer risks.
LO 3, AC 3.1

NEW QUESTION: 30
Which of the following is the disadvantage of embedding standards in a specification?
A. Standards do not improving buyer's bargaining power
B. Embedding standards into specification requires enormous time and effort
C. Standards are too static and discourage innovation
D. Standards are too flexible and may cause ambiguity in the specification
Answer: C (LEAVE A REPLY)
"Standards are often produced by professional bodies (maybe national or international bodies).
Standards tend to be stable for a period of time, therefore, they are likely to be static and
discourage innovation." Reference:
LO 3, AC 3.1

NEW QUESTION: 31
Aldar Properties is a property developer in UAE. In last month, it spent $2,160 for 10 tons of steel.
In this month, it had planned 10% increment in budget for steel comparing to last month. But the
number of orders boosted and total spend on steel reached $1,992.1 while Aldar has imported 11
tons. What is the main cost driver of steel budget?
A. Both price and quantity variances
B. Inflation
C. Quantity variance
D. Price variance
Answer: D (LEAVE A REPLY)
In this question, you have to calculate price variance and quantity variance.
Last month, 1 tonne of steel costed $216. This month, the price decreases to $181.1. Price
variance = (P1 - P2)*Q2 = ($216-$181.1)*11 = $383.9 Quantity variance = (Q1-Q2)*P1 = -$216
Price variance is greater than quantity variance, therefore, price variance is the main cost driver.
LO 1, AC 1.4

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NEW QUESTION: 32
EV Inc is facing the following challenges:
1. The capital investment is enormous.
2. Most of company's working capital is in form of inventories, which include raw materials, work-
in-progress and finished goods.
3. Competitors are increasingly deploying robotics and automation to boost productivity.
Which of the below business sectors does EV Inc belong to?
A. Construction
B. Manufacturing
C. Financial services
D. Retails
Answer: B (LEAVE A REPLY)
Every sector among the options requires intensive capital investment. However, only
manufacturing and retails bury much of their working capital in form of inventory. Raw materials
and WIP only present in manufacturing sector.
The manufacturing industry is undergoing massive change, rivaling the Industrial Revolution that
began in England and continued on Detroit's assembly lines. But today's revolution is "smart,"
thanks to factories using artificial intelligence and robots.
A new trend is the "cobot" - a collaborative robot designed to work with humans. One company
called Moduform uses them to make furniture in the U.S. The company credits using cobots for
reducing their staffing turnover, since the robots do mundane repetitive tasks that bore humans,
while people can now do cognitive tasks requiring judgment and diversified responsibilities. Other
innovations include 3D printing, Artificial Intelligence and automation.
Today's artificial intelligence manufacturing revolution improves performance in two key areas of
manufacturing: productivity and quality control.
Reference:
- The Key Characteristics of Manufacturing (bizfluent.com)
- CIPS study guide page 74-76
LO 2, AC 2.1

NEW QUESTION: 33
Due to the growth of consumer electronics market, semiconductor industry develops
exponentially. However, the industry is dominated by a dozens of manufacturer. Chipset need to
be built in factories with highly controlled environments. New chip factories cost billions of dollars
and can take two years to build. Right now, factories are running at full capacity, which produce
almost perfect yields, meaning basic chipset can be made for less than a dollar and more
advanced versions for not much more. What are the barriers to new entrants in the
semiconductor industry?
1. Poor industry growth
2. High set-up costs
3. Economies of scale
4. Low switching costs
A. 2 and 4 only
B. 3 and 4 only
C. 2 and 3 only
D. 1 and 4 only
Answer: C (LEAVE A REPLY)
Barriers to entry is an economics and business term describing factors that can prevent or
impede newcomers into a market or industry sector, and so limit competition. The most obvious
barriers to entry are high start-up costs and regulatory hurdles which include the need for new
companies to obtain licenses or regulatory clearance before operation. Also, industries heavily
regulated by the government are usually the most difficult to penetrate. Other forms of barrier to
entry that prevent new competitors from easily entering a business sector include special tax
benefits to existing firms, patent protections, strong brand identity, customer loyalty, and high
customer switching costs.
In the scenario, the new factory for chipset manufacturing costs billions of dollars, which indicates
high set-up costs. Also, the incumbent manufacturers have reached economies of scale, allowing
them to produce the components at optimal price.
The above descriptions are compiled from recent reports on current chip shortage (2021).
Reference:
- Barriers to Entry Definition (investopedia.com)
- CIPS study guide page 96-97
LO 2, AC 2.2

NEW QUESTION: 34
A buyer in Housing Authority is considering using performance specification in upcoming social
housing project. What should buyer be aware when using this type of specification?
A. In performance specification, specific brands and preferred suppliers must be appointed to
avoid the competition
B. Using performance specification means that the buyer will bear all the risks regarding the
fitness for purpose of the facility.
C. The buyer must be able to clearly define the performance metrics to ensure that the of-fered
solution will achieve the desired outcome
D. The buyer must be able to define the materials to be used, the execution and installation
methods required and the specific design of the building
Answer: C (LEAVE A REPLY)
In construction, specifications are written documents that describe the materials and
workmanship required for a development. They do not include cost, quantity or drawn information
but 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 design by a
contractor or sup-plier, to prescriptive (closed) specifications where the design is already
complete when the project is tendered.
Prescriptive specifications give the client more certainty about the end product when they make
their final investment decision (i.e. when they appoint the contractor), whereas a performance
specification gives the contractor and suppliers more scope to innovate and adopt cost effective
methods of work, potentially offering better value for money.
Typically, performance specifications are written on projects that are straight-forward, standard
building types, whereas prescriptive specifications are written for more complex buildings, or
buildings where the client has requirements that might not be familiar to contractors and where
certainty regarding the exact nature of the completed development is more important to the client.
Performance specification has some disadvantages:
- Well-defined performance metrics are needed to ensure that the specified performance will
achieve the desired outcome
- Require reliable, practical, economical tests of performance
- Evaluations are subjective and require additional time and effort to complete Therefore, if a
performance specification is used, the buying organisation will have to ensure that they are able
to define and conduct tests on whether supplier's solution can deliver the desired out-come.
Reference:
- CIPS study guide page 118-121
- Performance specification - Designing Buildings Wiki
- Partnership for Public Procurement (cips.org)
LO 3, AC 3.1

NEW QUESTION: 35
Builder Inc is a rapidly expanding business in construction sector. Due to an increase in projects,
it cannot manage the flow of materials by Excel spreadsheets but by more dedicated software.
Who would be a key internal stakeholder in defining software compatibility with company's current
system?
A. Procurement team
B. IT team
C. Executive team
D. Finance team
Answer: B (LEAVE A REPLY)
Internal stakeholders may contribute to defining needs and drafting the specification by using their
technical expertise. In this scenario, IT team may consult procurement team on the technical
specification of the software, including compatibility with company's current IT system.
Reference:
LO 3, AC 3.4

NEW QUESTION: 36
Which of the following can directly affect labour variance? Select TWO that apply:
A. Wage rate per hour
B. Inflation
C. Company's budget
D. Overhead expenditure
E. Overtime
Answer: A,E (LEAVE A REPLY)
Labour variance refers to a situation in which actual costs of labor differ from projected or
budgeted labor costs. This concept is most commonly applied in manufacturing environments.
Labour variance either results from efficiency or rate discrepancies. Efficiency variance results
when actual time worked is more or less than budgeted time for a project. Rate variance means
you paid more per hour worked than expected. This may occur with overtime pay or when you
have higher paid employees on a project than projected. Labour variance is fairly typical, but
modest variance is usually not a big factor in manufacturing, because materials and other
production costs are often much higher.
LO 1, AC 1.4

NEW QUESTION: 37
When devising a business case for purchasing a new copier, Maria analyses its whole-life costs
as following:

Though cost generating activities are identified, she has not categorised the costs. What is the
total value of copier's end of life costs?
A. $450
B. $75
C. $150
D. $300
Answer: C (LEAVE A REPLY)
Life cycle costing is a key asset management tool that takes into account the whole of life
implications of planning, acquiring, operating, maintaining and disposing of an asset.
The process is an evaluation method that considers all ownership and management costs. These
include;
- Concept and definition;
- Design and development;
- Manufacturing and installation;
- Maintenance;
- Support services; and
- Retirement, remediation and disposal costs.
End of life costs often comprise of decommissioning, removing and disposal costs. In the copier
scenario, the end of life costs equal to removal cost, which is $150.
Reference:
- Life Cycle Cost Guidelines (dlgsc.wa.gov.au)
- CIPS study guide page 36-40
LO 1, AC 1.2

NEW QUESTION: 38
Which of the following are typical environmental considerations throughout the contract life cycle?
Select the TWO that apply.
A. Modern slavery
B. Health and safety
C. Inequality
D. Waste management
E. Pollution control
Answer: (SHOW ANSWER)
All procurement has some level of impact on the environment that needs to be minimised to
ensure sustainable procurement practices.
The greatest opportunity to influence environmental outcomes is by selecting products and
services with the least ongoing environmental impacts, such as use of water, electricity and fuel,
waste/disposal management, and impact on human health over the life of the product or service.
Lifecycle stages that impact on the environment:

Most goods and services will have an element of environment impact in a number of areas. The
five main impact areas are listed in the following table.
Source: Buying for Victoria
Reference:
LO 3, AC 3.2

NEW QUESTION: 39
Which of the following is the best definition of target costing?
A. The net present cost of the purchase or project and all future revenues flowing from it
discounted back to the present time.
B. The total of all costs in acquiring goods or services from the inception of the demand for them
until their safe and satisfactory delivery at the point required.
C. The cost of a product after analysing its components step by step
D. A product cost estimate derived from a competitive market price.
Answer: D (LEAVE A REPLY)
Target costing is an activity aimed at reducing the life-cycle costs of new products, while ensuring
quality, reliability, and other consumer requirements by examining all possible ideas for cost
reduction at the product planning, research and development and prototyping phases of
production. But it is not just a cost reduction technique; it is part of a comprehensive strategic
profit management system.
Reference:
LO 3, AC 3.4

NEW QUESTION: 40
What is the contribution of marketing function to the development of specification?
A. Marketing ensures that conformance specification will never be used
B. Marketing ensures that procurement function doesn't involve in developing specification
C. Marketing provides ideas on customer's taste and market trends
D. Marketing consults on technical requirements of the product
Answer: C (LEAVE A REPLY)
Marketing plays a critical role in sales. The marketing department introduces products to the con-
sumer, and creates strategic messaging that elevates appeal and ultimately drives sales. The
feed-back and response from consumers is measured by the marketing team on a variety of
levels. Ad-vertising is one means of seeing what performs and what does not perform. Marketers
will note trends and demand in their specific markets. This plays into new product development,
because the marketing team can work with product developers to create products based on that
demand.
In development of specification, the role of marketing is largely the same. They provide the
market insight so that right specification is developed and it matches the demands from
customers.
Reference:
- CIPS study guide page 173-175
- Role of Marketing Management in New Product Development (chron.com)
LO 3, AC 3.4

NEW QUESTION: 41
ABC Ltd has enormous investment in facilities and machinery. It also employs skilled workforce.
To be profitable, the company has to produce at massive quantity. Which sector does ABC Ltd
belong to?
A. Manufacturing
B. Retail
C. Construction
D. Agriculture
E. Finance
Answer: A (LEAVE A REPLY)
In the scenario, ABC Ltd has the following characteristics:
- Large investment in facilities and machinery
- Access to skilled workforce
- Mass production.
This company is a manufacturer. Manufacturing is an industry that makes products from raw ma-
terials by the use of manual labour or machinery and that is usually carried out systematically with
a division of labour.
Manufacturing requires investment in machinery and access to a suitably skilled workforce as well
as materials and components.
Reference:
- CIPS study guide page 74-76
- manufacturing | Definition, Types, & Facts | Britannica
LO 2, AC 2.1

NEW QUESTION: 42
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's no need to make a business case for new purchase
B. Yes, productivity improvement is a mandatory element in every business case
C. No, adopting e-system may make procurement department jobless
D. Yes, his reason may appeal the senior management
Answer: D (LEAVE A REPLY)
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 con-
ceives 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. Im-
proving the productivity means that with the same or lesser input, better output is generated. In-
creasing 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.
Reference:
LO 1, AC 1.1

NEW QUESTION: 43
Which of the following is the core of value analysis process?
A. Be creative
B. Develop
C. Evaluate
D. Gather information
E. Carry out functional analysis
Answer: (SHOW ANSWER)
Value Analysis (VA) is concerned with existing products. It involves a current product being ana-
lysed and evaluated by a team, to reduce costs, improve product function or both. Value Analysis
exercises use a plan which step-by-step, methodically evaluates the product in a range of areas.
These include costs, function, alternative components and design aspects such as ease of
manufac-ture and assembly.
According to the Value Methodology standard, there are 6 phases to a Value Analysis:
- Information
- Function Analysis
- Creative
- Evaluation
- Development
- Presentation
1. Information
In this first phase, the team attempts to understand why the project exists and who or what it is to
produce. They obtain project data, present the original design or product concepts, and
understand the project scope. Schedule, costs, budget, risk, and other non-monetary issues are
studied until the team is comfortable with the concept of the project, what it is to produce, and
who its end users are.
This step also includes things like site visits and meetings with the project team, if required.
Project documents like plans, drawings, specifications, and reports are obtained and the value
engineering team becomes familiar with them.
2. Function Analysis
This step represents the meat and potatoes (core) of the value analysis. The team attempts to
determine the functions the project serves. Functions come in two forms:
- Primary functions are those that represent the reason for the project's existence, for example, a
building project might have adequate plumbing as a primary function.
- Secondary functions are those that the project serves without being core to the project. For
example, a building project might have as a secondary function maintaining the view of the
neighboring building.
The functions are described in verb/noun pairs, such as "supply water to all suites," or "Maintain
view of adjacent park." For a project like this, the team should come up with 10 - 15 functions.
You might be surprised how many secondary functions exist for most projects. Subject matter
experts would be a great resource, but in their absence an appropriate level of brainstorming and
analysis are necessary.
The team should also identify value-mismatched functions to focus the improvements on. For ex-
ample, maybe a large obstruction is preventing the view of the adjacent park from too many
suites resulting in a potential mismatch of the cost vs. functional benefit. This is investigated in the
next step.
3. Creative
This phase represents the generation of improvement ideas. The team develops alternative ways
that the project can perform the functions that have been identified. At this step, the functions are
looked at individually and each one gets a list of alternative ways to perform the function. There is
no judging between the importance of the various functions.
4. Evaluation
At this stage, a priority is given to each project improvement idea. The ideas are discussed and
potential costs are determined. Once the risk-reward profile of each idea is itemized, the team
has determined which ideas are worth implementing into the project or feature.
A few years ago, there was a pedestrian bridge built near my home which was originally designed
for emergency vehicles. Although this type of design is standard practice for the bridges of this
type, the value engineering team identified that emergency vehicle passage was not needed
(verb/noun pair = 'maintain passage for emergency vehicles'). Also, a second major outcome of
this value analysis was to change the design to an aesthetic, curved bridge because it was in a
prominent location. The redesign of the bridge cost some money but this was more than made up
by the cost of the bridge construction. Thus, the value analysis paid for itself about 10 times over
in the reduced construction cost, and the bridge was significantly more aesthetic.
5. Development
Once the value improvement options have been whittled down to the ones that make sense, the
value engineering team develop the options to the point of passing them back to the original
project team. They must be clearly written and explained so that the project owner and
stakeholders can understand how it benefits the project and act on it. Any potential negative
factors are identified. Potential costs and cost savings are itemized.
6. Presentation
This last phase represents the presentation of the alternatives to the stakeholders. Often value
engineering represents a change in the normal practices that people are used to, an "out of the
box thinking." Thus the best salesperson on the team is often the best one to do the presentation.
Some typical products of a value engineering analysis are a briefing document, risk analy-sis,
present worth analysis, advantages vs. disadvantages, etc.
Reference:
LO 3, AC 3.4

NEW QUESTION: 44
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 4 only
B. 3 and 5 only
C. 1 and 2 only
D. 2 and 5 only
Answer: A (LEAVE A REPLY)
"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". 1985, Ch. 1, pp 11-15. The Free
Press. New York.) Creating stand-out products and brands is considered as Differentiation. An
organisation that is not clear about which of these three strategies to use is described as 'stuck in
the middle' LO 2, AC 2.1

NEW QUESTION: 45
Which of the following factors might prompt an organisation to procure an alternative product?
Select THREE that apply:
A. Brand loyalty
B. Relative value to money between options
C. Buying organisation's propensities to change
D. Easy access to distribution channel
E. Threat of retaliation
F. Switching cost
Answer: B,C,F (LEAVE A REPLY)
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
(Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p.
278). Free Press. Kindle Edition.) Reference:
LO 2, AC 2.2

NEW QUESTION: 46
Halfords is a major bicycle and car parts retailer with long history in the market. Its suppliers are
plentiful and there is no threat of forward integration. Some other smaller retailers are applying
3D-printing technology to make personalized bicycle parts but their market share is relatively low.
3D-printing technology is an example of which competitive force?
A. Bargaining power of buyer
B. Threat of substitute
C. Rivalry within the industry
D. New entrants may enter the market
Answer: (SHOW ANSWER)
3D-printed parts can replace traditional metal parts. They are also more easily customised to fit
customer's needs. This technology is an example of threat of substitute in Porter's Five Forces
model.
Substitute goods or services that can be used in place of a company's products or services pose
a threat. Companies that produce goods or services for which there are no close substitutes will
have more power to increase prices and lock in favorable terms. When close substitutes are
available, customers will have the option to forgo buying a company's product, and a company's
power can be weakened.
Reference:
- CIPS study guide page 85-96
- Porter's 5 Forces Definition: Analyzing Businesses (investopedia.com) LO 2, AC 2.2
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NEW QUESTION: 47
Which of the following provides in-depth detail for both functional and non-functional require-
ments and covers assumptions, constraints, performance, dimensions, weights and reliability of a
product?
A. Performance specification
B. Tolerance
C. Statement of work
D. Design specification
Answer: D (LEAVE A REPLY)
Design specification is a detailed document providing a list of points regarding a product or pro-
cess. For example, the design specification could include required dimensions, environmental
fac-tors, ergonomic factors, aesthetic factors, maintenance that will be needed, etc. It may also
give specific examples of how the design should be executed, helping others work properly (a
guideline for what the person should do).
Performance specification is written requirement that describes the functional performance criteria
required for a particular equipment, material, or product.
Tolerance is the permissable limit of a variable used to define a product Statement of work is the
document that captures and defines all aspects of a project, including the activities, deliverables
and the timetable for the project.
Reference:
LO 3, AC 3.1

NEW QUESTION: 48
When analyzing direct and indirect costs of potential suppliers for negotiations and planning pur-
chasing budget, the procurement manager collects reports from specialist organisations like
Mintel, Gartner and Forrester. Which kind of information source is used by the procurement
manager?
A. Company annual report
B. Technical data
C. Market data
D. RFI
Answer: C (LEAVE A REPLY)
Using Porter's value chain helps procurement professionals know what are direct and indirect
costs of supplier. Information on direct and indirect costs will have been collected as part of the
market analysis. Information sources that may help include the following:
- Company annual reports
- Market data
- Technical data
- Request for information
- Plan visits
- Discount lists
Market data is the information that is collected and analysed by specialist organisations like
Mintel, Gartner, Forrester,...
Reference:
LO 2, AC 2.3

NEW QUESTION: 49
Which of the following are typical social considerations throughout the contract life cycle? Select
the TWO that apply.
A. Using recycled materials
B. Minimizing use of non-renewable resources
C. Support small local businesses
D. Managing waste
E. Health and safety
Answer: C,E (LEAVE A REPLY)
The following are typical social criteria in procurement:
* Reducing unemployment
* Preventing the use of child labour
* Preventing discrimination on the grounds of race, religion, disability, sex or sexual orientation
* Encouraging good employment practice
* Reducing local unemployment
* Reducing social exclusion
* Promoting training opportunities for the young or disadvantaged
* Encouraging access to work for people with disabilities
Reference:
LO 3, AC 3.2

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