Question 1

An IT category buyer wishes to include social and environmental criteria within a supplier
specification. The focus is on the avoidance of hardware manufacturing inputs that have been
derived from 'conflict minerals', e.g. from politically unstable areas. Is this the right approach?

Accepted Answer

B

Explanation: :

Question 2

Which of the following are typical environmental considerations throughout the contract life cycle? Select the TWO that apply.

Accepted Answer

D, E

Explanation: 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: https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/CIPS_L4M2/page_81_img_1.jpg 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. https://kxbjsyuhceggsyvxdkof.supabase.co/storage/v1/object/public/file-images/CIPS_L4M2/page_82_img_1.jpg Source: Buying for Victoria Reference: CIPS study guide page 137-139 LO 3, AC 3.2

Question 3

Which of the following problems may be identified as open-ended problems? Select TWO that apply:

Accepted Answer

D, E

Explanation: Open-ended problem is something stopping the achievement of an objective or blocking progress. To solve this type of problems, procurement professional should find a way to unblock the block-age. In the above question, high logistics cost is an obstacle to cost cutting objective while suppli-er’s incompliance prevents the company to achieve its sustainable objective. Reference: CIPS study guide page 11 LO 1, AC 1.1

Question 4

Which of the following is the core of value analysis process?

Accepted Answer

E

Explanation: 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: CIPS study guide page 163-171 LO 3, AC 3.4

Question 5

Which of the following statements is true about product life cycle?

Accepted Answer

C

Explanation: A product’s life cycle portrays the length of time a product is in the market; from the beginning of its introduction to consumers until it is removed from shelves and phased out. This cycle is often divided into four phases: introduction, growth, maturity, and decline. Depending on the relevant stage, companies will set an according strategy to achieve their desired targets. Pricing and promotions play a pivotal role in the design of these product life cycle strategies. Therefore, product life cycle management, the process of strategizing ways to continuously support and maintain a product, is seen more and more at pricing mature players and could bring real value to your company. Introduction phase: during the introduction phase, the new product is introduced to consumers and a substantial amount of money is invested in advertising and marketing campaigns to bring awareness of the product to the customer. In this phase competition is low, but units sold will also correspondingly be quite low as well still. Consumers need to be convinced of the benefits of the product. Lots of articles never make it beyond this phase: e.g. 3D televisions. Profits in the introduction stage tend to be low or there may even be a loss. This is because the cost of marketing to establish product awareness plus distribution costs can be far higher than the revenue received from sales. This can be offset to a degree by 'skimming' price in the very early stages. Skimming a price is where a business charges the highest price that it thinks the market will bear initially until product recognition brings in other buyers and then the price drop. Growth phase: when it’s shown there is proven demand for the product and consumers are buying it, the next stage will be its growth phase. This phase is punctuated by increasing demand, increas-ing production and an increase in the competitive landscape. Availability of the product is under- standably paramount during this phase, going out of stock is unthinkable during the growth period. The electric car is an example of a product that is currently in the midst of the growth phase. Maturity phase: normally the maturity phase is the phase that is characterized by declining production and marketing costs due to synergies and economies of scale. During this phase the first signs of market saturation occur and most consumers or households already own the product. Sales numbers still grow, but at a slower pace. In the maturity phase, price competition becomes intense, a broader range of distribution channels are deployed and competition is more focused on competitive pricing, marginal product differences or the difference in services or promotions. This period in the PLC is often said to be the ‘cash-cow period’. That being said, the idea of ‘Maturity from the start’ also exists. This occurs when a brand decides to launch a product extension and directly follows up the maturity phase of an earlier version of the product. For example, the iPhoneX followed up from the ‘normal’ iPhone-series and therefore the iPhoneX never had to undergo the introduction or growth phase, but immediately started in its maturity phase. Decline phase: the final phase of the PLC is entered once the product loses market share to other, newer products and the competitive landscape becomes too hard to survive. During this stage, de- mand declines, companies are left with overstock with prices and margins getting depressed. Therefore retailers and brands normally start stunting with promotions during the decline of the PLC to sell their final stock. A well-known example of a product that has been through the decline phase were the Nokia phones; sales results dramatically decreased after the introduction of the iPhone. Reference: - CIPS study guide page 90 - Adjusting your Pricing Strategy to the Product Life Cycle Stage (omniaretail.com) - Price Skimming Definition (investopedia.com) LO 2, AC 2.2

Question 6

A procurement manager consolidates the company expense on printing and office supplies into
broader range of spend category. Other senior managers are concerned that it may increase
company’s spend. Is that concern justified?

Accepted Answer

A

Explanation: Printing and office supplies are often considered as low risk, low value items. Consolidation low value, low risk items into a broader range will dramatically increases the value of the contract and leverage of buying organisation in the negotiation. Reference: CIPS study guide page 8-9 LO 1, AC 1.1

Question 7

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?

Accepted Answer

A

Explanation: The specification that is produced too detailed will incur unnecessary cost because it does not allow suppliers to use their expertise in finding the most efficient way to produce it. 'No, because higher requirements in specification, the greater bargaining power of buying organi- sation': more detailed specifications could tighten the supplier base and potentially leave buying organisation with fewer potential supplier. This may reduce buyer's bargaining power in negotia-tion. 'Yes, because higher requirements will help buying organisation find the best supplier': in some circumstances, higher requirements will lead to smaller supplier base. In the worst scenario, there is no supplier who has capability to carry out those requirements 'Yes, because optimising the specification is the only method to achieve value for money': There are other methods to achieve cost saving and value for money, inter alia, volume concentration, relationship restructuring, etc. Reference: CIPS study guide page 118-119 LO 3, AC 3.1

Question 8

Which of the following is the best definition of target costing?

Accepted Answer

D

Explanation: 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: CIPS study guide page 161 LO 3, AC 3.4

Question 9

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

Accepted Answer

C, D

Explanation: The aim of this question is to check students' understanding of different types of data. There are 2 types of data: - Primary data is the collection of original or raw data which are generated from field research. In this case, only RFI and surveys from customers are considered as primary data. - On the other hand, secondary data is public information that has been collected by others. It is typically free or inexpensive to obtain and can act as a strong foundation to any research project — provided you know where to find it and how to judge its worth and relevance. Examples of secondary data are government statistics, industry associations, trade publications, published market reports, etc. Reference: CIPS study guide page 22-24 LO 1, AC 1.2

Question 10

What does the acronym RAQSCI stand for?

Accepted Answer

B

Explanation: RAQSCI stands for Regulatory, Availability, Quality, Service, Cost, Innovation. LO 1, AC 1.1

Question 11

Lider Ltd is a leading bathroom furniture manufacturer in Indi
a. The company has more than 30 years experience in the market with extended knowledge of
engineering and customers' taste. Lider is planning to launch a new type of bath fitting next year
which offers Bluetooth connectivity and thermostat display. The company gathers a team of multi-
disciplines, including engineering, procurement, sales and marketing. At the first team meeting, the
project leader tells the team to discuss which functions will be valued by the customers, and how to
deliver those functions with the lowest costs possible. Which of the following describes the process
that the project team is undertaking?

Accepted Answer

C

Explanation: From the scenario, you can see that the project team is developing a new product. They start with analysing the functions, and the costs of delivering those functions. This is a typical process of value engineering. You may read more on value engineering from the reference paper. Reference: - CIPS study guide page 171-173 - Value Analysis - Norwood Whittle (cimaglobal.com) - A CASE STUDY ANALYSIS THROUGH THE IMPLEMENTATION OF VALUE ENGI-NEERING (researchgate.net) LO 3, AC 3.4

Question 12

After a project, the procurement team at CLK Ltd meets up and summarises on the performance.
They see that they actually spent $5,000 less than planned budget. The team tries to identifies why
there is such difference. This activity is known as...?

Accepted Answer

B

Explanation: The procurement team in the scenario is analysing the difference between the plan and actual spend. This activity is known as variance analysis. The sum of all variances gives a picture of the overall over-performance or under-performance for a particular reporting period. For each item, companies assess their favorability by comparing actual costs to standard costs in the industry. For example, if the actual cost is lower than the standard cost for raw materials, assuming the same volume of materials, it would lead to a favorable price variance (i.e., cost savings). However, if the standard quantity was 10,000 pieces of material and 15,000 pieces were required in production, this would be an unfavorable quantity variance because more materials were used than anticipated. Reference: - CIPS study guide page 57-58 - Variance Analysis - Learn How to Calculate and Analyze Variances (corporatefinanceinsti-tute.com) LO 1, AC 1.4

Question 13

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?

Accepted Answer

A

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 sup-plier is an example of treating the risk. Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the ap- proach 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 busi- ness, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it. Reference: CIPS study guide page 144 LO 3, AC 3.3

Question 14

Which of the following are most likely to increase the buyer’s bargaining power?
1. Buyers are price sensitive
2. High set-up cost for new entrants
3. Threat of forward integration is high
4. Threat of backward integration is significant

Accepted Answer

C

Explanation: Price sensitivity is the degree to which the price of a product affects consumers' purchasing behaviours. Buyer power will be stronger if buying organisation are price sensitive and vice versa. Backward integration is a form of vertical integration in which a buying organisation expands its role to fulfil tasks formerly completed by businesses up the supply chain. Buyer power is strong if threat of backward integration is high. Set-up cost is a determinant of threat of new entry. Some industries require very expensive assets in order to make products. The financial risk of entering the industry and not succeeding can deter many potential new entrants. The fewer new entrants, the fewer available substitutes, then the bar- gaining power of buyer can be negatively affected. Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a compa- ny's products. Threat of forward integration is a determinant of supplier's bargaining power. Reference: CIPS study guide page 88-91 LO 2, AC 2.2

Question 15

An automotive manufacturer is sourcing rubber components from Company

Accepted Answer

D

Explanation: This questions is intended to ask students about types of waste in Lean principles. Lean was born out of manufacturing practices but in recent time has transformed the world of knowledge work and management. It encourages the practice of continuous improvement and is based on the fundamental idea of respect for people. Womack and Jones defined the five principles of Lean manufacturing in their book “The Machine That Changed the World”. The five principles are considered a recipe for improving workplace efficiency and include: 1) defining value, 2) mapping the value stream, 3) creating flow, 4) using a pull system, and 5) pursuing perfection. Lean principles aim to eliminate waste in processes. The eight wastes of Lean principles are: - Defects - Over-production - Waiting - Not using talent - Transport and handling - Inventory - Motion waste - Excess processing In the scenario, the component is processed more than necessary. The engineers try to make them as accurate as possible with very little tolerance. In fact, the component does not need to be that precise. This excesses buyer's requirements and incurs costs for both buyer and supplier. The scenario is an example of over processing (or excess processing). Overprocessing is one of the seven wastes of lean manufacturing (or 7 mudas); Overprocessing is adding more value to a product than the customer actually requires such as painting areas that will never be seen or be exposed to corrosion. Overprocessing as one of the seven wastes is caused by having unclear standards and specifications, many operators will try to do the best job possible and will not always be aware of what truly adds value to the product or even the end use. They will therefore often expend time polishing and finishing components that do not require it. Reference: - CIPS study guide page 153-156 - Waste of Overprocessing; causes, costs, examples solutions, symptoms (leanmanufactur- ingtools.org) LO 3, AC 3.4

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