(PDF) CIPS Level 4 Diploma in Procurement and Supply L4M5 Exam and Certification Test Engine
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CIPS L4M5 Exam Syllabus Topics:
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NEW QUESTION 15
A procurement professional is negotiating with a supplier on cleaning service. She realises that there are huge cost-saving opportunities if the supplier agrees to reduce its mark-up and unnecessary employee benefits.
Supplier's mark-up and employee benefits are examples of which of the following?
- A. Spend cube
- B. Spend waterfall
- C. Addressable spend
- D. Spend tree
Answer: C
Explanation:
Explanation
A key consideration when seeking to negotiate prices is to establish what proportion of the spend is addressable by procurement action such as negotiation. Addressability of spend is influenceable through negotiations or application of other saving effort or leverage with suppliers.
LO 2, AC 2.1
NEW QUESTION 16
Which of the following is the most appropriate pricing arrangement in contracts where major inputs are commodities?
- A. Price adjustment mechanism
- B. Standard schedule of rates
- C. Cost reimbursable pricingarrangement
- D. Fixed pricing arrangement
Answer: A
Explanation:
In contracts which have major commodity input, the price is determined by market forces with no individual supplier or buyer able to influence it significantly.Prices are much more variable even within long term contracts and seeking a fixed price would create financial risks for both the buyers and the suppliers. It is often intelligent to agree a contract price adjustment mechanism to allow for market price changes so both sides share risk.
NEW QUESTION 17
Information generated through Purchase Price Cost Analysis can be useful to the purchaser, by helping to identify which of the following costs relating to the supplier? Select the THREE that apply.
- A. Budgeted costs
- B. External costs
- C. Depreciation on equipment
- D. Market costs
- E. Profit
- F. Material costs
Answer: C,F
Explanation:
Explanation
Below aresome examples of cost input that can be analysed in PPCA process:
- Material costs
- Process and labour costs
- Employment costs
- Overhead costs
- Distribution costs
- Depreciation on equipment
- Profit
If you want to learn more on PPCA, you can studyfrom OGC document here:
https://webarchive.nationalarchives.gov.uk/20100609100650/www.ogc.gov.uk/documents/Cost_Price_analysis(1 LO 2, AC 2.1
NEW QUESTION 18
An experienced procurement professional is developing strategies for forthcoming negotiations with her key supplier. To avoid negotiation deadlocks, she identifies the reasons whynegotiations could fail. Which of the following are most likely to be reasons for negotiation failures? Select TWO that apply.
- A. Both parties focus on common interests
- B. MIL objectives are well established
- C. Underlying interests of TOP are overlooked
- D. Unachievable objectives were set up
- E. Buyer helps to create a co-operative atmosphere
Answer: C,D
Explanation:
It has been said that most negotiations are won (or lost) at the preparation stage. Success in a negotiation cannot be claimed unless you can refer back to your objectives and show how you have achieve them. In broad terms, negotiation plans/strategies involve 4 key activities:
1. Developing and prioritising your objectives and limits
2. Seeking to understand TOP's objectives
3. Developing concession plans
4. Planning the resources and logistics required and agreeing team roles.
Questions to gain an understanding of why a negotiation failed
Did we collect and make effective use of all information available when preparing for the negotiation?
Did we set objectives for the negotiation that were stretching and achievable and established MIL objectives?
Did we determine a strategy for the negotiation?
Did the other party understand our needs correctly?
Were we aware of the underlying interests of the other party?
Were our proposals convincing enough for acceptance by the other party?
Did we explore different variables in the negotiation?
Did we fully understand all proposals?
Did we give any unplanned concessions and did we check the importance of these?
Did we focus on common interests?
Did we ask a range of questions?
Did we get answers to all our questions?
Could we answer all the questions addressed to us in a proper and positive way?
Did we summarise effectively?
Did we use different methods of persuasion in the negotiations?
Which tactics did we use and what effect did they have?
Did our negotiating team work well as a team?
Did we help to create a co-operative atmosphere
NEW QUESTION 19
Which of the following should be done when undertaking a reflection activity on negotiation? Select TWO that apply.
- A. Use generalised or ambiguous language when describing your strengths and development areas
- B. Be honest and objective about your skills
- C. Be overly modest about your contribution to the outcomes of negotiation
- D. Identify areas in your skill set where you need to improve
- E. Gloss over areas where you need to improve your skills or performance
Answer: B,D
Explanation:
Giving positive group and individual feedback is easy, as is self-congratulation and, in many cases, it is hoped, this will be an accurate reflection on actual performance. When it comes to developmental or difficult feedback, it is only natural to want to move on and not reflect on the negative or developmental points, or why a negotiation did not achieve its objectives. But this is a mistake. The best learning opportunities come from reflection on what could be done better, and this can beachieved without blame, threat or condemnation.
Everyone and every team will make mistakes and/or have areas where they could have improved. Clearly, if every reflection session concludes that an individual or team keeps making the same mistake, then thereis a case to change roles or consider alternative approaches.
About Dos and Don'ts of reflection, you can refer here:
https://offices.depaul.edu/human-resources/employee-relations/Documents/Self%20Assesement.pdf
NEW QUESTION 20
There are no commitments in hypothetical questions. Is this statement true?
- A. Yes, because hypothetical questions generate a specific response
- B. No, because the party who makes hypothetical questions cannot withdraw their proposals
- C. No, because hypothetical questions are made explicitly to the other party
- D. Yes, because hypothetical questions only mention possible situations
Answer: D
Explanation:
Explanation
There are four types of questions that can be used in a commercial negotiation:
Hypothetical questions, where you ask about a possible situation or abstract concept, are very useful at the testing and proposal phases. Hypothetical question does not state any commitment as it is only about 'if something happens, then ...'. This type of question can be useful at giving suggestion.
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LO 3, AC 3.3
NEW QUESTION 21
A purchasing manager is having a negotiation with a supplier to extend the duration of the contract. In order topersuade the supplier to cut the cost by 10%, she promises to shorten the payment period from
45 days to 30 days for each delivery. The supplier's representative does not agree the offer and clearly states that his proposed price is already lower than the market price. The purchasing manager has used which type of power?
- A. Expertise
- B. Informational
- C. Reward
- D. Coercive
Answer: C
Explanation:
In the scenario, to exchange cost cutting, the purchasing manager promises to 'reward' supplier shorter payment period. This is an example of reward power, which results from one person's ability to compensate or reward another for compliance.
The reward does not need to be money, but could be introduction to other buyers in the group, positive references, agreement to trial new product, quicker payment or indeed any other variable that the buyer knows is attractive and valued by the supplier.
NEW QUESTION 22
In a commercial negotiation,a procurement professional believe that the larger the order quantity from buyer, the lower the supplier's average costs. Is this assumption true?
- A. No, because supplier's average costs will rise as the buyer's demand increases
- B. Yes, because larger order quantity will bring a considerable profit to supplier
- C. Yes, because larger order quantity will always enable the supplier to reach its economy of scale
- D. No, because the supplier may need to invest in new facility to meet buyer's demand
Answer: D
Explanation:
In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting atquieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor's average costs will be higher at low and high capacity utilisation.
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NEW QUESTION 23
What is the most likely outcome when two organisations with adversarial relationship negotiate with each other?
- A. Lose lose
- B. Win lose
- C. Deadlocked
- D. Win win
Answer: B
Explanation:
An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low levels of trust are characteristic of adversarial relationships. The outcome when two organisations with adversarial negotiate is most likely to be win-lose.
NEW QUESTION 24
Understanding supplier's mark-up and margin can provide procurement professional a comprehensive insight into supplier's net profits. Is this statement true?
- A. No, because mark-up and margin inform little about supplier's net profit
- B. Yes, becausesupplier's mark-up and margin are two most valuable sources of information to procurement
- C. Yes,because these are two indicators of supplier's future prospect
- D. No, because margin is enough to tell procurement about supplier's profitability
Answer: A
Explanation:
Explanation
Mark-up and margin allow supplier to make gross profit. Remember that every supplier operates under different cost structures and some are set up to be most profitableat a particular level of volume, so it is dangerous to assume all suppliers can survive on a lower margin if their volume increases. Intelligent buyers understand that mark-up and margin may define gross profits, but they tell you very little about a supplier's net profits.
LO 2, AC 2.1
NEW QUESTION 25
A public agency opens a tendering process for a road building project that lasts approximately 1 year. They post theirrequirements on public journal and receive some interests. After conducting due diligence process and selecting the lowest bidder, the project commences. However, the supplier complains that price of material increases because of a shortage of supply, thenthey demands an 5% uptick in contract value. The agency investigates the increment and sees that there is indeed a fluctuation in prices of supplier's input. They are likely to accept the proposal, but they are also concerned that supplier may demand more. To avoid making another concession with the supplier, which of the following should be a priority action of the agency?
- A. Postpone the decision making until the budget is ready
- B. Disapprove supplier's demands until they finish the project
- C. Seek approval from higher authority
- D. Document a contract variationthat only allows another concession if some specific conditions arise
Answer: D
Explanation:
Explanation
The agency (buyer) has made a concession about the price. Possibly the supplier will request another concession (the salami tactics). To avoid this to be happened, the agency should only allow a concession as an exception, make sure that the concession is documented and only permitted against some exceptional circumstances, and seek agreement to this from the supplier.
LO 3, AC 3.2
NEW QUESTION 26
Cost and price analysis is very important for buyers when they are preparing for a negotiation with supplier.
Which of the following is a benefit of knowing supplier's fixed costs?
- A. The buyer would be able to know the point at which the supplier would reject the offer
- B. With the sole understanding of supplier's fixed cost, the buyer would be able to know the volume at which supplier maximises their profit in short-run
- C. The buyer would be able to know the right volume to reach break-even point
- D. The buyer would be able to get a comprehensive picture of supplier's efficiency
Answer: C
Explanation:
Explanation
Knowing supplier's fixed and variable costs is beneficial for the buyer in a negotiation. With these insights, the buyer would know the volume atwhich the supplier reaches break-even points and then offers significant discount due to economies of scale.
NEW QUESTION 27
Which of the following will positively affect reputational strength of an organisation? Select TWO that apply.
- A. Weak internal coordination
- B. Great gap between reputation and reality
- C. High ethical standards
- D. Adopting out-of-date technology
- E. Strong customer focus
Answer: C,E
Explanation:
Explanation
In a globalisedcommercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset. Reputational strength in one organisation might be based on some or all of the following characteristics:
- Quality of products or services
- Low cost/high value for money
- High ethical standards
- Reliability
- Cutting-edge technology
- Strong customer focus
- Engineering excellence
LO 1, AC 1.4
NEW QUESTION 28
How contribution is calculated in break-even analysis?
- A. Variable costs subtracted from price
- B. Fixed costs divided by variable costs
- C. Variable costs subtracted from fixed costs
- D. Price minus fixed costs
Answer: A
Explanation:
Contribution = Price - Variable cost
Break-evenpoint (volume) = Fixed cost/Contribution
NEW QUESTION 29
According to Professor Gavin Kennedy, in which of the following forms of dispute resolution, both parties will voluntarily exchange their ideas and beliefs?
- A. Litigation
- B. Persuasion
- C. Gambling
- D. Negotiation
Answer: D
Explanation:
Professor Gavin Kennedy highlights that we need to distinguish negotiation from other forms of decision-making by focusing on what is unique about it (the voluntary exchange) and not shared by other techniques such as persuasion, gambling (e.g., coin tossing), command decision, instruction, litigation and coercion.
NEW QUESTION 30
Which of these personal power bases stems from the manager's position in the organisation and the authority that lies in that position?
- A. Expert power
- B. Coercive power
- C. Legitimate power
- D. Reward power
Answer: C
Explanation:
Explanation
Legitimate power comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient. Legitimate power comesfrom rules, formal authority, organisation rank, staff grade or official position held. In commercial negotiation, legitimate power can be demonstrated by job title and rank.
LO 1, AC 1.3
NEW QUESTION 31
At which stage in a negotiation would questions be asked to obtain missing information?
- A. The proposing stage
- B. The bargaining stage
- C. The opening stage
- D. The testing stage
Answer: D
Explanation:
There are 5 key phases of negotiation:
The opening phase: confirm understanding and get the issue on the table The testing phase: check assumption and confirm understanding The proposing phase:asking 'if' The bargaining phase: using tradeables The agreement and closing phase The testing could take the form of questions following a presentation by either side or questions on a tender or proposal document received by the buyer from the potential supplier. The testing phase is necessary to confirm that your approach and objectives are appropriate for the negotiation situation you now find yourself in.
Careful listening, observation and interpretation of TOP's responses may give indication of the following:
Areas where TOP is willing and unwilling to make concessions
What factors or issues TOP places a high value on
If there are any non-commercial or emotional factors that may be pertinent TOP's underlying interests - why they are taking the positionthey are.
NEW QUESTION 32
Premium pricing strategies used by suppliers are characterised by which of the following? Select TWO that apply.
- A. Premium price is determined by variable costs only
- B. Price is based on cost structures
- C. This strategy is often used when supplier attempts to enter new market
- D. Typically found in the early part of the product life cycle
- E. Products are charged at a price based on supplier's reputation
Answer: D,E
Explanation:
There are several pricing strategies used by suppliers:
Cost-plus pricing - Total variable + Fixed cost + profit
Premium pricing - based on branding. Supplier determines to charge a very high price, notconnected with cost structures, usually based on its reputation and/or the perception that the product/service is of a superior quality. This strategy typically found in the early part of the product life cycle/when demand exceeds supply.
Penetration pricing - Supplier attempts to enter a new market or extend its share in an established one. It is characterised by price reductions to increase volume, followed by steady price increases; may even be loss leading at start (no profit made) Marginal cost pricing - covers only variable cost Market pricing - suppliers prices in line with what the market is willing to pay
NEW QUESTION 33
The buyer's bargaining power tends to berelatively higher than supplier's bargaining power in which of the following circumstances?
- A. The buyer's spend takes up a small proportion of supplier revenue
- B. The buyer does not have the option to move to an alternative supplier
- C. The buyer is large in size relative to its suppliers
- D. The buyer demand isso urgent that it can't be postponed
Answer: C
Explanation:
Buyer power gives customers/consumers (buyers) the ability to squeeze industry margins by pressuring firms (the suppliers) to reduce prices or increase the quality of services or products offered.
There are four major factors to consider when determining the bargaining power of buyers:
1. Number of buyers relative to suppliers: If the number of buyers is small relative to that of suppliers,the buyer's power will be stronger.
2. Dependence of a buyer's purchase on a particular supplier: If a buyer is able to get similar products/services from other suppliers, buyers depend less on a particular supplier. Therefore, the power of the buyer would be greater.
3. Switching costs: If there are not many alternative suppliers available, the cost of switching is high.
Therefore, buyer power would be low.
4. Backward Integration: If the buyer is able to integrate or merge suppliers, the buyer has greater bargaining power over the existing suppliers.
When is Bargaining Power of Buyers High/Strong?
There are fewer buyers relative to that of suppliers
The switching costs of the buyer are low
If the buyer is able to backward integrate
The buyer purchases product in bulk (high volume)
The buyer is able to get similar product/services from other suppliers
The buyer purchases the majority of the seller's products
Several substitutes are available on the market
Product is not differentiated
NEW QUESTION 34
A procurement professional is sourcing low value items. He conducts market analysis and realise that these items can be provided by many suppliers and switching cost between suppliersis relatively low. He also assume that the relationship between buyer and supplier will be transactional rather than long-term. According to Thomas-Kilmann conflict model instrument, which of the following is the most appropriate style that the procurement professional should adopt when negotiating with these suppliers?
- A. Avoiding
- B. Compromising
- C. Collaborating
- D. Competing
Answer: D
Explanation:
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
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In this scenario, the buyer's bargaining power is stronger than suppliers', and the relationship is transactional.
Therefore, to get the most preferable outcome, the procurement professional can take an assertive approach, while he doesn't need to co-operate closely with these suppliers. Competing will be the most appropriate approach to negotiation in this scenario so that the buying organisation can get a better deal.
NEW QUESTION 35
Procurement team is required to improve leverage with their suppliers through spend consolidation. To check whether there is any opportunity to consolidate spend, which of the following should be priority of procurement team?
- A. Price analysis
- B. Total cost analysis
- C. Spend analysis
- D. Value engineering
Answer: C
Explanation:
Explanation
In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.
NEW QUESTION 36
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