Questions Im developing a business case, which one of the following steps should come first? A_ Compare options Establish the cost Assess the risks D_ Identify the needs Which of the following might lead to a modified re-buy for a regularly purchased item? Select TWO that apply. A. Increase in the rate of use Change in product regulations New product. Buyer dissatisfaction Price adjustment clause mone Acompany purchases substantial quantities of a falrly costly but non-critical item, for which there is a competitive supply market and no shortage of supply. Which one of the following procurement strategies would seem most appropriate for this purchased item? A. Look for a substitute item to buy Establish a long-term supplier relationship C Prioritise price as a business need D Use automated procurement methods o Which TWO of the following would represent direct costs for a manufacturing organisation? A. Astand at a business fair Mobile phone calls Components Overalls and protective clothing The labour time required to complete a production task mooe For which one of the following reasons might a procurement manager be interested in estimating a supplier's direct costs of a regularly purchased item? A To monitor the supplier's fixed and variable costs B To estimate the supplier’s gross profit margin on the item € Tocompare the supplier's price with those of rival suppliers D To monitor the quality of the supplier’s productfions and § ndard O lutions | CHAPTER 12 The chlef procurement officer (CPO) in a company has produced estimates of the ‘operating costs of the procurement department in the next financial year. Is the CPO correct in thinking that these cost estimates will become the department's operating budget for the year? ‘A. No, because initial cost estimates are only a starting point for preparing a budget B No, because the estimates might be incorrect C No, because the cost estimates do not include the cost of material purchases for the company D Yes, because these are the costs that the department is expecting to incur ‘Aconformance specification might include detailed requirements in the form oft A functions B innovation C_ output requirements D drawings. Which TWO of the following factors commonly undermine a business case for accepting the lowest-priced bid in a competitive bidding process? A Limited number of bids Doubts about business need Concerns about quality Unreliable cost estimates Concerns about regulatory compliance moos Competitive benchmarking is typically used to make a business case for: A. comparing alternative procurement options B making comparisons across industries eliminating a performance gap D_ analysing competitor performance. One of the purposes of a financlal budget Is: A to determine how procurement costs will be controlled B to plan what procurement prices should be in the next financial year C_ todetermine the prices that will be paid for purchases in the next financial year D_ to forecast what material purchases will be in the next financial year. 209EEE a a a ne! Defining Business Need @B_ the cchief procurement officer. (CPO) of an organisation is concerned that the Procurement function will be criticised for making more purchases than budgeted in the previous budget control period. Is the CPO’s concern justified? A Yes, because additional purchases result in more cash outflows 8 Yes, because additional purchases result in lower profits C No, because additional purchases do not affect inventory levels D No, because purchase quantities depend largely on usage quantities During a particular month an organisation purchased 2,000 units of an Item of direct material at a cost of $13,200. The budget for the month had been to purchase 2,400 units ofthe item at a total purchase cost of $14,400. This means that, for this particular direct material item: A the material usage variance was favourable B the material usage variance was adverse C the material price variance was adverse D the material price variance was favourable, Amanufacturer of food products purchases large quantities of vegetables and fruit from farmers and growers around the world. Which TWO of the following factors are likely to bbe of most concern for the manufacturer's procurement function? A Changing consumer tastes and short product lifecycles Sustainable supply Variations in supply and price from one year to the next Competitive tendering Robotic process automation moog A company sells fashion clothes to the youth market at very low prices. It s continually. designing new fashion products, which It has manufactured in the Far East. Which TWO of the following will be major factors for successful procurement by this company? Short design and production lead times Product quality Fluctuating prices for fashion goods Subcontracting Quick response to changes in consumer tastes moon 240Exam-Siandard Questions and Sol fons OMAP HEH 12 Manufacturers in some industries (such as original equipment manufacturers in the viindustry) make complex products in a dynamic business environment, Which one oehe following i likely to be a prlorty for procurement for a car manufacturer that tz switching from production of diesel-powered and petrol-poweredl cars to electric vehicles? A Short product lifecycles B Process efficiency C Supply chain agility and response to technological change D Value for money Anew product development team has been assisted by a procurement manager, who hav already provided the team with information about the availability of suppliers for a key component. The manager has advised the team that there are a large number of Suitable potential suppliers. What other factor is it important to consider with regard to competitive forces in the supply market? ‘A Competitive rivalry between suppliers B The threat of new entrants The bargaining power of buyers D__ Impact on the supply chain Which of the following are barriers to entry that commonly affect competition in a market? 1 Inventory holding costs 2 Product differentiation 3 Economies of scale 4 Customer switching costs tand2only and 3 only 2and 4 only 3and 4 only oooD> {A.global company has operations around the world and its top executives travel aatensively between countries, The company’s management are concerned about a aanent sharp increase Inthe price of first-class air travel. Which ofthe following might be used asa substitute method of travel? A Switch to using a different airline B Switch to travelling by car C Switch to business-class alr travel D__ Reduce the amount of travelling by senior executives antSee SS aa Defining Bi ness Need Aprocurement manager in XY Company has been asked to estimate the breakdown of a supplier's costs between direct costs and indirect costs. What might be an appropriate starting point for performing this task? A Deducting the supplier's estimated profit margin from its prices B__ Estimating the supplier's breakeven point © Gathering information about the supplier's items of direct and indirect cost D Analysing the direct and indirect costs of XY Company itself ‘Which TWO of the following might be used to estimate a supplier's direct material costs for a product? A. Product specifications Factory visit Supplier's prices Technical journals Product sample moow Which one of the following is likely to be the most detailed source of data about prices and costs ina market? A. Government statistics Industry associations Research agencies i Online searches | ooo ‘An organisation intends to prepare invitations to tender (ITs) for a contract for the Provision of a service. The organisation has procured similar services in the past and hhas a very clear and detailed idea of the service that it wants this time, The organisation intends to prepare an outcome-based specification, to issue with the ITTs. Is this the appropriate type of specification for the organisation to use? A Yes, because outcome-based specifications are the easiest type of specification to prepare B Yes, because outcome-based specifications give suppliers the greatest scope to innovate € No, because with an outcome specification, the supplier decides how the service will be delivered D__ No, because the specification should focus on specifying outputs rather than outcomes.Exam-Standarct Questions and Solutions | CHAPTER 12 Which of the following may be found within conformance specifications but are unlikely to be found in performance specifications? Select TWO that apply. A. Branded products Drawings Variety reduction Outputs Functions mgae Which of the following might typically be included in an output-based specification? Select TWO. A Asample Packaging specifications Composition specifications Required quality levels Required environmental performance levels moa ‘A benefit of a through-life contract with a manufacturer for the procurement and installation of an item of equipment, and ongoing support through its operational life, is: A. securing the supply of replacement parts B a guarantee of technology updates. C greater reliability of the equipment D__ simplification of the procurement process. ‘company is planning the procurement of an IT system and wants to agree a through- life contract with the supplier to ensure ongoing system support. An initial step in the procurement process should be t A prepare specifications B consult internal stakeholders about their requirements C identify the IT system supplier D prepare a scope document. The purpose of acceptance testing Is to: A train the user's staff B check the adequacy of the buyer's specifications trial the item in simulated operational conditions D__ establish change control mechanisms. 213Defining Business Need Ina service level agreement, there might be a risk of under-specification of the buyer’s requirements due to a failure to: A. specify the service level required B agree a dispute resolution procedure prepare an outcome-based specification D__ agree the price for the service. Which of the following might be consequences of under-specification? Select TWO. ‘A. Difficulty in comparing rival bids Restricting the number of suppliers willing to bid Spending money to correct the problem Obtaining something that is not sufficient Less scope for innovation by suppliers moow ‘An example of over-specification is: ‘A_using conformance specifications rather than outcome-based specifications B specifying more restrictive tolerances than needed misunderstanding the buyer's requirements D_under-stating the required production volume capacity for a machine. 2B Track Manufacturing (Track) makes and sells a range of industrial products. All its products, which are made in a fairly simple and efficient manufacturing process, are very profitable. The components that Track uses in its products are not complex and are available from a large number of suppliers. However, Track’s Chief Procurement Officer (CPO) is concerned about the large range of items that the company both buys and manufactures. Which one of the following should the CPO recommend for priority action by Track? A. Standardisation B Five forces analysis Function analysis D_ Value analysis Metal Products Company (MPC) manufactures a range of similar products for sale to industrial buyers and is continually developing new and Improved products to add to its range. The Chief Procurement Officer (CPO) of MPC is concerned about the large number of new components in new product designs, and thinks that all of these are not necessary. Which of the following measures might the CPO therefore recommend? ‘A. utput-based specifications for new products B Value analysis Variety reduction D__nternal stakeholder involvementnd Solutions | CHAPTER 12 Exam-Standard Questions a Which of the following are likely benefits from a successful initiative for standardisation and variety reduction? Select TWO. A moo Less risk of stock obsolescence Larger supplier base Simplified procurement procedures Improved product quality ‘Smaller range of finished goods products