L4M2 2

Question 1: Incorrect
In a marketplace where the threat of new entrants is low, which of the following statements
are TRUE? A) major capital investment is needed to compete B) threat of major retaliation
is high C) there's easy access to distribution channels and suppliers D) there's many
companies in the industry with no dominant company.
A+B
(Correct)
B+C
(Incorrect)
A+D
B+D
Explanation
A and B are correct. These are taken directly from the table on p. 97 detailing when threat of new
entrants is high and low.
What is a risk of including too many details in a specification? Select TWO:
it allows the supplier to use their expertise
it does not allow the supplier to use their expertise
(Correct)

it increases buyer power
it allows for tolerances
it incurs additional costs
(Correct)
Explanation
Downsides to an over detailed specification include; additional / unnecessary costs and it doesn't
allow the supplier to use their expertise. It may also mean the business unintendedly assumes
responsibility for the performance of the purchase. See p.118 for details on this. It's a hot topic
for the exam
Through-life contracts are common when procuring an asset such as machinery or IT
equipment. Which of the following are advantages of using this type of contract? Select
TWO.
there is lower risk as a single company is accountable for all costs and services
(Correct)
they are cheaper than standard contracts
(Incorrect)
the contract is verbal
lower costs over the whole life of the asset
(Correct)

there is more flexibility to change suppliers if something goes wrong
(Incorrect)
Explanation
The correct answers are 'lower costs over the whole life of the asset' and 'there is lower risk as a
single company is accountable for all costs and services'. A downside to through-life contracts is
there's LESS flexibility to change suppliers. These are detailed on p.131.
Achieving high levels of customer satisfaction and building trust with existing and potential
clients is a primary objective of which sector?
construction
(Incorrect)
services
(Correct)
retail
manufacturing
Explanation
This is a description of the 'services' industry. Although customer satisfaction is also important in
retail, you don't really have 'clients' in this sector, or need to build trust with them, so you can
discount this as an option. Customer satisfaction isn't really a big deal in construction and
manufacturing as these industries don't tend to deal with the 'end user' (who's the person who
needs to be satisfied). See p. 81 for more info on the 'Services' Industry.
In a marketplace, buyer power is strong when… Select TWO

buyers are more concentrated than sellers
(Correct)
buyers purchase in small volumes
sellers are more concentrated than buyers
switching costs are low
(Correct)
threat of backwards integration is low
(Incorrect)
Explanation
Buyer power is strong when buyers are more concentrated than sellers, and when there is low
switching costs. This question (as well as the reverse - when is supplier power strong) comes up
a bit in the exam so take a look at p.88 if you're unsure. In a marketplace with a lot of buyers,
their power is strong- they could form a consortium to push down prices of sellers. Low
switching costs also makes buyer power strong- as they can change suppliers very easily and can
use this as a threat in negotiations. The other options are when supplier power is strong
Question 6: Correct
The rise in social media shifting power to consumers is a key driver and threat to which
industry?
agriculture
retail
(Correct)

construction
services
Explanation
Retail is the industry which is most affected by social media (think product reviews,
recommendations, #gifted). See p. 72-23 for the big table on drivers, objectives etc of the 6
major industries. It's a hot topic for the exam. But as I've mentioned before, the questions will be
quite easy to work out from the options given- the other three industries will be so different that
it will be easy to discount them as being incorrect- you won't find many social media posts from
celebrities advertising construction, services or agriculture!!
Question 7: Correct
John orders compost from a local farm which he uses to grow his own vegetables. He then
sells the vegetables at a market. Although John orders the same product from his supplier,
he does so at different frequencies depending on the growing season. What type of
purchase is this?
new purchase
straight rebuy
(Correct)
call-off
modified rebuy
Explanation
This is a 'straight rebuy' as he is ordering the same product (the dates he orders it doesn't matter).
A modified rebuy would be if he ordered a different type of compost. A new purchase would be
if he ordered something different to compost. See p.2 - there are lots of questions on types of
purchase in the exam
A company is looking to break into the car manufacturing industry in the UK and is
currently doing some market research. It is completing a 'Segment Analysis' on the current
suppliers in the industry. Which of the following would be the most appropriate way to
segment the market?
product segment
distribution channel
(Incorrect)
geographical region
buyer demographic
(Correct)
Explanation
The most appropriate form of segmentation for the car industry is 'buyer demographic'; how
much disposable income you have is what most affects what type of car you buy. Geographical
and Distribution Channel wouldn't be appropriate as the question mentioned that they're looking
at the UK market only- so the geography and distribution channels would all be the same.
Product segment also doesn't make sense because it's all the same product- cars. There's a couple
of these style questions on the exam. Check out 'Segment Analysis' on p. 64
A ISO Standard such as ISO14000 would be most suitably used in conjunction with which
type of specification?
outcome
output

technical
(Correct)
performance
(Incorrect)
Explanation
ISO standards are used in conjunction with technical or conformance specifications- see p. 125
A restaurant chain is conducting a benchmarking exercise where it is comparing the speed
that meals are served at its several different branches. What type of benchmarking is the
restaurant chain conducting?
internal
(Correct)
competitive
generic
functional
(Incorrect)
Explanation
This is internal benchmarking as they're comparing the different branches within the same
company. See p.49 for further information on the types of benchmarking. This is a hot-topic for
the exam.
A hospital is sourcing a Flu Vaccine which it plans to procure in large volumes. It is
important that the Vaccine meets government and industry standards and has a specific
chemical formula. Which type of specification should the hospital use when undergoing
their procurement activity?
conformance
(Correct)
output
(Incorrect)
performance
outcome
Explanation
This needs to be a conformance specification- the vaccine needs to conform to many different
regulations - there's no room for any interpretations or creativity in this specification. See p.118
A construction firm has received an invitation to tender for the opportunity to construct a
new bridge. The specification includes a description of what is required: a pedestrian
bridge which is 3m wide and can bear a load of up to 3000kg. Suppliers are encouraged to
propose unique designs for the bridge which will be 'appealing' to locals and tourists. What
type of specification is this?
technical specification- quality standards are detailed
output specification- this details what the bridge needs to achieve
(Correct)

output specification- an explanation of why the bridge is required is provided
(Incorrect)
technical specification - weight and length are provided
Explanation
The correct answer is 'output specification- this details what the bridge needs to achieve'. The
two options saying technical specification should be discounted- this isn't a technical spec as it
allows for creativity in the design. A technical spec would detail exactly how the bridge should
look, what materials should be used etc. The other answer 'output specification- an explanation
of why the bridge is required is provided' is also wrong as an explanation isn't provided in the
question. This example is based on the one given in the study guide on p. 123 which explains the
difference between outcome, output and technical specifications.
Question 13: Correct
An Office Manager is looking for a cleaning company. His specification states the expected
level of service of the cleaning company, but does not mandate what products are to be
used, nor how many cleaners are to be on site. What type of specification has the Office
Manager written?
conformance
vague
outcome
(Correct)
output
Explanation
This is an outcome specification because the level of service is detailed but not how that service
is to be achieved. See chapter 3.1 for details on the different types of specification. Vague isn't a
type of specification, so that should be discounted as an answer- his spec may be vague but the
question specifically says what TYPE of specification is this, and vague isn't a type. See p.120
What is the main purpose of 'Lean' Manufacturing?
to cut costs
to increase profit margins
to reduce waste
(Correct)
to use technology to reduce mistakes
Explanation
Lean manufacturing is about reducing wastes. There are either 7 or 8 types of waste depending
on which Module you're studying for at CIPS (how helpful is that lol). Module 2 says there are 8
wastes and these are listed on p. 158 (the additional waste is 'underused talent').
Black-Box testing is commonly used within what industry as a way of testing a product's
capabilities against a specification?
Construction
Agriculture
IT Software
(Correct)
Automotive
Explanation
The correct answer is IT software- this is detailed on p.135. You don't need to know what black-
box testing is, but just be aware that it exists and that it's a form of acceptance testing for
software.
Roberto is running a tender and has designed a specification which he wants suppliers to
bid against. If he has over-specified the need, what is a major risk for Roberto?
the tender will be more expensive to run
there will be poor competition
(Correct)
the tender will take a long time
too many suppliers will bid
Explanation
The risk is poor competition. This is because the number of suppliers who can provide the full
specification will be fewer than if the specification hadn't been as detailed. Basically- the more
you ask for, the fewer suppliers will be able to provide that. See p. 141
Which of the following themes would you consider when identifying business needs? Select
THREE.
Regulatory
(Correct)
Quality
(Correct)
Availability
(Correct)
Environment
Economic
(Incorrect)
Explanation
The correct answers are regulatory, availability and quality. This question tests your knowledge
of RAQSCI which is detailed on p.5 and talks about how to identify business needs. It's easily
confused with STEEPLE which is about analysing the macro-environment, so be sure to read the
question carefully. Environment and Economic are from STEEPLE.
Question 18: Skipped
Sam is a procurement manager at Dandelion Incorporated and has identified a number
of 'bottleneck' suppliers on which the organisation has a high level of critical dependency.
He plans to identify alternative sources of supply as a contingency. Is this the right course
of action?
yes- this allows high-value savings to be made
no- these should be retained as a 'single-source' procurement in order to gain bulk ordering savings

yes- it is wise to have a back-up supplier for high risk items
(Correct)
no- these items should be procured via e-auction
Explanation
The correct answer is 'yes- it is wise to have a back-up supplier for high risk items'. See p.84 for
what strategies should be used for which procurement items.
In accounting, what is the name of the adjustment made to the financial accounts to reflect
activity which has occurred, but money hasn't been received for it yet?
accrual
(Correct)
overhead
stock
dividend
Explanation
This is an accrual. You don't need to know too much about this for this particular model- but you
should be familiar with all of the words given here as options as they're all explained briefly in
this module. The definiations are on p.56, and also in the glossary at the back of the studyguide.
Billy is about to purchase a tractor from a known supplier. He has previously bought a
forklift truck from this supplier and is very happy with the quality. What type of purchase
is the tractor?

straight rebuy as it is the same supplier
modified rebuy as it is a different item he is purchasing
call off as he has a contract in place to buy different items from the same supplier
new purchase as he has never purchased a tractor before
(Correct)
Explanation
This is a 'new purchase' as a tractor is different to a forklift truck. A straight rebuy would be if he
bought another forklift truck, and a modified rebuy would be if he bought a different model of
forklift truck. Capital purchases such as these aren't suitable for a 'call-off contract' so that's
incorrect. See p.4 for more information on types of purchases- this is a hot topic for the exam
During the product lifecycle, after an initial increase in sales, sales of a new product will
eventually start to slow down. When this happens, a product has entered its 'maturity
stage'. What is the name given to customers who purchase products at this stage in the
product lifecycle?
early adopters
laggards
middle majority
(Correct)
maturity buyers
Explanation
This is the 'middle majority'. A definition is given on p.91 of this: Middle Majority = a group of
consumers who buy or use a new product after seeing it used successfully by innovators and
early adopters.
The price paid for a product or service that is used to set a standard for future reference is
commonly referred to as what?
continuous improvement
supplier power
value engineering
benchmarked price
(Correct)
Explanation
This is 'benchmarked price'. This is the word-for-word description given on p.5
In a factory which produces washing-up liquid, the products are produced along conveyor
belts, with ingredients being added into the washing-up liquid at different stages. The
conveyor belt has just broken and a part needs to be ordered for this to be fixed. Is this a
Direct Cost for the company?
no- this is not a direct cost, it is a variable cost
no- this is an indirect cost
(Correct)

yes- this is a direct cost because it is a fixed asset
yes- this is a direct cost because the conveyor belt is required to produce the washing-up liquid
Explanation
The conveyor belt part is an indirect cost to the factory. Remember- if the item doesn't go
DIRECTLY into the finished product, it isn't a direct cost. Variable costs vary depending on the
output (more washing up liquid = higher costs). The fixing of the conveyor belt isn't a variable
cost- it's a once off expense and it doesn't matter how much washing up liquid the company
produces, it will still cost the same to fix the conveyor belt.
Which of the following is an indirect cost for a manufacturing organisation?
Salary of HR staff
(Correct)
Salary of the Production Line Manager
raw materials
Components
Explanation
HR staff is an indirect cost- the others listed are direct costs. A direct cost is any costs that
directly go into the making of the product and an indirect cost is for support activities such as HR
or marketing. These examples are given in the table on p.27
Lisa is a procurement manager who is sourcing a new cleaning material. She has developed
a conformance specification which details the exact chemical makeup of the product she
wishes the supplier to make. What is the disadvantage of this?

Lisa may unintentionally be assuming responsibility for the performance of the product
(Correct)
End-users will need training in the new product
Lisa will get the exact product she requires
Lisa is allowing the suppliers to use their expertise
Explanation
The disadvantage (that's the key word in this question) is that 'Lisa may unintentionally be
assuming responsibility for the performance of the product'. She's designed the chemical make-
up of the product, so if it turns out that that doesn't work- it's her fault not the supplier's. The
suppliers are literally just copying the conformance specification so can't be responsible for if
that specification isn't quite right. If Lisa was doing an 'output' specification and the supplier's
were creating the chemical makeup of the product themselves, then they would be responsible if
the product failed, and not Lisa. See p.118 for more information on conformance specifications.
What is a BDR (Business Requirements Definition)?
a market analysis technique
an outcome focused procurement strategy
a type of specification
a document that sets out what a product needs to achieve to satisfy all stakeholders
(Correct)
Explanation
A BDR is 'a document that sets out what a product needs to achieve to satisfy all stakeholders'.
This is the starting point for writing a specification. See p. 121
When deciding on a business plan, it is important to assign roles and responsibilities to the
various members of the team. Which of the following are descriptions usually given to these
roles? Select TWO
actionable
responsible
(Correct)
informant
designer
accountable
(Correct)
Explanation
The roles are 'responsible' and 'accountable'. Responsible is the person who will actually perform
the task. Accountable is the person who has overall control and the power to say yes or no. This
forms part of the RACI Matrix on p.17- the other defined roles are 'consulted' and 'informed'
which are less active roles in a business plan.
In a small supermarket, which of the following would be considered a direct cost?

name badges for staff members
the food that is sold
(Correct)
the refrigerators that store the food
the rent of the building
Explanation
Food is a direct cost, the others are all indirect costs. See p.25 for detailed explanation on these
two types of costs- this is a hot topic in the exam
In a marketplace with high exit barriers for suppliers, which of the following is true?
threat of substitution is high
supplier power is weak
threat of substitutions is high
rivalry is intense
(Correct)
Explanation
Where there are high barriers to exit- this can prevent companies leaving the industry even if
there are low profit margins, therefore rivalry is intense as organisations need to gain market
share to break even. An example of an industry with high exit barriers is the airline industry. See
p. 87 for more information
Which of the following is a feature of a monopoly market?
intense rivalry
low profits
high barrier to entry
(Correct)
many substitutes
Explanation
In a monopoly there are high barriers to entry. If you think about it- if there were no barriers to
entry- would that market be a monopoly? If there's only one company operating in the market,
there's a good reason for this- maybe because of government regulations, or because that single
company owns the patent for the product. See p.26 for details on Porter's 5 Forces
Which of the following is a characteristic of a Request for Information?
it is used to short-list suppliers
it does not imply that any procurement will subsequently be made or a contract awarded
(Correct)
it canvasses suppliers for potential solutions when the specification is unclear


it is an invitation for suppliers to bid on specific products or services
Explanation
A Requests for Information does not imply that any procurement will subsequently be made or a
contract awarded. This is a direct quote from p.24. An 'invitation for suppliers to bid on specific
products or services' is the definition of a Request for Proposal and 'it canvasses suppliers for
potential solutions when the specification is unclear' is the definition of Request for Proposal. A
PQQ shortlists suppliers.
When would you use a Purchase Cost Analysis?
to analyse a supplier's profit margin
to estimate how much an item should cost
to evaluate the supplier market
to analyse the cost of individual parts and materials that make up the cost of a purchased item
(Correct)
Explanation
the correct answer is 'to analyse the cost of individual parts and materials that make up the cost
of a purchased item'. This is explained on p.30. A Purchase Cost Analysis will basically break
down an item and assign a cost to each of the bits. So if for example you bought a cake, your
PCA might show: cake = £1, sponge = 70p, icing = 10p and packaging = 20p. It's a way of
understanding your supplier's prices a bit better.
Which of the following is a technique used in problem-solving and can be a useful tool
when developing a business case?
The 5 Whys
(Correct)
STEEPLE
the Kraljic Matrix
Value Engineering
Explanation
The 5 Whys is a problem - solving technique. Basically just ask why until you uncover the true
issue. There's some examples of this on p.13. The other options are all stuff that comes up in M2-
but none of them are 'problem solving techniques'.
The shortage of skilled labour is a key risk to which industry?
construction
(Correct)
financial services
retail
manufacturing
Explanation
The correct answer is construction as this is listed on p.77. There's a very similar question in the
real exam- so remember 'skilled labour' is linked to the construction sector. (Some people would
argue you also need skilled labour in manufacturing, which is a valid point, but as CIPS don't
talk about skilled labour being needed in the manufacturing sector in the study guide, its safest to
stick with construction). p.77
Which of the following are processes undertaken at the market research stage in order to
gain more information from suppliers? Select TWO.
method statements
request for quotation
request for information
(Correct)
plant visits
(Correct)
pricing schedules
Explanation
Requests for Information and Plant Visits are routinely conducted as part of the market research
stage. The other options here form part of the 'tender' stage which comes next. P. 102
A manufacturing company is looking to outsource its customer service department and is
designing the brief. One important aspect that the supplier must provide is a help-desk
function with the ability to answer incoming calls within 3 rings. What type of requirement
is this?
availability requirement

innovation requirement
quality requirement
service requirement
(Correct)
Explanation
This is a 'service requirement' as it describes a service the supplier must perform. Availability
might be about the days/ times the help-desk function is operated, and quality might be about
how happy the customers are when they phone. Innovation could be adopting a new process for
resolving customer complaints. See p.6 for further information on the different types of business
requirements
Which of the following codes can be used to classify an industry?
P+L
ISO
SIC
(Correct)
BS
Explanation
SIC codes is the correct answer- this is short for 'Standard Industry Codes' and details are given
on p.62. You won't need to memorise what codes refer to each industry, but you should have an
awareness of how they work.
Viktor is doing some research on potential new suppliers and his manager has asked him to
check the reliability of the information he has found on the internet. Which of the following
should he check?
that the information is accurate and biased
that the information is outdated and objective
the methodology and objectivity of the information
(Correct)
that the source of the information is outdated
Explanation
The correct answer is 'the methodology and objectivity of the information'. All of the other
answers contain words you don't want your information to be; biased or outdated. This is based
on the SAMOA acronym given on p.126- always check information for; source, audience,
methodology, objectivity, accuracy. This is very similar to a real exam question.
A procurement manager is working with a team of 10 staff to oversee the procurement of a
construction contract to build a new shopping centre. The team is currently pulling
together the scope of the project and key roles and responsibilities for the staff involved.
What is their current activity?
market research stage
creating a Specification
designing an Invitation to Tender


creating a Project Initiation Document
(Correct)
Explanation
This is the creation of the Project Initiation Document. See p.148 for further details on this. It's
the first step in procurement once the market research has been completed and the need has been
identified.
The level of output of a business at which revenue equals total costs is known as what?
purchase price
gross profit
net profit
break even point
(Correct)
Explanation
This is the 'break even point' and is explained on 28. It's not likely that you'll have to actually
work this out in the exam- but you may get a question on the formula so it's worth knowing just
in case.
Sally is a procurement manager who is completing research on the coal industry. She is
looking to work with a coal supplier and has compiled the performance of several suppliers
onto a graph detailing their profits and their total costs from last year. She will then draw
the 'line of best fit' on this graph. What will this show Sally?
the gross profit of the suppliers


the approximate variable costs of the industry
(Correct)
the fixed costs within the industry
the profit margin of the suppliers
Explanation
The 'line of best fit' shows the variable costs of the industry. See p.99 for the graph and
information on this- it's easier to understand how this all works when you see the graph. This did
come up once in the exam. There's not a lot of questions in the exam on chapter 2.3 compared
with 2.1 and 2.2 but this might come up.
Price Analysis is a process of comparing the price paid against a comparator. Which of the
following is a source of price comparator?
competitors
pricing formula
(Correct)
inflation rate
GDP
Explanation
Pricing formulas are one of three 'price comparators'. The other two given in the study guide are
prices previously paid and published prices (e.g. websites and catalogues). P.35
There are three major types of performance specification, which of the following is NOT a
type of performance specification?
outcome specification
statement of work specification
conformance specification
(Correct)
output specification
Explanation
Conformance is the opposite of Performance (in terms of specifications). The other three are the
types of Performance Specification and details of these can be found on p.120
Which of the following is the first stage in a typical ESI (Early Supplier Involvement)
programme?
Establish customer need
(Correct)
Identify a project
Conduct value engineering studies

Engage in supplier workshops
Explanation
Establish customer need is the first step (every other stage depends on the outcome of this one).
See p.129 for the full cycle. Identify a project is step 2, Engage in supplier workshops is step 7
and Conduct value engineering studies is step 8
Software Inc is supplying a new IT system to Company XYZ. It is a new requirement and
so the company is conducting Alpha Beta acceptance testing. Who will take part in the
Alpha testing stage?
end users
buyer's employees
contractor's employees
(Correct)
half of the workforce
Explanation
The contractors' employees do the Alpha testing (this is done during the development stage) and
Beta testing takes place on the buyer's premises and involves their staff using the product in a
real life environment. See p.134 for more details
A specification for a call centre details that all phone calls must be answered within three
rings. What type of specification is this?
outcome
output
(Correct)
technical
conformance
Explanation
This is an example of an output specification, and is the one given in the study guide on p. 120.
Types of specification make up a significant number of the questions on this exam- so it's worth
going over chapter 3.1 in detail before the exam.
A supermarket is struggling with sales and is therefore assessing its strategy to compete in
the marketplace. It has noticed that very few supermarkets offer products that are free of
plastic packaging. The supermarket is therefore considering removing all plastic packaging
from its products in the hopes of attracting more customers. Which competitive strategy is
it using?
focusing on a narrow niche market
stuck in the middle
differentiation
(Correct)
cost leadership
Explanation
This is an example of 'differentiation' - they're doing something different to their competitors.
Cost leadership would be if they were the lowest priced option, and focusing on a niche market
would be if they started targeting a small market, such as only selling gluten free options. 'Stuck
in the middle' is what you get when you don't have any competitive strategy. This is according to
Michael Porter and is explained on p.63
In what way can a procurement manager use value analysis to obtain value for money?
eliminating a non-essential feature of a product
(Correct)
switching suppliers
reduce inventory
consolidate spend to gain bulk buying discounts
Explanation
Value analysis is all about looking at the costs of a product you buy and finding ways to get it
cheaper. Therefore the correct answer is 'eliminating a non-essential feature of a product'. The
other options are things procurement can do, but they don't constitute 'value analysis'. P. 171
The first step of creating a business plan is to address the problem that the business case
will solve. There are two types of problems; open and closed. What is a closed problem?
when something happens that should not have happened
(Correct)
an simple problem to solve
a problem with a yes or no answer


something is stopping the achievement of an objective
Explanation
A closed problem is when something happens that shouldn't have, for example an engine failing
on a car. An open problem is when something is stopping the achievement of an objective or
blocking progress - see p11 for further details
Which of the following are examples of qualitive data? Select THREE
customers' nationality and gender
(Correct)
customers' attitude towards a brand
(Correct)
customers' motivation for buying the product
(Correct)
the price a customer is willing to pay
how many customers purchased the product in the past month
Explanation
The correct answers are; attitude, motivation and nationality/gender. These are all qualitive
pieces of data. This is the opposite of quantative data which is about numerical information.
Number of customers who make a purchase and the price they would pay is numerical data- so is
therefore quantative. see p.23
Jeremy runs a large warehouse, which, for safety reasons, has a fire alarm system fitted.
Jeremy pays a contractor to service this fire alarm system once a year to ensure that it
works correctly. The amount of money this costs is negligible compared to other spend
items within the company. What type of cost is the fire alarm servicing?
variable cost
fixed cost
(Correct)
budget cost
direct cost
Explanation
This is a fixed cost; the cost he pays for the servicing doesn't increase or decrease depending on
the output of the business. See p.98 Budget cost isn't a thing- this is a 'dummy' option.
Which of the following should be completed last when introducing a new product to the
marketplace?
contract acceptance testing
complete the tender
design a specification

operational acceptance testing
(Correct)
Explanation
The final stage is operational testing, which is completed after user acceptance testing (such as
alpha / beta testing) p.134
There are four ways to manage risks, what are these?
trick, treat, tolerate and translate
transfer, translate, transcribe and transcend
tackle, treat, translate and terminate
tolerate, treat, transfer and terminate
(Correct)
Explanation
The four ways to control risks are; tolerate, treat, transfer and terminate (this is on p. 144)
A construction firm has received an invitation to tender for the opportunity to construct a
new bridge. The specification details the reason why the bridge is needed; the local council
need a convenient way for pedestrians to cross a busy road as there have been many road
traffic accidents on this road recently. No further details are given. What type of
specification is this?
technical specification
output specification
(Correct)
outcome specification
conformance specification
Explanation
This is an outcome specification - this is based on the example given in the study guide on p.123.
An outcome specification tells you what is required but not how to achieve it (make a bridge
across this buy road that will stop road traffic accidents). A technical or conformance spec would
tell you how big it needs to be, what materials to use etc. An output specification would describe
what is needed (e.g. a 3m wide bridge) rather than why it's needed (to stop road traffic
accidents). See chapter 3.1 for further details on the different types of specification. It's a BIG
exam topic.
How would you work out the 'target-cost' of a product?
sales price minus profit
(Correct)
work out the maximum price a consumer would pay
sales price minus cost of production
work out the minimum cost a consumer would pay
Explanation
Sales Price - Profit = Target Cost. This is explained on p.32 but, simply put, a 'target cost' is the
cost you need to make the item for. So, for example, if you're selling cupcakes and you know
they'll sell for £1, and you want to make 30P profit per cake- your target cost is 70p. This is the
amount you can spend to make the cupcakes (e.g. on ingredients, electricity for the oven etc).
A University procures textbooks for its students and is looking for ways to increase its
power in the market. Which of the following strategies would increase its strength?
increase the size of the account
(Correct)
send out an Invitation to Tender
use an electronic system for ordering
purchase a substitute product
Explanation
Increasing the size of the account is a way for a buyer to increase their power in the marketplace.
They can do this by consolidating their spend with one single supplier (so the account looks
more attractive) or in the example of the university, they could join up with other universities
and form a Consortium, and pull their collective buying power together. See p.88 for more
information on 'buyer strength'. The other options are generally good ideas, but won't actually
affect their buying power in relation to the marketplace.
A company manager has created this year's budget based on last year's data with predicted
annual increases. What type of budget has been created?
incremental budget
(Correct)
rolling budget

activity based budget
zero-based budget
Explanation
This is an incremental budget. Zero-based is when you start from scratch and don't look at last
year's figures. See p.57
A market structure is determined by which of the following?
geography
profit margins
the level of competition
type of product sold
(Correct)
Explanation
Markets are categorised by the type of products sold- 6 are described in the CIPS study guide on
p.66- these include; manufacturing, agriculture and services.
A company which installs fire alarms has a back stock of fire alarms, however there has
been a change in government legislation which details a newer model must be used as this
improves safety. The company is going to order the newer model from their supplier. What
type of purchase will they make?
modified rebuy
(Correct)

approved supplier list
new purchase
straight rebuy
Explanation
This is a 'modified rebuy' - they're buying a newer version of the same product. The study guide
gives this as an example on p.3
Which of the following are a competitive force that influence the market, according to
Porter's 5 Forces Model? Select THREE.
bargaining power of substitutes
bargaining power of buyers
(Correct)
Rivalry among existing competitors
(Correct)
bargaining power of suppliers
(Correct)
bargaining power of procurement

Explanation
Porter's 5 Forces are; bargaining power of buyers and suppliers, threats of potential new entrants
and of substitutes, and rivalry among existing competitors. This is guaranteed to come up in the
exam so do learn all 5 forces. P.85
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Question 1: Incorrect

it allows the supplier to use their expertise

it does not allow the supplier to use their expertise

it allows for tolerances

it incurs additional costs

they are cheaper than standard contracts

the contract is verbal

lower costs over the whole life of the asset

there is more flexibility to change suppliers if something goes wrong

buyers purchase in small volumes

sellers are more concentrated than buyers

switching costs are low

threat of backwards integration is low

technical specification- quality standards are detailed

output specification- this details what the bridge needs to achieve

output specification- an explanation of why the bridge is required is provided

technical specification - weight and length are provided

to increase profit margins

to use technology to reduce mistakes

the tender will be more expensive to run

there will be poor competition

the tender will take a long time

too many suppliers will bid

yes- this allows high-value savings to be made

no- these items should be procured via e-auction

modified rebuy as it is a different item he is purchasing

new purchase as he has never purchased a tractor before

no- this is not a direct cost, it is a variable cost

no- this is an indirect cost

yes- this is a direct cost because it is a fixed asset

Salary of the Production Line Manager

End-users will need training in the new product

Lisa will get the exact product she requires

Lisa is allowing the suppliers to use their expertise

a market analysis technique

an outcome focused procurement strategy

the food that is sold

the refrigerators that store the food

the rent of the building

threat of substitution is high

supplier power is weak

threat of substitutions is high

high barrier to entry

it is used to short-list suppliers

it canvasses suppliers for potential solutions when the specification is unclear

it is an invitation for suppliers to bid on specific products or services

to analyse a supplier's profit margin

to estimate how much an item should cost

to evaluate the supplier market

the Kraljic Matrix

request for quotation

request for information

that the information is accurate and biased

that the information is outdated and objective

the methodology and objectivity of the information

that the source of the information is outdated

market research stage

designing an Invitation to Tender

creating a Project Initiation Document

break even point

the gross profit of the suppliers

the approximate variable costs of the industry