ENRICHING PROCUREMENT MINDS

LEVEL 4 DIPLOMA REVISION QUESTION

L4M5 - COMMERCIAL NEGOTIATION

Q1. Which of the following are sources of conflict that are likely to arise in a negotiation
process? Select THREE that apply

a. Price
b. Communication
c. Payment terms
d. Clear processes
e. Risk share
f. Use of contract terms

Q2. An organisation has encountered a conflict with one of its critical suppliers. According to
the organisation’s procurement, the conflict is caused by poor quality materials that the
supplier has been providing. According to the information above, what is the most suitable
approach the procurement manager can use to resolve conflict?

a. Avoid the issue as the materials provided does not affect the organisation’s reputation
b. Take the matter to be resolved by the court straight away as the supplier will never
provide high quality materials
c. Take some discussions with the supplier to identify ways in which the issue can be
resolved
d. Switch to an alternative supplier who can provide better quality materials

Q3. In which of the following situations is a position-based negotiation suitable to be used by

the parties in a negotiation?

1. Critical product with high market complexity

2. Low-value product with an ease of switching
3. Supplier is ahead of others in terms of technical expertise
4. The supply contract is a one-off requirement of insignificant value
 a. 1 and 3 only
b. 2 and 4 only
c. 2 and 3 only
d. 1 and 4 only

Q4. Giving away something valuable in a negotiation refers to...

a. Accommodating
b. Compromising
c. Bargaining
d. Accepting

Q5. Stakeholder engagement is always necessary in every negotiation. Is this statement

correct?

a. Yes, stakeholders may be able to provide technical knowledge not available from the
procurement perspective
b. No, involving stakeholders may delay the negotiation as it may take long to make urgent
decisions
c. No, stakeholders do not have any negotiating expertise and they may make negotiation
impossible
d. Yes, stakeholder may be required as they may be able to persuade the supplier to
reduce its costs

Q6. In contract management, payments and use of incentive ensures which of the following?

1. Improved performance
2. Competitive benchmarking
3. Supplier motivation
4. Customer loyalty

a. 1 and 4 only
b. 2 and 3 only
 c. 3 and 4 only
d. 1 and 3 only

Q7. Actions taken by the buyer to improve supplier’s capacity, capability and performance is
known as:

a. Supplier relationship management

b. Supplier development
c. Supplier contract management
d. Contract variation

Q8. Providing training and preparation in the pre-negotiation phase is an important step to achieving a
positive negotiation outcome. Training and preparation should encompass which of the following
elements? Select THREE that apply.

a. Formulating an effective company strategy and stakeholder requirements

b. Understanding the role of team members as well as their expected contribution
c. Researching about the supplier’s negotiation tactics
d. Providing a brief to the team about the objective of the negotiation
e. Providing insight on the tactics to be used by the team
f. Checking the supplier’s negotiation history and track record

Q9. When undertaking high risk and high value negotiation, a high skilled and experienced negotiation
team is required for which of the following reasons. Select TWO that apply.

a. Good governance due to the availability of witnesses

b. Reduction of negotiating time and effort
c. The need to balance with the number of the supplier team
d. All areas of expertise will be covered and available when required
e. It helps put the supplier negotiation team under pressure

Q10. A buyer is seeking to use a conflict management style which takes into account its own concerns
and those of the supplying organisation. Is ‘accommodating’ the right conflict management style to use
in this situation?

a. Yes, accommodating recognise the mutual ground between the two parties in a negotiation
 b. No, accommodating will lead to the buyer ignoring its concerns at the expense of those of the
supplier
c. Yes, accommodating helps in keeping both satisfied and makes the relationship last longer
d. No, accommodating cannot be used as a means of resolving conflict between the parties

Q11. A buying organisation is about to enter into a negotiation meeting with one of its strategic
suppliers. They are seeking to reach an agreement for the supply of a raw material which is critical to the
buyer’s operation process. Both parties have agreed to use a negotiation approach which will allow
them to focus on areas of common ground and mutual benefits. Is distributive negotiation the right
approach to be used by the parties?

a. No, distributive approach use relative power to gain advantage at the expense of the other
b. Yes, distributive approach is all about expanding the pie and providing a wide range of possible
solutions
c. Yes, distributive approach focus more on the problem itself and how it can be solved
d. No, distributive can only be used where the buyer deals with the supplier of bottleneck items

Q12. A definition of a commercial negotiation is that it is aimed at achieving which ONE of the following?

a. Compromise
b. Concession
c. Savings
d. Agreement

Q13. Which ONE of the following conditions is typical of a collaborative negotiation?

a. Both parties must understand each other’s goals

b. All parties must have the same goals
c. The buyer must allow the supplier to achieve their goals
d. One party is prepared to accommodate the other

Q14. Which ONE of the following is the best example of a BATNA (best alternative to a negotiated
agreement)?

a. A concession is made by the buyer

b. An unachievable marker is replaced by the supplier
c. A walk-away point is reached b the buyer
d. An alternate supplier is available
Q15. Most negotiations require the buyer to be having an alternative for in case the negotiation doesn’t
go as planned, normally called best alternative to the negotiated agreement (BATNA). Which of the
following is not an advantage of having a best alternative to the negotiated agreement?

a. BATNA allows the supplier to use coercive tactics on the buyer to ensure the buyer end up
agreeing to any available
b. BATNA allows the buyer to stand up to its own interest and need throughout the negotiation
process
c. BATNA enables the buyer to make a switch where never the supplier proves in competent
before the deal is made
d. BATNA allows the buyer to identify other cost-efficient sources of supplier

Q16. Which of the following are the elements of a principled negotiation that both parties should take
into account to establish a long term working relationship?

1. Separate people from the problem

2. Use of bargaining power to extract the best value
3. Focusing more on positions rather than the interest of the parties
4. Devising many options for mutual gains before deciding what to do

a. 1 and 3
b. 2 and 3
c. 2 and 4
d. 1 and 4

Q17. Distributive negotiations are most typically associated with which ONE of the following?

a. Purchasing items where both parties gainshare the rewards equally

b. Purchasing a limited source of items through an auction against other buyers
c. Purchasing innovative items where both parties share the risk equally
d. Purchasing items from a strategic long-term supplier

Q18. A collaborative negotiation requires both parties to devise a range of options that will be useful in
identifying a mutually beneficial solution. Which of the following may be the obstacles to identifying the
options for problem solving? Select the TWO that apply.
 1. Researching more about the problems and the concerns of the other party
2. Taking the final decisions without considering other possible options
3. Asking effective question to gain clarity on what the other party’s position is
4. Using power to limit the options generated by the other party

a. 1 and 2 only
b. 2 and 3 only
c. 2 and 4 only
d. 1 and 3 only

Q19. In a collaborative negotiation the ideal outcome is...

a. Win-win
b. Win lose
c. Lose-lose
d. Perceived win-win

Q20. Which of the following is a benefit of team negotiating compared to negotiating individually?

1. Ability to influence the other party

2. Ease of choice of location between the parties
3. Involvement of wider range of experts
4. Enhanced decision making

a. 1 and 2 only
b. 2 and 4 only
c. 1 and 3 only
d. 3 and 4 only

Q21. Which of the following are the sources of personal power in a negotiation? Select the THREE that
apply.

a. Reward
b. Perception
c. Tactics
d. Legitimate
 e. Expert
f. Skill

Q22. Which of the following describes the power that arises from an individual’s high levels of skills and
knowledge?

a. Legitimate power
b. Reward power
c. Expert power
d. Resource power

Q23. A logistics company has a preferred supplier for the replacement of its vehicle fleet. The preferred
supplier knows it is the only organisation that can meet the logistics company’s needs, in terms of the
type of vehicle required the volume of vehicles required and in the timescales required. Which ONE of
the following would be a BATNA (best alternative to a negotiated agreement) for the logistics company
to use as leverage in the negotiation?

a. To specify smaller vehicles from another supplier and recruit more drivers
b. To buy one year old vehicles from a competitor which has just gone into liquidation
c. To threaten to reduce the number of vehicles it wants to buy from the supplier
d. To cancel the order altogether and carry out more regular maintenance on the ageing vehicle
fleet

Q24. Which of the following may enhance the buyer’s attractiveness to the supplier organisation? Select
the TWO that apply.

a. On time payments
b. Infrequent transactions
c. Ethical dealings
d. Use of power
e. Clear and concise documentation
f. Fraudulent behaviour

Q25. Which ONE of the following is a characteristic of an arm’s length relationship between two parties?

a. Transparency and openness

b. High level of interdependency
c. Infrequent and long distant dealings
 d. High levels of trust

Q26. A category manager is having an unsuccessful negotiation with a supplier, and it has decided to
adopt a different approach to the negotiation. The category manager reminds the supplier of its
contractual obligations and says ‘if we cannot reach agreement here today’ do not forget that i can
serve notice to terminate the contract. This is an example of which type of power?

a. Coercive
b. Expertise
c. Reciprocity
d. Reward

Q27. A procurement professional is able to influence the outcome of a negotiation due to their superior
knowledge and because they have threatened to cancel the contract if they are unhappy with the
outcome. Which of the following sources of personal power are being used?

1. Reward power
2. Referent power
3. Coercive power
4. Expert power

a. 1 and 2 only
b. 2 and 3 only
c. 3 and 4 only
d. 1 and 4 only

Q28. In which ONE of the following situations will a collaborative negotiation be most suitable to be
used by the parties?

a. Generic products which there are many suppliers

b. Products characterised with high market complexity and scarcity
c. Discussions undertaken with a supplier who seems to be lacking ethics
d. Low risk and low value products

Q29. Which of the following are examples of direct costs for a manufacturing organisation? Select the
TWO that apply.
 a. Raw materials
b. Maintenance repair and operating (MRO)
c. Stationery
d. Salaries of directors
e. Salaries of production staff

Q30. Costs that are affected by the change in level of output are known are known as...

a. Fixed costs
b. Step costs
c. Indirect costs
d. Variable costs

Q31. Which of the following are characteristics of fixed costs that are incurred by an organisation? Select
the TWO that apply.

a. Are not affected by the level of output

b. They never increase for the entire organisational life
c. Must be paid even if there in zero activity
d. Are affected by the activity of the organisations assets
e. Do not affect a company which engages in international sourcing

Q32. A supplier has provided a breakdown of its costs, which comprises of $250 000 fixed costs and $75
per unit variable costs. Its total cost for product X amount to $800 000. It determines its pricing based
on applying a fixed profit percentage of 25% of these costs, so the price is $1 million. The 25% profit is
known as...

a. Margin
b. Absorption
c. Mark-up
d. Costed

Q33. Costs that cannot be attributed to a specific unit of the organisation’s output are known as which
ONE of the following?

a. Fixed costs
b. Indirect costs
c. Variable costs
 d. Direct costs

Q34. ‘Materials not used in production process’ and ‘salaries of organisation’s directors’ are examples of
which ONE of the following?

a. Indirect costs
b. Labour costs
c. Budgeted cost
d. Step costs

Q35. The supplier’s break -even point is reached when its revenues exceed which of the following?

1. Opportunity costs
2. Total fixed costs
3. Variable production costs
4. Equity costs

a. 1 and 3 only
b. 2 and 3 only
c. 3 and 4 only
d. 1 and 2 only

Q36. Understanding the supplier’s profit margins in a negotiation is a useful piece of information as it
identifies the profitability of the contract in relation to the supplier’s costs. Is this statement TRUE?

a. Yes, a positive profit margin means the supplier is breaking even as a company
b. Yes, it expresses profit as a percentage of costs
c. No, the profit margin relates to the supplier’s general overheads
d. No, it relates to the amount of profit made in relation to the price

Q37. During a negotiation, unethical use of power to squeeze the supplier’s profit may, in the long-term,
affect which of the following?

1. Competitor pricing
2. Sustainability
3. Continuity of supply
4. Immediate lead times
 a. 2 and 3 only
b. 1 and 4 only
c. 3 and 4 only
d. 1 and 2 only

Q38. TBRF Manufacturers is a global leading vehicle manufacturing organisation based in Germany. It
prides itself on manufacturing of fancy cars which its supply to customers around the world. Due to a
high demand of their products, TBRF Manufacturers management sees it fit to charge very high prices
which are not connected with its cost structures. Their costs are based on the reputation of their
company and customer perception of product superiority. Which ONE of the following pricing strategy is
TBRF Manufacturers using?

a. Premium pricing
b. Skimming
c. Penetration
d. Promotional pricing

Q39. Which of the following are the factors that determine demand for a good or service provided by an
organisation? Select the TWO that apply.

a. Price
b. Weather activities
c. Necessity of the item
d. Government regulations
e. Competitor activity

Q40. A situation in the market where there are no shortages or surplus is known as...

a. Satisfaction level
b. Equilibrium point
c. Break-even point
d. Profitability point

Q41. Which of the following are features of a ‘perfect competition’ type of market?

1. Differentiated products supplied

 2. Homogenous product provided b many supplier
3. Restricted knowledge and information about the market
4. No barriers to entry for new suppliers

a. 2 and 4 only
b. 1 and 4 only
c. 2 and 3 only
d. 1 and 2 only

Q42. Which of the following ways can allow the buyer to deal with a monopoly supplier in a beneficial
manner?

a. Use market power to negotiate lower prices

b. Make yourself an attractive buyer
c. Coercing the supplier and threatening to walk away from the deal
d. Making late payments to the supplier to frustrate him

Q43. Which of the following are examples of macroeconomic factors that the buyer must take into
account when negotiating with a supplier?

1. Competitor prices
2. Inflation rates
3. Industrial activity
4. Unemployment rate

a. 1 and 2 only
b. 2 and 3 only
c. 3 and 4 only
d. 2 and 4 only

Q44. In distributive negotiations, the parties use their bargaining powers to get the best deal at the
expense of the other party. This type of negotiation is characterised by both parties being too structured
to achieve what they have outlined in their pre-negotiation planning and preparation. This approach is
more likely to results in deadlocked negotiation where the parties can no longer reach any further
agreement. Which of the following are the measures to be used by the parties in unlocking a deadlocked
negotiation?
 1. Avoid taking any break until the parties reach an agreement that favours all
2. Bring in a third party such as the user of the product to alter the dynamic of the meeting
3. Have a good understanding of the common ground and where they may have been a
misunderstanding
4. Terminate the negotiation and move on the best alternative to a negotiated agreement

a. 1 and 2 only
b. 1 and 3 only
c. 2 and 4 only
d. 2 and 3 only

Q45. After a successful negotiation, the lead negotiator and his superior agree on having a pre-
negotiation evaluation as the both believe this will be a perfect approach to measure their negotiation
performance and achievement of intended objectives. Will this be necessary?

a. Yes, because pre-negotiation evaluation will allow them to assess how far they have been
successful
b. No because the negotiation has already been done and dusted it can only be used for the next
negotiation
c. Yes because it allows them to know what went wrong in the negotiation for future lessons
d. No , because pre-negotiation can only be used before the negotiation to assess the
approaches and preparedness of the negotiating team

Q46. In negotiation procurement organisation will generally have more power with a supplier that is in a
monopolistic position in a market. Is this statement true?

a. No, because the supplier might not have enough capacity

b. Yes, the buyer will have several suppliers to choose from
c. No, the supplier is in a market dominant position
d. Yes, as long as buyer runs a competitive tender

Q47. Which of the following are the benefits for the buyer of having a clear negotiation strategy?

1. Expected negotiation outcome are clearly defined and understood

2. Delays decision making process
3. Reduces process flexibility where changes are required
4. Negotiation boundaries are clearly defined
 a. 1 and 4 only
b. 2 and 3 only
c. 1 and 3 only
d. 3 and 4 only

Q48. . Which of the following are the important points to consider when developing a negotiating
strategy?

1. Consulting with key stakeholders to understand what their long term plans are
2. Focusing more on short term gains rather than in the long term growth
3. The mission and vision of the organisation
4. The tactics normally adopted by the organisation in their negotiation processes

a. 1 and 2 only
b. 2 and 3 only
c. 1 and 3 only
d. 2 and 4 only

Q49. Before entering into a long term relationship with a particular buyer, the supplier determines the
attractiveness of the buyer which will influence a smooth flow of business between the two parties.
Which of the following factors influences a buyer’s attractiveness? Select THREE that apply.

a. The ability to provide sensitive information without worry

b. Willingness to pay invoices well in time
c. Willingness to provide larger business volumes to the supplier business
d. Doing business with many other suppliers
e. A buyer providing a strong brand that supplier is willing to be associated with
f. Having a reputation of contract braches from other contracts

Q50. CRANVET Limited is a supplying company mainly supplying many of its customers with raw
materials to use in their production operations. They are set to enter into a negotiation with DIAMOND
Investments to negotiate a new deal worth millions. CRANVET Limited negotiating team are assessing
the buyer organisation to find the suitable approach to use during the negotiation. In their conclusion,
they found out that DIAMOND Investment will be providing consistent larger volumes of business
throughout their agreement also with the possibility of negotiating other more valuable contact.
However, DIAMOND Investment has a bad history of failing to pay their suppliers on time. What is the
most suitable approach that CRANVET Limited is likely to use?

a. Try to minimise the volume of business that CRANVET Limited will offer to DIAMOND
Investments
b. Exploit the opportunity by charging higher price to get the best out of the deal
c. Develop the relationship with DIAMOND Investments
d. Enter into a partnership with DIAMOND Investment

Q51. Which of the following are examples of warm negotiation styles that can be used by the parties in a
negotiation? Select the TWO that apply.

1. Good listener
2. Desire to achieve gains at one another’s expense
3. Relating to people well
4. Strongly standing for one’s concerns

a. 2 and 4 only
b. 1 and 3 only
c. 3 and 4 only
d. 2 and 3 only

Q52. CRANVET Limited is a supplying company mainly supplying many of its customers with raw
materials to use in their production operations. They are set to enter into a negotiation with DIAMOND
Investments to negotiate a new deal worth millions. CRANVET Limited negotiating team are assessing
the buyer organisation to find the suitable approach to use during the negotiation. In their conclusion,
they found out that DIAMOND Investment will be providing consistent larger volumes of business
throughout their agreement also with the possibility of negotiating other more valuable contact.
However, DIAMOND Investment has a bad history of failing to pay their suppliers on time. What is the
most suitable approach that CRANVET Limited is likely to use?

a. Try to minimise the volume of business that CRANVET Limited will offer to DIAMOND
Investments
b. Exploit the opportunity by charging higher price to get the best out of the deal
c. Develop the relationship with DIAMOND Investments
d. Enter into a partnership with DIAMOND Investment
Q53. Conflict might arise between two negotiating parties due directly to which of the following? Select
TWO that apply.

a. Regular communication
b. Personality clash
c. Different perceptions
d. Partnership working
e. The need to summarise

Q54. Can closed questions be useful in a negotiation?

a. Yes, because they can encourage detailed responses

b. No, because closed questions only gather opinions
c. Yes, because they are good to check understanding
d. No, because open questions should always be asked

Q55. Which of the following are stages of the negotiation process? Select the THREE that apply.

a. Questioning
b. Preparation
c. Bargaining
d. Investigating
e. Rehearsing
f. Testing

Q56. Why is sharing of information a key part of achieving a win/win outcome from the negotiation?
Select TWO that apply.

a. It builds mutual trust as each party will return the trust shown in them by the other party
b. It gives the supplying party important information to negotiate a longer contract term
c. It allows both parties to offer solutions that will help solve the other parties’ issues
d. It allows the buyer to improve its specifications to get better offers from other suppliers
e. It gives the buying party important information that it can use to negotiate lower prices

Q57. Which of the following are recognised forms of non verbal communication? Select the THREE that
apply.

a. Hand gestures
 b. Informal communications
c. Body posture
d. Short presentations
e. Facial expressions
f. Complex messaging

Q58. . Which of the following are examples of ‘open’ questions?

1. How many of the deliveries per week will be made

2. How do you plan to meet our requirements for the new product
3. Will you be able to generate 10% savings we need within the timescales
4. What might be the impact of the weather on your delivery performance

a. 1 and 3 only
b. 2 and 3 only
c. 2 and 4 only
d. 1 and 4 only

Q59. Which of the following are types of questions that are useful to obtain comprehensive detailed
answers from the other party that will also include their own opinions and thoughts? Select the TWO
that apply.

a. Open
b. Probing
c. Leading
d. Narrow
e. Closed

Q60. Which approach to conflict resolution describes a situation where the buyer is cooperative but
attempts to stand up for its own interests?

a. Competing
b. Accommodating
c. Collaborating
d. Compromising