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CIPS L4M5 Exam Syllabus Topics:
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NEW QUESTION 55
A supplier's mark-up on all products is 25%. Supplier's profit margin is...?
- A. 30%
- B. 75%
- C. 20%
- D. 15%
Answer: C
Explanation:
Explanation
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LO 2, AC 2.1
NEW QUESTION 56
Which of the following are behaviours that builds trust between the buyer and the supplier in business relationship? Select TWO that apply.
- A. Over-inflated contingency funds
- B. Conducting transparent procurement process
- C. Commercial espionage
- D. Allowing supplier to involve in early product development
- E. Tendency to blame other party
Answer: B,D
Explanation:
Trust-building behaviours are as following:
Joint-effort issue resolution
Open sharing of information
Open and honest discussion on root cause of failures
Joint planning focusing on value for money and risk sharing
Commercial transparency and co-proposition of cost reduction and service improvement programmes Joint recognition and celebration of successes
NEW QUESTION 57
Which of the following is a disadvantage of absorption costing method?
- A. Fixedcost allocated to products on the basis of the cost of activities used in producing them
- B. Variable costs are not taken into product final costs
- C. Limited understanding of true costs incurred
- D. Using marginal cost of producing addition units
Answer: C
Explanation:
Absorption costing is an approach to allocating overheads in which indirect costs are loaded or absorbed into direct costs related to specific jobs, processes or outputs, using an estimated basis of allocation.
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NEW QUESTION 58
Which of thefollowing is an objective of proposing phase?
- A. Create atmosphere conducive to agreement
- B. Trade concessions
- C. Start making tentative offers
- D. Check hypothesis and assumptions
Answer: C
Explanation:
In the study guide, CIPS lists 5 stages of an negotiation:
The opening phase: confirm understanding and get the issues on the table. At this stage, both parties should check agenda, authority and create atmosphere conducive to agreement The testing phase is an information gathering stage where the hypothesis and assumptions you have made in the planning stage can be tested and confirmed or disconfirmed The proposing phase: Both sides may start making tentative proposals regarding their offering.
The bargaining phase: Both parties trade concessions; the preliminary stages are over and proposals move from being tentative and general to being more definite and specific.
The agreement and closing phase: both parties should seek agreement or if TOP does not have the final authority, some sort of acknowledgement of what key terms are should be sought.
NEW QUESTION 59
Which of the following are most likely to be fundamentals of Fisher & Ury's principled negotiation?
1. Depersonalise the argument
2. Focuson positions
3. Generate creative options
4. Using subjective criteria
- A. 1 and 3 only
- B. 2 and 4 only
- C. 2 and 3 only
- D. 1 and 4 only
Answer: A
Explanation:
Explanation
Principled negotiation is based on four fundamentals: people, interest, options andcriteria:
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1st Principle: separate the people from the problem: Negotiator should depersonalise the situation and accepting that the subject matter of the negotiation. This can be difficult for untrained negotiators, but this is a key skill to develop
2ndprinciple: focus on interests, not positions: It is important in principled negotiations not to focus on their parties' positions (what are expressed during negotiations), but on the interests (underlying needs) behind them
3rd principle: invent options for mutual gains: this principle aims to help the parties find a solution that both would benefit from. The more options - or tradeables - that can be brought to the table the better.
4th principle: insist on using objective criteria: is about making sure that the negotiation stays focused on outcomes based on objective criteria and that it is productive.
LO 1, AC 1.2
NEW QUESTION 60
A procurement professional is preparing for anegotiation with supplier. She is setting targets for price which her company is seeking to achieve. Which of the following acronyms can help her identify limits before engaging in the negotiation?
- A. MIL
- B. TIMWOOD
- C. RAQSCI
- D. PPCA
Answer: A
Explanation:
MIL criteria indicate 3 limits that negotiator should establish:
M - Must achieve: minimum target/maximum you can concede on this point; the mandatory requirement or fall back position I - Intend to achieve: realistic target you are aiming for on this point L - Like to achieve: stretch target to achieve on this point.
PPCA is purchase cost analysis
TIMWOOD indicates 7 types of waste in Lean principles
The RAQSCI model is a mnemonic summary of a business model used to define and structure business requirements
NEW QUESTION 61
Whenimplementing value analysis or value engineering, which of the following acronyms reminds both buyer and supplier of ideas on removal, substitution and design-out of cost elements?
- A. STOPS WASTE
- B. OWN-IT
- C. SMART
- D. SAMOA
Answer: A
Explanation:
Ray Carter coined the mnemonic STOPS WASTE to remind buyers of 10 cost-reduction ideas they can ask for themselves and their suppliers in any situation when considering a key purchase input. Stop Waste by:
Standardisation - is there a standard specification?
Transportation - is the inbound transport classification appropriate
Over-engineered - is the specification too tight?
Packaging - can packaging be reduced or eliminated?
Substitutes - is there a cheaper substitute material
Weight - is there opportunity to reduce weight of the product?
Any unnecessary processing - is there any unnecessary design or feature?
Supplier's input - are suppliers able to assist with the cost reduction To make - is it more economical to make or buy?
Eliminate - if no one uses the feature, can it be eliminated?
SAMOA is a useful acronym for checking and testing the information gathered from the Internet:
Source
Audience
Methodology
Objectivity
Accuracy
OWN-IT is acronym for 5 steps in the process of collecting and analysing the data andinformation needed in any field:
Outline
Wide search
Narrow search
Increase your stockpile of information
Transform your stockpile into new knowledge
A SMART goal is used to help guide goal setting. SMART is an acronym that stands for Specific,Measurable, Achievable, Realistic, and Time-bound.
NEW QUESTION 62
According French and Raven's base model, which of the following are sources of personal power that can be used in commercial negotiation? Select THREE that apply.
- A. Expert power
- B. Purchasing spend power
- C. Legitimate power
- D. Coercive power
- E. Trademark power
- F. Competitive power
Answer: A,C,D
Explanation:
A useful model of personal power that has survived the test of time and provide a simple way to analyse negotiation in French and Raven's Power BaseModel, which describes six bases of power:
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NEW QUESTION 63
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. Spend analysis
- C. Total cost analysis
- D. Value engineering
Answer: B
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 64
Which of the following is the best description of direct cost?
- A. Direct costs include raw materials, labour and other expenses attributable to the final product
- B. Direct costs include raw materials, labour andoverheads
- C. Direct costs are only variable raw materials that constitute a product
- D. Direct costs include only raw materials and labour of making the final product
Answer: A
Explanation:
Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.
NEW QUESTION 65
Are tactical ploys only used in distributive approach?
- A. No, because tactical ploys will be more effective with integrative approach
- B. Yes, because they will be irritants to long-term relationship
- C. No, because tactical ploys strengthen the other party's position
- D. Yes, because tactical ploys will help to gain insights into the other party's interests
Answer: B
Explanation:
There are many tactics and ploys that can be used to persuade others, particularly those not trained in negotiation. But in generalthese tactics should be used with care, as they can backfire; and in situations where a long-term relationship is desired, they can be, if detected, become an irritant to TOP.
Tactics are particularly effective if and when you are dealing with untrained negotiators, in consumer's buying situation and in once-off encounter.
NEW QUESTION 66
Which of thefollowing are signs indicating that TOP is using coercive power in commercial negotiation?
Select TWO that apply.
- A. Technical expertise
- B. Positive references
- C. Use of guilt
- D. Demonstrating fairness and respect
- E. Withdrawal of benefits
Answer: C,E
Explanation:
Coercive power comes from the belief that a person can punish other for non-compliance, and can be considered as the flip side of reward power. Coercive power rests in the individual's ability to change other people's behaviour through threat,intimidation, use of guilt, ability to embarrass or shame, or withdrawal of benefits,...
NEW QUESTION 67
Which of the following is NOT a barrier to entry in amonopolized market?
- A. A key resource is owned by a single firm
- B. The government gives a single firm the exclusive right to produce some good
- C. The costs of production make a single producer more efficient than a large number of producers
- D. A single firm is very large
Answer: D
Explanation:
Monopolies exist in many markets in real life for very different reasons:
Ownership of a Key Resource: When one company exerts sole control over a resource that is necessary for the production of a specific product,the market may become a monopoly. For example, the only medication deemed acceptable to treat a disease comes from a particular ingredient X, and knowledge of this ingredient X is owned by a single family owned company. The company can, therefore, be saidto have a monopoly over ingredient X that is needed to cure the disease because it is the only company that can produce a product deemed acceptable.
Government Franchise: In certain instances, a monopoly may be explicitly created by the government if it grants a single company, whether private or government-owned, the right to conduct business in a particular market. For example, when a national railways transportation service is created by the government, in most cases they are granted a monopoly on the operation of passenger trains in the country. As a result, other firms are only able to offer passenger train services with the cooperation and/or permission of the government-owned provider.
Intellectual Property Protection: Extending intellectual propertyprotection to a company in the form of patents and copyrights is yet another way in which monopolies are created. When a government does this, it is in fact giving a single company an exclusive right to provide a particular product / service to the market. Patents and copyrights work in providing owners of intellectual property with the right to act as an exclusive provider of a new product for a specific length of time. This creates a temporary monopoly in the market with regards to new products and services.
Natural Monopoly: A market may also become a monopoly simply because it may be more cost-effective for one company to serve the whole market than to have several smaller firms in competition with one another. A company with virtually unlimited economies of scale is referred to as a natural monopoly. Such firms become monopolies due to their position and size, which makes it impossible for new entrants in the market to compete price-wise. Natural monopolies are common in industries with high fixed costsand low marginal costs of operation such as providers of television, telephone, and internet services.
In this question, 'A single firm is very large' is not enough to tell whether this market is monopolistic.
NEW QUESTION 68
Representatives from South African Department of Health is negotiating the price of hospital drugs with US pharmaceutical companies. Which of the following are most likely to be macro factors that influence the outcomes of the negotiation? Select TWO that apply.
- A. Regulations on health and safety
Switching costs of buyer - B. Forward integration
- C. Order quantity
- D. Digitalisation of medicine
Answer: A,D
Explanation:
Explanation
All one-to-one commercial negotiations between a specific purchaser and a specific supplier take place within an industrial market and a larger business environment characterised by multiple forceswhich both parties typically have little control over. STEEPLE framework highlights the 6 main external influences on a business:
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Particularly, pharmaceutical industry is a heavily regulated sector, therefore, legal and regulatory matters in theindustry is highly important. Otherwise, technological trends also permeate into pharmaceutical companies, technologies like digitalisation may transform the balance of power in such negotiation.
LO 1, AC 1.3
NEW QUESTION 69
Which of the following should be done when undertaking a reflection activity on negotiation? Select TWO that apply.
- A. Gloss over areas where you need to improve your skills or performance
- B. Be honest and objective about your skills
- C. Use generalised or ambiguous language when describing your strengths and development areas
- D. Identify areas in your skill set where you need to improve
- E. Be overly modest about your contribution to the outcomes of negotiation
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 70
When prices of input materials increase, supply curve shifts to the left while demand remains stable. The shift of supply will tend to cause which of the following?
- A. A decrease in the equilibrium price and an increase in the equilibrium quantity
- B. An increase in the equilibrium price and a decrease inthe equilibrium quantity
- C. An increase in the equilibrium price and quantity
- D. A decrease in the equilibrium price and quantity
Answer: B
Explanation:
The case in the question is illustrated as below:
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The equilibrium price initially at P0 with quantity Q0, when supply curve shifts to the left, it will converge with demand curve at new equilibrium pointwith price P1 and quantity Q1. As you can see from the graph, P1 is greater than P0 and Q1 is smaller than Q0.
NEW QUESTION 71
Which of the following best describes Leverage quadrant in Kraljicmatrix?
- A. High value, high complex
- B. Low risk, high importance
- C. High complex, low importance
- D. Low risk, low importance
Answer: B
Explanation:
Explanation
In 1983, Peter Kraljic devised a means to segment the supplier base in the article in HBR. In this, heargued that supply items should be mapped against two key dimensions: risk and profitability.
Risk relates to the likelihood for an unexpected event in the supply chains to disrupt operations. For instance, in important areas of spend, such as tire suppliers for an automotive are business critical, and should a disruption occur, the auto company is likely itself to face substantial problems.
Profitability describes the impact of a supply item upon the bottom line. For certain areas of spend, such as stationery, supplies have only a negligible effect on profits. In other categories, a single source of supply can make or break a business.
Putting these two dimensions together yields a classic two-by-two matrix.
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Source: Peter Kraljic, HBR
NEW QUESTION 72
Which of the following are most likely to be characteristics of a perfectly competitive market? Select TWO that apply
- A. There are many buyers and sellers in the market
- B. Firms can freely enter or exit the market
- C. In a perfectly competitive market, each seller has a large impact on the market price A perfectly competitive market consists of products that are all slightly different from one another
- D. In a competitive market, both buyers and sellers areprice givers
Answer: A,B
Explanation:
Explanation
A perfectly competitive market is one with the following features:
- There are many firms producing identical or very similar (homogeneous) goods or services
- There are no barriers toentry to the market or exit from the market - anyone can enter or leave easily
- Both producers and customers have perfect knowledge of the market place, prices, costs of production and influences on demand and supply Under these conditions, the price andquantity will always tend toward equilibrium as any producer that sets a price above equilibrium will not sell anything at all, and any producer that sets a price below a equilibrium will obtain 100% market share in theory. The demand curve is perfectly elastic, which means that it will be horizontal. In a perfectly competitive market, it is difficult to increase profits through pricing, and suppliers instead must focus on their cost structure. As these conditions imply, there are few if any examples of perfectly competitive market.
LO 2, AC 2.2
NEW QUESTION 73
Which of the following are most likely to be the potential cultural differences that can make transactions with an international supplier more problematic that with local suppliers? Select TWO that apply.
- A. Incoterms and logistics difficulties
- B. The use and interpretation of body language
- C. Currency exchange fluctuation
- D. The importance of timescales
- E. Payment mechanism
Answer: B,D
Explanation:
Explanation
The question requires student to detect factors of cultural differences. Problems may occur on the international scene with such things as the importance of extending courtesy between cultures, the importance of timescales, the use of negotiating ploys, the sense of 'fair play', the use and interpretation of body language, the role of women in negotiations (or indeed, in business in general), the importance of status, the role of conflict, standards of dress and deportment and the readiness to ignore or uphold contract terms and conditions.
LO 3, AC 3.3
NEW QUESTION 74
It may be more difficult to buy on a credit from supplier who locates in a country with a hyperinflation? Is this assumption true?
- A. No, because the higher the inflation rate, the stronger the supplier's currency
- B. No, because supplier's bank will take risks from currency fluctuation
- C. Yes, because thesupplier's currency will lose its value overtime
- D. Yes, because buyer has more advantage if they make payment in their own currency
Answer: C
Explanation:
If theinflation rate is running high, then obtaining credit as a buyer is normally more difficult or expensive as money in the future will be worth less than money today.
NEW QUESTION 75
Which of the following is the most appropriate pricing arrangement in contracts where major inputs are commodities?
- A. Price adjustment mechanism
- B. Fixed pricing arrangement
- C. Standard schedule of rates
- D. Cost reimbursable pricingarrangement
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 76
Which of the following are most likely to help buyer become preferred customer in supplier's perspective?
Select TWO that apply.
- A. Compliance with agreed repair lead time
- B. Shorter payment period
- C. Onerous supplier terms and conditions
- D. Ensuring an increased number of repeat orders
- E. Reduction in delivery errors
Answer: B,D
Explanation:
Explanation
Becoming a preferred customer to supplier's perspective can increase the purchaser's leverage in negotiation.
Beside the size of buying organisation or its spend, the following may be sufficient to differentiate the buyer from other buying organisations:
- Simple procurement processes
- Simple contracting processes
- Clear and concise documentation
- Absence of onerous supplier terms and conditions (onerous supplier terms and conditions mean that obligations imposed on suppliers are greater than their gains)
- On-time payment: The reduction in hassle for both supplier and the buyer, if bills are paid on time, is significant. From the customer's perspective it could also be the opener to agreeing preferential payment terms. A supplier may weigh up that payment on time at 60 days is worth taking, over the current 30-day terms that slip to 90 days and beyond.
-Transparent processes
- Ethical behavior
LO 1, AC 1.3
NEW QUESTION 77
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. No, because the supplier may need to invest in new facility to meet buyer's demand
- C. Yes, because larger order quantity will always enable the supplier to reach its economy of scale
- D. Yes, because larger order quantity will bring a considerable profit to supplier
Answer: B
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 78
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