CIPS L4M2 Defining Business Needs Online Training

Question #121

Which of the following is the purpose of benchmarking?

A . To identify and adapt the best practices to improve organisation’s performance
B . To copy other organisation’s intellectual properties, processes and practices
C . To coerce all suppliers to sacrifice their profit
D . To resist continuous improvement

Question #122

A CPO is analyzing whole life cycle costing of a machinery. He realises that cost elements are not specific but come from a range of values.

Which whole-life costing model should the CPO use to get the most accurate total cost of ownership?

A . Simulation models
B . Optimisation models
C . Decision support models
D . Kraljic’s preferencing model

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Question #123

Which of the following statements is true about product life cycle?

A . The price remains static throughout the product life cycle
B . The price competition will be the fiercest at the declining stage because the inventories are plentiful
C . If price skimming is adopted, the supplier will gradually lower the price when it attracts enough buyers
D . Sale volume will be the highest at the introductory stage

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Correct Answer: C
C

Explanation:

A product’s life cycle portrays the length of time a product is in the market; from the beginning of its introduction to consumers until it is removed from shelves and phased out. This cycle is often divided into four phases: introduction, growth, maturity, and decline. Depending on the relevant stage, companies will set an according strategy to achieve their desired targets. Pricing and promotions play a pivotal role in the design of these product life cycle strategies. Therefore, product life cycle management, the process of strategizing ways to continuously support and maintain a product, is seen more and more at pricing mature players and could bring real value to your company. Introduction phase: during the introduction phase, the new product is introduced to consumers and a substantial amount of money is invested in advertising and marketing campaigns to bring awareness of the product to the customer. In this phase competition is low, but units sold will also correspondingly be quite low as well still. Consumers need to be convinced of the benefits of the product. Lots of articles never make it beyond this phase: e.g. 3D televisions.

Profits in the introduction stage tend to be low or there may even be a loss. This is because the cost of marketing to establish product awareness plus distribution costs can be far higher than the revenue received from sales. This can be offset to a degree by ‘skimming’ price in the very early stages. Skimming a price is where a business charges the highest price that it thinks the market will bear initially until product recognition brings in other buyers and then the price drop.

Growth phase: when it’s shown there is proven demand for the product and consumers are buying it, the next stage will be its growth phase. This phase is punctuated by increasing demand, increasing production and an increase in the competitive landscape. Availability of the product is understandably paramount during this phase, going out of stock is unthinkable during the growth period. The electric car is an example of a product that is currently in the midst of the growth phase. Maturity phase: normally the maturity phase is the phase that is characterized by declining production and marketing costs due to synergies and economies of scale. During this phase the first signs of market saturation occur and most consumers or households already own the product. Sales numbers still grow, but at a slower pace. In the maturity phase, price competition becomes intense, a broader range of distribution channels are deployed and competition is more focused on competitive pricing, marginal product differences or the difference in services or promotions. This period in the PLC is often said to be the ‘cash-cow period’.

That being said, the idea of ‘Maturity from the start’ also exists. This occurs when a brand decides to launch a product extension and directly follows up the maturity phase of an earlier version of the product. For example, the iPhoneX followed up from the ‘normal’ iPhone-series and therefore the iPhoneX never had to undergo the introduction or growth phase, but immediately started in its maturity phase.

Decline phase: the final phase of the PLC is entered once the product loses market share to other, newer products and the competitive landscape becomes too hard to survive. During this stage, de-mand declines, companies are left with overstock with prices and margins getting depressed.

Therefore retailers and brands normally start stunting with promotions during the decline of the PLC to sell their final stock.

A well-known example of a product that has been through the decline phase were the Nokia phones; sales results dramatically decreased after the introduction of the iPhone.

Reference: – CIPS study guide page 90

– Adjusting your Pricing Strategy to the Product Life Cycle Stage (omniaretail.com)

– Price Skimming Definition (investopedia.com)

LO 2, AC 2.2

Question #124

A hospital extensively spends on medical and implantable devices, medical, surgical and pharmaceutical supplies, costs of supplies related to buildings and maintenance operations. Hospital’s procurement manager suggests that the hospital has an opportunity to reduce operational costs by reducing variation of medical devices and pharmaceutical supplies.

Which of the following best describe the procurement manager’s suggestion?

A . Process standardisation
B . Product standardisation
C . Value engineering
D . Process re-engineering

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Question #125

A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can’t be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier’s costs plus 10% markup on total costs.

This arrangement is known as…?

A . Cost-plus fixed-fee
B . Cost-plus award fee
C . Cost-plus incentive fee contracts
D . Cost-plus Fixed percentage

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Question #125

A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can’t be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier’s costs plus 10% markup on total costs.

This arrangement is known as…?

A . Cost-plus fixed-fee
B . Cost-plus award fee
C . Cost-plus incentive fee contracts
D . Cost-plus Fixed percentage

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Question #125

A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can’t be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier’s costs plus 10% markup on total costs.

This arrangement is known as…?

A . Cost-plus fixed-fee
B . Cost-plus award fee
C . Cost-plus incentive fee contracts
D . Cost-plus Fixed percentage

Reveal Solution Hide Solution

Question #125

A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can’t be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier’s costs plus 10% markup on total costs.

This arrangement is known as…?

A . Cost-plus fixed-fee
B . Cost-plus award fee
C . Cost-plus incentive fee contracts
D . Cost-plus Fixed percentage

Reveal Solution Hide Solution

Question #125

A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can’t be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier’s costs plus 10% markup on total costs.

This arrangement is known as…?