CIPS L4M2 Defining Business Needs Online Training
CIPS L4M2 Online Training
The questions for L4M2 were last updated at Nov 22,2024.
- Exam Code: L4M2
- Exam Name: Defining Business Needs
- Certification Provider: CIPS
- Latest update: Nov 22,2024
A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in specification are higher than ISO standards, her company can achieve greater cost-savings.
Is the procurement manager’s opinion correct?
- A . No, because higher specification may incur additional costs for the buyer
- B . No, because higher requirements in specification, the greater bargaining power of buying organisation
- C . Yes, because optimising the specification is the only method to achieve value for money
- D . Yes, because higher requirements will help buying organisation find the best supplier
A
Explanation:
The specification that is produced too detailed will incur unnecessary cost because it does not allow suppliers to use their expertise in finding the most efficient way to produce it. ‘No, because higher requirements in specification, the greater bargaining power of buying organi-sation’: more detailed specifications could tighten the supplier base and potentially leave buying organisation with fewer potential supplier. This may reduce buyer’s bargaining power in negotia-tion.
‘Yes, because higher requirements will help buying organisation find the best supplier’: in some circumstances, higher requirements will lead to smaller supplier base. In the worst scenario, there is no supplier who has capability to carry out those requirements
‘Yes, because optimising the specification is the only method to achieve value for money’: There are other methods to achieve cost saving and value for money, inter alia, volume concentration, relationship restructuring, etc.
Reference: CIPS study guide page 118-119
LO 3, AC 3.1
A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in specification are higher than ISO standards, her company can achieve greater cost-savings.
Is the procurement manager’s opinion correct?
- A . No, because higher specification may incur additional costs for the buyer
- B . No, because higher requirements in specification, the greater bargaining power of buying organisation
- C . Yes, because optimising the specification is the only method to achieve value for money
- D . Yes, because higher requirements will help buying organisation find the best supplier
A
Explanation:
The specification that is produced too detailed will incur unnecessary cost because it does not allow suppliers to use their expertise in finding the most efficient way to produce it. ‘No, because higher requirements in specification, the greater bargaining power of buying organi-sation’: more detailed specifications could tighten the supplier base and potentially leave buying organisation with fewer potential supplier. This may reduce buyer’s bargaining power in negotia-tion.
‘Yes, because higher requirements will help buying organisation find the best supplier’: in some circumstances, higher requirements will lead to smaller supplier base. In the worst scenario, there is no supplier who has capability to carry out those requirements
‘Yes, because optimising the specification is the only method to achieve value for money’: There are other methods to achieve cost saving and value for money, inter alia, volume concentration, relationship restructuring, etc.
Reference: CIPS study guide page 118-119
LO 3, AC 3.1
Competitors are increasingly deploying robotics and automation to boost productivity.
Which of the below business sectors does EV Inc belong to?
- A . Construction
- B . Manufacturing
- C . Financial services
- D . Retails
B
Explanation:
Every sector among the options requires intensive capital investment. However, only manufacturing and retails bury much of their working capital in form of inventory. Raw materials and WIP only present in manufacturing sector.
The manufacturing industry is undergoing massive change, rivaling the Industrial Revolution that began in England and continued on Detroit’s assembly lines. But today’s revolution is “smart,” thanks to factories using artificial intelligence and robots.
A new trend is the “cobot” ― a collaborative robot designed to work with humans. One company called Moduform uses them to make furniture in the U.S. The company credits using cobots for reducing their staffing turnover, since the robots do mundane repetitive tasks that bore humans, while people can now do cognitive tasks requiring judgment and diversified responsibilities. Other innovations include 3D printing, Artificial Intelligence and automation.
Today’s artificial intelligence manufacturing revolution improves performance in two key areas of manufacturing: productivity and quality control.
Reference:
– The Key Characteristics of Manufacturing (bizfluent.com)
– CIPS study guide page 74-76
LO 2, AC 2.1
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
D
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract’s full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
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
D
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract’s full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
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
D
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract’s full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
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
D
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract’s full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
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
D
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract’s full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
Facing fiercer competition at home and abroad, IKEA, the leading furniture retailer, needs to im-prove its competitiveness. In order to do this, IKEA must decrease operating costs and improve quality of current and new retail stores. The company establishes a project team. The job of the team is to collect data on performance from multiple stores in several countries, then select the best performing one. The team will work closely with best performing store and study its processes. After the research, the team will recommend best practices to other retail stores. IKEA management can also apply these practices to new stores in the future.
Which of the following correctly describe the process undertaken by IKEA project team?
- A . Internal benchmarking
- B . Competitive benchmarking
- C . Internal audit
- D . Site visit
A
Explanation:
Basically, IKEA project team is undertaking the following process:
A picture containing text, businesscard
Description automatically generated
This is a typical benchmarking process. Benchmarking is defined as the process of measuring products, services, and processes against those of organizations known to be leaders in one or more aspects of their operations. Benchmarking provides necessary insights to help you understand how your organization compares with similar organizations, even if they are in a different business or have a different group of customers.
In the scenario, benchmarking process is undertaken within subsidiaries of IKEA, thus it is internal.
Reference:
– CIPS study guide page 49-51
– What is Benchmarking? Technical & Competitive Benchmarking Process | ASQ
– Internal Benchmarking at IKEA
LO 1, AC 1.3
GE has developed TurboProp engine that is made from over 850 metal parts. These parts are sourced from many suppliers. Value of spend on these parts make up 73% of total spend. Any delay in receiving a part will cause a bottleneck around the production of the engine.
Which of the following should be the best course of action of GE’s CPO?
- A . Drive down prices by using market competition
- B . Increase production
- C . Part standardisation
- D . Reduce delivery cost
C
Explanation:
In this scenario, the final product has vast range of parts. The second problem is lacking any part can cause disruption to the production process. So GE has 2 things to do: to reduce the part varie-ties, and secure the supply. Part standardisation is the best option here. It can simplify the range of parts or materials used, and simultaneously, it expands the supply base of GE. If a supplier fails to deliver the part, the company always has other options to replace.
Costs are also a concern, but bottleneck in production imposes a serious risk to the organisation. Driving down costs using market competition cannot be a foremost priority.
Increasing production may help to reduce bottleneck. However, it will also increase the inventory of finished products and unnecessary upkeep costs. LO 3, AC 3.4
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