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?
Drive down prices by using market competition
Increase production
Reduce delivery cost
Your answer is correct
Part standardisation
Overall 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 varieties, 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

Question 2Correct
Tom, a procurement officer at a medium-sized company, is tasked with
renewing the IT support contract for a crucial, specialized software
system. TF Tech Solutions is the sole provider of support for this unique
software. While the support package accounts for only 3% of TF Tech
Solutions' total revenue, Tom and the company have established a
positive working relationship. Given the exclusive nature of TF Tech
Solutions' services, how does this situation impact their bargaining power?
Tom has increased bargaining power, because the requirement
for software support

is ongoing

Tom has increased bargaining power, because the software

support package only

supports 3% of TF Tech sales

TF Tech solutions has increased bargaining power, because TF

Tech Solutions and Tom

have an effective relationship

Your answer is correct

TF Tech solutions has increased bargaining power, because TF
Tech Solutions are the only

supplier available
Overall explanation
The correct answer is TF Tech solutions has increased bargaining power,
because TF Tech Solutions are the only supplier available

Because TF Tech Solutions is the sole provider of support for this

specialized software, they have significant bargaining power. Tom has
limited options and must negotiate with TF Tech Solutions on their terms.
The lack of alternatives for software support gives TF Tech Solutions a
strong bargaining position. Below are some scenarios that make the
supplier's position stronger than the buyer's:

1. Exclusive Provision: The supplier is the sole provider of the supplort

service, giving them a unique position in the market.
2. Dependency: The buyer's operations are reliant on the support
service, creating a strong dependency on the supplier.
3. Limited Alternatives: The buyer has no other options for obtaining
the required support, limiting their bargaining power.
4. Switching Costs: The buyer would likely face significant costs and
disruptions if they were to switch suppliers, such as retraining staff
or adapting to a new system.

Reference: CIPS L4M2 study guide (the exam question)

Question 3Correct
Synergy Ltd is a fast-growing tool and hardware retailer. The company's
customer services team has been using Excel worksheets to manage
customer relationships. When the company is expending its market
presence, this way of working leads to poorer customer services as the
database is scattered around in spreadsheet, leading to patchy and
inconsistent conversations with customers. The company decides to
purchase a CRM system. What requirement should Synergy's procurement
team take into account in the specification for CRM system?
The relative size of the potential suppliers to Synergy
Total number of the supplier's employees
Your answer is correct
The ability to import bulk data from Excel spreadsheets
The form and reference number of the purchase order
Overall explanation
This question aims to assess the student’s ability to analyze the problems
and formulate the requirements before negotiating with the suppliers. The
scenario indicates that Synergy Ltd’s customer service team does not
have a centralized customer database, but relies on Excel spreadsheets.
This causes difficulties in communicating with customers.

A CRM system can address this issue by providing a unified platform for
managing customer interactions. However, a challenge arises: How can
the existing data be transferred to the CRM system? If the CRM system
supports importing data from Excel files in bulk, it will reduce the
workload and time.

Reference: CIPS L4M2 study guide page 10-18 / The new syllabus 2024

LO 1, AC 1.1

Question 4Correct
What inputs does procurement supply for business case development?
Internal recruitment requirements
Engineering specifications
Your answer is correct
Estimated costs of bought-in goods
Service level requirements
Overall explanation
The correct answer is: Estimated costs of bought-in goods

Procurement plays a pivotal role in developing business cases by

providing essential information and insights. Below is some tasks that
procurement should do in developing the business case

1. Executive Summary: A concise overview of the proposed

purchase, including its objectives, benefits, and key findings.
2. Problem Statement: A clear and concise description of the
problem or opportunity that the purchase is intended to address.
3. Proposed Solution: A detailed explanation of the proposed
purchase, including its features, benefits, and how it will solve the
identified problem.
4. Cost-Benefit Analysis: A comparison of the costs associated with
the purchase to the expected benefits, including both tangible and
intangible benefits.
5. Risk Assessment: An identification and evaluation of potential
risks associated with the purchase, as well as strategies for
mitigating those risks.
6. Implementation Plan: A detailed plan outlining the steps involved
in implementing the purchase, including timelines, resources, and
responsibilities.
7. Return on Investment (ROI) Analysis: A calculation of the
expected financial return on the investment, taking into account
both short-term and long-term benefits.
8. Alternatives Considered: A discussion of alternative solutions
that were considered and the reasons for selecting the proposed
purchase.
9. Conclusion: A summary of the key findings and recommendations
based on the analysis presented in the business case.

By including these elements, a business case provides a comprehensive

evaluation of the proposed purchase and helps decision-makers make
informed choices.

Engineering specifications: While engineering specifications are

important for ensuring that purchased goods meet the necessary quality
standards, they are not typically provided by procurement. This is more
likely the responsibility of the engineering or product development
department.

Service level requirements: Service level requirements are typically

defined by the business or department that will be using the service.
Procurement may be involved in negotiating these requirements with
suppliers, but they are not the primary source of information.

Internal recruitment requirements: Internal recruitment is the

responsibility of the human resources department, not procurement.
Reference: CIPS L4M2 study guide page 19-20
LO 1, AC 1.1

Question 5Correct
Which of the following agencies can produce a technical standard?
Department of State
Your answer is correct
BSI
Marketing department
House of Lords
Overall explanation
Technical standards are often produced by a national or international
body such as British Standard Institute (BSI)

LO 3, AC 3.1

Reference: CIPS L4M2 study guide page 134 / The new syllabus 2024

Question 6Incorrect
When evaluating supplier responses to a specification, which social factor
should a buyer consider?
Your answer is incorrect
The emissions produced by the supplier’s machinery
The supplier's access to transportation and logistics
infrastructure
The age and condition of the supplier's machinery
Correct answer
The availability of a skilled workforce in the supplier's region
Overall explanation
The correct answer is The availability of a skilled workforce in the
supplier's region

This is a social factor that can influence the cost of production, the
availability of skilled workers, and the potential for labour disruptions.
Potential social factors for buyers to consider include:

1. Labor market conditions: Is there a sufficient supply of skilled

workers in the area?
2. Wage rates: Are the wages competitive and affordable for the
supplier?
3. Labor relations: Are there any potential labor disputes or disruptions
that could affect production?
4. Social and cultural factors: Are there any cultural or social factors
that might impact the supplier's operations or relationships with
employees?

Reference: CIPS L4M2 study guide page 150

LO 3, AC 3.2

Question 7Correct
Standards are guidelines or benchmarks that define acceptable levels of
quality and performance for products and services. Are governments the
sole creators of these standards for businesses?
No, only products related to national security are regulated by
government standards.
Yes, international organizations like ISO are the only other source
of standards.
Your answer is correct
No, besides government and ISO, other organizations can create
their own standards.
Yes, each country has a national body that oversees standards
within its borders.
Overall explanation
The correct answer is: No, besides government and ISO, other
organizations can create their own standards.

While governments often play a significant role in setting standards, they

are not the exclusive source. Many standards are developed by industry
associations, professional bodies, and other organizations. These
standards can be based on best practices, technological advancements, or
specific industry needs.

Here are some examples of organizations that develop standards:

 International Organization for Standardization (ISO): This is a

global federation of national standards bodies that develops
voluntary, consensus-based international standards.
 American National Standards Institute (ANSI): A non-profit
organization that coordinates and facilitates the development of
voluntary standards and conformity assessment systems in the
United States.
 British Standards Institution (BSI): A national standards body in
the United Kingdom that develops and publishes standards for a
wide range of products and services.
 Institute of Electrical and Electronics Engineers (IEEE): A
technical professional association that develops standards for the
electrical and electronics engineering industries.

Reference: CIPS L4M2 study guide page 125

LO 3, AC 3.1

Question 8Incorrect
Which of the following are typical environmental considerations
throughout the contract life cycle? Select the TWO that apply.
Modern slavery
Correct selection
Pollution control
Your selection is correct
Waste management
Inequality
Your selection is incorrect
Health and safety
Overall explanation
All procurement has some level of impact on the environment that needs
to be minimised to ensure sustainable procurement practices.

The greatest opportunity to influence environmental outcomes is by

selecting products and services with the least ongoing environmental
impacts, such as use of water, electricity and fuel, waste/disposal
management, and impact on human health over the life of the product or
service.

Lifecycle stages that impact on the environment:

Most goods and services will have an element of environment impact in a

number of areas. The five main impact areas are listed in the following
table.
Source: Buying for Victoria

Reference: CIPS L4M2 study guide page 147-150 / The new syllabus 2024

LO 3, AC 3.2

Question 9Incorrect
Which of the following are typical benefits of through-life asset
management to buying organisation? Select the TWO that apply.
Shorter specifications
Your selection is correct
Lower total cost of ownership
Your selection is incorrect
Lower risks as there are many suppliers accountable for costs and
service over the life of the asset
Correct selection
Better capability of supplier over time
Greater supplier's bargaining power
Overall explanation
The correct answer is:

Lower total cost of ownership & Better capability of supplier over time

Through-life asset management is a strategic approach to managing

physical assets throughout their lifecycle, from design and acquisition to
disposal. It aims to optimize the value and performance of assets while
minimizing the costs and risks associated with owning and operating
them.

One of the benefits of through-life asset management is lower total cost of

ownership, which means the sum of all costs associated with an asset
over its entire life, including acquisition, operation, maintenance, and
disposal costs. By applying asset management principles, organizations
can reduce the total cost of ownership by selecting the most suitable
assets, improving their reliability and availability, extending their lifespan,
and disposing of them in an efficient and environmentally friendly way.

Another benefit of through-life asset management is better capability of

supplier over time, which means the ability of the supplier to deliver the
required performance and service levels throughout the life of the asset.
By establishing long-term relationships with suppliers, organizations can
ensure that the suppliers understand the needs and expectations of the
asset owners, and are able to provide continuous improvement and
innovation in their products and services.

Reference: CIPS L4M2 study guide / The new syllabus 2024

LO 3, AC 3.2

Question 10Correct
Which of the following statements is the best definition of ‘value
engineering’?
Value achieved by an engineering department
Analysing perceived value after the product is available for sale
Producing good value products right first time.
Your answer is correct
Building value into a new product from design stage onwards
Overall explanation
Value Engineering (VE) is concerned with new products. It is applied
during product development. The focus is on reducing costs, improving
function or both, by way of teamwork-based product evaluation and
analysis. This takes place before any capital is invested in tooling, plant or
equipment.

This is very significant, because according to many reports, up to 80% of a

product’s costs (throughout the rest of its life-cycle), are locked in at the
design development stage. This is understandable when you consider the
design of any product determines many factors, such as tooling, plant and
equipment, labour and skills, training costs, materials, shipping,
installation, maintenance, as well as decommissioning and recycle costs.

LO 3, AC 3.4

Reference: CIPS L4M2 study guide page 184-186 / The new syllabus 2024

Question 11Incorrect
Product development consists of various stages, including planning and
analysis, design development, pre-production, production and
maintenance. At which stages the opportunities for cost reduction will be
the greatest?

1. Planning stage

2. Pre-design stage

3. Detail design stage

4. Production stage

5. Logistics support stage

Your answer is incorrect

2 and 3 only
2 and 5 only
Correct answer
1 and 2 only
1 and 4 only
Overall explanation
Writing a specification and then procuring and using the product or
service has a number of stages. The further on in the process you are, the
less potential there is for cost reductions. Therefore, opportunities for cost
reduction will be greatest in the two first stages: planning stage and pre-
design stage.

LO 3, AC 3.1

Reference: CIPS L4M2 study guide page 128 / The new syllabus 2024

Question 12Correct
To improve the productivity, Plantation Ltd is planning to purchase a
tractor, which it has never bought before. The project must be quick to
catch up with the next growing season. Leanne, a junior procurement staff
at the company, assumes that she could skip market analysis stage to
save time. Is this assumption reasonable?
Yes, Leanne just needs to purchase the tractor from her friend's
company
No, the company assesses supplier's performance solely based on
market analysis
Yes, the company has extensive experience in purchasing tractor
Your answer is correct
No, market analysis will inform the company of the pricing as well
as latest technology trends
Overall explanation
Market analysis is a stage in CIPS Procurement and Supply Cycle. This
stage informs the purchaser about the number of suppliers, the average
pricing, and product trends. Even urgent purchase should undergo market
analysis. Without undertaking this stage, the buying organisation may not
purchase the right product, or they may purchase at higher price.

Reference: CIPS L4M2 study guide page 69-75 / The new syllabus 2024

LO 2, AC 2.1

Question 13Correct
The buyer is examining the distinction between direct and indirect
production costs from a supplier. The buyer believes they cannot lower
the supplier's indirect production costs. Is this accurate?
Yes, as the costs of machinery and staff generally remain
consistent over time.
Yes, utility costs tend to rise over time.
Your answer is correct
No, modifying the buyer's specifications could potentially
introduce different machinery with a higher utilization rate,
potentially reducing indirect costs.
No, overhead costs can increase due to inflation.
Overall explanation
The correct answer is No, modifying the buyer's specifications could
potentially introduce different machinery with a higher utilization
rate, potentially reducing indirect costs.

Indirect costs are costs that cannot be directly traced to a specific product
or service. They are often fixed costs, such as rent, utilities, and
depreciation of equipment. If the buyer changes their specifications, the
supplier might need to use different machinery that is more efficient or
better suited to the new requirements. This could lead to a higher
utilization rate for the new machinery, which would help to spread the
fixed costs of that machinery over more units produced. As a result, the
supplier's indirect costs per unit could decrease. Therefore, while the
buyer might not be able to directly reduce the supplier's fixed costs, they
can potentially influence those costs indirectly by changing their
specifications.

Reference: CIPS L4M2 study guide page 26-29

LO 1, AC 1.2

Question 14Incorrect
Which of the following is an assumption of Kano model?c
Your answer is incorrect
The relationship between product functionality and customer
satisfaction is always linear
Correct answer
Different types of customer requirements have different impact
on customer satisfaction
All types of customer requirements have the same impact on
customer satisfaction
All customer requirements are basic requirements
Overall explanation
Kano model of excitement and basic quality (Kano et al, 1984; Berger et
al, 1993; Matzler et al, 1996) brings a different perspective for the
analysis of improvement opportunities in products and services because it
takes in consideration the asymmetrical and non-linear relationship
between performance and satisfaction. The Kano model classifies
customers requirements in three categories (figure 3):

a) Basic Requirements. The basic requirements fulfill the basic functions

of a product. If they are not present or their performance is insufficient,
customers will be extremely dissatisfied. On the other hand, if they are
present or have sufficient performance, they don't bring satisfaction.
Customers see them as prerequisites. For instance, for luxury
automobiles, "air bags" are considered basic. A customer won't feel
satisfied if the automobile has "air bag", however he/she will not buy it if
“air bag” is not present.

b) Performance Requirements. As for these requirements, satisfaction is

proportional to the performance level – the higher the performance, the
higher the customer's satisfaction will be and vice-versa. Gas consumption
in automobiles is an example of these requirements. Usually customers
explicitly demand performance requirements.

c) Excitement Requirements. These requirements are key to customer

satisfaction. If they are present or have sufficient performance, they will
bring superior satisfaction. On the other hand, if they are not present or
their performance is insufficient, customers will not get dissatisfied. For
instance, a surprise gift at the end of a dinner in a restaurant will certainly
bring satisfaction, but it will not cause dissatisfaction if not offered. These
requirements are not demanded nor expected by customers.

Two other types of requirements may be identified in the Kano model:

neutral and reverse ones. Neutral requirements do not bring either
satisfaction or dissatisfaction. Reverse requirements bring more
satisfaction if absent than if present.
Reference:

- Integrating Kano model and QFD for Designing New Products

- CIPS L4M2 study guide page 184-186 /The new syllabus 2024

Question 15Incorrect
Which of the following is the disadvantage of embedding standards in a
specification?
Standards do not improving buyer's bargaining power
Your answer is incorrect
Embedding standards into specification requires enormous time
and effort
Standards are too flexible and may cause ambiguity in the
specification
Correct answer
Standards are too static and discourage innovation
Overall explanation
"Standards are often produced by professional bodies (maybe national or
international bodies). Standards tend to be stable for a period of time,
therefore, they are likely to be static and discourage innovation."

Reference: CIPS L4M2 study guide page 125 / The new syllabus 2024

LO 3, AC 3.1

Question 16Incorrect
Which of the following are likely to be disadvantages of using outcome-
based specifications? Select THREE that apply
Your selection is correct
Difficulty to measure performance
Your selection is correct
Outcomes may have more than one meaning
Your selection is incorrect
Responsibility for product failure falling to buyer
Stifling innovation
Correct selection
It takes time for the desired outcomes to become reality
A lot of time is consumed to write the specification
Overall explanation
An Outcome Based Specification (OBS) focuses on the desired outcome of
a service in business terms, rather than a detailed technical specification
of how the service is to be provided; this allows providers scope to
propose innovative solutions that might not have occurred to the
procurement team. Outcome should be distinguished from output, which
is the measurable results of a set of inputs.

Outcomes should be the starting point in making new specification.

However, using outcome-based specification has some setbacks:

- First, it is not easy to measure the outcomes. Usually, outcome of a

project is a statement like 'increase customer satisfaction', 'maintain
ambient temperature' or 'provide a convenient way to do something'.
They are not easy to measure as output.

- Second, sometimes the desired outcomes require time to be

materialised

- Third, outcomes can be ambiguous

Reference: CIPS L4M2 study guide page 136-139 / The new syllabus 2024

LO3, AC 3.1

Question 17Correct
What are the three components needed to calculate the break-even point?
Variable costs, gross profit margin, and sales revenue
Fixed costs, contribution margin, and sales volume
Variable costs, contribution margin, and fixed costs
Your answer is correct
Fixed costs, variable costs, and selling price
Overall explanation
The correct answer is Fixed costs, variable costs, and selling price. The
break-even point is the level of output or sales where the total costs equal
the total revenue. To calculate the break-even point, we need to know the
fixed costs, which are the costs that do not change with the output level,
the variable costs, which are the costs that vary with the output level, and
the selling price, which is the price per unit of output. The break-even
point can be expressed in units or in dollars, using the following formulas:

Break-even point in units = Fixed costs / (Selling price - Variable costs)

Break-even point in dollars = Fixed costs / (1 - Variable costs / Selling

price)

Question 18Incorrect
Which of the following factors is most likely to be a barrier to new entrant
in agriculture?
Brand recognition
Your answer is incorrect
Reputation within the industry
High margins
Correct answer
Capital requirement
Overall explanation
Barriers to Entry to Agriculture: If stakeholders are going to address the
need for new, conservation-minded farmers, they must understand the
barriers these farmers encounter when transitioning into the profession. A
review of the literature revealed a number of barriers—most of them
structural—to entry to agriculture. While each barrier is distinct, they are
all interconnected. Though not an exhaustive list, the following barriers
are ones that were most frequently mentioned in the literature:

- Access to Affordable Land

- Startup Capital

- Lack of Agricultural Knowledge and Experience

- Lack of Knowledge about Farm Business Planning

- Discrimination

- Student Loans

- Limited Access to Markets

- Affordable Housing and Affordable Healthcare

...

Source: Exploring the Barriers to Entry to Agriculture: Challenges Facing

Beginning Farmers in North Carolina - Kelley Robbins-Thompson

Reference: CIPS L4M2 study guide page 86-87 / The new syllabus

LO 2, AC 2.2

Question 19Incorrect
Which of the following specific markets is most likely to have the lowest
entry barrier?
Correct answer
Services
Financial
Agriculture
Your answer is incorrect
Retail
Manufacturing
Overall explanation
Start-up costs are generally low in service industries, and the main
requirement is a level of knowledge and skill in that particular service.

LO 2, AC 2.1

Reference: CIPS L4M2 study guide page 87-90 / The new syllabus 2024

Question 20Incorrect
Which of the following are main focuses of ISO 27001:2013 standard?
1. Confidentiality

2. Logistics

3. Process

4. Life cycle

Correct answer
1 and 3 only
2 and 3 only
2 and 4 only
Your answer is incorrect
3 and 4 only
Overall explanation
This International Standard (ISO 27001:2013) has been prepared to
provide requirements for establishing, implementing, maintaining and
continually improving an information security management system. The
adoption of an information security management system is a strategic
decision for an organization. The establishment and implementation of an
organization’s information security management system is influenced by
the organization’s needs and objectives, security requirements, the
organizational processes used and the size and structure of the
organization. All of these influencing factors are expected to change over
time.

The information security management system preserves

the confidentiality, integrity and availability of information by
applying a risk management process and gives confidence to
interested parties that risks are adequately managed.

It is important that the information security management system is part of

and integrated with the organization’s processes and overall management
structure and that information security is considered in the design of
processes, information systems, and controls. It is expected that an
information security management system implementation will be scaled in
accordance with the needs of the organization.

This International Standard can be used by internal and external parties to

assess the organization's ability to meet the organization’s own
information security requirements.

The order in which requirements are presented in this International

Standard does not reflect their importance or imply the order in which
they are to be implemented. The list items are enumerated for reference
purpose only.

ISO/IEC 27000 describes the overview and the vocabulary of information

security management systems, referencing the information security
management system family of standards (including ISO/IEC
27003[2], ISO/IEC 27004[3] and ISO/IEC 27005[4]), with related terms and
definitions.

Reference:

- ISO/IEC 27001:2013 Information technology — Security techniques —

Information security management systems — Requirements
LO 3, AC 3.1

Question 21Correct
What is the contribution of marketing function to the development of
specification?
Marketing ensures that procurement function doesn't involve in
developing specification
Marketing ensures that conformance specification will never be
used
Your answer is correct
Marketing provides ideas on customer's taste and market trends
Marketing consults on technical requirements of the product
Overall explanation
Marketing plays a critical role in sales. The marketing department
introduces products to the consumer, and creates strategic messaging
that elevates appeal and ultimately drives sales. The feedback and
response from consumers is measured by the marketing team on a
variety of levels. Advertising is one means of seeing what performs and
what does not perform. Marketers will note trends and demand in their
specific markets. This plays into new product development, because the
marketing team can work with product developers to create products
based on that demand.

In development of specification, the role of marketing is largely the same.

They provide the market insight so that right specification is developed
and it matches the demands from customers.

Reference:

- CIPS L4M2 study guide page 9 / The new syllabus 2024

- Role of Marketing Management in New Product Development

(chron.com)

LO 1, AC 1.1

Question 22Correct
Before the beginning of every accounting period, Leona prepares an
expense budget. What is the benefit of this?
It helps Leona project her future income and adjust her spending
accordingly
Your answer is correct
It helps Leona track her actual expenses and compare them with
her planned expenses
It helps Leona build her investments and promote accountability
It helps Leona reduce her debt and save more money
Overall explanation
The correct answer is It helps Leona track her actual expenses and
compare them with her planned expenses. An expense budget is an
estimation of the costs that will be incurred by a business or an individual
during a certain period, usually monthly, quarterly or yearly. It allows
Leona to plan out her expenses, reach her business goals and anticipate
any operational changes as needed to support her business. An expense
budget also helps Leona monitor her performance and progress, allocate
her resources more appropriately, and troubleshoot any financing
problems.
Question 23Correct
Rather than dictating specific processes, specifications should focus on
achieving desired outcomes and outputs. What is the reason for this?
To limit the range of available choices.
To ensure the provision of a specific branded item.
Your answer is correct
To promote maximum supplier participation.
To facilitate easy modifications after contract award.
Overall explanation
The correct answer is To promote maximum supplier participation.

Output and outcome-focused specifications describe the desired result or

function rather than dictating specific methods or products. Below are
some advantages of using output and outcome-focuses specification.

1. Innovation and Flexibility:

 Encourages creativity: By specifying the desired outcome, the

supplier can propose innovative solutions that meet the
requirements.
 Adaptability to new technologies: Performance specifications allow
for the use of emerging technologies and materials, leading to more
efficient and effective solutions.

2. Cost-Effectiveness:

 Competitive bidding: Performance specifications can attract more

bidders, potentially leading to lower costs.
 Optimized solutions: Suppliers have the flexibility to choose the
most cost-effective methods to achieve the desired results.

3. Reduced Risk:

 Risk transfer: Performance specifications can transfer some of the

risk to the supplier, who is responsible for achieving the desired
outcomes.

4. Increased Competition:

 More bidders: Performance specifications can attract a wider range

of bidders, fostering healthy competition and potentially leading to
better deals.
 Innovation: The competitive environment can encourage suppliers
to develop new and improved products or services.

Reference: CIPS L4M2 study guide page 136-138

LO 3, AC 3.1

Question 24Correct
Ethan is the newly appointed CEO of ATT Group. He sees that the
company is wasting financial resources on unnecessary spends. To solve
this problem, Ethan requires all functional managers to prepare their
department budget from scratch. Each spend must have justification or it
will not be approved. Which budgeting method is Ethan using?
Value preposition budget
Activity-based budget
Your answer is correct
Zero-based budget
Incremental budget
Overall explanation
There are four common types of budgets that companies use: (1)
incremental, (2) activity-based, (3) value proposition, and (4) zero-based.

Incremental budgeting takes last year’s actual figures and adds or

subtracts a percentage to obtain the current year’s budget. It is the most
common method of budgeting because it is simple and easy to
understand.

Activity-based budgeting is a top-down budgeting approach that

determines the amount of inputs required to support the targets or
outputs set by the company. For example, a company sets an output
target of $100 million in revenues. The company will need to first
determine the activities that need to be undertaken to meet the sales
target, and then find out the costs of carrying out these activities.

In value proposition budgeting, the budgeter considers the following

questions:

- Why is this amount included in the budget?

- Does the item create value for customers, staff, or other stakeholders?

- Does the value of the item outweigh its cost? If not, then is there another
reason why the cost is justified?

Value proposition budgeting is really a mindset about making sure that

everything that is included in the budget delivers value for the business.
Value proposition budgeting aims to avoid unnecessary expenditures –
although it is not as precisely aimed at that goal as our final budgeting
option, zero-based budgeting.

As one of the most commonly used budgeting methods, zero-based

budgeting starts with the assumption that all department budgets are
zero and must be rebuilt from scratch. Managers must be able to justify
every single expense. No expenditures are automatically “okayed”. Zero-
based budgeting is very tight, aiming to avoid any and all expenditures
that are not considered absolutely essential to the company’s successful
(profitable) operation. This kind of bottom-up budgeting can be a highly
effective way to “shake things up”.

The correct answer is zero-based budget. Zero-based budgeting is a

method of budgeting in which all expenses must be justified for each new
period. The process of zero-based budgeting starts from a “zero base,”
and every function within an organization is analyzed for its needs and
costs. The budgets are then built around what is needed for the upcoming
period, regardless of whether each budget is higher or lower than the
previous one.

Ethan is using this method to avoid unnecessary spending and to allocate

resources more efficiently. He is asking the functional managers to start
from scratch and to provide a rationale for every expense they request.
This way, he can ensure that the company’s budget is aligned with its
strategic goals and value proposition.

Reference:

- CIPS L4M2 study guide page 63 / The new syllabus 2024

- Types of Budgets - The Four Most Common Budgeting Methods

(corporatefinanceinstitute.com)

LO 1, AC 1.4

Question 25Correct
What strategies can improve the efficiency of purchasing everyday office
supplies?

1. Implementing performance-based contracts

2. Adopting electronic procurement systems

3. Utilizing competitive bidding processes

4. Employing vendor-managed inventory models

2 and 4 only
3 and 4 only
1 and 2 only
Your answer is correct
2 and 3 only
Overall explanation
The correct answer is 2 and 4 only

For small, routine items like stationery, the more practical and efficient
solutions would be:

•Introducing e-Procurement Solutions: This automates the ordering

process, reducing the administrative burden and making it easier to
manage small, frequent purchases.

•Introducing Competitive Bidding: While less common for routine items,

having a periodic competitive bidding process for suppliers can ensure
that you get the best prices and terms for your stationery supplies.

Reference: CIPS L4M2 study guide (the exam question)

Question 26Incorrect
Which of the following always impact negatively on a company's cash
flow? Select TWO that apply
Your selection is correct
Supplier shortens their payment period
Increasing revenue
Your selection is incorrect
Depreciation of fixed asset
Correct selection
More inventory
Customers agree to pay immediately
Overall explanation
To answer this question, candidates are required to remember the cash
flow cycle and cost entries as well as the impact of their timing on a
business.

Source: https://cfoperspective.com/free-your-cash-trapped-in-the-cash-
conversion-cycle/

Shorter payment term and more inventory are likely to have negative
impact on the cash flow because the buyer has to pay sooner and greater.

"Customers agree to pay immediately" will increase the organisation's

bank account sooner.

Depreciation has no impact on cash flow as it is only listed in Profit and

Loss statement.

Increasing revenue may have negative or positive impact on cash flow,

depending on the real situation.
Reference: CIPS L4M2 study guide page 58-61 / The new syllabus 2024

LO 1, AC 1.4

Question 27Incorrect
Which of the following is a tool to define roles and responsibilities of a
project team?
STEEPLE Analysis
Your answer is incorrect
SCAMPER Method
Monte Carlo model
Correct answer
RACI Matrix
Overall explanation
The correct answer is RACI Matrix. A RACI matrix is a document that
clarifies which individuals or groups are responsible for a project’s
successful completion, and the roles that each will play throughout the
project. The acronym RACI stands for the different responsibility types:
Responsible, Accountable, Consulted, and Informed

SCAMPER Method is a technique for creative thinking and problem-solving

that involves asking seven types of questions: Substitute, Combine,
Adapt, Modify, Put to another use, Eliminate, and Reverse

STEEPLE Analysis is a tool for marketing strategies that measures the

macro-environmental external factors that can affect a business. The
acronym STEEPLE stands for Social, Technological, Economic,
Environmental, Political, Legal and Ethical

Monte Carlo model is a mathematical technique that uses repeated

random sampling to obtain numerical results for problems that are
difficult or impossible to solve deterministically. Monte Carlo methods are
often used in physics, engineering, finance, and other fields that involve
uncertainty and risk

Reference:

- CIPS L4M2 study guide page 17 / The new syllabus 2024

- Responsibility assignment matrix - Wikipedia

LO 1, AC 1.1

Question 28Incorrect
According to Porter’s value chain, which of the following activities is
categorised as support activity?
Supervising the production line
Distribution of products from factory to retailer
Correct answer
Develop digital SRM technology to manage suppliers better
Storage of raw materials
Your answer is incorrect
Product warranties and special services
Overall explanation
Primary activities consist of inbound logistics, operations, outbound
logistics, sales & marketing, service.
Second activities consist of firm infrastructure, human resource
management, technology development and procurement

Support activities (also known as secondary activities) include Firm

infrastructure, Human resource management, Technology development
and Procurement. Developing digital SRM technology to manage suppliers
better is Technology development.

Reference: CIPS L4M2 study guide / The new syllabus 2024

LO 1, AC 1.2

Question 29Correct
The company prioritizes the following business objectives:
 Implementing responsive production processes to swiftly adapt to
market changes
 Fostering collaboration and technical integration
 Rapidly launching and selling new products

Which of the following business sectors does this company belong to?
Construction
Your answer is correct
Retail
Financial
Agriculture
Overall explanation
The correct answer is Retail

Retail companies need to quickly adapt their offerings based on consumer

trends and demand. They often collaborate with suppliers and utilize
technology for efficient inventory management, online sales, and
customer data analysis. Retail companies need to introduce new products
promptly to stay competitive and meet consumer expectations.

Reference: CIPS L4M2 study guide page 83-85

LO 2, AC 2.1

Question 30Incorrect
Given that Wilkinson Ltd operates in a market where customers are highly
budget-conscious, what is the likely implication for the bargaining power
of suppliers and buyers?
Correct answer
Suppliers’ bargaining power will decrease, while buyers’
bargaining power will increase.
Your answer is incorrect
There will be no significant change in the bargaining power of
either suppliers or buyers.
Both suppliers’ and buyers’ bargaining power will decrease.
Suppliers’ bargaining power will increase, while buyers’
bargaining power will decrease.
Overall explanation
In a market where customers are highly budget-conscious, the likely
implication for the bargaining power of suppliers and buyers would be
that:
 Suppliers’ bargaining power will decrease: If customers are
looking for the best deals and are sensitive to price changes,
suppliers are less able to exert influence over prices and terms.
 Buyers’ bargaining power will increase: Budget-conscious
customers will seek out the best value, giving them more leverage
to negotiate lower prices or better terms.

Therefore, the correct answer is:

Suppliers’ bargaining power will decrease, while buyers’

bargaining power will increase. This dynamic occurs because suppliers
must compete more aggressively for the business of cost-conscious
buyers, who have more options and are willing to shop around for the best
prices.

Reference: CIPS L4M2 study guide page 94-98 / The new syllabus 2024

LO 2, AC 2.2

Question 31Correct
What will be the result of retaliation between business rivals in an
industry?
More new entrants
Your answer is correct
Lower profit
Greater bargaining power of suppliers
Higher exit barrier
Overall explanation
Retaliation between business rivals in an industry can lead to price
wars, advertising battles, and product introductions that increase
the competition and reduce the profit margins of the firms. When
competition is bitter and cutthroat, the prices competitors charge and
their profit margins tend to go down. If, on the other hand, competitors
avoid bitter rivalry, then price wars can be avoided and profit potential
increases.

References

CIPS L4M2 study guide page 92-93 / The new syllabus

LO 2, AC 2.2

Question 32Correct
Which of the following is an advantage of competitive benchmarking over
other types of benchmarking?
Limited access to competitor's data
Your answer is correct
Similarity among processes
Different corporate culture
Cost effectiveness
Overall explanation
Competitive benchmarking

Competitive benchmarking is a direct competitor-to-competitor

comparison of a product, service, process, or method. This form of
benchmarking provides an opportunity to know yourself and your
competition better; combine forces against another common competitor.
An example of competitive benchmarking within the Department of
Defense, might include contrasting Army and Air Force supply systems for
Joint initiatives. Within the private sector, two or more American car
companies might benchmark for mutual benefit against common
international competitor; or, rival chemical companies benchmark for
environmental compliance.

Benefits

- Comparing like processes

- Know your competition better

- Possible partnership

- Useful for planning and setting goals

- Similar regulatory issues

Challenges

- Difficult legal issues

- Relatively low performance improvement

- Threatening

- Limited by trade secrets

- May provide misleading information

- May not get best-in-class comparisons

- Competitors could capitalize on your weaknesses

Source: USN Benchmarking Handbook

Reference: CIPS L4M2 study guide page 51 / The new syllabus 2024

LO 1, AC 1.3

Question 33Correct
Department for Transport (DfT) needs to buy new locomotives to expand
the capacity of trains fleet. In 2009, they were criticized for beginning the
procurement “without any clear idea of how many trains would be
needed, which routes they would run on and what form of power would be
required”. What should procurement manager of DfT do first to manage
risk in making the specification?
Assess the potential risks
Monitor the potential risks
Your answer is correct
Identify the possible risks
Implement mitigating actions
Overall explanation
There are 4 steps to risk managing process:

Step 1: Identify hazards

Step 2: Assess the risk

Once a risk has been identified, a risk assessment should be conducted.

You should carry out a risk assessment for any manual tasks identified as
being hazardous, unless the risk is well known and you know how to
control it. A risk assessment can help you determine, which postures,
movements and forces of the task pose a risk, where during the task they
pose a risk, why they are occurring and what needs to be fixed.

Step 3: Control the risk

The ways of controlling risks are ranked from the highest level of
protection and reliability to the lowest, which is known as the hierarchy of
control. You must always aim to eliminate the hazard, which is the most
effective control.

Step 4: Review risk control

Control measures that have been implemented must be reviewed, and, if

necessary, revised to make sure they work as planned and to maintain a
work environment that is without risks to health and safety.
Source: WorkCover Queensland

Reference: CIPS L4M2 study guide page 155-159 / The new syllabus 2024

LO 3, AC 3.3

Question 34Correct
Andrew is responsible for procurement of capital assets at Lumber Ltd. He
is devising new business case for the purchase of a new band saw. The
purchase price of the saw is $50,000. Andrew estimates that the machine
will generate $10,000 per year of net cash flow. What is the payback
period of this band saw?
Your answer is correct
5 years
10 years
3 years
4 years
Overall explanation
The payback period is the length of time it takes to recover the cost of an
investment1. It is calculated by dividing the initial investment by the
annual cash flow. In this case, the initial investment is $50,000 and the
annual cash flow is $10,000. Therefore, the payback period of the band
saw is:

Payback period = $50,000 / $10,000 = 5 years

This means that it will take 5 years for Lumber Ltd to recoup the purchase
price of the band saw.

Reference:

CIPS L4M2 study guide page 48 / The new syllabus 2024

LO 1, AC 1.3