CPSD™ Diagnostic Practice Supply Management Core

Supplier Bis a manufacturer of exhaust systems for passenger trucks and sport utility vehicles. Company A is one of its many customers. Supplier B asks for a 20% price increase, using a 33 % rise in the price of nickel as justification. Company A estimates that the material cost is 50% of the total cost of the exhaust systems. What is the maximum price increase that Company A should accept from Supplier B? A. 16.5% B. 22.5% C. 33% D. 50%

A. 16.5%

79. What is the contract term for the transfer by one party of their right or obligations to another party? A. Assignment B. Confidentiality C. Indemnification D. Severability

A. Assignment

58. Which of the following is the FIRST step in developing a category strategy? A. Building a team starting with the project lead B. Building a team starting with a subject matter expert C. Performing market research by meeting with suppliers D. Performing market research by accessing databases, reports, and websites

A. Building a team starting with the project lead

22. A manufacturer of kitchen appliances completes the cost calculations for an outsourcing decision regarding a critical component. Currently, the manufacturer has the capability and capacity for producing the component in-house. However, the cost figures show a substantial savings in favor of outsourcing. Which of the following should be the supply manager's NEXT step? A. Consider non-cost concerns in deciding whether to make or buy the component B. Proceed with outsourcing, since the key information necessary to make a decision has been generated C. Develop performance metrics for the selected supplier related to the decision, and implement management control systems D. Communicate the final outsource decision to top management, along with the cost figures

A. Consider non-cost concerns in deciding whether to make or buy the component

87. PQR, Inc. has a long-term contract with a supplier for certain parts used in production. A new buyer at PQR places an order with the supplier for 5,000 parts, rather than the 1,000 currently needed. This is brought to the attention of the buyer's supervisor, who sends an email to the supplier to correct the quantity. The supplier responds by saying the order has already been processed, and that payment is expected for the goods. To protect the company's interest, which of the following should the supervisor do NEXT? A. Consult with PQR's legal department B. Negotiate with the supplier to store the excess items until needed C. Revise the order placement process to add review for large quantities D. Retrain the buyer in proper ordering procedures

A. Consult with PQR's legal department

97. A part supplier for FGH, Inc. informs the company it is no longer interested in being FGH's supplier and returns all of FGH's tooling. FGH decides to move all of its business to a new supplier in China. The firm must now pay to ship its tools to the Chinese firm with the hope that the tools will be compatible with the new supplier's equipment. Which of the following would MOST likely have prevented this situation? A. Contingency plans B. Contract management system C. Insurance D. Supply chain mapping

A. Contingency plans

83. A supply manager holds a pre-performance conference with a chosen supplier. This event falls under which of the following areas of responsibility? A. Contract administration B. Contract closeout C. Earned value management D. Project planning

A. Contract administration

100. A supply manager is evaluating responses to a request for information (RFI) seeking off-site communications training for company employees. The supply manager receives a request from the vice president of marketing for a list of all respondents to the RFI, explaining that a letter will be sent to the respondents outlining the company's services and the importance of security at training facilities, and strongly implying that organizations who do business with the company will have an advantage in future proposal evaluations. Which of the following is the BEST response the supply manager can make in this situation? A. Explain to the vice president that such a letter might be construed as attempted coercion or restraint of trade B. Refrain from endorsing or prohibiting the letter, as it is not being sent from supply management C. Remind the vice president that marketing is not part of the proposal evaluation process D. Document the procurement files to ensure that suppliers' purchases are not included as evaluation factors

A. Explain to the vice president that such a letter might be construed as attempted coercion or restraint of trade

55. CDE, Inc. hires several outside law firms for all of its legal work. An investigation by the firm's category management team concludes that CDE's legal needs can be fulfilled by two suppliers, and that rationalizing the supply base will reduce costs and drive cost efficiencies with the remaining suppliers. The category management team intends to present this plan to senior management. Which of the following will be MOST important for this team to emphasize? A. How the plan will create short and long term value B. How cost reductions will meet budgetary goals C. How fewer legal suppliers will streamline contract negotiations D. How sharing sensitive information with fewer legal firms ensures data protection

A. How the plan will create short and long term value

43. A company conducts an e-auction for forklifts. Immediately after the e-auction concludes, the two suppliers with the lowest prices inform the company they will not be able to honor their pricing. To avoid situations like this in the future, which of the following is the BEST course of action for the company to take? A. Include a clause within the registration process stating that participants will honor their prices, or be excluded from the current auction and all subsequent auctions B. Exclude the two suppliers from any future e-auctions that the company holds, as they did not honor their e-auction pricing C. Rather than using e-auctions, opt for a closed bid-process to avoid the possibility of companies not honoring their pricing during the e-auctions D. Verify with the suppliers mid-way through the e-auction that they will continue to honor their prices

A. Include a clause within the registration process stating that participants will honor their prices, or be excluded from the current auction and all subsequent auctions

16. A supply manager issues a request for proposal for engineering services. In order to provide clarification on the specifications, the company holds a question and answer session for interested suppliers. Shortly after the question and answer session is held and before any proposals are actually received, the firm's engineering department revises the specifications. Given this situation, which of the following should the supply manager do FIRST? A. Inform the suppliers of the change via call or email, tell them when the new specifications will be available, and ask for immediate notification if additional time will be required B. Write a letter to each supplier advising of the change, tell each supplier when the new specifications will be available, and ask for immediate notification if additional time will be required C. Hold an interim pre-bid meeting with all suppliers to discuss and clarify the revised specifications, and ask for immediate notification if additional time will be required D. Prepare and distribute a brand-new request for proposal package to be sent to each supplier

A. Inform the suppliers of the change via call or email, tell them when the new specifications will be available, and ask for immediate notification if additional time will be required

Jones is a supply manager for a large municipal government. Jones receives a call from Adams, the IT director in the city's engineering division. Adams asks Jones to procure a digital storage solution for document preservation needs. Adams states that they will require 5 TB of storage over the next two years for current and upcoming paper documents to be digitized and archived. Adams also states that DEF Inc. is the only supplier that meets IT requirements to integrate additional storage into existing machines. The estimated cost is $2.SM, which is more than initially anticipated. Adams is prepared to sign a memorandum confirming that DEF Inc. is the sole source supplier, which will satisfy the city's guidelines for dispensing with the competitive bidding process. However, Jones is informed by other IT directors that the requirements can be met by outsourcing the digitization process. A. Issue a request for information (RFI), in order to gather preliminary details on all possible solutions and budgetary estimations B. Refute Adams' claim that DEF is a sole supplier and issue a request for proposal, in order to retain the most valuable solution through a competitive bidding process C. Accept Adams' request, as it is based on market expertise D. Conduct a formal invitation for bid, in order to comply with the city's procurement guidelines

A. Issue a request for information (RFI), in order to gather preliminary details on all possible solutions and budgetary estimations

33. A supply manager completes a category profile and identifies services provided by multiple service providers. A market and industry analysis shows that the service providers are growing their businesses by acquiring competitors, thus enabling them to provide a greater range of services. Which of the following techniques will BEST enable the supply manager to leverage market competition? A. Lotting strategy B. Market-basket model C. Market segmentation D. Sole sourcing

A. Lotting strategy

14. Which of the following is MOST useful in identifying supply opportunities? A. Market intelligence B. PMI C. Risk analysis D. Visionary supply chains

A. Market intelligence

40. Which of the following should have the MOST influence in determining end product specifications, so as to minimize the potential for returns? A. Marketing B. Supply management C. Engineering D. Manufacturing

A. Marketing

12. DEF Inc. is making efforts to buy from a wider geographic base of suppliers. However, the company is concerned about how to release detailed specifications to potential suppliers without compromising proprietary information. Which of the following steps should DEF take FIRST? A. Review laws concerning protection of intellectual property in the countries of interest B. Search the market for counterfeit products produced under brand name or logo mimicking C. Strengthen confidentiality clauses in contracts with suppliers in other countries D. Alert marketing to opportunities for creating a more uniform brand message internationally

A. Review laws concerning protection of intellectual property in the countries of interest

30. Which of the following refers to the process of identifying elements or factors that could lead to injury, loss, damage or failure? A. Risk analysis B. Risk management C. Risk mitigation D. Risk pooling

A. Risk analysis

36. A supply manager has identified a sourcing opportunity for a strategic category that will result in significant savings for the organization. There are multiple owners of this category across different divisions, and the supply manager believes there are several consolidation opportunities. Which of the following is the FIRST step the supply manager should take in order to strategically source this category? A. Set up meetings with business units to build internal consensus with the key stakeholders B. Analyze the spend baseline for the category to confirm the baseline and key components C. Develop a sourcing implementation plan including key tasks, responsibilities, milestones and resources D. Conduct a market analysis to better understand the market and the optimal sourcing strategy

A. Set up meetings with business units to build internal consensus with the key stakeholders

13. RST is a manufacturer in Asia that produces wooden bar stools sold in many U.S. department stores. The assembled bar stools are packaged in corrugated boxes, one unit per box. RST has developed a design that is very inexpensive to assemble in comparison to the costs to manufacture the components. RST is looking for ways to reduce the landed cost of the bar stools. Which of the following is the BEST way of dealing with this issue? A. Ship the components to the U.S. and assemble them nearer the point of sale B. Move all manufacturing operations to the U.S. C. Use 20-foot rather that 40-foot ocean containers to ship them D. Ask the freight forwarder to only book the largest vessels for ocean transport

A. Ship the components to the U.S. and assemble them nearer the point of sale

91. Smith is a sourcing professional at a major cellular reseller. Smith has been asked to procure new cell phones. After receiving proposals and evaluating offers, Smith selects a supplier and is ready to enter into a contract. Throughout the negotiations, Smith deals with Jones, who is the sales representative for a leading cell phone manufacturer. Which of the following BEST characterizes this business relationship? A. Smith is a general agent while Jones is a special agent. B. Smith is a special agent while Jones is a general agent. C. Both Smith and Jones are general agents. D. Both Smith and Jones are special agents.

A. Smith is a general agent while Jones is a special agent.

18. A company's legal department is establishing budgets for the upcoming calendar year. The organization's general counsel identifies several cases of litigation involving intellectual property rights that could impact several product development projects. It is imperative that the budget include appropriate funding to retain external legal counsel. The general counsel asks the supply manager to assist in preparing the budget for the legal costs for these cases. Which of the following is the BEST course of action for the supply manager to take? A. Solicit proposals from qualified external law firms B. Estimate costs based on recent contracts for similar matters C. Provide general counsel with hourly rates from qualified attorneys D. Perform a should-cost analysis for each major IP matter

A. Solicit proposals from qualified external law firms

2. VWX, Inc. is a large food manufacturer. As a part of a social responsibility initiative, VWX decides to phase out the purchase of a sugar substitute within three years. After this initiative is announced, VWX's marketing department identifies a potential market for low calorie snacks. The marketing department decides to pilot a small batch production of these snacks. When the specifications for the new product are sent to supply management to execute the sourcing strategy, the supply manager realizes that the specifications call for a sugar substitute. Which of the following is MOST likely the cause of this conflict? A. The marketing department's decision is inconsistent with the company's strategic goal. B. Not all internal stakeholders were properly engaged in the development of the specifications. C. The marketing department failed to consider the external stakeholders' needs during the development of the specifications. D. The external stakeholders' needs changed the requirements.

A. The marketing department's decision is inconsistent with the company's strategic goal.

A supply manager is assessing the possibility of sourcing a new component. Which of the following tasks should be undertaken as a FIRST step in the process? A. Understand stakeholder requirements B. Analyze market trends and suppliers C. Develop sourcing strategies D. Conduct new component/spend analyses

A. Understand stakeholder requirements

41. A supply manager implements a system whereby the names of potential suppliers are hidden until final contract awards are made. This is an example of ensuring that A. confidential information is protected B. diversity initiatives are met C. total costs are minimized D. collusion will not occur

A. confidential information is protected

96. As a condition of doing business with Company A, Supplier B is required to maintain a separate warehouse in a different part of the world, containing a minimum of six months' inventory at all times. This is an example of a(n) A. contingency plan B. insurance obligation C. purchase obligation D. warranty obligation

A. contingency plan

95. A supply manager for a government agency receives a purchase requisition from a stakeholder to pay an invoice of $35,000 to Supplier X. As the agency's competitive bidding threshold is $50,000, the supply manager approves the requisition and issues a purchase order. The supply manager then discovers that, over the past year, three more purchase orders for the same amount were issued to Supplier X by the same stakeholder. It is revealed that the stakeholder did not want to exceed the $50,000 threshold. In this situation, the supply manager's BEST course of action would be to A. place the requisition on hold, and contact the stakeholder to determine how to proceed B. finalize the purchase order, as the requisition was below the competitive bidding threshold of $50,000 C. reject the requisition and report the case to human resources to begin an investigation D. finalize the purchase order and recommend the board specifically prohibit the splitting of requisitions

A. place the requisition on hold, and contact the stakeholder to determine how to proceed

94. A firm is concerned that it may be vulnerable to procurement fraud. To ensure that it has incorporated auditability as a deterrent, it is MOST essential to emphasize that supply management processes are A. standardized, integrated, monitored, and improved B. documented throughout the organization C. enforced using department checklists and audits D. understood by all supply management personnel

A. standardized, integrated, monitored, and improved

17. A manufacturer's solicitation documents occasionally include detailed design specifications that are considered proprietary. Several potential suppliers from developing countries have expressed interest in offering products or services to the manufacturer company. Which of the following actions will MOST likely help balance intellectual property protection with the expanded supplier base? A. Sourcing strictly from suppliers in advanced industrial countries B. Checking supplier references and past performance C. Drafting strong contract language concerning confidentiality D. Defining where any disputes will be settled

B. Checking supplier references and past performance

77. What is the contract term for a provision to restrict the disclosure of proprietary information? A. Assignment B. Confidentiality C. Indemnification D. Severability

B. Confidentiality

82. DEF is a large publicly-held company. DEF conducts a request for proposal (RFP) to purchase desktop computers, and awards the contract to a local IT reseller. Following the award, several of the non-winning bidders call DEF's supply manager, and the supply manager informs these suppliers of the firm's decision. A month later, DEF receives a protest from another non-winning supplier. This supplier complains that it never received adequate notice of the award, and requests that the RFP be reissued to give it another opportunity. Which of the following is TRUE in this situation? A. As DEF is publicly-held, it violated the law by not treating all bidders equally, and must make restitution to the offended supplier. B. DEF is void of any obligation to send notice of awards to all bidders. C. DEF's procurement policy must be amended to reflect local regulations related to RFx processes and contract award. D. DEF must reissue the RFP, as it failed to follow proper solicitation procedures.

B. DEF is void of any obligation to send notice of awards to all bidders.

70. A hospital purchases glass laboratory supplies through a co-op. Because of the volume prices paid by the consortium, the supplier will only offer generic supplies. As a result, there is considerable variation in quality, which has led to complaints from internal customers. In this situation, which of the following should the supply manager do FIRST? A. Instruct the co-op to change suppliers B. Determine if other members of the co-op have the same problem C. Join the co-op's commodity team to increase pressure on the supplier D. Inform the supplier that co-op payments may be withheld if quality does not improve

B. Determine if other members of the co-op have the same problem

A transit bus manufacturer learns that a supplier of required safety equipment has declared bankruptcy, and will not be able to ship parts in time to meet the production schedule for a large order of buses. Locating another acceptable source will delay production, which will in turn result in late delivery penalties for the manufacturer. Which of the following courses of action will BEST protect the manufacturer from experiencing similar problems in the future? A. Include a consequential damages clause in contracts with suppliers B. Develop contingency plans for maintaining continuity of supply C. Mandate higher levels of safety stock D. Closely monitor current financial trends

B. Develop contingency plans for maintaining continuity of supply

69. A supply manager for XYZ Corp. is planning for negotiations with Supplier A, a provider of software critical for use on XYZ's production line. XYZ likes the software, but was recently alerted by Supplier A that it is dropping support for the version that XYZ uses. The supply manager learns that an upgrade is cost prohibitive for XYZ. Prior to negotiations, the supply manager asks the IT department to detail its requirements for support of the software, and to assign an IT employee to attend the negotiations. The day before the negotiation, the supply manager learns that the assigned IT employee will be unable to attend due to a scheduling conflict. However, the IT employee expresses confidence that the supply manager can represent the IT department's needs in the negotiations. Given this scenario, which of the following should the supply manager do? A. Follow the advice of the IT employee and represent IT in the negotiations B. Escalate the issue to the IT director, ensuring that they send a representative C. Conduct the negotiations with the agreement that support issues will be dealt with at a later time D. Postpone the negotiations until an IT representative becomes available

B. Escalate the issue to the IT director, ensuring that they send a representative

3. BCD Fashion Inc. is preparing to launch a new product line consisting of high-profile fashion items. The firm has conducted extensive market research, and a rapidly growing demand for these items has been identified. BCD's supply management department has developed a sourcing plan based on input from design, marketing, and senior management. In preparation for launch, the supply management department ensures that BCD's suppliers are adequately equipped to handle the quickly shifting demand. However, when the product line launches, deliveries to retail locations experience delay. BCD's supply manager discovers that the firm's main logistics provider was not expecting an influx in shipment quantity. Which of the following is MOST likely the cause of this problem? A. Internal stakeholders were not fully engaged. B. External stakeholders were not fully engaged. C. There was insufficient market data. D. There was insufficient inventory .

B. External stakeholders were not fully engaged.

52. Which of the following is the GREATEST potential concern for companies that lack a sound supplier segmentation strategy? A. Loss in customer confidence, as customers cannot contribute to the strategy B. Failure to differentiate between suppliers' capabilities to fulfill the strategic goals of the buying organization C. Longer lead times from suppliers, as suppliers do not understand where they fit into the buying organization's operations D. Lower internal supplier ratings, as the suppliers are unable to understand delivery expectations

B. Failure to differentiate between suppliers' capabilities to fulfill the strategic goals of the buying organization

11. A supply manager is evaluating several potential overseas suppliers, and the degree of risk each would bring to the supply chain. Which of the following employment characteristics would be MOST favorable in a manufacturing relationship? A. Employment-for-life practices B. Flexibility in hiring and firing employees C. High unemployment rates D. High union membership of skilled labor

B. Flexibility in hiring and firing employees

39. A cross-functional team is executing a strategic sourcing strategy to consolidate the number of agencies used to create websites for the company's products. The team has been working on the project for several months, and has finalized its recommendation. Days before the team is scheduled to award the business to selected agencies, two new project stakeholders are identified. The new stakeholders are not familiar with the project's goals, objectives or execution. Given this situation, which of the following is the BEST course of action to take? A. Advise the new stakeholders of the recommendation and notify the suppliers B. Gain alignment to the recommendations with the new stakeholders C. Include the new stakeholders in the supplier selection process D. Restart the sourcing process with input from the new stakeholders

B. Gain alignment to the recommendations with the new stakeholders

21. In outsourcing goods and services, which of the following would typically be regarded as ancillary activities? A. Distribution/transportation B. Grounds maintenance C. Marketing surveys D. Specialized service offerings

B. Grounds maintenance

51. XYZ Company has a long history of aggressive supplier consolidation. XYZ experiences frequent quality and delivery issues, and its marketing department believes product costs are too high in some cases. Given this situation, which of the following would be the BEST course of action for XYZ to take? A. Initiate Kanban and other inventory management systems with the current suppliers B. Initiate a category management process featuring stakeholders from impacted functional areas C. Develop an audit plan of current suppliers, focusing on the quality and cost components of their businesses D. Conduct strategic sourcing intiatives on all major spend areas

B. Initiate a category management process featuring stakeholders from impacted functional areas

20. DEF, Inc. buys relatively simple medical assemblies from several manufacturers. The company wants to quickly identify and implement cost savings actions, and believes it could best accomplish this by consolidating purchases to one of its current sources. DEF cannot readily accept design changes, as such changes may violate the strict agency approvals. Given this situation, which of the following would be the MOST appropriate action for DEF to take to obtain pricing for higher aggregated volume? A. Send out a Request for Proposal (RFP) B. Issue an Invitation for Bid (IFB) C. Send out a Request for Information (RFI) D. Utilize a two-step bidding process

B. Issue an Invitation for Bid (IFB)

42. A supply manager for a privately held manufacturing company is preparing a request for proposal (RFP) for raw materials. None of the RFP recipients is an incumbent, and the award resulting from the RFP is expected to be of significant dollar value. The supply manager is concerned that the lack of publicly available financial information could impact willingness of the prospective suppliers to submit proposals. Which of the following will BEST address the concerns of the prospective bidders? A. Escrow account B. Letter of credit C. Payment bond D. Surety bond

B. Letter of credit

15. In supply base analysis, what degree of competition exists when there are only a few local suppliers, and they are similar in behavior and pricing? A. Technical B. Limited C. Multiple D. Fair and open

B. Limited

61. DEF Inc. has a two-year contract with Supplier X for a specialized sub-assembly. The contract is close to expiring. The sub-assembly has a high profit impact for DEF. Supplier X has performed well during the term of the contract, and has a corporate culture that complements DEF. Besides Supplier X, there is only one other manufacturer of this sub-assembly, and the required raw materials come from a volatile region of the world that often experiences supply disruptions. Which of the following is the BEST way for DEF to secure future supply for this sub-assembly? A. Competitively bid the sub-assembly B. Negotiate a partnering agreement with Supplier X C. Employ a reverse e-auction to procure the sub-assembly D. Competitively bid a partnering agreement for the sub-assembly

B. Negotiate a partnering agreement with Supplier X

65. A supply team is in negotiations with a raw material supplier. The buying firm needs to invest in significant quantities of raw material inventory, but also needs to protect its cash flow. Given this situation, which of the following should be the supply team's PRIMARY focus during negotiations? A. Cash discounts B. Payment terms C. Third-party financing D. Use of a purchasing credit card

B. Payment terms

54. A newly hired sourcing specialist meets with various stakeholders within the company and hears many opinions concerning where sourcing actions should start. Which of the following would be the MOST appropriate first step for the sourcing manager to take to begin sourcing efforts? A. Send out a survey to all stakeholders to get their opinions on opportunities to pursue B. Perform Pareto analysis on current spend to help identify opportunity areas C. Conduct supplier visits with all major suppliers D. Conduct a review of all existing supplier agreements

B. Perform Pareto analysis on current spend to help identify opportunity areas

85. A supply manager implements an agreement for three years containing a 30 day out clause with an early payment discount of 2 percent, if paid within 10 days/ 30 days net payable. If the supply manager's company terminates the agreement, it would be responsible for any goods already produced by the supplier on the company's behalf. Which of the following pieces of information, if any, must the supply manager report to the company finance organization? A. Annual value of the contract B. Potential financial obligation of the contract C. 30 day out clause and payment terms D. Term of the contract

B. Potential financial obligation of the contract

66. A supply manager is negotiating with a critical supplier. The parties have relatively equal bargaining power. Which of the following would MOST likely occur in "win-win" negotiation between these parties? A. The supply manager and supplier conclude the negotiation by splitting the difference between their respective positions. B. The supply manager and supplier each find concessions with equal weight/value to provide a balanced outcome. C. The supply manager and supplier find it necessary to share confidential information. D. The supply manager and supplier establish an appropriate settlement range for the continuation of negotiations.

B. The supply manager and supplier each find concessions with equal weight/value to provide a balanced outcome.

34. In order to guarantee supply of a component that appears in the critical quadrant of the supplier segmentation model, a supply manager should A. join a consortium B. issue a long-term contract Ci use supplier-managed inventory D. utilize a systems contract

B. issue a long-term contract

48. A negotiation for the acquisition and maintenance of a piece of equipment that will be used entirely for one service project would best be based on A. learning curve B. life-cycle costing C. profit analysis D. savings analysis

B. life-cycle costing

35. In general, a commodity manager's purchasing strategy should be guided PRIMARILY by A. past usage patterns B. overall corporate strategy C. the cost of acquisition D. supply availability

B. overall corporate strategy

71. Both parties leave the room during a negotiation with the understanding that they will reconvene at a later time. This is known as a A. stalemate B. recess C. caucus D. conference

B. recess

24. When assessing international markets for suppliers, the MOST important item supply management should consider is the A. culture of the supplier B. risk of the extended supply chain C. broadening supply base D. expansion of the customer base

B. risk of the extended supply chain

9. Of the following, the selection of a potential new supplier of capital equipment would MOST likely be affected by the A. supplier's lead time B. supplier's ability to produce reliable equipment C. location of the supplier's plant D. supplier's willingness to negotiate quoted prices

B. supplier's ability to produce reliable equipment

89. The PRIMARY purpose of antitrust laws is to prohibit A. price discrimination of goods of like grade and quality B. unreasonable restraint of trade C. exclusive dealings D. reciprocity

B. unreasonable restraint of trade

86. A supply manager is purchasing a large piece of capital equipment. The equipment will be custom-built and has a long lead time. Costs for some of the materials involved cannot be predicted with complete accuracy. In preparing the contract for the equipment, how can the supply manager BEST protect the buying organization from financial risks without undue impact on the equipment's cost? A. Provide for periodic price renegotiation on a pre-determined schedule B. Add a price adjustment clause based on market changes in the price of the equipment C. Add a price adjustment clause based on increases in the cost of materials D. Mandate that no price adjustments be permitted

C. Add a price adjustment clause based on increases in the cost of materials

Which of the following BEST describes a stakeholder? A. An internal person who is most affected by a particular decision-making process B. An internal person who has final authority in a decision-making process C. An internal or external person who will be affected by and/or can influence a decision-making process D. An internal or external person who controls or influences how a decision-making process will be handled

C. An internal or external person who will be affected by and/or can influence a decision-making process

68. Which of the following is likely to be the BEST use of social media sites such as Linkedin during the preparation for negotiations with a potential supplier? A. Selecting the ideal negotiation site B. Determining objectives for the negotiation C. Collecting information, reports and comments on the supplier D. Defining the roles and responsibilities of the negotiating team

C. Collecting information, reports and comments on the supplier

50. A gourmet foods maker has been enjoying steady growth and anticipates order volume beyond its current production capabilities. The firm's supply manager investigates additional co-packers to handle holiday demand surges. MNO Inc., a co-packer for a variety of foods, has an excellent reputation for quality, pricing, and delivery. However, MNO has recently been experiencing a significant drop in cash flow. Which of the following is the BEST course of action for the supply manager to take? A. Eliminate MNO as a potential supplier at this time B. Conduct a more extensive review of MNO's references C. Compare MNO's financial ratios with those of other suppliers D. Use an automated financial assessment model to evaluate MNO

C. Compare MNO's financial ratios with those of other suppliers

72. Which of the following is the MOST effective method for negotiating with the sole supplier of a unique item? A. Price analysis negotiations B. Price comparison negotiations C. Cost analysis negotiations D. Adversarial negotiations

C. Cost analysis negotiations

23. Which of the following is the MOST appropriate way of identifying outsourcing opportunities in overseas countries? A. Develop a plan that focuses on low cost countries, select a low-cost supplier, and develop the capabilities needed to promote the success of that supplier B. Select countries based on desired markets, and work with the local government to find suppliers that can produce the needed products C. Develop criteria encompassing the product requirements, weigh the criteria for importance, and evaluate each country against the criteria D. Evaluate the geographic concerns and political considerations, and locate the country that most closely represents the ideal solution with regard to these considerations

C. Develop criteria encompassing the product requirements, weigh the criteria for importance, and evaluate each country against the criteria

99. WXY, Inc. has historically sourced one of its major raw materials from a single source with only one manufacturing facility. The raw material supplier delivers a consistently highquality product and drives continuous improvement with cost reductions every year. This past year, however, the supplier's facility experienced a natural disaster, and the supplier was forced to close the facility for several months. This closure forced WXY to lower its production capability, costing millions of dollars in revenue and resulting in a number of customer complaints. In light of this, WXY would like to proactively diversify its supply base to be prepared for any possible future disaster. Which of the following should WXY do first to diversify its sourcing plan? A. Develop a historically underutilized business B. Implement cooperative buying C. Execute a contingency development program D. Pursue a joint venture

C. Execute a contingency development program

76. What is the contract term for the obligation of one party to cover the loss or damage suffered by another party? A. Assignment B. Confidentiality C. Indemnification D. Severability

C. Indemnification

80. A supply manager has been asked by the facilities manager to prepare a purchase order for $3,000 to buy a new air compressor for the company headquarters. Company policy requires senior management authorization for purchases greater than $2,500, yet the facilities manager has not secured this authorization. Which of the following is the BEST course of action for the supply manager to take? A. Place the order without the budget authorization B. Contact the finance office for the budget authorization C. Inform the facilities manager to obtain the authorization D. Negotiate a price that falls under the capital budget threshold

C. Inform the facilities manager to obtain the authorization

57. A category manager is given a goal of 50% cost reduction for monthly MRO spend. The category manager sets out to bring in more cost-effective items and satisfies this goal. However, equipment operators start to experience higher rates of failure during standard manufacturing operations, and quality control notes a decrease in the product quality. These issues are MOST likely the result of which of the following? A. Improperly trained equipment operators B. Insufficient inventory levels C. Lack of coordination with end users D. Failure to adequately identify the root cause of the quality issues

C. Lack of coordination with end users

75. Which of the following is used to confer decision-making power upon an individual when the regular decision-maker is unavailable? A. Assignability provision B. Dealer's agreement C. Letter of authorization D. Limitation of liability

C. Letter of authorization

4. The chief procurement officer (CPO) for a manufacturing company is informed by the chief executive officer (CEO) that the procurement team is not adding value or helping the firm meet strategic goals. The CPO is committed to delivering value for the organization. Given this situation, which of the following is the FIRST step the CPO should take in ensuring the success of the procurement team? A. Replace existing staff with individuals that hold professional designations B. Review the current purchasing and supplier management policy C. Meet with key business stakeholders to understand their priorities D. Interview current team members and ask for ideas to improve interaction

C. Meet with key business stakeholders to understand their priorities

37. Smith has been a procurement manager for a manufacturing company for several years, and is well-acquainted with the company's strategic plan and procurement strategy. Smith has been asked to be procurement manager for a new, unfamiliar category of items. Smith analyzes the historical spend data, maps out the stakeholders, and looks at the external market for the category . Which of the following is the NEXT step Smith should take in the process? A. Contact the key suppliers and learn more about their business B. Develop a strategy that will drive the category activities in the near future C. Meet with key stakeholders to learn their views of the market and suppliers D. Study the external market to gain more product expertise

C. Meet with key stakeholders to learn their views of the market and suppliers

64. UVW, Inc. has been sourcing parts from Supplier A, an overseas supplier, for the past two years. UVW's manufacturing and customer schedules require a single release consisting of the full quantity, and this is stated on the purchase order, as well as Supplier Ns purchase order confirmation. In practice, however, Supplier A often ships partial quantities over several releases. UVW is becoming concerned over the partial deliveries, even though Supplier Ns prices have been market tested and found to be very competitive. Given this situation, which of the following modifications to the sourcing agreement should UVW negotiate with Supplier A? A. Pay a 5% piece part penalty for any partial deliveries B. Extend payment terms for all partial deliveries C. Pay any added costs accrued due to partial deliveries D. Hold safety stock in its overseas factory

C. Pay any added costs accrued due to partial deliveries

81. Which of the following refers to an administrative review of an action or decision with which a supplier disagrees? A. Cancellation B. Extension C. Protest D. Termination

C. Protest

27. QPR, Inc. is small start-up organization that provides speech recognition technology used in the GPS navigation systems of small aircraft. Because of the complex technology involved, many components are purchased from outside suppliers. However, final product assembly takes place at the QPR plant. In recent months, QPR has experienced problems in its supply management process, with requisitions taking too long to be approved and invoices languishing unpaid. QPR wishes to employ technology as a solution to these problems. Which of the following would be MOST useful in this situation? A. Electronic data interchange B. Enterprise resource planning C. Purchase order system D. Reverse auction

C. Purchase order system

62. XYZ has a long-term agreement with a supplier. The agreement is set to expire within six months. The current supplier has failed to demonstrate reliable delivery and quality, and a cost analysis shows that the "should cost" for the highest volume part is 10% below the price XYZ is currently paying. The category manager wants to consider another supplier for a possible long-term relationship. Which of the following should the category manager do FIRST in order to prepare for negotiations with another supplier? A. Determine the category strategy B. Develop negotiation targets and settlement ranges C. Reassess the needs and wants of internal stakeholders D. Learn the market dynamics of the industry

C. Reassess the needs and wants of internal stakeholders

45. A supply manager is tasked with acquiring training services for a group of engineers who will be part of specialized sourcing teams charged with driving an aggressive cost reduction program. Which of the following methods would be MOST appropriate for the supply manager to employ in identifying appropriate training solutions? A. SWOT analysis B. Industry benchmarks C. Request for Information D. Porter's Five Forces

C. Request for Information

44. When it becomes necessary to share trade secrets with suppliers, which of the following actions provides the BEST protection to the buying organization? A. Marking information as confidential B. Patenting critical ideas C. Requiring non-disclosure agreements D. Pursuing compensation for any disclosures

C. Requiring non-disclosure agreements

46. A supply management analyst is evaluating performance data from two potential call center suppliers. Which of the following would be the BEST tool to employ in order to measure the performance of the suppliers? A. Histogram B. Fishbone diagram C. Scatter diagram D. X-Bar and R Chart

C. Scatter diagram

74. A supply manager issues a request for quotation (RFQ) for a component to be used in the organization's manufacturing process. The initial quotes do not fall within the organization's acceptable range. The supply manager issues new information to the participating suppliers and requests requotes, but the requotes also do not fall within an acceptable range. In this situation, which of the following is the BEST negotiation strategy for the supply manager to employ? A. Inform the suppliers that the event will be canceled unless a lower quote is provided B. Inform the suppliers that the organization is considering the possibility of making the product in-house C. Share the minimum value of the target range and initiate best and final offer discussions D. Accept the best quote from those submitted during the second round

C. Share the minimum value of the target range and initiate best and final offer discussions

28. A firm wishes to move its RFP process online. What effect is this likely to have on the strategic sourcing process currently in place? A. The typical strategic sourcing process can be eliminated. B. Some of the steps of the typical strategic sourcing process can be eliminated. Ct The typical strategic sourcing process will still need to be maintained. D. The processes can be consolidated, since an online RFP process includes the steps in the typical strategic sourcing process.

C. The typical strategic sourcing process will still need to be maintained.

88. The United Nations Convention on Contracts for the International Sale of Goods (CISG) is modeled on the A. North American Free Trade Agreement (NAFTA) B. Robinson-Patman Act C. Uniform Commercial Code (UCC) D. Walsh-Healey Public Contracts Act

C. Uniform Commercial Code (UCC)

The central sourcing manager in a multi-site organization is reviewing requirements for a new telephone system with the operations manager at one of the sites. The operations manager has an established budget and has selected a system. However, the purchase falls outside of the site's purchasing authority, so the approval of the central sourcing manager is required. Which of the following steps should the central sourcing manager take NEXT? A. Make the specifications generic and send invitations to bid to multiple suppliers B. Send invitations to bid to suppliers of the desired system C. Verify that the site manager's needs are consistent with the organization's strategy D. Check with external stakeholders to determine if the new telephone system is required

C. Verify that the site manager's needs are consistent with the organization's strategy

92. The practice of bypassing signature authority by splitting single purchases into smaller purchase orders not requiring management approval is MOST likely a result of A. inadequate training B. incompetent personnel C. a lack of capable processes D. a lack of top management support

C. a lack of capable processes

25. An organization outsources its customer service call center. The supplier's facility is severely damaged by a flood. The FIRST course of action should be to A. move the call center activity to another source B. bring the call center activity back in-house C. implement the business continuity plan D. hire an insurance inspector to assess damages

C. implement the business continuity plan

84. After the notice period specified in a "Termination for Convenience" clause, the buying organization may no longer A. employ that contractor for providing goods or services B. request damages for any default under the contract C. seek a certain deliverable in the contract D. provide payments to the contractor

C. seek a certain deliverable in the contract

26. A supply manager is piloting the use of an eAuction tool. This sourcing tool has never been used before in the supply manager's organization. The supply manager is seeking to select a project that will demonstrate to the organization the benefits of this tool. Of the following, the BEST course of action for the supply manager to take would be to A. interview key stakeholders and ask for input on potential categories B. start with a forward auction instead of a reverse auction C. select a category where there is organizational buy-in and the cost elements can easily be standardized D. select a critical category with standardized specifications that has a large spend and could be reduced or eliminated

C. select a category where there is organizational buy-in and the cost elements can easily be standardized

67. An in-depth analysis of a supplier's proposal is useful because it is important to understand the A. SOW throughout the evaluation process B. SOW throughout the proposal development process C. supplier's proposal throughout the negotiation process D. supplier's firm-fixed price

C. supplier's proposal throughout the negotiation process

49. A supply manager is evaluating proposals for a critical commodity. Although there is nothing substantively wrong with the low bidder's proposal, and it is likely to result in significant cost savings, the supply manager is concerned about the low bidder's financial stability. Which of the following is the BEST course of action in this situation? A. Split the award between the low bidder and the next lowest bidder B. Award the contract to the next lowest bidder to assure supply C. Award the contract to the low bidder and ensure that the contract has appropriate protection from default D. Award the contract to the low bidder and develop a reasonable contract termination plan

D. Award the contract to the low bidder and develop a reasonable contract termination plan

59. A large regional bank has been experiencing rapid growth. Because of this, different departments within the company are unaware of specific projects, resulting in multiple suppliers providing the same services across the firm. To remedy this situation, the procurement department decides to develop category management plans. In implementing these plans, which of the following will be MOST important for the procurement department to do? A. Gain a full understanding of the current amount spent for the goods and services that make up each category plan B. Assess whether each category plan accurately describes the current and the desired levels of performance C. Determine what type of market research should be conducted for each category plan D. Ensure that the plans are developed in partnership with key stakeholders and aligned with business objectives

D. Ensure that the plans are developed in partnership with key stakeholders and aligned with business objectives

93. A company wants to conduct an audit of the supply management function to ensure that its policies, processes and procedures are based on company principles and values. Which of the following would indicate that supply management is in compliance with corporate expectations? A. Implementation of commodity rotation and limitation of authority for buyers B. Use of an electronic system to document purchase entries, with multi-layer approval and automatic tracking of changes C. Development of a team approach in dealing with suppliers to prevent favoritism D. Implementation of written procedures on ethical behavior and mandatory training for all employees

D. Implementation of written procedures on ethical behavior and mandatory training for all employees

8. LMN, Inc. is a manufacturing firm that prides itself on responsiveness to customer needs. Recently, the firm's customer service manager has complained about slow delivery and increased lead times for components. As maintaining excellent customer service is critical to LMN, the supply manager has been directed to address the customer service manager's concerns. Given this scenario, which of the following would be the BEST course of action for the supply manager to take? A. Emphasize time-to-market improvements in the sourcing process B. Analyze the supply management function for value-added tasks C. Set goals for and track on-time delivery performance D. Incorporate stakeholder requirements into supply chain priorities

D. Incorporate stakeholder requirements into supply chain priorities

29. Company Xis implementing an eSourcing tool. The supply manager has been tasked with developing a pipeline of categories that will be sourced through the new system. In determining which items to start with, which of the following should the supply manager consider FIRST? A. Bottleneck and strategic categories B. Categories that have previously been sourced by Company X C. Categories with significant stakeholder support D. Leverage and non-critical categories

D. Leverage and non-critical categories

31. In spend analysis, which of the following attributes describes a critical sourcing category? A. High supply market competitiveness, low business impact B. Low supply market competitiveness, low business impact C. High supply market competitiveness, high business impact D. Low supply market competitiveness, high business impact

D. Low supply market competitiveness, high business impact

7. A buyer receives a requisition for a service from a user department. The requisition contains few details on the scope of the service, prompting the buyer to ask the user department for more information. The user department revises the requisition and sends it back to the buyer, but it still lacks sufficient detail. Given this situation, which of the following should the buyer do NEXT? A. Refrain from any further action until more details are supplied by the requesters B. Issue an RFP, as the scope and details will be developed through clarification with suppliers C. Ask the buyer's supervisor to intervene in the issue D. Meet with the internal stakeholders to discuss their needs

D. Meet with the internal stakeholders to discuss their needs

90. A supply manager meets with a salesperson for Supplier X to review a recent bid submission. The supply manager tells the salesperson that unless a certain provision in Supplier X's bid is changed, Supplier X will be out of contention. Accordingly, the salesperson revises the bid in order to meet supply manager's requirements. Is the salesperson's bid change to the bid submission legally binding on Supplier X? A. Yes, because the salesperson is the appointed representative to the buyer. B. Yes, because Supplier X must back up what its salespeople tell customers. C. No, because the salesperson is a general agent, not a special agent. D. No, because the salesperson's agency is limited to the solicitation of business .

D. No, because the salesperson's agency is limited to the solicitation of business .

73. The global commodity manager for manufacturer XYZ Inc. is conducting negotiations on a long-term contract with DEF, a key strategic supplier. DEF's delivery performance is rated at 73%, which is below the divisional goal of 98%. For this reason, XYZ's operations manager wants to drop DEF and find a new supplier. The commodity manager, however, is not in agreement with the operations manager, and notes that as part of the long-term agreement, DEF will provide a 15% cost reduction, which is critical to achieving the cost-reduction goal for the division for the current year. At this point, which of the following would be the MOST appropriate course of action for the commodity manager to take? A. Move forward with the contract implementation, as negotiations with DEF have been taken in good faith B. Place contract negotiations on hold to validate the initial project scope on delivery and cost targets for DEF C. Proceed with the contract implementation, but add a delivery performance clause to clarify the divisional goal D. Postpone contract negotiations to review the contract with the operations manager to ensure improved performance

D. Postpone contract negotiations to review the contract with the operations manager to ensure improved performance

32. A supply manager analyzes potential savings by consolidating expenditures across the organization. In this situation, which of the following types of analyses would be MOST appropriate? A. Cost B. Market C. Risk D. Spend

D. Spend

60. A multinational firm is organizing site visits to the production facilities of three suppliers. The suppliers offer a unique category of sub-assemblies used in various global locations. Which of the following departments is MOST suited to take the lead role in the site visits? A. Finance B. IT C. Process engineering D. Supply management

D. Supply management

53. When categorizing purchased items and services by market complexity and cost/value impact on the buying organization, which of the following is MOST applicable? A. ABC analysis B. Risk matrix C. Spend analysis D. Supply segmentation

D. Supply segmentation

78. A company plans to hire a consulting firm to implement a new employee benefits website. Which of the following is MOST appropriate for this contract? A. Cost plus pricing B. Loss leader pricing C. Market based pricing D. Time and material pricing

D. Time and material pricing

56. A manufacturer reveals that a new government regulation will ban the use of a chemical used in several of a firm's key products. The ban will take effect in two years. Which of the following is the BEST course of action for the supply manager to take? A. Adjust the chemical's min/max inventory levels B. Discard all of the chemical in the company's inventory C. Source an alternate product to replace the chemical D. Update the associated category sourcing strategy

D. Update the associated category sourcing strategy

38. A company has facilities in several locations. The engineering department is located in a facility somewhat distant from supply management. For this reason, interdepartmental communication and cooperation are poor, and it is not uncommon for engineering to contract with suppliers that supply management has not approved. The supply manager is developing a sourcing strategy and understands that engineering's cooperation is needed to make the strategy work. Given this situation, which of the following would be the supply manager's BEST course of action? A. Send the engineering manager a memo explaining the strategy, requiring that only approved suppliers should be contacted by engineering B. Send the strategy to both the engineering manager and the CEO, and ask the CEO for support in enforcing the strategy C. Visit the engineering department and explain the sourcing strategy to all design engineering personnel D. Visit the engineering manager and ask for help in creating the strategy to make sure it supports all of the organization's goals

D. Visit the engineering manager and ask for help in creating the strategy to make sure it supports all of the organization's goals

63. A category manager for XYZ Corp. has an upcoming negotiation with Supplier A. Supplier A has a patent on a unique piece of technology that enhances XYZ's best-selling product. XYZ's competitors also use Supplier Ns technology, but the supplier's capacity is limited for XYZ as well as its competitors. Given this situation, which of the following strategies should the category manager employ? A. Benevolent negotiation B. Positional bargaining C. Power negotiation D. Win-win negotiation

D. Win-win negotiation

10. The consolidation of requirements from multiple buying organizations into a single large order to obtain quantity discounts is called A. hybrid buying B. center-led buying C. commodity buying D. cooperative buying

D. cooperative buying