L4M2 Clearer Explanation - Latest L4M2 Exam Materials

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NEW QUESTION # 27

A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in specification are higher than ISO standards, her company can achieve greater cost-savings. Is the procurement manager's opinion correct?

A. No, because higher requirements in specification, the greater bargaining power of buying organisation
B. Yes, because optimising the specification is the only method to achieve value for money
C. Yes, because higher requirements will help buying organisation find the best supplier
D. No, because higher specification may incur additional costs for the buyer

Answer: D

Explanation:

The specification that is produced too detailed will incur unnecessary cost because it does not allow suppliers to use their expertise in finding the most efficient way to produce it.

'No, because higher requirements in specification, the greater bargaining power of buying organi-sation': more detailed specifications could tighten the supplier base and potentially leave buying organisation with fewer potential supplier. This may reduce buyer's bargaining power in negotia-tion.

'Yes, because higher requirements will help buying organisation find the best supplier': in some circumstances, higher requirements will lead to smaller supplier base. In the worst scenario, there is no supplier who has capability to carry out those requirements

'Yes, because optimising the specification is the only method to achieve value for money': There are other methods to achieve cost saving and value for money, inter alia, volume concentration, relationship restructuring, etc.

Reference:

LO 3, AC 3.1

NEW QUESTION # 28

What will be the result of retaliation between business rivals in an industry?

A. Lower profit
B. Greater bargaining power of suppliers
C. Higher exit barrier
D. More new entrants

Answer: A

Explanation:

Industry rivalry-or rivalry among existing firms-is one of Porter's five forces used to deter-mine the intensity of competition in an industry. Other factors in this competitive analysis are:

- Barriers to entry

- Bargaining power of buyers

- Bargaining power of suppliers

- Threat of substitutes

Industry rivalry usually takes the form of jockeying for position using various tactics (for example, price competition, advertising battles, product introductions). This rivalry tends to increase in intensity when companies either feel competitive pressure or see an opportunity to improve their position.

In most industries, one company's competitive moves will have a noticeable impact on the competition, who will then retaliate to counter those efforts. Companies are mutually dependent, so the pattern of action and reaction may harm all companies and the industry.

Some types of competition (for example, price competition) are very unstable and negatively influence industry profitability. Other tactics (for example, advertising battles) may positively influence the industry, as they increase demand or enhance product differentiation.

References

Porter, M. (1998). Competitive Strategy. New York: Free Press. pp. 17-23.

CIPS study guide page 86-87

LO 2, AC 2.2

NEW QUESTION # 29

A CPO is analyzing whole life cycle costing of a machinery. He realises that cost elements are not specific but come from a range of values. Which whole-life costing model should the CPO use to get the most accurate total cost of ownership?

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

Answer: B

Explanation:

There are three basic groups of WLC (whole life-cycle costing) models:

- Decision support models

- Simulation models: Life cycle cost is an essential approach to decide on alternative rehabilitation strategies for infrastructure systems. Monte Carlo simulation approach is used to develop a stochastic life cycle cost (SLCC) model and methodology in order to compare different rehabilitation scenarios/alternatives for infrastructures, such as water mains. This method assumes that some inputs are randomly variable in a range of values.

- Optimisation models

Reference:

LO 1, AC 1.2

NEW QUESTION # 30

Despite of better improvement rates than other types of benchmarking, functional benchmarking still has downsides. Which of the following is most likely to be a disadvantage of functional benchmarking?

A. Legal issues regarding intellectual property
B. Unfair competition
C. Difference of corporate cultures across companies
D. Benchmarking can only be undertaken within an industry

Answer: C

Explanation:

Functional benchmarking is a comparison to similar or identical practices (e.g., the picking process for assembling customer orders, maintaining inventory controls of spare computer parts, logistics to move operational forces, etc.) within the same or similar functions outside the immediate industry. Functional benchmarking might identify practices that are superior in your functional areas in whatever industry they may exist. Functional benchmarking would be accomplished at the federal level by comparing the IRS collections process against those of American Express. Comparing copper mining techniques to coal mining techniques is an example in the private sector.

Benefits

- Provides industry trend information

- Quantitative comparisons

- Better improvement rate

Challenges

- Diverse corporate cultures

- Great need for specificity

- Not invented here. syndrome

- Common functions can be difficult to find

- Takes more time than internal or percent

- Must be able to visualize how to adapt the best practices

Source: USN Benchmarking Handbook

LO 1, AC 1.3

NEW QUESTION # 31

Why should procurement professionals develop business case before seeking approval to purchase capital equipment?

A. Devising business case may prompt the procurement to consider different options
B. Using business case will prevent new entrants from entering the supply market
C. A business case can be used as a replacement of purchase order
D. Business case is a tool that eliminates all risks associated with the project

Answer: A

Explanation:

A business case is developed during the early stages of a project and outlines the why, what, how, and who necessary to decide if it is worthwhile continuing a project. One of the first things you need to know when starting a new project are the benefits of the proposed business change and how to communicate those benefits to the business.

Preparing the business case involves an assessment of:

- Business problem or opportunity

- Benefits

- Risk

- Costs including investment appraisal

- Technical solutions

- Timescale

- Impact on operations

- Organizational capability to deliver the project outcomes

These project issues are an important part of the business case. They express the problems with the current situation and demonstrate the benefits of the new business vision. Making business case with multiple options and choices also prompts the procurement and senior management to consider alternatives. As a result, the organisation may opt out the best option.

The business case brings together the benefits, disadvantages, costs, and risks of the current situa-tion and future vision so that executive management can decide if the project should go ahead.

Reference:

- CIPS study guide page 19-21

- How to Write a Business Case - Template & Examples | Adobe Workfront

LO 1, AC 1.1