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CIPS L4M2 exam is suitable for candidates who have some experience in the procurement field, and who wish to enhance their knowledge and skills in defining business needs. Candidates who successfully pass L4M2 exam will be able to demonstrate a thorough understanding of the procurement process, as well as an ability to identify and define the business requirements to ensure that procurement activities are aligned with organizational goals. Defining Business Needs certification will help individuals to stand out in the competitive job market and will provide them with extensive knowledge required to define business needs.
NEW QUESTION # 111
SET Group are a start-up company trying to estimate the direct costs of materials for a project. The organisation has limited procurement records available. Would using general industry averages as a benchmark provide an accurate estimation of the project costs?
- A. No, industry benchmarks do not consider specific specifications, quality requirements, or real-time market conditions
- B. Yes, industry benchmarks are always kept up to date to consider real-time market conditions
- C. No, the organisation will not have access to industry benchmarks as they are a new organisation
- D. Yes, cost predictions do not need to be accurate as they are just an initial guess
Answer: A
NEW QUESTION # 112
In which circumstances would it be relevant to require supplier accreditation to the ISO 14001 international standard in a contract specification? Select THREE that apply.
- A. The requirements will generate waste
- B. The requirements involve the processing of data
- C. The requirements cause emissions to air and water
- D. The requirements will use natural resources
- E. The requirements need specific quality assurance
- F. The requirements impact on occupational health
Answer: A,C,D
NEW QUESTION # 113
Which of the following specific markets is most likely to have the lowest entry barrier?
- A. Agriculture
- B. Financial
- C. Manufacturing
- D. Retail
- E. Services
Answer: E
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
NEW QUESTION # 114
Which of the following statements is true about product life cycle?
- A. The price remains static throughout the product life cycle
- B. The price competition will be the fiercest at the declining stage because the inventories are plentiful
- C. If price skimming is adopted, the supplier will gradually lower the price when it attracts enough buyers
- D. Sale volume will be the highest at the introductory stage
Answer: C
Explanation:
A product's life cycle portrays the length of time a product is in the market; from the beginning of its introduction to consumers until it is removed from shelves and phased out. This cycle is often divided into four phases: introduction, growth, maturity, and decline. Depending on the relevant stage, companies will set an according strategy to achieve their desired targets. Pricing and promotions play a pivotal role in the design of these product life cycle strategies. Therefore, product life cycle management, the process of strategizing ways to continuously support and maintain a product, is seen more and more at pricing mature players and could bring real value to your company.
Introduction phase: during the introduction phase, the new product is introduced to consumers and a substantial amount of money is invested in advertising and marketing campaigns to bring awareness of the product to the customer. In this phase competition is low, but units sold will also correspondingly be quite low as well still. Consumers need to be convinced of the benefits of the product. Lots of articles never make it beyond this phase: e.g. 3D televisions.
Profits in the introduction stage tend to be low or there may even be a loss. This is because the cost of marketing to establish product awareness plus distribution costs can be far higher than the revenue received from sales. This can be offset to a degree by 'skimming' price in the very early stages. Skimming a price is where a business charges the highest price that it thinks the market will bear initially until product recognition brings in other buyers and then the price drop.
Growth phase: when it's shown there is proven demand for the product and consumers are buying it, the next stage will be its growth phase. This phase is punctuated by increasing demand, increas-ing production and an increase in the competitive landscape. Availability of the product is under-standably paramount during this phase, going out of stock is unthinkable during the growth period.
The electric car is an example of a product that is currently in the midst of the growth phase.
Maturity phase: normally the maturity phase is the phase that is characterized by declining production and marketing costs due to synergies and economies of scale. During this phase the first signs of market saturation occur and most consumers or households already own the product. Sales numbers still grow, but at a slower pace. In the maturity phase, price competition becomes intense, a broader range of distribution channels are deployed and competition is more focused on competitive pricing, marginal product differences or the difference in services or promotions. This period in the PLC is often said to be the 'cash-cow period'.
That being said, the idea of 'Maturity from the start' also exists. This occurs when a brand decides to launch a product extension and directly follows up the maturity phase of an earlier version of the product. For example, the iPhoneX followed up from the 'normal' iPhone-series and therefore the iPhoneX never had to undergo the introduction or growth phase, but immediately started in its maturity phase.
Decline phase: the final phase of the PLC is entered once the product loses market share to other, newer products and the competitive landscape becomes too hard to survive. During this stage, de-mand declines, companies are left with overstock with prices and margins getting depressed. Therefore retailers and brands normally start stunting with promotions during the decline of the PLC to sell their final stock.
A well-known example of a product that has been through the decline phase were the Nokia phones; sales results dramatically decreased after the introduction of the iPhone.
NEW QUESTION # 115
A procurement manager is requested to source a major component. She needs information on sup-pliers' direct and indirect cost, fixed and variable costs to prepare for negotiations. Therefore, she collects 17 annual reports from potential suppliers who are competing in the same industry. In order to estimate an approximate value of fixed and variable costs in that industry, which of the following technique should be adopted by the procurement manager?
- A. Open-book costing
- B. Variance calculation
- C. Total cost of ownership
- D. Line of best fit
Answer: D
Explanation:
Public annual reports can be a source of information that helps the procurement professional to analyse an industry's cost and revenue using the line of best fit. Line of best fit is one of the most important outputs of regression analysis. Regression refers to a quantitative measure of the relationship between one or more independent variables and a resulting dependent variable. Regression is of use to professionals in a wide range of fields from science and public service to financial analysis.
In this case, by collecting and analysing 17 annual reports, the procurement manager can find the line of best fit which goes approximately through the middle of the data points with an equal num-ber of data points above and below it.
The slope of the line of best fit is the approximate variable costs the industry. The easiest way to calculate it is to take a point at the right-hand end of the line of best fit and note its cost and output levels. Divide the cost by the output and this gives and approximate figure for the cost per unit of output or variable cost. This gives an approximate value for the industry fixed and variable costs.
Reference:
LO 2, AC 2.3
NEW QUESTION # 116
Which of the following is the disadvantage of embedding standards in a specification?
- A. Standards are too static and discourage innovation
- B. Standards do not improving buyer's bargaining power
- C. Standards are too flexible and may cause ambiguity in the specification
- D. Embedding standards into specification requires enormous time and effort
Answer: A
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."
NEW QUESTION # 117
ABC Ltd has recently set up a stationery contract with a large stationery provider, obtaining fixed prices on core stationery items. The brochures have been distributed within ABC Ltd and one of the key users wants to order a corner desk and office chair from the brochure. Is this within scope?
- A. Yes, because the office equipment is in the brochure and must be covered
- B. Yes, because the contract is with the company and not just stationery
- C. No, because the contract is for stationery only and not furniture
- D. No, because the corner desk wouldn't match existing furniture
Answer: C
NEW QUESTION # 118
A procurement manager is requested to source a major component. She needs information on sup-pliers' direct and indirect cost, fixed and variable costs to prepare for negotiations. Therefore, she collects 17 annual reports from potential suppliers who are competing in the same industry. In order to estimate an approximate value of fixed and variable costs in that industry, which of the following technique should be adopted by the procurement manager?
- A. Open-book costing
- B. Variance calculation
- C. Total cost of ownership
- D. Line of best fit
Answer: D
Explanation:
Public annual reports can be a source of information that helps the procurement professional to analyse an industry's cost and revenue using the line of best fit. Line of best fit is one of the most important outputs of regression analysis. Regression refers to a quantitative measure of the relationship between one or more independent variables and a resulting dependent variable. Regression is of use to professionals in a wide range of fields from science and public service to financial analysis.
In this case, by collecting and analysing 17 annual reports, the procurement manager can find the line of best fit which goes approximately through the middle of the data points with an equal num-ber of data points above and below it.
The slope of the line of best fit is the approximate variable costs the industry. The easiest way to calculate it is to take a point at the right-hand end of the line of best fit and note its cost and output levels. Divide the cost by the output and this gives and approximate figure for the cost per unit of output or variable cost. This gives an approximate value for the industry fixed and variable costs.
NEW QUESTION # 119
When procuring a machinery, at which stage buyer must check whether it is working to the stand-ards set out in the design specification?
- A. Manufacture
- B. Customer support
- C. Maintenance and repair activities
- D. Installation
Answer: D
Explanation:
Through-life Management involves the life-cycle management of the products, services and activities required to deliver a fully integrated capability to the customer, while reducing the cost of ownership for the customer.
Source: Andrew Graves
The installation stage occurs in In-Service Operations. At this stage, the machinery is shipped and installed on the buyer's premises and check to ensure that it is working to the standards set out in the design specification.
Reference:
LO 3, AC 3.2
NEW QUESTION # 120
What are the direct risks that can result from procurement receiving inadequate specifications from a research and development department?
- A. Increased labour costs
- B. Under or over delivery of goods
- C. Under or over statement of need
- D. Increased business size
Answer: B
NEW QUESTION # 121
A hospital extensively spends on medical and implantable devices, medical, surgical and pharma-ceutical supplies, costs of supplies related to buildings and maintenance operations. Hospital's procurement manager suggests that the hospital has an opportunity to reduce operational costs by reducing variation of medical devices and pharmaceutical supplies. Which of the following best describe the procurement manager's suggestion?
- A. Process re-engineering
- B. Process standardisation
- C. Product standardisation
- D. Value engineering
Answer: C
Explanation:
The hospital is buying too many product variants. This may cause bottleneck in its operation and increase operational expense. So procurement manager suggests to standardise products.
This is an example of the benefits of product standardisation:
Saint Thomas Health, a system of 5 hospitals, needed to find a way to reduce costs. They were purchasing different SKUs for products that were very similar, in this case, labels. They bought label rolls for $3 and a very similar product for $1. This oversight in product purchases impacted the overall costs of the system. After partnering with a sole source vendor it was able to save $200,000 over a four year span. They accomplished this simply by standardizing label products. These savings, however, only account for the immediate savings from standardizing products. The saving that are not factored into that number are the savings from soft or hidden costs.
On a national scale, hospitals lose millions of dollars per year in hidden expenses due to missed opportunities for cost containment and incorporation. Some of the hidden elements that increase overall costs for a healthcare provider include the following:
- Redundant purchasing
- Freight
- Excessive purchase orders
- Multiple vendor relations
- Low efficiency
- Joint commission fines
- HAI
By implementing product standardization, hospitals and health systems reduce vendors, are able to reduce SKUs, purchase orders, inefficiency, freight costs, fines, and off-contract spending. All of this adds up to large savings for the organization as a whole.
96% of the respondents in the survey agree that consolidating suppliers and standardizing product purchases across organization would reduce hidden costs.
Reference:
- CIPS study guide page 157-159
- 3 Ways Product Standardization Can Help You Get a Bonus - ConnectID (pdchealthcare.com) LO 3, AC 3.4
NEW QUESTION # 122
A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can't be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier's costs plus 10% markup on total costs. This arrangement is known as...?
- A. Cost-plus Fixed percentage
- B. Cost-plus fixed-fee
- C. Cost-plus incentive fee contracts
- D. Cost-plus award fee
Answer: A
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract's full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
1. Cost-plus award fee contracts allow the contractor to be awarded a fee usually for good per-formance.
2. Cost-plus fixed-fee contracts cover both direct and indirect costs, in addition to a fixed fee.
3. Cost-plus incentive fee contracts happen when the contractor is given a fee if his or her perfor-mance meets or exceeds expectations.
4. Cost-plus percent-of-cost contracts allow the amount of reimbursement to rise if the contrac-tor's costs rise.
In the scenario, the procurement manager suggests a pricing structure that covers supplier's costs and adds
10% markup. This is cost-plus fixed-percentage.
NEW QUESTION # 123
A food manufacturer wants to predict the pricing point for a new and innovative health drink. Which method of market research would be beneficial to receive the most accurate information?
- A. Focus groups
- B. Internet searches
- C. Sales trends
- D. Consumer data
Answer: D
Explanation:
Detailed Explanation:Consumer data provides specific, measurable insights into purchasing behavior, preferences, and willingness to pay. This is the most accurate method for setting a pricing strategy, as it uses real-world data rather than subjective opinions or generic trends. Reference: CIPS Level 4, Market Research Techniques.
NEW QUESTION # 124
A buyer is undertaking an analysis of the market. This analysis has focused on the relative power of the main buyers in the market. It has also focused on the changes in capacity available amongst the key suppliers in this market. Which of the following describes this analysis?
- A. Regulatory analysis
- B. Industrial analysis
- C. Demand and supply analysis
- D. Consumer analysis
Answer: C
NEW QUESTION # 125
Which of the following are typical environmental considerations throughout the contract life cycle? Select the TWO that apply.
- A. Health and safety
- B. Modern slavery
- C. Pollution control
- D. Inequality
- E. Waste management
Answer: C,E
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:
Diagram Description automatically generated
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.
Graphical user interface, text, application, email Description automatically generated
Source: Buying for Victoria
NEW QUESTION # 126
A procurement manager includes provision on recovery from natural disaster into a through-life specification.
Some suppliers suppose that provision is unnecessary. Is procurement manager's action justified?
- A. Yes, because the regulations require contract to have recovery provision
- B. No, because with current technology, natural disaster can't disrupt supply chain.
- C. Yes, because natural disaster may cause risks in organisation's supply chain
- D. No, because this provision will incur unnecessary cost to supplier
Answer: C
Explanation:
Risks like natural disasters - fire, flood, or weather-related event, and cyber-attacks can disrupt the supply chain seriously. Threats and disruptions mean a loss of revenue and higher costs, which leads to a drop in profitability. And businesses can't rely on insurance alone because it doesn't cover all the costs and the customers who move to the competition. Risks must be identified early and supplier should have a plan that ensures continuous operations during disasters.
There are several steps many companies must follow to develop a solid business continuity plan. They include:
- Business Impact Analysis: Here, the business will identify functions and related resources that are time- sensitive. (More on this below.)
- Recovery: In this portion, the business must identify and implement steps to recover critical business functions.
- Organization: A continuity team must be created. This team will devise a plan to manage the disruption.
- Training: The continuity team must be trained and tested. Members of the team should also complete exercises that go over the plan and strategies.
NEW QUESTION # 127
A procurement manager includes provision on recovery from natural disaster into a through-life specification. Some suppliers suppose that provision is unnecessary. Is procurement manager's action justified?
- A. Yes, because the regulations require contract to have recovery provision
- B. No, because with current technology, natural disaster can't disrupt supply chain.
- C. Yes, because natural disaster may cause risks in organisation's supply chain
- D. No, because this provision will incur unnecessary cost to supplier
Answer: C
Explanation:
Risks like natural disasters - fire, flood, or weather-related event, and cyber-attacks can disrupt the supply chain seriously. Threats and disruptions mean a loss of revenue and higher costs, which leads to a drop in profitability. And businesses can't rely on insurance alone because it doesn't cover all the costs and the customers who move to the competition. Risks must be identified early and supplier should have a plan that ensures continuous operations during disasters.
There are several steps many companies must follow to develop a solid business continuity plan. They include:
- Business Impact Analysis: Here, the business will identify functions and related resources that are time-sensitive. (More on this below.)
- Recovery: In this portion, the business must identify and implement steps to recover critical business functions.
- Organization: A continuity team must be created. This team will devise a plan to manage the disruption.
- Training: The continuity team must be trained and tested. Members of the team should also complete exercises that go over the plan and strategies.
Reference:
LO 3, AC 3.2
NEW QUESTION # 128
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 jun-ior procurement staff at the company, assumes that she could skip market analysis stage to save time. Is this assumption reasonable?
- A. No, market analysis will inform the company of the pricing as well as latest technology trends
- B. Yes, Leanne just needs to purchase the tractor from her friend's company
- C. Yes, the company has extensive experience in purchasing tractor
- D. No, the company assesses supplier's performance solely based on market analysis
Answer: A
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.
NEW QUESTION # 129
Bob is a new procurement specialist at XYZ Ltd. He is assigned to categorise the company's sup-plies. After analysing, Bob realises that a group of low value products is sourced from a tiny geo-graphical area which is prone to flooding. What would be the best strategy to manage this category of products?
- A. Assign some of procurement jobs to user department
- B. Source this group of products from only one supplier
- C. Form partnership relationship with the current supplier
- D. Find an alternative source to secure supply
Answer: D
Explanation:
In the scenario, the products have low value and high risk of supply. This group is known as bottleneck or critical in Kraljic's portfolio matrix. The objective for such items would be securing the supply. The company can achieve this goal by 'making' the products themselves, or finding an alternative option.
Diagram Description automatically generated
NEW QUESTION # 130
Which of the following might be consequences of over-specification? Select TWO that apply:
- A. Better contract management
- B. Higher cost due to inessential features
- C. Reducing motion waste
- D. Lack of essential features
- E. Limiting competition in supply market
Answer: B,D
Explanation:
Over-specification can cause problems to buying organisation, include the following:
- Higher expense due to unnecessary features embedded into the product
- Stifle competition because higher requirements will lead to fewer suppliers in the market are able to supply
- Harder to evaluate the trade-offs between different features and attributes in the specification Reference:
LO 3, AC 3.3
NEW QUESTION # 131
Builder Inc is a rapidly expanding business in construction sector. Due to an increase in projects, it cannot manage the flow of materials by Excel spreadsheets but by more dedicated software. Who would be a key internal stakeholder in defining software compatibility with company's current system?
- A. IT team
- B. Finance team
- C. Procurement team
- D. Executive team
Answer: A
Explanation:
Internal stakeholders may contribute to defining needs and drafting the specification by using their technical expertise. In this scenario, IT team may consult procurement team on the technical specification of the software, including compatibility with company's current IT system.
Reference:
LO 3, AC 3.4
NEW QUESTION # 132
How can a procurement department meet the business needs when purchasing leverage items?
- A. Developing long-term relationships such as partnerships
- B. Developing efficient order processes such as e-procurement
- C. Developing buying power such as competitive tendering
- D. Developing effective contracts such as call-off contracts
Answer: C
NEW QUESTION # 133
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