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CIPS Defining Business Needs L4M2 Exam Practice Test
Question 1
Which of the following are major factors when determining the bargaining power of buyers? Select THREE that apply.
Answer : A, B, E
Question 2
The bargaining strength of suppliers is likely to be high in which of the following situations? Select TWO that apply:
Answer : B, E
B (Limited number of suppliers): Fewer suppliers lead to higher bargaining power due to reduced competition.
E (Urgent buyer requirement): Suppliers gain leverage when buyers have limited time to source alternatives.
Education on markets and buyer size are factors that strengthen buyer, not supplier, bargaining power. Reference: CIPS Level 4, Supplier Negotiation and Market Power.
Question 3
Facing fiercer competition at home and abroad, IKEA, the leading furniture retailer, needs to im-prove its competitiveness. In order to do this, IKEA must decrease operating costs and improve quality of current and new retail stores. The company establishes a project team. The job of the team is to collect data on performance from multiple stores in several countries, then select the best performing one. The team will work closely with best performing store and study its processes. After the research, the team will recommend best practices to other retail stores. IKEA management can also apply these practices to new stores in the future. Which of the following correctly describe the process undertaken by IKEA project team?
Answer : A
Basically, IKEA project team is undertaking the following process:
This is a typical benchmarking process. Benchmarking is defined as the process of measuring products, services, and processes against those of organizations known to be leaders in one or more aspects of their operations. Benchmarking provides necessary insights to help you understand how your organization compares with similar organizations, even if they are in a different business or have a different group of customers.
In the scenario, benchmarking process is undertaken within subsidiaries of IKEA, thus it is internal.
- CIPS study guide page 49-51
- What is Benchmarking? Technical & Competitive Benchmarking Process | ASQ
- Internal Benchmarking at IKEA
LO 1, AC 1.3
Question 4
What criteria can be applied in the production of a business case?
Answer : D
A strong business case includes a clear assessment of costs, the expected benefits, and the viable options available. These criteria ensure a structured approach to decision-making and alignment with strategic goals. Reference: CIPS Level 4, Business Case Development.
Question 5
GE has developed TurboProp engine that is made from over 850 metal parts. These parts are sourced from many suppliers. Value of spend on these parts make up 73% of total spend. Any delay in receiving a part will cause a bottleneck around the production of the engine. Which of the following should be the best course of action of GE's CPO?
Answer : C
In this scenario, the final product has vast range of parts. The second problem is lacking any part can cause disruption to the production process. So GE has 2 things to do: to reduce the part varie-ties, and secure the supply. Part standardisation is the best option here. It can simplify the range of parts or materials used, and simultaneously, it expands the supply base of GE. If a supplier fails to deliver the part, the company always has other options to replace.
Costs are also a concern, but bottleneck in production imposes a serious risk to the organisation. Driving down costs using market competition cannot be a foremost priority.
Increasing production may help to reduce bottleneck. However, it will also increase the inventory of finished products and unnecessary upkeep costs.
LO 3, AC 3.4
Question 6
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?
Answer : A
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.
LO 3, AC 3.1
Question 7
A garment manufacturer supplies global retailers with t-shirts, shirts, and linen trousers. Because of currency fluctuations, the manufacturer is aware that they must control their direct costs in order to ensure profits. Which of the following is a direct cost for the garment manufacturer?
Answer : B
Cotton fabric is a direct cost because it is directly attributable to the production of the garments. Costs like rent, utilities, and payroll are indirect costs associated with running the business. Reference: CIPS Level 4, Cost Categorization in Procurement.
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