CIPS L5M2 Exam Practice Test Instant Access

Question 1

Which of the following will you put into box 5?

ACSR Policy

BQuote in Buyer's Currency

CForce Majeure

DStandardise Payment Terms

Answer : C

The correct answers are as follows:

A force majeure clause within a contract would allow XWY to end any contracts it is unable to fulfil without repercussions if an earthquake were to strike.

Question 2

Petra Ltd is a manufacturer of upmarket baked goods and they have a range which is gluten free and therefore suitable for customers who have an intolerance of wheat. For this reason Petra Ltd is very strict about the ingredients that it sources. It's main supplier has provided written agreement that they will test all ingredients in their processing factory to ensure that they are suitable for the gluten free diet before delivery is made, and once delivery is made the materials will be deemed accepted by the buyer. Is Petra right to accept this arrangement?

Ayes- this reduces the risk of unsuitable materials entering Petra's factory

Byes- this arrangement places the risk on the supplier rather than Petra

Cno- Petra should arrange for additional tests to be conducted on the deliveries and only accept them once these tests have been completed

Dno - this arrangement is unacceptable and Petra should void the contract

Answer : C

Petra should arrange for additional tests to be conducted. This question is based on a real example in the exam. In this scenario there is still significant risk for Petra even if the supplier is testing the materials. The supplier could miss something, or forge the results with disastrous consequences for Petra's customers. Moreover it would severely damage Petra's reputation. Therefore the wise thing would be for Petra to conduct additional tests in-house to ensure they are happy with the products and only then accept them. This could be an audit of 10% of deliveries to ensure compliance. Acceptance Testing is discussed in the textbook on p.70

Question 3

Which of the following will you put into box 5?

Aaudit

Bmonitor

Cinsurance

Ddual sourcing

Answer : B

The correct answers are as follows:

Question 4

Which of the following statements about normal distribution are correct? Select TWO

Ait is the most common type of distribution pattern

Bthere's a small number of data points required to produce

Cit is represented pictorially as a curve

Dmost of the data points correlate around the beginning

Eit is shaped like a bell curve

Answer : A, E

1 and 5 are correct- it is the most common type of distribution and it looks like a bell curve when it's drawn as a graph. There's one on p.127 to look at. The other three statements are incorrect- it's a bell shape rather than a curve, it requires a large number of data points and most of the data points correlate around the middle.

Question 5

Which of the following will you put into box 5?

ACSR Policy

BQuote in Buyer's Currency

CForce Majeure

DStandardise Payment Terms

Answer : D

The correct answers are as follows:

Standardised payment terms would help with cashflow. For example every client must pay within 30 days.

Question 6

Maple Tree Limited is a Canadian company who has recently signed a new contract with a supplier who is based in Chin

a. Maple Tree Limited will be buying a raw material with a reputation for severe price fluctuations. Which of the following would help mitigate the risk that this poses? Select TWO options

Aquote in the supplier's currency

Bquote in the buyer's currency

Cuse a forward exchange contract

Dfix the exchange rate at the current rate

Answer : C, D

The correct answers are 3 + 4. To mitigate the risk, you want to ensure price stability for the duration of the contract- you don't want the prices to keep going up and down. Therefore options 1 and 2 wouldn't help- the prices would still go up and down regardless of which currency was used for quotes. Using a forward contract, or fixing the exchange rate, however, would give price certainty, and therefore mitigate the risk. See p.23 for more information on currency risks and how to overcome these

Question 7

A supplier of non-critical items has a low credit score, Which of the following actions should be taken? Select TWO options.

Areplace the supplier as quickly as possible with a more financially stable supplier

Bconduct a benchmarking exercise

Ccreate a risk assessment and mitigation plan

Dinform the CEO of the company

Answer : B, C

The correct answers are conduct benchmarking and create a risk assessment. This supplier provides low value and low risk products - therefore the fact they have a bad credit rating isn't too much of a risk to your company. It's worth doing a benchmarking exercise to compare their position to others in the market to see if there are any industry-wide trends, and to create a risk assessment and mitigation plan. This could involve working with the supplier to help them improve their credit score, for example by using more favourable payment terms so they have a better cash flow. There's no need to replace them immediately, and there's no need to tell the CEO- they probably have more important things to think about than a singular supplier of non-critical items See p.81

CIPS Managing Supply Chain Risk L5M2 Exam Practice Test