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| Section | Objectives |
|---|---|
| Demand management and value for money | - Demand analysis and forecasting - Whole life costing and total cost of ownership - Balancing cost, quality, and risk |
| Understanding and defining business needs | - Role of procurement in identifying and defining needs - Alignment of procurement with organisational objectives |
| Specification development | - Key performance indicators and measurable requirements - Types of specifications (input, output, conformance) - Stakeholder engagement in requirements definition |
| Risk, sustainability, and compliance considerations | - Legal and regulatory constraints affecting specifications - Managing procurement and supply risks - Sustainability and ethical sourcing requirements |
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NEW QUESTION # 288
Which of the following will help the bargaining strength of a buyer?
* The buyer has the option to make the product in-house
* There are a limited number of suppliers available to the buyer
* The buyer's switching costs are high
* The buyer's spend is a high proportion of the supplier's revenue
Answer: C
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2: Market Management) CIPS L4M2 draws heavily on Porter's Five Forces when explaining buyer and supplier power. A buyer's bargaining strength increases when:
* The buyer has alternatives or can make the product in-house (reduces supplier dependence).
* The buyer represents a large portion of the supplier's sales, giving the buyer leverage.
Therefore:
* Statement 1 (make in-house) # strengthens buyer's position.
* Statement 4 (buyer's spend = high proportion of supplier's revenue) # supplier cannot risk losing the buyer, so buyer gains power.
* Statements 2 and 3 # limited suppliers and high switching costs both reduce buyer power.
Hence, 1 and 4 only are correct.
Relevant CIPS L4M2 Sections:
* Porter's Five Forces model
* Factors affecting buyer power and supplier dependence
NEW QUESTION # 289
Which of the following are primary sources of market data for costs and prices? Select TWO that apply.
Answer: A,D
NEW QUESTION # 290
Why is the specification considered as the most important document in procurement?
Answer: C
Explanation:
Specification is the most important document in procurement because it sets out the quality which supplier must provide. If there is no spec or the spec lacks clarity and details, supplier's perfor-mance may vary and possibly lower than actual requirements. This puts the buyer at risks. On the other hand, if the spec is clear and detailed, the supplier is liable to provide 'fit for purpose' products or perform the service at required level of quality. This will ensure that the buyer achieve 'Right Quality'.
Reference:
- CIPS study guide page 116-130
- How fitness for purpose works - Evocurement
LO 3, AC 3.1
NEW QUESTION # 291
Which of the following is a risk to buying organization when using conformance specification?
Answer: A
Explanation:
When using conformance specification, the buying organisation is responsible for the performance of the purchase. If the product fails due to poorly designed specification, the buyer is wholly responsible for it. It cannot blame the supplier for the failure because they still provided 'fit for purpose' product.
'Time to produce specification is shortened': Conformance specification requires details on dimen-sion, materials, design, etc. With such requirements, time to produce a complete conformance specification is often longer than producing performance specification.
'Buyer cannot control the inputs': Conformance specification is a list of inputs from buyer, so buyer has control over the inputs that will make the product. It also means that buyer is responsible for any product failure.
'Buyer may face liquidity risks': Liquidity means that how quick a business turns its assets into cash. This is a financial term, it does not link directly with specification failure.
Reference:
LO 3, AC 3.1
NEW QUESTION # 292
When should procurement professional tolerate a risk?
Answer: D
Explanation:
Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. Our preferred way to determine your risk control strategy is to use the four T's Process:
Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business (such as some trivial annoyance). Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.
Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred.
Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the ap-proach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.
If an item presents a risk and can be changed or removed without it materially affecting the busi-ness, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.
Reference:
LO 3, AC 3.3
NEW QUESTION # 293
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