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| Section | Objectives |
|---|---|
| Demand management and value for money | - Whole life costing and total cost of ownership - Balancing cost, quality, and risk - Demand analysis and forecasting |
| Specification development | - Key performance indicators and measurable requirements - Stakeholder engagement in requirements definition - Types of specifications (input, output, conformance) |
| Understanding and defining business needs | - Role of procurement in identifying and defining needs - Alignment of procurement with organisational objectives |
| Risk, sustainability, and compliance considerations | - Managing procurement and supply risks - Legal and regulatory constraints affecting specifications - Sustainability and ethical sourcing requirements |
>> Latest CIPS L4M2 Exam Guide <<
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NEW QUESTION # 162
Which of the following might be consequences of over-specification? Select TWO that apply:
Answer: B,E
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: CIPS study guide page 141-142 LO 3, AC 3.3
NEW QUESTION # 163
Which of the following always impact negatively on a company's cash flow? Select TWO that ap-ply
Answer: C,D
Explanation:
To answer this question, candidates are required to remember the cash flow cycle and cost entries as well as the impact of their timing on a business.
Diagram Description automatically generated
Source: https://cfoperspective.com/free-your-cash-trapped-in-the-cash-conversion-cycle/ Shorter payment term and more inventory are likely to have negative impact on the cash flow be-cause the buyer has to pay sooner and greater.
"Customers agree to pay immediately" will increase the organisation's bank account sooner.
Depreciation has no impact on cash flow as it is only listed in Profit and Loss statement.
Increasing revenue may have negative or positive impact on cash flow, depending on the real situation.
NEW QUESTION # 164
A procurement team is categorising their purchased items into four quadrants of Kraljic ' s supply chain portfolio matrix. They realise that there are some low-value items which come from very few suppliers in the market. The organisation is critically dependent on these suppliers. The team plans to reduce the dependence by finding alternative sources. Is this a right course of action?
Answer: B
Explanation:
According to Kraljic portfolio matrix, the low-value items with high supply risk are bottleneck items.
The purchasing strategy that is commonly recommended for these products is primarily based on acceptance of the dependence and reduction of the negative effects of the unfavourable position. An alternative strategy suggested by purchasing practitioners is to find other suppliers and move towards the non-critical quadrant.
- Accept dependence, reduce negative consequences: The main focus of this strategy is to assure supply, if necessary even at additional cost. Examples of this strategy are keeping extra stocks of the materials concerned or developing consigned stock agreements with suppliers. By performing a risk analysis firms can identify the most important bottleneck products and consider the implications. A possible action for dealing with unexpected bad dependence positions for certain products is to employ contingency planning.
- Reduce dependence and risk, find other solutions: This strategy is geared towards reducing the dependence on the supplier. The most common way to achieve this is to broaden the specifications of the product or to search for new suppliers.
The procurement team in the scenario has selected reducing dependency by finding alternatives. This is a right strategy for bottleneck item.
Reference:
- CIPS study guide page 82-84
- Purchasing strategies in the Kraljic matrix-A power and dependence perspective, Marjolein C.J. Caniels, Cees J. Gelderman LO 2, AC 2.1
NEW QUESTION # 165
The procurement officer for Hunter Manufacturing has been tasked to procure a new manufacturing software management system. They have consulted all relevant internal stakeholders and have the following high-level requirements: flexibility throughout the project, and the supplier to recommend best solutions for building the system. Which type of specification should be developed?
Answer: C
Explanation:
This scenario points to a Performance Specification, where the output or outcome is defined, but the supplier has the freedom to decide how it is achieved.
The CIPS L4M2 Study Guide, Chapter 1: Developing Specifications, defines performance specifications as:
"Performance specifications set out the function or performance outcomes required rather than prescribing how the solution should be delivered. This approach allows suppliers to innovate and recommend best-fit solutions." Review:
* A. Performance - Correct. The buyer outlines the outcome (flexibility and best-fit), not the specific method. The supplier is expected to design the solution.
* B. Conformance - Refers to adherence to existing standards; not suitable for a flexible or innovative solution.
* C. Design - Specifies exactly how something must be made; limits supplier input and flexibility.
* D. Technical - Similar to design, focusing on detailed product specifications, not outcome-based.
Correct answer: A
CIPS Study Guide Reference:
* Module: L4M2 - Defining Business Needs
* Chapter 1: Types of Specification
* Section: Performance Specifications
NEW QUESTION # 166
Sabic is a petrochemical manufacturer. It wants to digitalise its operation and is looking for new IT system.
The procurement manager approaches this matter with a through-life specification. He supposes that stating
"good quality" in the specification will be enough for quality standard section. Is the procurement manager's thought appropriate?
Answer: D
Explanation:
Specifications for through-life contracts must be clear. They should use precise technical language and avoid any ambiguity as much as possible. In most cases, 'good quality' is ambiguous. The con-tractor doesn't know exactly which product the buying organisation needs and how to supply that product.
Other notices for description of requirement are:
- Short and simply description
- Clear definitions at the beginning of the documents
- Clarify abbreviations (if any), but abbreviations should be avoided as much as possible
- Avoid any 'slang'
- Use imperative forms of language whenever possible.
LO 3, AC 3.2
NEW QUESTION # 167
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