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| Section | Objectives |
|---|---|
| Topic 1: Understand the use of specifications in procurement and supply | |
| Topic 2: Understand how to develop a business case for requirements to be sourced from external suppliers | - Analyse how market factors affect procurement |
| Topic 3: Understand market management in procurement and supply | - Contrast direct costs and indirect costs
|
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NEW QUESTION # 72
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...?
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.
Reference:
- Cost-Plus Contract Definition (investopedia.com)
- CIPS study guide page 30-36
LO 1, AC 1.2
NEW QUESTION # 73
Why should the buying organisation require the supplier to carry out acceptance testing?
Answer: A
Explanation:
Acceptance testing, in the context of the engineering and software industries, is a functional trial performed on a product or prototype before it is put on the market or delivered, to decide whether the specifications or contract have been met. It also makes sure the quality and design of the product meet both contractual and regulatory obligations in terms of functionality, usability, durability, and safety.
If a product is found to be unacceptable at this stage, it can be sent back for modification, debug-ging, repair, or re-design before it can become a costly undertaking for the producer, as would be the case in a product recall.
NEW QUESTION # 74
Which of the following statements is the best definition of 'value engineering?
Answer: D
Explanation:
Value Engineering (VE) is concerned with new products. It is applied during product development. The focus is on reducing costs, improving function or both, by way of teamwork-based product evaluation and analysis. This takes place before any capital is invested in tooling, plant or equipment.
This is very significant, because according to many reports, up to 80% of a product's costs (throughout the rest of its life-cycle), are locked in at the design development stage. This is under-standable when you consider the design of any product determines many factors, such as tooling, plant and equipment, labour and skills, training costs, materials, shipping, installation, maintenance, as well as decommissioning and recycle costs.
LO 3, AC 3.4
NEW QUESTION # 75
An IT category buyer wishes to include social and environmental criteria within a supplier specification. The focus is on the avoidance of hardware manufacturing inputs that have been derived from ' conflict minerals ' , e.g. from politically unstable areas. Is this the right approach?
Answer: C
Explanation:
Sustainability and ethical sourcing are now integral to specifications, especially in sectors like IT procurement, where the use of conflict minerals is a known issue.
The CIPS L4M2 Study Guide, Chapter 1: Developing Specifications, states:
"Including environmental and ethical criteria in specifications helps organisations demonstrate corporate social responsibility and enhances their reputation with stakeholders and customers." Assessment of options:
* A. Preventing innovation - Incorrect. Ethical requirements don't prevent innovation; they guide it responsibly.
* B. Breach of competition laws - No. Ethical sourcing does not violate competition law as long as all suppliers are evaluated fairly using published criteria.
* C. Enhances brand reputation - Correct. Ethical practices (e.g., avoiding conflict minerals) demonstrate corporate responsibility and improve brand image.
* D. Achieving lowest cost - Ethical sourcing often prioritises responsible practices over lowest cost.
Correct answer: C
CIPS Study Guide Reference:
* Module: L4M2 - Defining Business Needs
* Chapter 1: Specification Development
* Topic: Ethical and environmental considerations in specifications
NEW QUESTION # 76
Warwickshire Ambulance Service (WAS) is an NHS Trust. It operates throughout Warwickshire and the neighbouring areas. It has three core areas of activity, namely the provision of Emergency Ambulance Services, routine Patient Transport Services, and Logistic Medical Services. The agency is working towards higher service level through benchmarking. Which of the following is the benefit of benchmarking to WAS?
Answer: D
Explanation:
Benchmarking is 'the pursuit by organisations of enhanced performance by learning from the suc-cessful practices of others. Benchmarking is a continuous activity; key internal processes are adjusted, performance is monitored, new comparisons are made with the current best performers and further changes are explored.
Where information about these key processes is obtained through a co-operative partnership with specific organisations (rather than via a third party such as an independently-maintained database), there is an expectation of mutual benefit over a period of time.
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NEW QUESTION # 77
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