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| Section | Objectives |
|---|---|
| Topic 1: Understand how to develop a business case for requirements to be sourced from external suppliers | - Analyse how market factors affect procurement |
| Topic 2: Understand market management in procurement and supply | - Contrast direct costs and indirect costs
|
| Topic 3: Understand the use of specifications in procurement and supply |
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NEW QUESTION # 104
A procurement manager includes provision on recovery from natural disaster into a through-life specification. Some suppliers suppose that provision is unnecessary. Is procurement manager's action justified?
Answer: C
Explanation:
Risks like natural disasters - fire, flood, or weather-related event, and cyber-attacks can disrupt the supply chain seriously. Threats and disruptions mean a loss of revenue and higher costs, which leads to a drop in profitability. And businesses can't rely on insurance alone because it doesn't cover all the costs and the customers who move to the competition. Risks must be identified early and supplier should have a plan that ensures continuous operations during disasters.
There are several steps many companies must follow to develop a solid business continuity plan. They include:
- Business Impact Analysis: Here, the business will identify functions and related resources that are time-sensitive. (More on this below.)
- Recovery: In this portion, the business must identify and implement steps to recover critical business functions.
- Organization: A continuity team must be created. This team will devise a plan to manage the disruption.
- Training: The continuity team must be trained and tested. Members of the team should also complete exercises that go over the plan and strategies.
Reference:
LO 3, AC 3.2
NEW QUESTION # 105
Halfords is a major bicycle and car parts retailer with long history in the market. Its suppliers are plentiful and there is no threat of forward integration. Some other smaller retailers are applying 3D-printing technology to make personalized bicycle parts but their market share is relatively low. 3D-printing technology is an example of which competitive force?
Answer: C
Explanation:
3D-printed parts can replace traditional metal parts. They are also more easily customised to fit customer's needs. This technology is an example of threat of substitute in Porter's Five Forces model.
Substitute goods or services that can be used in place of a company's products or services pose a threat.
Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favorable terms. When close substitutes are available, customers will have the option to forgo buying a company's product, and a company's power can be weakened.
Reference:
- CIPS study guide page 85-96
- Porter's 5 Forces Definition: Analyzing Businesses (investopedia.com) LO 2, AC 2.2
NEW QUESTION # 106
ABC Ltd has enormous investment in facilities and machinery. It also employs skilled workforce. To be profitable, the company has to produce at massive quantity. Which sector does ABC Ltd belong to?
Answer: E
Explanation:
In the scenario, ABC Ltd has the following characteristics:
- Large investment in facilities and machinery
- Access to skilled workforce
- Mass production.
This company is a manufacturer. Manufacturing is an industry that makes products from raw ma-terials by the use of manual labour or machinery and that is usually carried out systematically with a division of labour.
Manufacturing requires investment in machinery and access to a suitably skilled workforce as well as materials and components.
NEW QUESTION # 107
Ethan is the newly appointed CEO of ATT Group. He sees that the company is wasting financial resources on unnecessary spends. To solve this problem, Ethan requires all functional managers to prepare their department budget from scratch. Each spend must have justification or it will not be approved. Which budgeting method is Ethan using?
Answer: C
Explanation:
There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based.
Incremental budgeting takes last year's actual figures and adds or subtracts a percentage to obtain the current year's budget. It is the most common method of budgeting because it is simple and easy to understand.
Activity-based budgeting is a top-down budgeting approach that determines the amount of inputs required to support the targets or outputs set by the company. For example, a company sets an out-put target of $100 million in revenues. The company will need to first determine the activities that need to be undertaken to meet the sales target, and then find out the costs of carrying out these ac-tivities.
In value proposition budgeting, the budgeter considers the following questions:
- Why is this amount included in the budget?
- Does the item create value for customers, staff, or other stakeholders?
- Does the value of the item outweigh its cost? If not, then is there another reason why the cost is justified?
Value proposition budgeting is really a mindset about making sure that everything that is included in the budget delivers value for the business. Value proposition budgeting aims to avoid unneces-sary expenditures - although it is not as precisely aimed at that goal as our final budgeting option, zero-based budgeting.
As one of the most commonly used budgeting methods, zero-based budgeting starts with the as-sumption that all department budgets are zero and must be rebuilt from scratch. Managers must be able to justify every single expense. No expenditures are automatically "okayed". Zero-based budgeting is very tight, aiming to avoid any and all expenditures that are not considered absolutely essential to the company's successful (profitable) operation. This kind of bottom-up budgeting can be a highly effective way to "shake things up". This is the method used in the scenario.
Reference:
- CIPS study guide page 58
- Types of Budgets - The Four Most Common Budgeting Methods (corporatefinanceinstitute.com) LO 1, AC 1.4
NEW QUESTION # 108
Which of the following always impact negatively on a company's cash flow? Select TWO that ap-ply
Answer: A,B
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.
Reference: CIPS study guide page 54
LO 1, AC 1.4
NEW QUESTION # 109
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