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| Section | Objectives |
|---|---|
| Understand market management in procurement and supply | - Contrast direct costs and indirect costs
|
| Understand the use of specifications in procurement and supply | |
| Understand how to develop a business case for requirements to be sourced from external suppliers | - Analyse how market factors affect procurement |
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NEW QUESTION # 275
To improve the productivity, Plantation Ltd is planning to purchase a tractor, which it has never bought before. The project must be quick to catch up with the next growing season. Leanne, a jun-ior procurement staff at the company, assumes that she could skip market analysis stage to save time. Is this assumption reasonable?
Answer: C
Explanation:
Market analysis is a stage in CIPS Procurement and Supply Cycle. This stage informs the purchaser about the number of suppliers, the average pricing, and product trends. Even urgent purchase should undergo market analysis. Without undertaking this stage, the buying organisation may not purchase the right product, or they may purchase at higher price.
NEW QUESTION # 276
Which of the following are most likely to increase the buyer's bargaining power?
1. Buyers are price sensitive
2. High set-up cost for new entrants
3. Threat of forward integration is high
4. Threat of backward integration is significant
Answer: B
Explanation:
Price sensitivity is the degree to which the price of a product affects consumers ' purchasing behaviours.
Buyer power will be stronger if buying organisation are price sensitive and vice versa.
Backward integration is a form of vertical integration in which a buying organisation expands its role to fulfil tasks formerly completed by businesses up the supply chain. Buyer power is strong if threat of backward integration is high.
Set-up cost is a determinant of threat of new entry. Some industries require very expensive assets in order to make products. The financial risk of entering the industry and not succeeding can deter many potential new entrants. The fewer new entrants, the fewer available substitutes, then the bar-gaining power of buyer can be negatively affected.
Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a compa-ny ' s products.
Threat of forward integration is a determinant of supplier ' s bargaining power.
Reference: CIPS study guide page 88-91
LO 2, AC 2.2
NEW QUESTION # 277
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: A
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 # 278
Dana is an automobile manufacturer. It has a new electrification strategy that aims at making eco-friendly electric pick-up trucks. To implement this strategy, the procurement department must source new categories of parts that make motors, sensors, solenoids and stators. He starts to analyse the market by identifying specific supply market segments for those parts and finding suppliers who have the best capabilities in those segment. He intends to segment the market based on specific features of the products. Which variable is used by Dana procurement manager to shape and manage supply market?
Answer: C
Explanation:
In sales and marketing, market segmentation is the process of trying to understand clusters of cus-tomers in terms of their buying behavior and their buying characteristics. There are some traditional segmentation approaches: geography, demography, types of industry and the benefits. Then there are newer segmentation approaches: behavioral, situational, and psychographic.
Procurement professionals can learn market segmentation from sales and marketing. Segmenting the market can help them to shape and manage the supply market effectively. According to Michael Porter, a market can be segment with array of products and buyers.
Text Description automatically generated
Source: Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p. 234).
Free Press. Kindle Edition.
In the scenario, the products that Dana needs to source is distinct in their features. The best way is to segment the market by product varieties.
Reference: CIPS study guide page 65
LO 2, AC 2.1
NEW QUESTION # 279
XYZ Ltd is the largest consumer of brass in the country. It consumes 48% of all brass manufactured, while the second-largest consumes less than 10% of brass manufactured. Which force or power does XYZ Ltd possess?
Answer: C
NEW QUESTION # 280
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