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L4M2 Defining Business Needs Questions and Answers

Questions 4

Which of the following is the purpose of benchmarking?

Options:

A.

To identify and adapt the best practices to improve organisation's performance

B.

To copy other organisation's intellectual properties, processes and practices

C.

To coerce all suppliers to sacrifice their profit

D.

To resist continuous improvement

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Questions 5

British Steel needs to source a set of instruments that will improve quality of steel. Without these instruments British Steel will loss control of the temperature. The bucket may freeze up, or if it is too hot it leaks out of the casting process, damaging the machine. There is limited supply on the market and quality varies greatly. Which of the following will be the most appropriate managing approach to procure these items?

Options:

A.

Bundle these instruments into larger contract

B.

Leverage market competition to drive down cost

C.

Seek continuity of supply

D.

Form partnership with supplier

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Questions 6

Facing fiercer competition at home and abroad, IKEA, the leading furniture retailer, needs to im-prove its competitiveness. In order to do this, IKEA must decrease operating costs and improve quality of current and new retail stores. The company establishes a project team. The job of the team is to collect data on performance from multiple stores in several countries, then select the best performing one. The team will work closely with best performing store and study its processes. After the research, the team will recommend best practices to other retail stores. IKEA management can also apply these practices to new stores in the future. Which of the following correctly describe the process undertaken by IKEA project team?

Options:

A.

Internal benchmarking

B.

Competitive benchmarking

C.

Internal audit

D.

Site visit

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Questions 7

John has been asked to develop a business case before obtaining approval to purchase a large piece of capital equipment for a glove manufacturing unit. Is this the right thing to do?

Options:

A.

Yes, because this will help compare alternatives and options

B.

No, because risk consideration is not John's responsibility

C.

Yes, because this will assist the purchase order

D.

No, because this can lead to business-focused thinking

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Questions 8

A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in specification are higher than ISO standards, her company can achieve greater cost-savings. Is the procurement manager’s opinion correct?

Options:

A.

No, because higher specification may incur additional costs for the buyer

B.

No, because higher requirements in specification, the greater bargaining power of buying organisation

C.

Yes, because optimising the specification is the only method to achieve value for money

D.

Yes, because higher requirements will help buying organisation find the best supplier

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Questions 9

According to Porter’s value chain, which of the following activities is categorised as support activity?

Options:

A.

Product warranties and special services

B.

Storage of raw materials

C.

Distribution of products from factory to retailer

D.

Supervising the production line

E.

Develop digital SRM technology to manage suppliers better

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Questions 10

Which of the following are considered as direct costs in a construction company? Select TWO op-tions

Options:

A.

Raw materials

B.

An employee is hired to work on a project, either exclusively or for an assigned number of hours

C.

The materials and supplies needed for the company’s day-to-day operations.

D.

Advertising and marketing communication

E.

Clerical assistants who maintain the office

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Questions 11

What is the document that defines the activities, deliverables and timelines a supplier must carry out during contract performance?

Options:

A.

Statement of work

B.

Project initial document

C.

Framework agreement

D.

Work instruction

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Questions 12

Which of the following are the fair and reasonable comparators in price analysis? Select TWO that apply:

Options:

A.

Pricing formula

B.

Price indices

C.

Strike price

D.

Cost driver

E.

Competitive bidding

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Questions 13

A company is planning the procurement of an IT system and wants to agree a through-life contract with the supplier to ensure ongoing system support. The first step in producing that specification should be to:

Options:

A.

Build a design

B.

Prepare tendering documents

C.

Identify the IT system supplier

D.

Define the user requirements

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Questions 14

A hospital extensively spends on medical and implantable devices, medical, surgical and pharma-ceutical supplies, costs of supplies related to buildings and maintenance operations. Hospital’s procurement manager suggests that the hospital has an opportunity to reduce operational costs by reducing variation of medical devices and pharmaceutical supplies. Which of the following best describe the procurement manager's suggestion?

Options:

A.

Process standardisation

B.

Product standardisation

C.

Value engineering

D.

Process re-engineering

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Questions 15

Which of the following always impact negatively on a company's cash flow? Select TWO that ap-ply

Options:

A.

Increasing revenue

B.

More inventory

C.

Depreciation of fixed asset

D.

Supplier shortens their payment period

E.

Customers agree to pay immediately

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Questions 16

In 2016, ANA Airlines had to cancel some of its flight. The airline said it had discovered the cracks to the jet engine turbine blades. What should ANA procurement team do next to solve this problem?

Options:

A.

Collect data to identify the root cause

B.

Generate options addressing the issue

C.

Analyse the situation and draw conclusion

D.

Assess the risks

E.

Define the ideal solution

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Questions 17

A buyer may consider switching from one product or service to another, or from one supplier to another. Which of the following options are a type of switching cost?

    Inflation cost

    Historical cost

    Retraining cost

    Modification cost

Options:

A.

1 and 2

B.

2 and 3

C.

3 and 4

D.

1 and 4

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Questions 18

Apple’s CPO is planning a budget for purchasing carbon-free aluminium next year. There are 27.4 tonnes of aluminum in stock, while Apple will need 200 tonnes for production next year and double inventory for production in the following year. How much aluminum will Apple need to purchase in next year?

Options:

A.

172.6 tonnes

B.

117.8 tonnes

C.

282.2 tonnes

D.

227.4 tonnes

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Questions 19

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?

Options:

A.

Yes, because the specification should be concise.

B.

No, because “good quality” is an in-house jargon that suppliers are not familiar with

C.

Yes, because IT sector has its own standard of quality, therefore, suppliers may deliver good quality without any further explanation

D.

No, because “good quality” is very ambiguous for suppliers to identify Sabic’s re-quirement

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Questions 20

Which of the following standards specifies requirements for a quality management system?

Options:

A.

ISO 27001

B.

ISO 9001:2015

C.

ISO 22000:2018

D.

ISO 14001:2015

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Questions 21

GE has developed TurboProp engine that is made from over 850 metal parts. These parts are sourced from many suppliers. Value of spend on these parts make up 73% of total spend. Any delay in receiving a part will cause a bottleneck around the production of the engine. Which of the following should be the best course of action of GE's CPO?

Options:

A.

Drive down prices by using market competition

B.

Increase production

C.

Part standardisation

D.

Reduce delivery cost

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Questions 22

Why is the specification considered as the most important document in procurement?

Options:

A.

It provides a mean to appraise the performance of supplier

B.

It helps the buyer to gain at supplier's loss

C.

It eliminates all possible supply risks

D.

It always shifts the balance of bargaining power in favour of the buyer

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Questions 23

A company has installed a new piece of capital equipment but needs to arrange a maintenance contract for three years. The company wants to know as accurately as possible what this price will be for the full contract. What would be an appropriate type of pricing mechanism to use when asking suppliers to quote prices?

Options:

A.

Fixed price with adjustment for inflation

B.

Fixed price

C.

Cost plus percentage fee

D.

Cost plus fixed fee

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Questions 24

Which of the following activities are considered as secondary activities of an organization? Select TWO that apply

Options:

A.

Component fabrication

B.

Training

C.

Information system development

D.

Shipping

E.

Service response

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Questions 25

Ymira is asked to develop the specification for water purifier which will be used at the company headquarter. She believes that the specification can be drafted based on the information available on the Internet, such as blog posts, comparison websites, how-to websites, life hacks, etc. Which of the following traits will make the information more useful?

Options:

A.

Trustworthy sources

B.

Objectivity

C.

Subjectivity

D.

Written by inexperienced author

E.

Promotional information

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Questions 26

A large sports organisation requires some additional racing equipment to be built. It should match exactly the pre-determined technical specifications and requires exact compatibility. Which of the following specifications would be most appropriate?

Options:

A.

Conformance specification

B.

Performance specification

C.

Outcome specification

D.

Product specification

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Questions 27

Which of the following provides in-depth detail for both functional and non-functional require-ments and covers assumptions, constraints, performance, dimensions, weights and reliability of a product?

Options:

A.

Performance specification

B.

Tolerance

C.

Statement of work

D.

Design specification

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Questions 28

Aircraft Category Manager, Harpal Patel, is purchasing several aircraft engines. He is seeking to determine which category of specification will be most appropriate. He decides on using a conformance-based specification. A conformance-based specification is most appropriate in which one of the following instances?

Options:

A.

When technical dimensions are necessary for operational reasons

B.

When technology is changing rapidly in the market sector

C.

Where suppliers have greater relevant technical expertise than the buyer

D.

Where there are clear objective criteria for evaluating alternative solutions put forward by suppliers

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Questions 29

Housing Ltd is inviting a number of contractors to a tender for the construction of a commercial building. In the attachment to the invitation to tender, there is a document which describes the re-quired materials and installation methods. This document is known as...?

Options:

A.

Functional specification

B.

Prescriptive specification

C.

Drawings

D.

Performance specification

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Questions 30

Which of the following might be consequences of over-specification? Select TWO that apply:

Options:

A.

Reducing motion waste

B.

Higher cost due to inessential features

C.

Limiting competition in supply market

D.

Lack of essential features

E.

Better contract management

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Questions 31

This is the information on an organisation’s activities over the past year

• Sale were $5,000,000. The value of accounts receivable was $450,000 at the start of the year and $525,000 at the end of the year

• The value of direct costs was $2,500,000 and 75% of this was bought on credit

• Indirect costs were $3,000,000 and 25% of this was bought on credit

• During the year the organization spent $1,500,000 on new assets and sold $150,000 of old assets. $1,000,000 of the spend on assets was funded by a bank loan

• The organization declared a dividend of $200,000 at the end of the year but this was not paid for another two months

• Opening balance was $175,000

Which of the following is the bank balance of that organization at the end of the year?

Options:

A.

$1,675,000

B.

$1,875,000

C.

$1,700,000

D.

$2,025,000

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Questions 32

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?

Options:

A.

Yes, as this means the lowest cost within the market will be achieved

B.

Yes, as this can enhance the reputation of the brand

C.

No, because this will be in breach of competition laws

D.

No, because this will prevent innovation opportunities

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Questions 33

Which of the following are potential advantages of using a product performance specification?

    It reduces the need for the buyer to produce a detailed design

    It can widen the potential supply base

    The buyer can specify the product's actual design in detail

    Products are provided using the buyer's methodology

Options:

A.

1 and 2

B.

1 and 4

C.

3 and 4

D.

2 and 3

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Questions 34

NO: 34

Which of the following activities would apply to a straight rebuy procurement?

    Reviewing existing specifications and arrangements

    Engaging in extensive purchasing research

    Engaging in proactive value engineering

    Optimising inventory replenishment methods

Options:

A.

1 and 4 only

B.

2 and 3 only

C.

1 and 3 only

D.

2 and 4 only

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Questions 35

Which kind of these following costs belong to fixed costs? Select TWO that apply.

Options:

A.

Energy consumption in manufacturing

B.

The annual income tax charged by local authorities

C.

The packaging and distribution costs

D.

The depreciation of capital inputs

E.

The costs of leasing or purchasing capital equipment

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Questions 36

The bargaining strength of suppliers is likely to be high in which of the following situations? Select TWO that apply:

Options:

A.

The buyer is educated on supply markets

B.

There is a limited number of suppliers in relation to buyers

C.

The buyer is large in size relative to the supplier

D.

The buyer spend is a high proportion of a supplier's revenue

E.

The buyer requirement is urgent

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Questions 37

James Hunter has received a price increase request from a supplier with its justification. The supplier has requested the price increase because there has been an increase in staff sickness absence. James has reviewed the original contract and found a buyer provision for 'risk for additional resource.' This is the first year the supplier has experienced a resource issue. What should James do?

Options:

A.

Review the request in three months

B.

Request additional budget

C.

Reject the price increase

D.

Accept the price increase

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Questions 38

Which of the following are characteristics of effective financial markets?

    Market stability is maintained

    Market volatility is encouraged

    Investment is encouraged

    The level of regulation is reduced

Options:

A.

3 and 4 only

B.

1 and 3 only

C.

2 and 4 only

D.

1 and 2 only

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Questions 39

ESTION NO: 9

The buyer's database is regarded as a primary data source. Which of the following is also a source of primary data?

Options:

A.

Price lists collected from suppliers' representatives at trade fairs

B.

Price listings on comparison websites and market exchanges

C.

Published economic indices such as the retail price index (RPI)

D.

Financial and trade press, including journals published by professional bodies

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Questions 40

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?

Options:

A.

Bargaining power of buyer

B.

Threat of substitute

C.

Rivalry within the industry

D.

New entrants may enter the market

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Questions 41

Which of the following areas is specified by ISO/IEC 27001 family?

Options:

A.

The dimensions and associated tolerances for a series of housings for piston seals

B.

The requirements for an information security management system

C.

Evaluation and assessment of mutual agreed customer food safety requirements

D.

The requirements for an environmental management system

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Questions 42

Which of the following is a challenge of making a business case for straight re-buys?

Options:

A.

Terms and conditions

B.

Research of procurement process

C.

Effective inventory control

D.

Identifying suitable suppliers

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Questions 43

A charity is reviewing their spend and budget after an operation in flooded areas. They realise that the operators save money against the budgeting plan. This saving is known as...?

Options:

A.

Negative budget

B.

Positive variance

C.

Negative variance

D.

Positive budget

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Questions 44

Which of the following is the best definition of target costing?

Options:

A.

The net present cost of the purchase or project and all future revenues flowing from it discounted back to the present time.

B.

The total of all costs in acquiring goods or services from the inception of the demand for them until their safe and satisfactory delivery at the point required.

C.

The cost of a product after analysing its components step by step

D.

A product cost estimate derived from a competitive market price.

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Questions 45

Which of the following is the process for improving the value of a new product or service?

Options:

A.

Value engineering

B.

Porter's Five Forces

C.

Planning and design

D.

Value analysis

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Questions 46

Which competitive forces influence markets in our modern environment?

Options:

A.

Manufacturing of goods and services

B.

Production companies and relationships

C.

Increased cost in supply and deliveries

D.

Bargaining strength of suppliers and buyers

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Questions 47

What does the acronym RAQSCI stand for?

Options:

A.

Relationship, Ability, Quality, Service, Cost, Innovation

B.

Regulatory, Availability, Quality, Service, Cost, Innovation

C.

Regulatory, Availability, Quantity, Sustainability, Inventory

D.

Regulatory, Ability, Quality, Service, Cost, Inventory

E.

Relationship, Availability, Quantity, Sustainability, Cost, Innovation

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Questions 48

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?

Options:

A.

Yes, the organisation needs to reduce the supply risks

B.

No, the organisation should run competitive biddings to exploit the competition

C.

No, there is no way to escape this dependency

D.

Yes, this action will dramatically increase the supplier's bargaining power

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Questions 49

Which of the following specific markets engage in creation, liquidation and change of ownership of stock?

Options:

A.

Financial

B.

Manufacturing

C.

Construction

D.

Agriculture

E.

Retail

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Questions 50

Company A sells a product for $100. The total unit variable costs are $60. Fixed costs as in its ac-count are $20,000. How many products does the company have to sell to achieve break-even point?

Options:

A.

600

B.

550

C.

400

D.

500

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Questions 51

A procurement manager is requested to source a major component. She needs information on sup-pliers’ direct and indirect cost, fixed and variable costs to prepare for negotiations. Therefore, she collects 17 annual reports from potential suppliers who are competing in the same industry. In order to estimate an approximate value of fixed and variable costs in that industry, which of the following technique should be adopted by the procurement manager?

Options:

A.

Line of best fit

B.

Variance calculation

C.

Total cost of ownership

D.

Open-book costing

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Questions 52

Which of the following are major factors when determining the bargaining power of buyers? Select THREE that apply.

Options:

A.

Number of buyers relative to suppliers

B.

Dependence of a buyer’s purchase on a particular supplier

C.

Life cycle costs

D.

Cash flow

E.

Switching costs

F.

Interest costs

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Questions 53

Which of the following statements is true about product life cycle?

Options:

A.

The price remains static throughout the product life cycle

B.

The price competition will be the fiercest at the declining stage because the inventories are plentiful

C.

If price skimming is adopted, the supplier will gradually lower the price when it attracts enough buyers

D.

Sale volume will be the highest at the introductory stage

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Questions 54

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?

Options:

A.

Benchmarking is a panacea for all WAS's problems

B.

It will help WAS create performance standards derived from an analysis of the best in business

C.

It helps WAS identify better ways to deliver service through a cookbook process

D.

It will help WAS analyse the competitors in the industry

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Questions 55

When analyzing direct and indirect costs of potential suppliers for negotiations and planning pur-chasing budget, the procurement manager collects reports from specialist organisations like Mintel, Gartner and Forrester. Which kind of information source is used by the procurement manager?

Options:

A.

Company annual report

B.

Technical data

C.

Market data

D.

RFI

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Questions 56

Lider Ltd is a leading bathroom furniture manufacturer in India. The company has more than 30 years experience in the market with extended knowledge of engineering and customers' taste. Lider is planning to launch a new type of bath fitting next year which offers Bluetooth connectivity and thermostat display. The company gathers a team of multi-disciplines, including engineering, procurement, sales and marketing. At the first team meeting, the project leader tells the team to discuss which functions will be valued by the customers, and how to deliver those functions with the lowest costs possible. Which of the following describes the process that the project team is undertaking?

Options:

A.

Cost analysis

B.

Standardisation

C.

Value engineering

D.

Just in time

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Questions 57

After a project, the procurement team at CLK Ltd meets up and summarises on the performance. They see that they actually spent $5,000 less than planned budget. The team tries to identifies why there is such difference. This activity is known as...?

Options:

A.

Cash flow analysis

B.

Variance analysis

C.

Rolling budget

D.

Cost modelling

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Questions 58

CP Group places emphasis on the following business objectives:

    Responsive production processes to react quickly to market changes

    Collaboration and technological integration

    New products launched and on sale very quicklyWhich of the below business markets does CP Group belong to?

Options:

A.

Construction

B.

Financial

C.

Retail

D.

Agriculture

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Questions 59

Which of the following specific markets is most likely to have product shortage by nature?

Options:

A.

Retail

B.

Financial

C.

Construction

D.

Services

E.

Agriculture

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Questions 60

What are the direct risks that can result from procurement receiving inadequate specifications from a research and development department?

Options:

A.

Increased business size

B.

Under or over delivery of goods

C.

Increased labour costs

D.

Under or over statement of need

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Questions 61

Synergy Ltd is a fast-growing tool and hardware retailer. The company's customer services team has been using Excel worksheets to manage customer relationships. When the company is expend-ing its market presence, this way of working leads to poorer customer services as the database is scattered around in spreadsheet, leading to patchy and inconsistent conversations with customers. The company decides to purchase a CRM system. What requirement should Synergy's procurement team take into account in the specification for CRM system?

Options:

A.

Total number of the supplier's employees

B.

The ability to import bulk data from Excel spreadsheets

C.

The relative size of the potential suppliers to Synergy

D.

The form and reference number of the purchase order

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Questions 62

Which of the following are recognised competitive strategies?

1. Winning new business at all cost

2. Getting more customers’ attention

3. Creating stand-out products and brands

4. Focusing on niche market

5. Acquiring competitors

Options:

A.

3 and 4 only

B.

3 and 5 only

C.

1 and 2 only

D.

2 and 5 only

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Questions 63

Which of the following are typical benefits of through-life asset management to buying organisa-tion? Select the TWO that apply.

Options:

A.

Shorter specifications

B.

Lower risks as there are many suppliers accountable for costs and service over the life of the asset

C.

Lower total cost of ownership

D.

Greater supplier's bargaining power

E.

Better capability of supplier over time

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Questions 64

Which of the following are likely to be disadvantages of using outcome-based specifications? Select THREE that apply

Options:

A.

Time consuming to produce

B.

Stifling innovation

C.

Difficulty to measure performance

D.

Long time delay between action and result

E.

Responsibility for product failure falling to buyer

F.

Ambiguity of outcome

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Questions 65

Which of the following events would increase the number of suppliers in a particular market?

Options:

A.

Introduction of minimum wage regulations

B.

High and increasing levels of investment required to enter the market

C.

Requirement for all companies to have 10,000 or more employees

D.

De-regulation of a previously government-run industry

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Questions 66

Which of the following problems may be identified as open-ended problems? Select TWO that apply:

Options:

A.

Shortage of key medicines in healthcare industry

B.

A cyber attack takes down whole company’s IT system

C.

Engine failures cause flight cancellations.

D.

Logistics costs incur a large portion in wholesale prices

E.

The suppliers don’t comply with the company’s policy on underage labour.

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Questions 67

Which of the following would a buyer include when issuing an output specification to suppliers?

Options:

A.

A requirements brief

B.

The characteristics of the components

C.

The manufacturing processes required

D.

A product sample

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Questions 68

Jasmine identified a possible new supplier that offers commercial improvements in her category of spend. She decided to put forward a business case to justify the necessity for a new supplier assessment and audit with the aim of adding the supplier to the approved list. Jasmine decided to carry out a cost-benefits analysis. Is this the right approach for Jasmine to use?

Options:

A.

No, cost-benefits analysis should be done by accounts only

B.

Yes, cost-benefits analysis will show if benefits offered outweigh the cost of the approval

C.

Yes, cost-benefits analysis is a regulatory requirement for any business case

D.

No, cost-benefits analysis is not required; she should request supplier approval

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Questions 69

The procurement team of a global supermarket has created a business case for a corporate social responsibility (CSR) sourcing strategy to meet the corporate objective of sustainability. This would require sourcing only from suppliers who meet ethical standards, a reduction in plastic, and using recycled material where possible. Which of the following business benefits would be mentioned in the business case? Select TWO that apply:

Options:

A.

Fulfilment of a business objective

B.

Increased capacity

C.

Leverage of technology

D.

Improved brand equity

E.

Reduced cost

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Questions 70

Bob is a new procurement specialist at XYZ Ltd. He is assigned to categorise the company's sup-plies. After analysing, Bob realises that a group of low value products is sourced from a tiny geo-graphical area which is prone to flooding. What would be the best strategy to manage this category of products?

Options:

A.

Source this group of products from only one supplier

B.

Find an alternative source to secure supply

C.

Assign some of procurement jobs to user department

D.

Form partnership relationship with the current supplier

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Questions 71

A buyer is undertaking an analysis of the market. This analysis has focused on the relative power of the main buyers in the market. It has also focused on the changes in capacity available amongst the key suppliers in this market. Which of the following describes this analysis?

Options:

A.

Regulatory analysis

B.

Industrial analysis

C.

Demand and supply analysis

D.

Consumer analysis

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Exam Code: L4M2
Exam Name: Defining Business Needs
Last Update: Dec 1, 2024
Questions: 237

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