A supply manager Is planning for negotiations with a sole-source supplier of an essential part. The buying firm is already one of the supplier's top customers, and will need even larger quantities of the part to expand its product line in the near future. The supply manager learns that the supplier may experience some financial risks over the coming year, and that the supplier is anxious to solidify its relationships with major customers to mitigate that risk. Which of the following Is the BEST way for the supply manager to gain a deeper understanding of the supplier's position?
Which of the following is the MOST important factor in the development of RFx documentation and processes?
Which of the following contract types is an agreement to pay a specified price when the items or services have been delivered and accepted?
PQR, Inc. is a small manufacturing firm that is rebuilding its customer base after emerging from bankruptcy. PQR now projects growing demand for its products. PQR's supply manager is planning negotiations with a key supplier that has worked well with the firm in the past. Which of the following is the STRONGEST factor the supply manager can use to improve PQR's negotiating position?
According to the Kraljic matrix, how should a product with high business impact and low supply market complexity be categorized?
A company's accounting department implements a new system to track liabilities for capital assets. The reports developed by this system exclude some important indirect procurement data (e.g., transactions related to test equipment), as this information is tracked by another system. Which of the following is the BEST course of action for the firm to take in this situation?
A machining company outsources its recycling program to a third party. The third party recycles the metals from the production area, but neglects to recycle the aluminum cans from the break room, as this stipulation was not included in the service-level agreement. This situation is MOST likely a result of the supply manager's failure to have an appropriate
A firm issues an RFQ for specialty electronics to be used within a new product line. Internal needs are assessed and specifications are prepared by engineering. The bid is sent to five current suppliers, all of whom are familiar with the firm's supply chain. However, only two of these suppliers respond, and their quotes are much higher than expected. Which of the following is the MOST likely explanation for what occurred?
A firm purchases large quantities of parts from an overseas supplier in order to take advantage of volume discounts. The firm wants to delay paying duty on the parts until they are required for manufacturing. Given this situation, which of the following Is the MOST appropriate course of action for the firm to take?
Which of the following are the BEST factors to consider when assigning suppliers to a supplier segmentation matrix?
A procurement specialist reviews a report from a financial agency about a potential supplier. The report reveals that the supplier had a lien against some of its assets a few years ago, that the supplier has had several delayed payments over the last few months, and that the supplier's debt-to-equity ratio equals 2.0. Which of the following is the BEST course of action for the procurement specialist to take?
A supply manager wants to develop a strategy to facilitate supplier Innovation. Which of the following is MOST likely to achieve this goal?
A cross-functional team meets on a monthly basis to review the status of various projects. During the most recent meeting, it is determined that several of the projects lack innovation and are at risk of being behind schedule and over-budget. Which of the following is the BEST approach for preventing these issues from happening in future projects?
DEF, Inc. is a small manufacturing firm. DEF enters into a three-year contract for raw materials, with payment terms of net 30. On one of the initial deliveries, a mistake by DEF results in failure to pay for three months. In return, the supplier puts DEF on credit hold. As the materials are critical to manufacturing operations, DEF pre-pays for future orders.
After several months of pre-payments, the firm issues an order with payment net 30, but the supplier refuses to ship goods under these terms. DEF's supply manager believes the firm has made a good-faith effort to address the supplier's concerns, and now wants to enforce the original contract terms. Which of the following is the BEST way for the supply manager to resolve this situation?
During a request for proposal (RFP) debriefing, a supplier provides clarification on some of the answers in the RFP that, had they been included, would have increased the supplier's score. In response to this, which of the following is the BEST course of action for the supply manager to take?
A company employs a special testing device within its laboratories. The firm needs two additional units of this device with the same capabilities, but wants to encourage competition rather than be brand-specific. The company's supply manager issues a solicitation with the brand and model number of the devices in use, appended with the phrase "or functional equivalent". Suppliers of other brands submit inquiries as to what the firm's exact needs are. Which of the following is the BEST response the supply manager can make to these inquiries?
Telling a seller during negotiations that "This is our best and final offer" is a(n)
When evaluating bids, the MOST critical aspect Is ensuring the quote meets the solicitation's
An organization contracts with a supplier to manage low value items within its warehouse. The supplier is responsible for stocking nuts, bolts, and screws used by the company's maintenance organization. The supplier performs periodic inventory reviews and issues monthly invoices for items consumed. This is an example of which of the following types of alliance?
A firm has contracted for the past 3 years with Supplier DEF to supply parts used in manufacturing. As the contract comes to an end, the parties enter into negotiations in the hopes of renewing the agreement. DEF proposes a new 3-year term with a 3% increase in price each year. The supply management team believes this price increase is higher than market value, so they execute a request for proposal (RFP) event for parts, In which DEF is Included. After reviewing the proposals, DEF is the successful bidder. DEF's proposal is for 3 years with only a 1% increase in price each year.
The price difference obtained through the RFP can BEST be described as which of the following?
A supply manager for TUV, Inc. receives a call from an internal stakeholder complaining that for the past several months, one of TUV's longtime suppliers has been late with shipments, disrupting production. The Internal stakeholder has left several messages with the supplier, which have all gone unanswered. The supply manager listens to the stakeholder's concerns and states that these recent occurrences are atypical for this supplier. The supply manager offers to set up a call with the internal stakeholder and the supplier to discuss the situation and determine how the parties can move forward.
Which of the following BEST describes the supply manager's role in this situation?
A supply manager for an electronics manufacturer is asked to source packaging for the company's new printed circuit board. The specifications recommend 0.50 mm tolerances, with a projected breakage ratio of 0.50%, at a cost of $1.00 each. The supply manager finds an alternative source that is specified at 0.60 mm tolerances, with a projected breakage ratio of 0.75%, at a cost of $0.80 each. If the cost of the new circuit board is $120 per unit, which packaging should the supply manager recommend and why?
A firm is developing a solicitation to purchase materials in order to meet the needs of a new product launch. The firm anticipates that some or all of its existing suppliers will respond to the solicitation. Given this situation, which of the following is the BEST requirements gathering approach for the firm?
An operations manager wants to replace the existing fleet of aging vehicles owned by the company. The operations manager presents the supply manager with a list denoting the quantity, makes and models currently in operation:
Quantity
Brand A - 4X4 SUVs15
Brand B - Midsize Cars5
Brand C - Compact Cars45
Which of the following is the BEST course of action for the supply manager to take?
DEF, Inc. has a choice of several transportation providers in the immediate area. The firm decides to conduct a spend analysis to identify opportunities for cost savings through service standardization. In this situation, which of the following will be MOST Important for the company to analyze?
A director of supply management is tasked with determining where savings can be found in indirect cost categories. If needed, the company will consider hiring additional staff to negotiate and administer contracts. Which of the following is the FIRST step the supply manager should take?
Motivated by public relations considerations, a company decides to insource the manufacture of a major product. This decision was MOST likely made to bring about
A manufacturing company signs a cost-reimbursable contract with a new customer that needs a large volume of its product manufactured in a short period of time. The product is difficult and time consuming to fabricate. The contract provides generous flexibility for cost but has severe consequences if the deadline is missed. To ensure the timely completion of the contract, the manufacturer plans to negotiate with a lower-tier supplier for a critical sub-component.
Given this situation, which of the following negotiation objectives is MOST closely aligned with the interests of the manufacturing firm?
After working for several years at ABC, Inc.—a large manufacturing company—Smith moves to a senior position at XYZ, a smaller firm which is part of ABC's family of companies. In an effort to lower costs, Smith begins negotiations with a supplier that sells to both ABC and XYZ. While at ABC, Smith was able to negotiate very favorable contracts for parts and services. However, Smith is unable to obtain as favorable terms for XYZ with the same supplier.
To improve XYZ's position, which of the following is the BEST course of action for Smith to take?
TUV Inc., a small manufacturing firm, hopes to rebuild its customer base and return to profitability after a period of losing market share. Negotiations with a key supplier will be an important factor in this turnaround if target costs and pricing can be worked out.
Given this situation, which of the following would create the MOST challenging constraints In negotiations?
A team from RST, Inc. is conducting a negotiation session with a supplier. During the session, RST's lead negotiator perceives that various members of the supplier's team are being evasive on the issue of the supplier's capacity to handle the project. However, there is no apparent sign that the other members of RST's team share this perception. Given this situation, which of the following is the BEST course of action for the lead negotiator to take?
Which of the following is the PRIMARY reason for holding a business review with a supplier?
A buying firm learns that its sole supplier of a critical part is being sued by an employee for negligence. The firm is currently in negotiations with this supplier. To minimize or avoid risk, which of the following is the BEST tactic for the buying firm to utilize in this situation?
A US-based manufacturing firm receives a quoted price for an item from an offshore supplier of $.40 each (in US dollars), delivered duty paid to its US plant per Incoterms® 2020 rules, in minimum quantities of 20,000 units. The buying organization uses 80,000 units per year, and the carrying cost is 25%. The item price is fixed for one year. What are the total costs of purchasing annual requirements from this supplier?
EFG, Inc. is conducting a sourcing activity to identify a provider of operational software. Both large and small consulting firms are invited to bid. Given that the supplier's financial stability will be
an important element in the selection process, which of the following is the BEST course of action for EFG to take?
A supply manager Is leading a project to implement a change from a common grade material to a newer grade that improves performance and achieves cost savings. The project team includes representatives from engineering, quality, sales, product development, and cost accounting. Two suppliers capable of producing the new material have been identified and proposals have been received. The project is now approaching the final implementation phase. Which of the following should be the NEXT step in the process?
Supplier X provides software critical to production at EFG Corporation. Supplier X informs EFG that the software version it currently uses will no longer be supported and recommends an upgrade to a newer version. However, EFG is very pleased with the performance of the current version, and the costs for upgrading are prohibitive at this time. EFG wants to find incentives for Supplier X to continue supporting EFG's needs. In this situation, which of the following would be the BEST course of action for EFG to take?
A company that wants to add value to its operations should work with its suppliers on which of the following?
An automobile manufacturer learns that its supplier for brake parts cannot maintain a steady workforce of machinists. In this instance, it is likely that the manufacturer failed to examine which of the following during supplier performance evaluations?
Consider the following data for four separate machines:
Purchase PriceProjected Annual SavingsEstimated Life (in years)
Machine W$100,000$17,0006
Machine X$112,000$23,0007
Machine Y$143,000$19,0009
Machine Z$150,000$25,0008
Which machine produces the HIGHEST simple return on investment (ROI) over its useful life?
Which of the following is the BEST reason to develop relationships with a small number of suppliers?
According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework, which of the following Is an element of effective internal controls?
GHI, Inc. manufactures and sells high-end headphones. Each pair of headphones is packaged with a kit of customizable parts. GHI sources these customizable parts from a specialty supplier. Recently, GHI received a shipment of the parts from the supplier, and although the materials arrived on time, they were not bagged and labeled individually as the contract requires, but rather arrived in bulk.
GHI needs the parts as soon as possible to complete its holiday orders. Given this situation, which of the following is the BEST course of action for GHI's supply manager to take?
After lengthy and intense negotiations, a verbal agreement is reached between a buying organization and a finished goods supplier. The president of the buying organization sends a letter contract to the supplier. The supplier immediately ships goods to the buying organization and invoices for the material, before any contract is signed. At this point, is the buying firm obligated to pay the invoice?
A manufacturing firm which prides itself on excellent customer service, quality, and prompt delivery decides to outsource several of its high volume, cost-driven products. The firm's supply manager is tasked with ensuring that service level expectations are maintained during the transition. Which of the following is the BEST step for the supply manager to take to ensure a smooth transition?
A sourcing manager completes negotiations for new business intelligence software, to be implemented by the company's fraud prevention department. The one-time licensing fee was originally quoted at $2,000,000, along with an 18% annual software maintenance fee. The sourcing manager was able to negotiate the license fee to $1,500,000.
What are the hard dollar savings for the first year?
To better reflect commodity purchasing costs for its consumer automotive division, a firm separates inventory purchasing into "repairable parts" versus "consumable parts." This is an example of
RST Bus Corporation contracts with Supplier X to buy 5,000 gallons of diesel fuel per month over the course of a year. After the first delivery is used in RST's fleet of tour buses, several of the buses stall on the highway. An inspection by RST's mechanics determines that the damage was caused by contaminated fuel. RST's supply manager notifies Supplier X that no further deliveries will be accepted, and that the supplier is expected to pay the cost of the repairs to the buses. In response, Supplier X cites its contract clause disclaiming warranties and liability, and its e-mail acceptance of RST's purchase order, including a statement that Supplier X's terms and conditions were applicable and available upon request. Supplier X contends that RST must accept all scheduled deliveries.
In this situation, which of the following is the BEST course of action for RST's supply manager to take?
Which of the following is the BEST reason for inviting suppliers to visit a buying organization's facilities to meet with the company's stakeholders?
A supply manager for XYZ, Inc. visits a manufacturer's plant and research division for a general inspection and product review. The supply manager is required to sign in at the registration desk and must acknowledge acceptance of the standard terms of visiting. After the visit, which includes very encouraging discussions, the supply manager returns to XYZ with a sample of a new product—an expensive item of complex design with innovative features. The supply manager must take specific precautions to protect the sample because
A supply manager for PQR, Inc. is negotiating a contract to purchase software. The software will streamline PQR's online purchasing process with a one-click buy function. The supply manager wants to ensure PQR's performance expectations are met and that the consequences of failure to perform are properly captured. In this situation, which of the following is MOST important for the supply manager to include in the contract?
Which of the following refers to a matrix that reflects the segmentation of spend based on an assessment of the value of the spend relative to the market risk to acquire?
A supply manager for an electronics distributor is asked to buy new routers for the company's wireless network. The supply manager is provided with a detailed scope of work and a list of potential bidders. However, the firm is also interested in investigating alternative solutions available on the market. The original equipment was purchased over 5 years ago and the budget is unknown, but it is roughly estimated at $250,000.
Given these circumstances, the MOST appropriate approach for the supply manager would be to issue which of the following?
For several years, an environmental services company has contracted on a single-source basis with a supplier that offers highly specialized testing procedures. The supplier’s performance is excellent, but it has Instituted frequent rate increases. The company’s supply manager is under pressure to reduce costs wherever possible, but developing other sources will be time-consuming. Given this situation, which of the following actions should the supply manager take FIRST?
A supply manager for an electronics firm has been asked to source packaging for the company's new printed circuit board. The specifications recommend 0.50 mm tolerance, with a projected breakage ratio of 0.50% at a cost of $1.00 each. However, the manager is able to find an alternative source of packaging that is specified at 0.60 mm tolerance, with a projected breakage ratio of 0.75% at $0.80 ea.
If the cost of the new circuit board is $50 per unit, which packaging should the supply manager recommend, and why?
A supply manager Is evaluating bids for a new delivery van. Supplier J, which has provided similar equipment in the past, quotes a price of $50,000. Supplier K quotes a price of $52,500, but Includes an offer to buy back the van at the end of five years for $3,000. Both suppliers' bids meet specifications and delivery requirements. At a 10% opportunity cost of capital, and with the 5-year present value of $1 at $.62, which supplier should the supply manager choose, and why?
A director of supply management obtains approval to implement a spend analysis matrix. While the matrix will be primarily used to support the development of sourcing strategies, it will also be leveraged by functional lines of the business for budget planning. Which of the following is the MOST important step for the director to take in order to ensure the information from the spend analysis is accurate and reliable?
A sourcing manager is negotiating a contract with a human resources supplier that has access to employee data, including social security numbers. The supplier proposes an annual cap of $10,000 on overall liability. In this situation, which of the following is the MOST important stakeholder for the sourcing manager to consult in regard to this supplier?
For many years, BCD Inc. has purchased electronic assemblies from Supplier X. Based on Supplier X's past reliability, BCD eliminated incoming inspection of these assemblies several years ago. Recently, increasing quality problems have emerged, causing significant delays in BCD's manufacturing process. BCD's supply manager believes Supplier X is falling behind the market in technological advances and wants to assess the market for new opportunities. Given this situation, which of the following should the supply manager do FIRST?
A large manufacturing firm has offices across the country. The company wants to obtain the best price and reduce administrative costs associated with procuring office supplies. Which of the following would be BEST suited to the firm's needs?
XI Corporation awards a contract for the building of a prototype critical to its introduction of a new product line. To protect itself against delays and unsatisfactory quality, which of the following is MOST appropriate for Xi's supply manager to require from the contractor?
A supply manager submits requests for additional personnel and equipment, which are approved. However, the organization's training budget is cut, giving less opportunity to train new employees. The supply manager is concerned that this will adversely affect the department's ability to build expertise. Given this situation, which of the following is the MOST effective action for the supply manager to take?
A firm needs training services within a short time frame. The firm's supply manager issues a request for quotation (RFQ) to training companies, evaluates the offers received, selects the lowest bidder meeting all of the requirements, and prepares a contract. The selected bidder states to the supply manager that because of the scarcity of qualified trainers, the bidder needs to offer incentives, and therefore must raise its quoted rates. In this situation, what should the supply manager do FIRST?
DEF Company receives several proposals for the manufacture of a sub-assembly used in an important product line. All of the responding suppliers indicate they plan to subcontract part of the work in order to meet high seasonal demand. Most of the proposed subcontractors are located in low-cost offshore locations. The supply manager is concerned that the subcontractors may not adhere to DEF's standards for fair labor practices. Which of the following is the BEST way of ensuring that the suppliers' subcontractors maintain fair labor practices?
A supplier of software critical to PQR Inc.'s scheduling system plans to discontinue supporting the version PQR uses in order to concentrate its resources on a newer version. The current software works well for PQR, and upgrading It would be costly for them in both money and time. The supply manager for PQR assembles a negotiating team with representatives from user departments to discuss the situation with the supplier and try to reach a mutually satisfactory agreement.
Soon after the start of negotiations, the supplier states that 90 days is the longest they can guarantee support for the current software. PQR’s production manager responds by saying, "Fine, we will take any extension at this point." But PQR's IT director shouts, "We can't do that! It will take at least six months to replace the software, even if we could afford to do so."
Given this situation, which of the following is the BEST course of action for the supply manager to take?
During its first annual business review, a supplier requests an increase in pricing. The supplier’s survey results show a rating of 2.9 out of 5 possible points (with 3.0 being acceptable). Market indices indicate that the supplier's industry has experienced no price increase. In this situation, which of the following is the BEST course of action for the buyer to take?
Which of the following is the FIRST step in the category management process?
The ability to explain how and why decisions are made in support of business plans is important because it allows a supply manager to
A local utility's supply manager is preparing a solicitation to select a contractor to construct a controlling station for the utility's main plant. Construction must begin within four months and be completed in a year or less, as delays in bringing the new station online could cause serious losses for the utility. Which of the following will be MOST effective in monitoring performance and ensuring timely completion?
A supply manager is conducting financial analysis of bidders. The supply manager wants to select the supplier that is most efficient In the use of its assets. Based on the following information, which supplier should the supply manager choose?
A firm buys a particular product that has low business impact and low supply market complexity. How would this product be categorized using the Kraljic classification model?
MNO, Inc. has been one of XYZ Company's most valuable customers for a number of years. During a formal competitive bid event for a new product introduction, MNO becomes a supplier to XYZ. In this situation, which of the following should be of GREATEST concern to these organizations?
A company currently has contracts with several temporary labor suppliers with detailed requirements for the same skill set. The hourly rates charged by each of these suppliers vary widely. The firm wants to have all temporary labor services provided by one supplier at the lowest possible cost. Given this situation, which of the following is the BEST course of action for the firm to take?
In portfolio analysis, purchases for which the buying organization consolidates spend with a handful of suppliers but still maintains competition are BEST classified as
When developing a category management plan, which of the following is the BEST reason for soliciting cross-functional input?
Which of the following is the BEST course of action to take in order to develop a positive working relationship with a supplier?
A manufacturing firm needs to maintain production and prevent delays due to raw material outages and quality Issues. Which of the following is the BEST course of action for this firm to take?
At what point in the development of a category strategy should spend review occur?
The procurement officer for a publicly-traded U.S. company completes a 409 filing with the Securities and Exchange Commission (SEC), due to a number of supplier deliveries being missed that impact revenue forecasts. The procurement officer's NEXT step should be to
A supply manager Is conducting financial analyses of bidders. The supply manager wants to select the supplier that is the most efficient in its use of assets. Based on the following information, which supplier should the supply manager choose?
A manufacturing plant employs an enterprise resource planning (ERP) system. The supply management staff find the data provided by this system to be incomplete or incorrect. Which of the following should the supply management staff do FIRST In order to obtain more useful information?
A company creates a corporate sourcing team with category management responsibilities. Previously, the firm had no dedicated sourcing staff, and all procurement was decentralized and transactional. The sourcing team is ready to commence its initial project. Which of the following should the team do FIRST?
A supply manager solicits bids for janitorial services. The incumbent cost is $20,000 per month to perform Scope A. After working with internal stakeholders, obtaining bids, and performing negotiations, a new supplier is awarded the agreement. The new supplier's cost is $19,000 per month to perform Scope A as well as Scope B, which was previously performed by another supplier at a cost of $2,000 per month.
What is the annual cost reduction?
GHI, Inc. is a manufacturer of batteries. GHI's supply manager reads an industry publication describing a new innovation from DEF Company that extends battery capacity, which could be of tremendous benefit to GHI. DEF happens to be a supplier to GHI, and yet DEF's sales representative has never mentioned the innovation to the supply manager. In order to strengthen the business relationship and enhance future collaboration between GHI and DEF, the supply manager should
Which of the following is the FIRST step in developing a negotiation plan?
A supply manager ensures that each stage of the negotiation process is documented, beginning with the preparations for the negotiation. What is the PRIMARY purpose of maintaining such information?
JKL, Inc. outsources its event services for large group training sessions and annual meetings. The contract requires the supplier to report program metrics, including cost savings. The savings method employed compares the hotel’s initial bid to the final negotiated price. The first report shows significant hard savings on the average nightly rate for hotel rooms. JKL's category manager would like to claim the hard savings. Which of the following BEST describes why the finance department should deny this request?
A supply management department for a manufacturing organization receives performance reports from four suppliers and evaluates the performance of these suppliers using the weighted-point approach. Factors related to employee resources, such as worker safety and worker dignity, are used to break any ties. A higher score denotes a more favorable rating.
CategoryWeightSupplier A ScoreSupplier B ScoreSupplier C ScoreSupplier D Score
Cost40%3454
Workers' compensation program20%5344
Support for employee resource groups20%5335
Customer satisfaction20%4444
Total100%
Which of these suppliers can be considered the BEST performer of the four?