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CIPS L4M8 Exam Syllabus Topics:
| Section | Objectives |
|---|---|
| Procurement Technology and Innovation | - Innovation in supply management
|
| Contracting and Legal Principles | - Contract formation
|
| Procurement Process and Sourcing | - Sourcing strategies
|
| Supplier Relationships and Performance | - Supplier relationship management
|
| Procurement and Supply Context | - Role of procurement in organisations
|
| Risk, Ethics and Sustainability | - Procurement risk management
|
CIPS Procurement and Supply in Practice Sample Questions:
Explain how procurement should decide whether to make or buy a product or service.
Reveal Solution Discussion 0Correct Answer:
See the answer in explanation.
Explanation:
Make or buy decision are about whether a products or services should be made within the organization or bought-in from an external supplier.
For a procurement professional to establish which method (make or buy) offers the best value, the item in question must be thought through if it is core to the organization and which option will add more value to the organization, as regards achieving its strategic goals. If it is core the procurement professional decide to make it and if it is not core the product or services can be bought in.
Describe one qualitative and one quantitative measures of social impact for an organization with which you are familiar.
Reveal Solution Discussion 0Correct Answer:
See the answer in explanation.below.
Explanation:
Information gathered in relation to social impact for an organization is both qualitative and quantitative.
Fullpower consult is a project/procurement training company that has gotten a measure of its social impact.
The qualitative measure of the organization is its stakeholders perception. Stakeholders knows that fullpower will do all it can to always give the best value for money.
Fullpower has the policies to give 10% of its profit share back to the community, by sponsoring free trainings for both professionals and vocational.
Addition
Qualitative and quantitative measures of social impact
Qualitative
Stakeholder perception
Reputation
Good Ethical practice
Benefit to the economy
Quantitative
20% Reduction in emission
Amount of funding donated
Amount of train courses delivered
Percentage of Resources Replaced
* Refer to the question column for response
Maximum Score: 25
(a) Outline the financial data that can be used in the process of supplier selection.
(10 marks)
(b) Explain THREE potential concerns for a buying organisation of selecting a supplier that has a current ratio of 0.67:1. (15 marks) K-cyber Shield Limited
11
Ashton Parsons is a newly appointed procurement specialist for a local government department. He has been recruited in response to a new government programme. The country's national government is currently promoting a programme of engagement with small and medium-size organisations (SMEs), to help build a healthy and diverse economy in the country. All local government departments have been tasked to engage with more local SME suppliers. One significant problem for SME suppliers compared with large national contractors is that they do not have the financial resources and track record of their larger competitors. This engagement programme is intended to change the reliance on just one or two large national contractors in each category of expenditure. In one category of expenditure, for a ten-year contract to supply Information Technology (IT) services to the local government department, a full invitation to tender document is to be issued shortly. Ashton has been asked to begin the sourcing process.
Ashton has received a range of data, including financial data, on one potential local supplier, K-cyber Shield Limited. All the data gathered so far has been received from independent, reliable and trusted sources.
One aspect of the financial data received to date on K-cyber Shield Limited shows that it has, at present, current assets of El 00,000 and current liabilities of El 50,000, giving a current ratio of 0.67:1.
Correct Answer:
See the answer in explanation.below.
Explanation:
2(a) Outline the financial data that can be used in the process of supplier selection. (10 marks) When selecting a supplier, the buyer should assess financial data to judge whether the supplier is financially stable and capable of delivering the contract.
One key source is the balance sheet , which shows the supplier's assets, liabilities and overall financial position at a point in time. This helps the buyer assess net worth, debt levels and short-term financial strength.
Second , the income statement or profit and loss account shows revenue, costs and profit over a period. This helps the buyer understand whether the supplier is profitable and commercially sustainable.
Third , the cash flow statement is important because it shows whether the supplier is generating enough cash to fund operations and meet obligations. A profitable business can still fail if it has weak cash flow.
Fourth , buyers can use the annual report , including directors' comments and risk disclosures, to understand broader business performance and future outlook.
Fifth , buyers often calculate financial ratios such as:
* liquidity ratios like the current ratio and quick ratio
* profitability ratios such as net profit margin
* gearing ratios to assess dependence on borrowing.
Finally , the buyer may review financial trends over time and use independent credit reports or external financial checks from trusted sources.
Overall, these data sources help the buyer decide whether the supplier is financially strong enough to perform the contract.
2(b) Explain THREE potential concerns for a buying organisation of selecting a supplier that has a current ratio of 0.67:1. (15 marks) A current ratio of 0.67:1 means the supplier has only £0.67 of current assets for every £1 of current liabilities . This suggests weak short-term liquidity and creates several concerns for the buyer.
1. Difficulty meeting short-term obligations
The first concern is that the supplier may struggle to pay short-term debts such as wages, bills, subcontractors or software costs. If liabilities are higher than current assets, the supplier may face cash pressure. For the buyer, this raises concerns about whether the supplier can operate reliably throughout the contract.
2. Risk of poor performance or service disruption
A weak current ratio may mean the supplier has limited working capital to support day-to-day operations. In an IT services contract, this could affect staffing, maintenance, upgrades or continuity of service. For a local government department, any disruption could be serious because public services may depend on the supplier's performance.
3. Greater financial fragility
The third concern is that the supplier may rely too heavily on overdrafts, loans or faster customer payments to survive. This makes the supplier more financially vulnerable. If costs rise or cash inflows slow down, the supplier may experience serious financial difficulty or even fail during the contract.
In conclusion, a current ratio of 0.67:1 is a warning sign because it suggests weak liquidity. It does not automatically mean the supplier should be rejected, but the buying organisation should carry out further financial checks before awarding the contract.
What is a cross function team?
Reveal Solution Discussion 0Correct Answer:
See the answer in explanation.
Explanation:
A cross-function Team is the involvement of all departments that are in an organization to contribute knowledge, skills and innovation towards adding value to achieving the organization's strategic goal.
Example, procurement, maintenance, marketing, finance, human resources working together in procurement activity to come up with the best strategy or selecting the supplier that best suit the organization.
When working in a cross-functional team, members of the organization give support by believing in the end goal, assist during difficult time, help troubleshoot any issue, providing the required resources and sharing information
What are the four methods that can be used to try to resolve dispute?
Reveal Solution Discussion 0Correct Answer:
See the answer in explanation.
Explanation:
Conflict or dispute is the final area a procurement professional considers when creating terms for a contract with a supplier. If conflict or dispute arises, there must be a process put in place in the contract to try to resolve it and these includes; a) Negotiation, b) mediation, c) arbitration and d) litigation.
Negotiation is usually carried out between senior people within organization that are in conflict, if they cannot reach an agreement through negotiation, mediation is the next stage, mediation is when a third party tries to help find a resolution among the parties in dispute. If mediation fails arbitration can start, arbitration involve independent professionals (arbitrators) working with all the party to try to reach an agreement. Parties do not have a formal or legal obligation to follow the arbitrator's recommendation. Arbitration is expensive. If arbitration fails to resolve the conflict, the final stage is litigation, litigation takes time and money, and most people avoid it. It is a legal process where a court decides on the outcome of the dispute. The judge's ruling is final.
* Refer to the question column for response
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