L4M6 Supplier Relationships Questions and Answers

Explanation

The 5 Rights of procurement are; place, quality, quantity, time, price. (Price and Cost are not the same thing). See p.38

Explanation

It can be difficult for buyers in the private sector to build relationships with suppliers because of rules that state competitive tenders must be undertaken every few years (within the EU this is usually every 4). This means that both parties aren’t as invested in developing the relationship as it’s possible the contact will end shortly. Competitive tendering is a requirement in the public sector to ensure value for money for taxpayers. See p.79 for further details. There are no rules stating Public Sector organisations can’t have good relationships with suppliers, and in fact most will have good relationships with their current suppliers- the issue is that neither party can get too invested in the relationship as everyone knows it may end shortly. There are rules, however, against entering into Partnership relationships (which is discussed in chapter 3).

Internal stakeholders are individuals or groups within an organization who are directly involved in its operations and decision-making processes. The finance director plays a crucial role in budgeting and financial planning, while maintenance engineers are essential for ensuring equipment functionality and efficiency. Both are integral to the organization's internal operations, as outlined in the CIPS L4M6 study materials.

Explanation

As the component is vital to their business, ABC should seek a collaborative relationship with the supplier. There are three types of collaborative relationship (co-destiny, partnership and strategic alliance). Of these only strategic-alliance is given as an option. Remember - strategic purchase = collaborative relationship with supplier. There are many questions on the Relationship Spectrum on the exam. See p.5 for more details

Adding value involves enhancing customer experience through excellent service, providing differentiated product features, and offering convenience. These align with procurement strategies aimed at driving customer satisfaction and loyalty.

Explanation

The Handfield ESI model is on p.98 and comprises of Black Box, Grey Box, White Box and None. Therefore Red and Blue can be automatically discounted. The correct answer is White Box as the definition given is correct. Grey Box is a formalised supplier integration; joint development activity between buyer and supplier. I have no idea why Handfield calls his system after coloured boxes- but it’s only briefly mentioned in the study guide and is not likely to be a big topic in the exam.

Explanation

Jenny should consider whole life costing. Ensuring value for money means considering a combination of price and quality throughout the lifetime of the product. See p.65 for more on ‘Achieving Value for Money’

Explanation

The correct answer is ‘items of high value’. This links into the EU procurement principle of ‘Proportionality’ meaning that the procurement process must be proportionate to the value of the contract. Therefore, high value contracts must be procured via competition. What is considered ‘high value’ is decided by ‘thresholds’. These are amended every 2 years to account for inflation etc, but you don’t need to know what the thresholds are for this exam. P.75

Partnering supports supply chain consolidation and continual improvement by fostering collaboration and shared objectives. These benefits align with the strategic goals of building resilient and efficient supply chains.

Explanation

Victoria should use a ‘request for proposal’ – this allows the security firms to submit ideas on how best to serve the hotel. They might come up with some ideas that Victoria hasn’t thought about and can price against their own ideas. As Victoria doesn’t have a concrete specification, an ITT or RFQ are not appropriate. A PIN tells suppliers that a tender opportunity is coming up and is used in the Public Sector. A hotel is not a Public Sector organisation. See p.76 for more information on when to issue a Request for Proposal

Comprehensive and Detailed Explanation:

For high-value and high-risk contracts, such as facilities management services for multiple schools,competitive tenderingis the most appropriate sourcing approach. This process involves inviting multiple suppliers to submit bids, ensuring transparency, fairness, and the opportunity to assess various proposals to select the most suitable supplier. It helps in mitigating risks and achieving value for money.

Explanation

Note the word ‘NOT’ in the question. In order for a competitive tender to be successful, there should be a clear specification in place (i.e. you need to know what you want, in order for suppliers to bid for it). Competitive tendering should also only be used for high value purchases; it’s time consuming to do, so you wouldn’t do it for low value items such as pens for the office. Therefore the correct answer to this question is 'items are of low value' and 'there isn’t a clear specification'. There’s a useful table on p.73 of when you would and wouldn’t use a competitive tender.

Comprehensive and Detailed Explanation:

Partnerships between buyers and suppliers are often driven by:

High Spend:Significant expenditure justifies the investment in developing a closer relationship to achieve cost savings and efficiencies.

Critical Products:Items that are essential to the buyer's operations necessitate a reliable and collaborative supplier relationship.

Technical Complexity:Complex products benefit from joint development efforts, shared expertise, and coordinated problem-solving.

Conversely, commodities and markets with many suppliers typically lend themselves to transactional relationships rather than partnerships.

Comprehensive and Detailed Explanation:

Differentiation involves offering unique products or services that are valued by customers, allowing the company to charge premium prices. This strategy focuses on uniqueness and added value rather than competing solely on cost.

Partnerships are characterized by joint performance measurement (e.g., shared KPIs) and transparent information sharing to build trust and alignment. Win:lose negotiations and rigid end periods are more associated with adversarial or transactional relationships.

Explanation

The correct answer is ‘reduced product life-cycles’. In this example the reason for entering a partnership is to be able to produce new models of phones more quickly- this is likely because consumers are wanting to change mobile phones more often than they did in the past, so in order to keep up withdemand, Phone Maker Incorporated need to produce more phones, more quickly. Drivers of Partnership Sourcing is a key topic in the exam – you can revise these by looking at p.127 in the Study Guide

Supplier pre-qualification is used to assess the suitability, capacity, and stability of suppliers before awarding contracts. While financial stability is important, CIPS emphasizes that it is not the only factor. Other considerations include technical capability, quality assurance, compliance with legislation, and sustainability of supply. Profitability ratios alone cannot determine suitability.

Explanation

The correct answer is Measurable, achievable and time-bound. This is from SMART KPIs on p. 151. Smart stands for specific, measurable, achievable, relevant, time-bound. In the exam they come up in different orders so be careful.

The stages of team development as defined by Tuckman include forming, storming, norming, and performing. These stages reflect how teams evolve and mature through collaboration and problem-solving.

Explanation

The first step is to obtain business approval to terminate. If Senior Management don’t give approval, then the rest of the stages can’t happen and Sandra will be stuck with her current banana supplier. There’s a good diagram on p.109 detailing the steps to supplier termination.

Explanation

Intellectual Property Rights include; Patents, Copywrite, Trademarks and Trade Secrets. P.114

Explanation

The correct answers are; They are likely to be able to gain price stability and There may be greater continuity of supply. The other options are an advantage for the supplier rather than the buyer (They will gain an increased volume of business) and a disadvantage of entering into a partnership (The supplier may become complacent). As you may have guessed from these questions – Partnerships come up a LOT in the exam. See p.130 for info on pros and cons of partnerships.

Price management is crucial for low-cost retailers to maintain profitability. This includes negotiating better pricing, managing costs effectively, and ensuring competitive pricing for volume sales.

For partnership sourcing to succeed, senior management buy-in is essential. Selling the idea internally ensures commitment of resources, trust, and long-term strategy alignment. Options A and D undermine partnerships, while B contradicts the open and collaborative nature of partnership sourcing.

Explanation

The three Es are; Effectiveness, Efficiency and Economy. Sometimes a 4th E is added which is Equity (but this is mainly for the public sector).

Early engagement with the whole market is crucial when entering a new technical domain. It allows the company to assess the capabilities, innovations, and fit of various suppliers before locking down specifications. CIPS guidance emphasizes the value of market engagement in developing effective specifications and selecting the right partner.

Comprehensive and Detailed Explanation:

Effective conflict resolution involves:

Individual Meetings:Understanding the root cause of the conflict by discussing with each individual separately to determine if issues are personal or work-related.

Joint Meetings with Mutual Targets:Bringing the individuals together to set mutual goals can foster collaboration and reduce friction.

Avoiding the issue (Option D) or moving a team member (Option C) are not proactive solutions and may not address the underlying problem.

Explanation

The correct answer is Measurable, achievable and relevant. This is from SMART KPIs on p. 151. Smart stands for specific, measurable, achievable, relevant, time-bound. In the exam they come up in different orders so be careful.

Technological factors play a pivotal role in IT equipment supply chains. Advancements, obsolescence, and innovation significantly affect production, cost, and competitiveness, making it a primary focus in supply chain development.

Confidentiality is critical in professional relationships, especially for law firms, as they handle sensitive client information. Ensuring that all legal obligations to protect this information are met aligns with ethical and legal best practices.

Comprehensive and Detailed Explanation:

The described relationship includes:

Joint Product Development:Collaborative involvement in strategic projects indicates a deep partnership.

Integrated Systems:JIT delivery systems require synchronized operations, reflecting significant integration.

These elements are hallmarks of a significant integration partnership.

Comprehensive and Detailed Explanation:

The accommodating conflict management style is characterized by a low concern for self and a high concern for others. This approach involves yielding to others' needs and maintaining harmony, which can be appropriate in situations where preserving relationships is more important than achieving personal goals.

In the context of a commercially sensitive outsourcing project, adopting an accommodating approach may be suitable to ensure stakeholder cooperation and minimize conflict.

Partnership sourcing improves efficiency through cost reduction and ensures continuity of supply by fostering long-term, collaborative relationships with key suppliers, as highlighted in CIPS guidelines.

Comprehensive and Detailed Explanation:

In Porter's Five Forces framework, thethreat of substitutesrefers to the availability of products or services that can perform the same function as the industry's product. The supplier's suggestion to use a newly developed plastic component instead of the traditional brass one introduces a substitute product. This alternative can potentially change the dynamics of the market by offering different benefits, such as cost savings or improved performance, thereby affecting competition.

Comprehensive and Detailed Explanation:

Developing a new blood collection system is a complex task that requires specialized knowledge and expertise. A partnership allows the supplier to collaborate closely with a clinical expert, combining their respective strengths to innovate effectively. This collaborative approach is essential for technically complicated supplies where joint development efforts can lead to better outcomes.

Partnerships provide access to local market knowledge, enable shared investments, and mitigate risks associated with relocation. These advantages outweigh concerns that can be managed through strong contracts and confidentiality agreements.

Defining standards ensures clear expectations and provides a foundation for accountability and alignment, which are critical for the success of any partnership.

Buyers with a strong brand profile and adherence to ethical standards attract suppliers, as they provide market prestige and assurance of fair practices. This aligns with CIPS's emphasis on ethical procurement.

Explanation

The correct answer is power, role and person. This is part of Hardyman's Cultural Types on p.169 (there are four- the other one is task). There's quite a few questions on this in the exam, so it's worth doing some additional research on this prior to the exam as the study guide doesn't provide much detail on this.

In stakeholder management,Negative leadersandPromoterspossess high influence over others:

Negative leaders: Individuals who oppose the project and can sway others against it due to their influence.

Promoters: Advocates who support the project and can positively influence others.

Understanding these dynamics is crucial for effectively managing stakeholder resistance.

As highlighted in the CIPS study materials:

"Overcoming resistance- Promoters - They have a high influence on other stakeholders and support the project. They support and empower."

Partnerships emphasize mutual goals such as quality improvement and long-term collaboration, contrasting with adversarial relationships that focus on cost and short-term gains.

Selection criteria focus on the supplier’s capability and experience (e.g., method statements). Award criteria are used to evaluate and compare proposals during the tender process, such as price or environmental considerations.

Explanation

This QUESTION NO: refers to Porter's Value Chain (p.35). There's a couple of questions on this in the exam so try to learn it. Primary activities are; inbound logistics, operations, outbound logistics, marketing and sales, after sales- service

Explanation

The seven wastes (as defined by Taiichi Ohno) can be remembered as Tim Wood; transportation, inventory, motion, waiting, over-processing, over-production, defects. Some people add an S onto the end of Tim Wood to make Tim Woods (the s is for skills). In some modules of CIPS, they refer to 8 wastes and include skills, but in M6 they’ve only put the 7 on p.70.

Explanation

The logistics risk can be reduced by ‘Sharing up-to-date information’. If the Pub tells the supplier when it’s running low, they can then time the deliveries more accurately. P. 136. A lot of the questions on the ‘Partnerships’ chapters of the book are common-sense questions like this. It involves reading thequestion and using logic, rather than relying on your knowledge of procurement. If you found this question easy – that’s a good sign for the exam.

Explanation

The correct answer is ‘The Matrix doesn’t consider whether the stakeholder is for or against the activity’. For a list of other limitations of using Mendelow’s Stakeholder Matrix see p.82

Explanation

Request for Information and Pre-Qualification Questionnaire can be used for short-listing suppliers. Request for Quotation is used when the only variable is price and you would like suppliers to submit a price for you. Invitation to Tender would be the next stage after RFI / PPQ- this is sent out to those suppliers who have passed selection, and details the second stage of the competition. See p.75 for more details.

Comprehensive and Detailed Explanation:

A performance specification outlines the desired outcomes or results without prescribing the exact methods to achieve them. This approach allows suppliers the flexibility to use their expertise and creativity to meet the buyer's requirements, thereby encouraging innovation.

Complex and technical suppliers often involve high financial risks due to the critical nature of their products. A close relationship ensures better collaboration, risk management, and value generation.

Substitute products pose a competitive threat by offering alternative solutions to customers, potentially eroding market share. Effective differentiation and customer retention strategies are essential.

Comprehensive and Detailed Explanation:

For one-off, low-value purchases that are readily available from multiple suppliers, anadversarialrelationship is often appropriate. This type of relationship is transactional, with minimal collaboration or long-term commitment. The focus is on obtaining the best price and terms for a specific purchase without investing in developing a deeper relationship.

For low-cost, high-volume business models, maintaining profitability depends on tightly controlled procurement costs. Price management is critical for ensuring competitive pricing while safeguarding slim margins. CIPS L4M6 highlights that effective cost management and price negotiation are essential in such scenarios.

Comprehensive and Detailed Explanation:

Effective cost modelling is a process that helps in understanding the cost structure of a product or service. It involves:

Data gathering:Collecting relevant data related to materials, labor, overheads, and other cost drivers.

Analysis of facts:Evaluating the collected data to understand cost behaviors and identify areas for cost reduction.

Supplier negotiation and issuing a request for quotation are subsequent steps that may utilize the insights gained from cost modelling but are not part of the modelling process itself.

In IT consultancy contracts, the ownership and control of data, systems, and intellectual property rights (IPR) are critical. If the hospital terminates the supplier relationship, it must ensure continued access to patient records and payroll systems. Confidentiality and service quality are important, but IPR is the priority legal concern.

Explanation

Unrestricted is not a type of tender. The 5 types are; open, restricted, competitive with negotiation, competitive dialogue and innovative partnership (though this last one is very rare in the public sector). The five types are explained in detail on p.77

Explanation

Tim should do an audit. P.71 of the textbook says “to ensure that a procurement department is achieving value for money, an audit should be undertaken”

Forward buying involves purchasing in advance to lock in current prices and avoid future increases. This strategy is effective in volatile markets where price hikes are anticipated.

Shortening product life cycles require close collaboration and innovation between buyer and supplier to stay competitive. Partnership sourcing provides shared development, reduced lead times, and improved responsiveness. Stable markets or falling costs do not justify partnerships; they are best suited for high-risk, fast-changing environments.

Explanation

The correct answer is “A mechanism for performance management where the buyer has the right to deduct money from payments owed for under performance”. A definition is provided on p.113 and states “If a supplier fails to meet the standard set in the service credits, the buyer has the right to deduct set amounts of money from payments owed to the supplier”

Comprehensive and Detailed Explanation:

By acquiring an Australian office furniture manufacturer, COFM can:

Access the Restricted Local Market:Acquisition allows COFM to operate as a local entity, thereby overcoming barriers to entry and benefiting from any local government support available to domestic manufacturers.

Improve Knowledge of the Local Market:The acquired company brings with it an understanding of local customer preferences, regulatory requirements, and market dynamics, which is invaluable for successful operations.

However, the acquisition does not remove government support for other local manufacturers, nor does it necessarily decrease competition.

Explanation

The correct answer is ‘no-the contract is not of significant value’. CIPS state that competitive tenders should only be used when ‘the item or service is of significant value’ p.73. Debbie could continue using the same supplier, but she should organise a contract extension or a new contract if she does.

When contracts for services transfer between providers, TUPE regulations (Transfer of Undertakings – Protection of Employment) apply in many jurisdictions. Employees retain their rights and continue employment under the new employer. Thus, employment rights are the key legal concern.

Explanation

The correct answer is 'arms length'. This is a tactical purchase (as it is low value) and keeping the supplier at arms-length means that Red Manufacturing could possibly exploit them to reduce their prices (think back to the Kraljic matrix and where Blue Business would likely fall). A Partnership or Single- Source relationship requires investment into the relationship, and as the products are low value and Red Manufacturing have a lot of other suppliers, they should not be investing time in developing that relationship with Blue Business. An adversarial relationship wouldn't be advantageous as it may lower the performance of the supplier. See the relationship spectrum on p.5 - this is a hot topic for the exam

Partnerships emphasize collaboration, shared risks, and mutual benefits. Unlike adversarial or transactional relationships, they focus on long-term goals and joint value creation.

Explanation

Fred should hold a competition as this is a ‘key way of achieving value for money’ p.67. Fred shouldn’t put a business case together to make the product in-house without doing a make vs buy analysis, and that analysis showing make is the way to go. As the firm buy in 100s of components, it’s very unlikely that making the component in-house would bring ‘value for money’. He should also be careful of only looking at current suppliers or known suppliers- the best supplier of this new component might be unknown to the engineering firm at present.

Explanation

STEEPLE is what is used to analyse the macro-environment; the factors are; social, technological, economic, environmental, political, legislative and ethical. Details of this can be found on p.43-44. Note in the exam they won't necessarily be given in this order.

If the market has few suppliers, an open tender is not appropriate, as it adds unnecessary time and cost. Instead, a restricted or negotiated procedure is more effective. Open tendering is best used in highly competitive markets.

Obtaining multiple quotations ensures value for money by comparing suppliers based on cost, quality, and other criteria. It promotes competitive pricing and informed decision-making.

Explanation

Equity is the fourth E- this means the extent to which the service is available. See p.65 for details on the 4 Es