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An automotive company purchases high quality steel to produce components. The steel is an important raw material and the contract value is enormous. They sources the steel from oversea and contact some potential suppliers. One of the potential suppliers invites the procurement team to their premise for a new business opportunity. Should the procurement team accept the invitation?
Answer : C
In the scenario, the value of contract as well as the importance of purchased item justify the procurement's travel. Visiting a supplier at their HQ or operational facility may facilitate the procurement team in assessing, albeit briefly, the culture of the organisation, how busy they seem and how staff engage with each other. A visit is a good opportunity to assess supplier's capacity.
LO 2, AC 2.2
Which of the following will shift the supply curve to the right?
Answer : B
The following graph shows the factors that shift the supply curve to the left and to the right.
- CIPS study guide page 103
- Principles of Microeconomics 2e, 2017, Open Stax - Rice University.
LO 2, AC 2.2
Which of the following are most likely to help buyer become preferred customer in supplier's perspective? Select TWO that apply.
Answer : C, E
Becoming a preferred customer to supplier's perspective can increase the purchaser's leverage in negotiation. Beside the size of buying organisation or its spend, the following may be sufficient to differentiate the buyer from other buying organisations:
- Simple procurement processes
- Simple contracting processes
- Clear and concise documentation
- Absence of onerous supplier terms and conditions (onerous supplier terms and conditions mean that obligations imposed on suppliers are greater than their gains)
- On-time payment: The reduction in hassle for both supplier and the buyer, if bills are paid on time, is significant. From the customer's perspective it could also be the opener to agreeing preferential payment terms. A supplier may weigh up that payment on time at 60 days is worth taking, over the current 30-day terms that slip to 90 days and beyond.
- Transparent processes
- Ethical behavior
LO 1, AC 1.3
Which of the following will positively affect reputational strength of an organisation? Select TWO that apply.
Answer : D, E
In a globalised commercial world characterised by dynamic market and multiple companies competing for business, a positive corporate reputation can be an enormous asset. Reputational strength in one organisation might be based on some or all of the following characteristics:
- Quality of products or services
- Low cost/high value for money
- High ethical standards
- Reliability
- Cutting-edge technology
- Strong customer focus
- Engineering excellence
LO 1, AC 1.4
Which of the following is most likely to be a reason why a supplier charges its customer higher price after it has reached the break-even point?
Answer : A
'Supplier may want to encourage buyer's demand': the buyer tends to prefer lower price, if supplier wants to encourage its customers to buy more, it needs to offer discount at bulk amount. So this option is not acceptable.
'Supplier may have high fixed cost - variable cost ratio': Supplier with high fixed cost needs high volumes to break even, but once achieved, it may be able to offer significant discounts for bulk orders
'The supplier may have reached economy of scale': when economy of scale is reached, cost per unit will be minimal which often leads to more favourable price.
'Supplier may need to open new facilities to meet increasing customer's demand': Increasing customer's demands may excess supplier's current capacity. Therefore, supplier may need to extend its capacity by investing more in facilities. To cover these fixed cost investment, supplier may charge higher price.
LO 2, AC 2.1
