L4M2 Exam Dumps - CIPS Level 4 Diploma in Procurement and Supply Questions and Answers

Explanation

Writing a high-quality specification is very crucial in every purchase. In through-life management, it is even more important since the assets often have very high value. Defining user requirement is the first step to write a specification. Without doing this right, many problems may arise in later stages.

Comprehensive and Detailed Explanation (from CIPS L4M2: Market Management)

Primary data = data collected first-hand by the buyer for a specific purpose.

Secondary data = data collected by others and reused (e.g. reports, indices).

A. Price lists collected directly from suppliers at trade fairs represent first-hand market data.

B, C, D are all secondary – they originate from external publications and existing datasets.

Hence, A is correct.

Relevant CIPS L4M2 Sections:

Sources of data for supply market analysis

Differences between primary and secondary data

Explanation

In the scenario, the products have low value and high risk of supply. This group is known as bottleneck or critical in Kraljic's portfolio matrix. The objective for such items would be securing the supply. The company can achieve this goal by 'making' the products themselves, or finding an alternative option.

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Comprehensive and Detailed Explanation (from CIPS L4M2: Supply Market Analysis)

Supplier power is high when:

Few suppliers exist relative to demand → less competition.

Urgent demand gives suppliers leverage over buyers.

A and D would reduce supplier power; C (educated buyer) also weakens it.

Relevant CIPS L4M2 Sections:

Porter’s Five Forces – supplier power

Market structure and urgency as power drivers

Explanation

Competitive benchmarking

Competitive benchmarking is a direct competitor-to-competitor comparison of a product, service, process, or method. This form of benchmarking provides an opportunity to know yourself and your competition better; combine forces against another common competitor. An example of competitive benchmarking within the Department of Defense, might include contrasting Army and Air Force supply systems for Joint initiatives. Within the private sector, two or more American car companies might benchmark for mutual benefit against common international competitor; or, rival chemical companies benchmark for environmental compliance.

Benefits

- Comparing like processes

- Know your competition better

- Possible partnership

- Useful for planning and setting goals

- Similar regulatory issues

Challenges

- Difficult legal issues

- Relatively low performance improvement

- Threatening

- Limited by trade secrets

- May provide misleading information

- May not get best-in-class comparisons

- Competitors could capitalize on your weaknesses

Source: USN Benchmarking Handbook

Explanation

The procurement team in the scenario is analysing the difference between the plan and actual spend. This activity is known as variance analysis. The sum of all variances gives a picture of the overall over-performance or under-performance for a particular reporting period. For each item, companies assess their favorability by comparing actual costs to standard costs in the industry.

For example, if the actual cost is lower than the standard cost for raw materials, assuming the same volume of materials, it would lead to a favorable price variance (i.e., cost savings). However, if the standard quantity was 10,000 pieces of material and 15,000 pieces were required in production, this would be an unfavorable quantity variance because more materials were used than anticipated.

Explanation

In marketing, a customer value proposition (CVP) consists of the sum total of benefits which a vendor promises a customer will receive in return for the customer's associated payment (or other value-transfer).

Value analysis is concerned with existing products. It involves a current product being analysed and evaluated by a team, to reduce costs, improve product function or both. Value Analysis exercises use a plan which step-by-step, methodically evaluates the product in a range of areas. These include costs, function, alternative components and design aspects such as ease of manufacture and assembly.

Value engineering is concerned with new products. It is applied during product development. The focus is on reducing costs, improving function or both, by way of teamwork-based product evalua-tion and analysis. This takes place before any capital is invested in tooling, plant or equipment.

In this scenario, the company's objective is cost reduction, then value analysis or value engineering is more likely to be applied. The products are existing, so value analysis is the best option.

LO 3, AC 3.4

Explanation

Functional benchmarking is a comparison to similar or identical practices (e.g., the picking process for assembling customer orders, maintaining inventory controls of spare computer parts, logistics to move operational forces, etc.) within the same or similar functions outside the immediate industry. Functional benchmarking might identify practices that are superior in your functional areas in whatever industry they may exist. Functional benchmarking would be accomplished at the federal level by comparing the IRS collections process against those of American Express. Comparing copper mining techniques to coal mining techniques is an example in the private sector.

Benefits

- Provides industry trend information

- Quantitative comparisons

- Better improvement rate

Challenges

- Diverse corporate cultures

- Great need for specificity

- Not invented here. syndrome

- Common functions can be difficult to find

- Takes more time than internal or percent

- Must be able to visualize how to adapt the best practices

Source: USN Benchmarking Handbook

LO 1, AC 1.3

Detailed Explanation:

Cotton fabric is a direct cost because it is directly attributable to the production of the garments. Costs like rent, utilities, and payroll are indirect costs associated with running the business. Reference: CIPS Level 4, Cost Categorization in Procurement.