CIPS L4M1 Exam Review with
Complete Solutions
O1. FIVE elements of the total cost of ownership of capital equipment - ANSWER-1. pre
acquisition costs
2. purchase price
3. operating costs
4. maintenance and repair costs
5. downtime costs and end of life/decommissioning costs
O1. It is widely believed that it is important to attempt to reduce costs and add value
throughout the supply chain. Explain THREE innovative strategies that might achieve
such goals - ANSWER-1. value engineering
2. lean supply
3. agile supply
4. TQM
5. JIT and
6. value added negotiations/relationships
O1. Outline FIVE differences between purchasing goods and purchasing services. -
ANSWER-1. Goods are tangible, services are intangible:
2. Services cannot be separated from their supplier:
3. Heterogeneity: goods are usually uniform in nature while services are unique at each
delivery
4. Services 'perish' immediately on delivery whereas goods can be stored until required
5. Products are easier to specify, being tangible
O1. Outline FIVE ways in which improving the quality of a product can add value for an
organisation. - ANSWER-Improved quality can add value by reducing the need for
appraisal and prevention activities, which will save time and money.
Improved quality will mean that the risk of failure is reduced. This should lead to a
reduction in losses incurred due to poor quality products reaching the consumer.
Improved quality will result in fewer goods being rejected or having to be re-worked,
which will reduce costs for the organisation.
Improved quality should improve brand image, resulting in more customers, increased
revenue and profits, which have the effect of adding value.
Similarly, if an improvement in the quality of the product has improved the brand image,
customers are more likely to be loyal, resulting again in higher revenue and profits.
Improved quality should mean that quality control measures can be reduced, thereby
saving costs
O1. Outline why supply chain management (SCM) may be unattractive for some
organisations. - ANSWER-high investment in finances and resource, a closer supplier
relationship might not be appropriate if transactional purchases are involved, there are
, risks associated with closer relationships such as complacency and loss of control over
confidential information.
O1. potential benefits of a supply chain management (SCM) approach to procurement
and supply - ANSWER-derive from eliminating waste activities, improving
responsiveness in the continuous flow of value and other efficiency projects. Other
benefits might include access to resources and expertise throughout the chain,
collaborative quality management, improved communication, integrated systems and
data share, co-ordinated demand forecasting, agility in faster lead-times and innovation,
transparency reducing stock levels and waste.
O1. The main focus for procurement and supply is that value can be added either by
cutting costs or by securing operational efficiency.
Describe FIVE methods through which value may be achieved in procurement and
supply using these approaches - ANSWER-The use of value analysis, to eliminate non-
essential features ; this technique involves looking critically at the elements that make
up a product or service and investigating whether they are necessary
Challenging user generated specifications, to minimise variety, stock proliferation and
over-specification, with costs being cut as a result
Consolidating demand, by aggregating orders or forming a consortium, in order to
lower costs through bulk discounts or economies of scale
Eliminating or reducing inventory, through systems such as JIT, to reduce the costs of
holding stock
International sourcing, to take advantage of low-cost country production, although this
involves higher risks and higher costs, in terms of transport and possible taxes
Negotiating with suppliers to reduce the cost of inputs
Working with supply chain partners to minimise waste, with the technique of lean
supply
O2. activities that take place post contract award - ANSWER-there are a vast range of
answers to choose from such as expediting orders, payment, contract management,
supplier management, contract review and learning lessons, any activity within the
purchase to pay process and contract termination preparation
O2. Describe FOUR potential costs of using electronic systems in procurement and
supply. - ANSWER-The high capital investment and set-up costs of the electronic
systems, including hardware and software items
The high initial learning curve costs, where users of the electronic systems will have to
be trained to use them efficiently
Possible costs arising from the failure of data security; this may be because of
malicious access to data or loss of data
The cost of compatibility issues, because suppliers will have to invest in the necessary
technology to be able to work with their customers
Possible redundancy costs, because electronic systems are faster and more efficient,
meaning that fewer staff will be required
Complete Solutions
O1. FIVE elements of the total cost of ownership of capital equipment - ANSWER-1. pre
acquisition costs
2. purchase price
3. operating costs
4. maintenance and repair costs
5. downtime costs and end of life/decommissioning costs
O1. It is widely believed that it is important to attempt to reduce costs and add value
throughout the supply chain. Explain THREE innovative strategies that might achieve
such goals - ANSWER-1. value engineering
2. lean supply
3. agile supply
4. TQM
5. JIT and
6. value added negotiations/relationships
O1. Outline FIVE differences between purchasing goods and purchasing services. -
ANSWER-1. Goods are tangible, services are intangible:
2. Services cannot be separated from their supplier:
3. Heterogeneity: goods are usually uniform in nature while services are unique at each
delivery
4. Services 'perish' immediately on delivery whereas goods can be stored until required
5. Products are easier to specify, being tangible
O1. Outline FIVE ways in which improving the quality of a product can add value for an
organisation. - ANSWER-Improved quality can add value by reducing the need for
appraisal and prevention activities, which will save time and money.
Improved quality will mean that the risk of failure is reduced. This should lead to a
reduction in losses incurred due to poor quality products reaching the consumer.
Improved quality will result in fewer goods being rejected or having to be re-worked,
which will reduce costs for the organisation.
Improved quality should improve brand image, resulting in more customers, increased
revenue and profits, which have the effect of adding value.
Similarly, if an improvement in the quality of the product has improved the brand image,
customers are more likely to be loyal, resulting again in higher revenue and profits.
Improved quality should mean that quality control measures can be reduced, thereby
saving costs
O1. Outline why supply chain management (SCM) may be unattractive for some
organisations. - ANSWER-high investment in finances and resource, a closer supplier
relationship might not be appropriate if transactional purchases are involved, there are
, risks associated with closer relationships such as complacency and loss of control over
confidential information.
O1. potential benefits of a supply chain management (SCM) approach to procurement
and supply - ANSWER-derive from eliminating waste activities, improving
responsiveness in the continuous flow of value and other efficiency projects. Other
benefits might include access to resources and expertise throughout the chain,
collaborative quality management, improved communication, integrated systems and
data share, co-ordinated demand forecasting, agility in faster lead-times and innovation,
transparency reducing stock levels and waste.
O1. The main focus for procurement and supply is that value can be added either by
cutting costs or by securing operational efficiency.
Describe FIVE methods through which value may be achieved in procurement and
supply using these approaches - ANSWER-The use of value analysis, to eliminate non-
essential features ; this technique involves looking critically at the elements that make
up a product or service and investigating whether they are necessary
Challenging user generated specifications, to minimise variety, stock proliferation and
over-specification, with costs being cut as a result
Consolidating demand, by aggregating orders or forming a consortium, in order to
lower costs through bulk discounts or economies of scale
Eliminating or reducing inventory, through systems such as JIT, to reduce the costs of
holding stock
International sourcing, to take advantage of low-cost country production, although this
involves higher risks and higher costs, in terms of transport and possible taxes
Negotiating with suppliers to reduce the cost of inputs
Working with supply chain partners to minimise waste, with the technique of lean
supply
O2. activities that take place post contract award - ANSWER-there are a vast range of
answers to choose from such as expediting orders, payment, contract management,
supplier management, contract review and learning lessons, any activity within the
purchase to pay process and contract termination preparation
O2. Describe FOUR potential costs of using electronic systems in procurement and
supply. - ANSWER-The high capital investment and set-up costs of the electronic
systems, including hardware and software items
The high initial learning curve costs, where users of the electronic systems will have to
be trained to use them efficiently
Possible costs arising from the failure of data security; this may be because of
malicious access to data or loss of data
The cost of compatibility issues, because suppliers will have to invest in the necessary
technology to be able to work with their customers
Possible redundancy costs, because electronic systems are faster and more efficient,
meaning that fewer staff will be required
