CIPS L4M2 UPDATED ACTUAL Exam
Questions and CORRECT Answers
Re-buy - CORRECT ANSWER - It is not necessary to specify a new specification or to
source the market. Call-off or framework agreement. A preferred supplier is in place
Modified Buy - CORRECT ANSWER - Review of existing contract requirements and
making any necessary amendments such as to build additional benefits, streamline the business
or to establish new KPIs/SLAs. Where some of the specification or requirements have changed.
New Buy - CORRECT ANSWER - A new purchase outlines requirements that have not
been specified before. There is a higher risk involved in procuring a new purchase,
demand/supplier/market analysis should be conducted, and new specific KPIs should be included
in the specification.
Business Needs - CORRECT ANSWER - The mission of the organisation determines its
requirements and therefore what procurement needs to source.
R - regulatory (any legal requirements)
A - availability (supply of goods/services when required, risk, financial and capacity)
Q - quality (consistency, repeatability, and fit for purpose)
S - service requirements (flexibility, support, availability)
C - cost (target costs, total cost of ownership, continuous improvement)
I - innovation (improving customer experience) - CORRECT ANSWER - A model that can
be used to identify business needs.
Kraljic Matrix - CORRECT ANSWER - A matrix that allows procurement to prioritise
spend in line with business needs.
Leverage - Kraljic Matrix - CORRECT ANSWER - Business needs met by using
purchasing department buying power to gain the best price and terms e.g. competitive tendering.
,Example of Leverage item (Kraljic Matrix) - CORRECT ANSWER - Company cars or
mobile phones.
Strategic - Kraljic Matrix - CORRECT ANSWER - Business needs met by developing
long term relationships such as partnerships to ensure security of supply.
Example of Strategic item (Kraljic Matrix) - CORRECT ANSWER - Capital assets such as
premises
Routine - Kraljic Matrix - CORRECT ANSWER - Business needs met by trying to buy
these more efficiently through blanket ordering, e-procurement and vendor managed inventory
leadership in procurement and supply.
Example of Routine item (Kraljic Matrix) - CORRECT ANSWER - Stationary
Bottleneck - Kraljic Matrix - CORRECT ANSWER - Business needs met by developing
appropriate contracts (such as call off contracts, framework agreements) in which the buyer can
ensure that stock levels and maintained and speed of re-ordering.
Example of Bottleneck item (Kraljic Matrix) - CORRECT ANSWER - Spare parts or oil
for machines
Cost and risk - Kraljic Matric - CORRECT ANSWER - Low cost / high risk - Bottleneck
High cost / high risk - Strategic
High cost / low risk - Leverage
Low cost / low risk - Routine
Total cost of ownership - CORRECT ANSWER - Is how much it costs to own the product
over its lifetime until disposal.
, Whole life costing - CORRECT ANSWER - Is a technique used to arrive at the total cost
of ownership
Planning, preparation and implementation - CORRECT ANSWER - Three stages of WLC
WLC - planning - CORRECT ANSWER - Determines the budget for the asset being
purchased, helps improve the specification to reduce cost, and simulation or decision support
models can be used to assist.
WLC - preparation - CORRECT ANSWER - Testing the various models for calculating
WLC and is necessary to choose the best model.
WLC - implementation - CORRECT ANSWER - Implements the model to get the results.
A review and intervals for regular recalculation.
Acquisition, operation and disposal - CORRECT ANSWER - There is a vital difference
between purchase price and total cost of ownership. This includes 3 categories.
Cost based pricing - CORRECT ANSWER - Allows the supplier to cover its costs and
make a profit.
Limits to cost based pricing - CORRECT ANSWER - Ignores competition and other
influences on pricing and are quite inflexible. They also don't give a supplier an incentive to
reduce or manage costs.
Cost behaviour - CORRECT ANSWER - The way in which costs of outputs are affected
by fluctuations in the level of activity.
Questions and CORRECT Answers
Re-buy - CORRECT ANSWER - It is not necessary to specify a new specification or to
source the market. Call-off or framework agreement. A preferred supplier is in place
Modified Buy - CORRECT ANSWER - Review of existing contract requirements and
making any necessary amendments such as to build additional benefits, streamline the business
or to establish new KPIs/SLAs. Where some of the specification or requirements have changed.
New Buy - CORRECT ANSWER - A new purchase outlines requirements that have not
been specified before. There is a higher risk involved in procuring a new purchase,
demand/supplier/market analysis should be conducted, and new specific KPIs should be included
in the specification.
Business Needs - CORRECT ANSWER - The mission of the organisation determines its
requirements and therefore what procurement needs to source.
R - regulatory (any legal requirements)
A - availability (supply of goods/services when required, risk, financial and capacity)
Q - quality (consistency, repeatability, and fit for purpose)
S - service requirements (flexibility, support, availability)
C - cost (target costs, total cost of ownership, continuous improvement)
I - innovation (improving customer experience) - CORRECT ANSWER - A model that can
be used to identify business needs.
Kraljic Matrix - CORRECT ANSWER - A matrix that allows procurement to prioritise
spend in line with business needs.
Leverage - Kraljic Matrix - CORRECT ANSWER - Business needs met by using
purchasing department buying power to gain the best price and terms e.g. competitive tendering.
,Example of Leverage item (Kraljic Matrix) - CORRECT ANSWER - Company cars or
mobile phones.
Strategic - Kraljic Matrix - CORRECT ANSWER - Business needs met by developing
long term relationships such as partnerships to ensure security of supply.
Example of Strategic item (Kraljic Matrix) - CORRECT ANSWER - Capital assets such as
premises
Routine - Kraljic Matrix - CORRECT ANSWER - Business needs met by trying to buy
these more efficiently through blanket ordering, e-procurement and vendor managed inventory
leadership in procurement and supply.
Example of Routine item (Kraljic Matrix) - CORRECT ANSWER - Stationary
Bottleneck - Kraljic Matrix - CORRECT ANSWER - Business needs met by developing
appropriate contracts (such as call off contracts, framework agreements) in which the buyer can
ensure that stock levels and maintained and speed of re-ordering.
Example of Bottleneck item (Kraljic Matrix) - CORRECT ANSWER - Spare parts or oil
for machines
Cost and risk - Kraljic Matric - CORRECT ANSWER - Low cost / high risk - Bottleneck
High cost / high risk - Strategic
High cost / low risk - Leverage
Low cost / low risk - Routine
Total cost of ownership - CORRECT ANSWER - Is how much it costs to own the product
over its lifetime until disposal.
, Whole life costing - CORRECT ANSWER - Is a technique used to arrive at the total cost
of ownership
Planning, preparation and implementation - CORRECT ANSWER - Three stages of WLC
WLC - planning - CORRECT ANSWER - Determines the budget for the asset being
purchased, helps improve the specification to reduce cost, and simulation or decision support
models can be used to assist.
WLC - preparation - CORRECT ANSWER - Testing the various models for calculating
WLC and is necessary to choose the best model.
WLC - implementation - CORRECT ANSWER - Implements the model to get the results.
A review and intervals for regular recalculation.
Acquisition, operation and disposal - CORRECT ANSWER - There is a vital difference
between purchase price and total cost of ownership. This includes 3 categories.
Cost based pricing - CORRECT ANSWER - Allows the supplier to cover its costs and
make a profit.
Limits to cost based pricing - CORRECT ANSWER - Ignores competition and other
influences on pricing and are quite inflexible. They also don't give a supplier an incentive to
reduce or manage costs.
Cost behaviour - CORRECT ANSWER - The way in which costs of outputs are affected
by fluctuations in the level of activity.
