CIPS L4M4 RELATIONSHIP MANAGEMENT
EVALUATION: CONSOLIDATED SOLVED
QUESTIONS AND FINAL PROCUREMENT
PROFICIENCY REVIEW 2026
⫸ Offshoring. Answer: Outsourcing to other countries where costs
are much lower
⫸ Subcontracting. Answer: The user of a supplier by a buying
organization to do work that the latter cannot do itself, because of
temporary shortage of resources or lack of capacity
⫸ Make-or-buy. Answer: Choice between performing an activity
internally vs outsourcing
⫸ Types of make or buy decisions. Answer: Strategic - determine the
long-term activities, capabilities, resources and boundaries of the firm
Tactical - response to short-term or cyclical changes in demand for its
products or services, or changes in the market for materials, labor or
skills
Operational or component - product design and manufacturing
decisions (component manufactured in-house or bought?)
,⫸ Procurement is well placed to assess:. Answer: - costs of
purchasing materials / components as an element of the option to
make internally
- full implications of the buy option (since familiar with sup. capab.,
capacity and compatibility, and likely costs)
⫸ Intra-company trade. Answer: commercial relationships between
ompanies that are part of the same group
⫸ Transfer price. Answer: price charged for sale of goods/services in
intra-company trading transactions
⫸ transfer prices are decided through:. Answer: - negotiation between
supplier subsid. and buying subsid.
- decision of head office dept.
⫸ Strategic sourcing. Answer: long-term decisions about how and
where to source from
⫸ cost of making in-house vs outsourcing. Answer: In-house
- purchase of materials and parts
- cost of employed labor
- other additional costs (operating a factory or office accom.)
- cost of investm. in apital eq/machin
- opportunity cost
,outsourcing
- payment to extern. supplier of materials, parts or services
- possibly some add. administr. costs
- contract, performance and relat. mgmt costs, communic. costs
- possibly hidden cost
⫸ Opportunity costs of making rather than buying. Answer: - limited
supply/avail. of a key resource
- resource could be used for other profitable work if it were not being
used
⫸ fixed vs var costs for outsourcing vs in-house. Answer: In-house -
more fixed costs (fixed workforce, property rental, facilities mgmt)
oursourcing - more var.
the var. costs of outsourcing might be higher than the fixed costs of
in-house operations
⫸ non-financial costs of outsourcing. Answer: - some loss of mgmt
control
- may damage employee morale
- loss of in-house skills
⫸ factors to consider in make vs buy. Answer: - core non core
- security of supply
- effect on total costs
, financial issues
av. of in-house competencies or production capacity
- convenience
- monitoring and control
- risks
- av. of suitable supplier
- human resource impact
⫸ Benefits of outsourcing. Answer: - Ability to downsize the
company
- focus on core act. and compet.
- acccess to specialist expertise
- cost certainty
⫸ Competency. Answer: Activities or processes through which the
org. deploys resources effectively
⫸ Threshold vs core competencies. Answer: threshold - basic capab.
necessary to enable an org. to compete or operate successfully
core - distinctive value-creating skills, capabilities and resources
⫸ Outsourcing core activities risks. Answer: - loss of in-house skill
- loss of key staff to compet.
- risk that supplier cannot be found
EVALUATION: CONSOLIDATED SOLVED
QUESTIONS AND FINAL PROCUREMENT
PROFICIENCY REVIEW 2026
⫸ Offshoring. Answer: Outsourcing to other countries where costs
are much lower
⫸ Subcontracting. Answer: The user of a supplier by a buying
organization to do work that the latter cannot do itself, because of
temporary shortage of resources or lack of capacity
⫸ Make-or-buy. Answer: Choice between performing an activity
internally vs outsourcing
⫸ Types of make or buy decisions. Answer: Strategic - determine the
long-term activities, capabilities, resources and boundaries of the firm
Tactical - response to short-term or cyclical changes in demand for its
products or services, or changes in the market for materials, labor or
skills
Operational or component - product design and manufacturing
decisions (component manufactured in-house or bought?)
,⫸ Procurement is well placed to assess:. Answer: - costs of
purchasing materials / components as an element of the option to
make internally
- full implications of the buy option (since familiar with sup. capab.,
capacity and compatibility, and likely costs)
⫸ Intra-company trade. Answer: commercial relationships between
ompanies that are part of the same group
⫸ Transfer price. Answer: price charged for sale of goods/services in
intra-company trading transactions
⫸ transfer prices are decided through:. Answer: - negotiation between
supplier subsid. and buying subsid.
- decision of head office dept.
⫸ Strategic sourcing. Answer: long-term decisions about how and
where to source from
⫸ cost of making in-house vs outsourcing. Answer: In-house
- purchase of materials and parts
- cost of employed labor
- other additional costs (operating a factory or office accom.)
- cost of investm. in apital eq/machin
- opportunity cost
,outsourcing
- payment to extern. supplier of materials, parts or services
- possibly some add. administr. costs
- contract, performance and relat. mgmt costs, communic. costs
- possibly hidden cost
⫸ Opportunity costs of making rather than buying. Answer: - limited
supply/avail. of a key resource
- resource could be used for other profitable work if it were not being
used
⫸ fixed vs var costs for outsourcing vs in-house. Answer: In-house -
more fixed costs (fixed workforce, property rental, facilities mgmt)
oursourcing - more var.
the var. costs of outsourcing might be higher than the fixed costs of
in-house operations
⫸ non-financial costs of outsourcing. Answer: - some loss of mgmt
control
- may damage employee morale
- loss of in-house skills
⫸ factors to consider in make vs buy. Answer: - core non core
- security of supply
- effect on total costs
, financial issues
av. of in-house competencies or production capacity
- convenience
- monitoring and control
- risks
- av. of suitable supplier
- human resource impact
⫸ Benefits of outsourcing. Answer: - Ability to downsize the
company
- focus on core act. and compet.
- acccess to specialist expertise
- cost certainty
⫸ Competency. Answer: Activities or processes through which the
org. deploys resources effectively
⫸ Threshold vs core competencies. Answer: threshold - basic capab.
necessary to enable an org. to compete or operate successfully
core - distinctive value-creating skills, capabilities and resources
⫸ Outsourcing core activities risks. Answer: - loss of in-house skill
- loss of key staff to compet.
- risk that supplier cannot be found
