CIPS L4M1 QUESTION AND ANSWER
O1. Outline FIVE differences between purchasing goods and purchasing services. -
Answers - 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
O2. Explain THREE circumstances in which a competitive tendering exercise might not
be the best approach to making a purchase. - Answers - 1. Urgency
2. Commercial confidentiality or national security (e.g. military organisations):
3. Value of the purchase:
4. Production costs cannot be measured accurately:
5. Price is not the only criterion for supplier selection and contract award
6. Intellectual Property Rights and monopoly
O2. Describe TWO e-sourcing tools and their use in procurement and supply. - Answers
- 1. E-Catalogues
2. E-Tendering
3. E. Auction
4. Reverse Auctions
5. Online suppleir evaluation data
O3. Explain the role of a shared services unit (SSU). - Answers - SSUs reflect a desire
to centralise and share services
The shared service provider becomes a dedicated provider of services such as; finance,
HR, IT and procurement which continue to be provided internally
An SSU manages costs and quality SLAs to demonstrate value for money.
An SSU's benefits may be summarised as:
• cost effective internal service;
• liaison with its customers;
• anticipating future demand;
• employing resources and providing higher levels of service more cost effectively than if
they were provided by a department or an external provider.
O3. A manufacturer of electrically powered tools for the engineering industry consists of
four separate business units, each of which undertakes its own purchasing activities.
Discuss THREE benefits of centralising all purchasing activities with those of retaining
the present decentralised structure. (1 of 2) - Answers - Centralisation' and
'decentralisation' refer to the degree to which responsibility and authority is delegated.
, Arguments for centralisation can only be evaluated in the context of specific
organisational environment and might include:
1. Policies & procedures
2. Consolidation of requirements
3. Location
4. Supply market structure
5. Expertise required:
6. Customer demands
O3. A manufacturer of electrically powered tools for the engineering industry consists of
four separate business units, each of which undertakes its own purchasing activities.
Discuss THREE benefits of centralising all purchasing activities with those of retaining
the present decentralised structure. (2 of 2) - Answers - The benefits of retaining the
present de-centralised structure include:
1. Local responsibility
2. Knowledge of the local environment, culture and customer needs
3. Skills development of buyers in each unit
4. Better communication and coordination between procurement and operating
departments,
5. Customer focus: buyers are 'closer' to internal and external customers developing
understanding of user needs and problems.
6. Quicker response to operational and user needs,
7. Smaller purchase quantities:
8. Accountability: d
9. Freeing central procurement units to focus on higher-level, value-adding tasks.
O3. Explain the following IT systems used by the procurement or supply chain function:
(i) 'Enterprise Resource Planning'
(ii) 'Materials Requirement Planning'
(iii) 'Purchase to Pay (P2P)'. - Answers - ERP is a single data base to manage a wide
range of functions and resources across a business. It offers real time solutions.
MRP is a set of records, decision rules and procedures to manage demand.
P2P is a two way flow of transactions taking a purchase requisition through to payment
of invoice.
O1. FIVE elements of the total cost of ownership of capital equipment - Answers - 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. Outline FIVE differences between purchasing goods and purchasing services. -
Answers - 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
O2. Explain THREE circumstances in which a competitive tendering exercise might not
be the best approach to making a purchase. - Answers - 1. Urgency
2. Commercial confidentiality or national security (e.g. military organisations):
3. Value of the purchase:
4. Production costs cannot be measured accurately:
5. Price is not the only criterion for supplier selection and contract award
6. Intellectual Property Rights and monopoly
O2. Describe TWO e-sourcing tools and their use in procurement and supply. - Answers
- 1. E-Catalogues
2. E-Tendering
3. E. Auction
4. Reverse Auctions
5. Online suppleir evaluation data
O3. Explain the role of a shared services unit (SSU). - Answers - SSUs reflect a desire
to centralise and share services
The shared service provider becomes a dedicated provider of services such as; finance,
HR, IT and procurement which continue to be provided internally
An SSU manages costs and quality SLAs to demonstrate value for money.
An SSU's benefits may be summarised as:
• cost effective internal service;
• liaison with its customers;
• anticipating future demand;
• employing resources and providing higher levels of service more cost effectively than if
they were provided by a department or an external provider.
O3. A manufacturer of electrically powered tools for the engineering industry consists of
four separate business units, each of which undertakes its own purchasing activities.
Discuss THREE benefits of centralising all purchasing activities with those of retaining
the present decentralised structure. (1 of 2) - Answers - Centralisation' and
'decentralisation' refer to the degree to which responsibility and authority is delegated.
, Arguments for centralisation can only be evaluated in the context of specific
organisational environment and might include:
1. Policies & procedures
2. Consolidation of requirements
3. Location
4. Supply market structure
5. Expertise required:
6. Customer demands
O3. A manufacturer of electrically powered tools for the engineering industry consists of
four separate business units, each of which undertakes its own purchasing activities.
Discuss THREE benefits of centralising all purchasing activities with those of retaining
the present decentralised structure. (2 of 2) - Answers - The benefits of retaining the
present de-centralised structure include:
1. Local responsibility
2. Knowledge of the local environment, culture and customer needs
3. Skills development of buyers in each unit
4. Better communication and coordination between procurement and operating
departments,
5. Customer focus: buyers are 'closer' to internal and external customers developing
understanding of user needs and problems.
6. Quicker response to operational and user needs,
7. Smaller purchase quantities:
8. Accountability: d
9. Freeing central procurement units to focus on higher-level, value-adding tasks.
O3. Explain the following IT systems used by the procurement or supply chain function:
(i) 'Enterprise Resource Planning'
(ii) 'Materials Requirement Planning'
(iii) 'Purchase to Pay (P2P)'. - Answers - ERP is a single data base to manage a wide
range of functions and resources across a business. It offers real time solutions.
MRP is a set of records, decision rules and procedures to manage demand.
P2P is a two way flow of transactions taking a purchase requisition through to payment
of invoice.
O1. FIVE elements of the total cost of ownership of capital equipment - Answers - 1. pre
acquisition costs
2. purchase price
3. operating costs
4. maintenance and repair costs
5. downtime costs and end of life/decommissioning costs
