CPSM EXAM 1 - CORE/FOUNDATIONS OF SUPPLY
MANAGEMENT
Contract - Answer -The total legal obligation that is the result of an agreement. It is
legally enforceable written or oral agreement between two or more competent parties
that defines a job or service to be performed. It is the total legal obligation that is the
result of an agreement.
Contract Elements - Answer -Offer, acceptance, consideration, competent parties &
legality of purpose
Promissory Estoppel - Answer -Legal theory under which a definitive promise is made
by one party and justifiably relied on by another. Includes a promised, promise and
promise (that may not have been honored).
Specification - Answer -Description of a product or service and quantitative acceptance
criteria. Includes what the service or product must do. Acceptance criteria is used to
measure outcomes and successes.
Why request an informal bid? - Answer -Solicit budgetary information for budget
preparation. Puts the buying organization in the most advantageous position to solicit an
offer.
Type of Specification that gives buyer most control - Answer -Design Specification
Type of Specification that gives Supplier most control - Answer -Performance
Specification
Internal VS. External Specification - Answer -If these are not the same, the product will
cost more.
Caucus - Answer -Planned or unplanned break in negotiations that gives negotiation
team the opportunity to discuss strategy, tactics or progress.
Negotiation Plan Steps - Answer -1. Conduct an in-depth analysis of supplier's proposal
2. Set Objectives/goals/positions
First step when preparing for a negotiation? - Answer -Select suppliers to be part of the
negotiation. Then conduct an in-depth review of the supplier's proposal.
What is the most important consideration when setting a response date and time for bid
receipts? - Answer -Understand supplier's ability to respond in time allotted.
,Consider the organization's long term strategy/long-range goals - Answer -Most
important negotiating responsibility of the SMP
Opening Position - Answer -When negotiation is part of the supplier selection process,
this is the supplier's quote.
Cultural Differences Exist between parties - Answer -Most likely reason
misunderstandings occurs during negotiation
E-Auction benefits - Answer -1. Reduction in cycle time 2. Increased information
transparency 3. Increased competitiveness due to nature of e-auction process.
E-Auction products - Answer -Not standardized, not complex, transactional,
price/volume are variables as part of this solicitation practice.
Maximum Value - Answer -Why negotiations are used to obtain ______________
SOW - Answer -Defines what a product must look like or do; quantitative to measure
performance; outlining the specific services a contractor is expected to perform,
generally indicating the type, level of quality of service, as well as the time schedule
required.
Included in SOW - Answer -1. Work breakdown structure 2. Hold points or milestones
3. Performance evaluation factors.
Laws & Regulations - Answer -What is always important to understand when doing
business in a country outside of the organization?
Purchase Order - Answer -An offer by the buying organization; a contract does not
exist until the supplier either issues an acknowledgement or fulfills the terms of the PO.
Document the final terms and conditions agreed upon by the parties - Answer -What is
one of the best reasons to sign a contract with a supplier?
SMP preparing for negotiation - Answer -Review organization's strengths and
weaknesses as well as those of the supplier and compile this information into Porter's 5
forces and SWOTT
Porter's 5 Forces - Answer -1. The extent and intensity of direct competition 2. Threat
of entrants 3. Threat of substitutes 4. Power of Buyers 5. Power of suppliers
SWOTT - Answer --strengths
-weaknesses
-opportunities
-threats
-trends
,RFI - Answer -Information request not binding on either party; results are usually in the
form of a price list and catalogs and helps suppliers in the budgeting process.
Drawbacks of RFI - Answer -Overused & supplier may not respond
Price Analysis - Answer -Examination of a supplier's price proposal or bid by
comparison with reasonable benchmarks, without examination and evaluation of
separate elements of cost and profit making up the price.
Cost Analysis - Answer -An evaluation of actual or anticipated cost data (material,
labor, overhead, general administration & profit)
Quotation - Answer -Statement of price which may be given in response to a request or
otherwise. May or may not be a binding offer; reliable way to determine existing market
price.
BATNA - Answer -best alternative to a negotiated agreement
Most important trait of effective negotiator - Answer -Planning
Most important characteristics of a negotiator - Answer -1. Planning ability 2. High
tolerance for ambiguity 3. Desire to achieve
Win-Win (Cooperational) - Answer -Likely to be used when both parties have high
degree of concern for their own and the other's outcome. Occurs likely when the SMP
and supplier want to do business with each other.
Win-Lose (adversarial/competitive) - Answer -Likely to be used when the negotiator has
a high-degree of concern for his or her own outcome and a low degree of concern for
the other party's outcome. When one party has a strong bargaining position relative to
the other and/or high degree of concern/low degree of concern.
Lose-Lose (confrontational) - Answer -Likely to be used when both negotiators have
low degree of concern for their own and the other's outcome. Likely to occur when both
parties prefer not to do business with each other but are forced to do so.
Bogey Tactic - Answer -The supply management professional tells the supplier that
their organization likes the product but that $X is all that they will pay. Often brings a
favorable response from the supplier.
Negotiation Strategies - Answer -1. Reveal no position 2. Reveal the optimistic position
(most common when SMP has supplier's proposal) 3. Reveal optimistic position and
then immediately offer target position.
, Consortiums - Answer -Several organizations combine purchasing power for selected
items to gain leverage in the marketplace to reduce costs.
Co-Op - Answer -Serves members in a single industry such as hospitals, universities &
county governments. Members play no role in management/activities but can
recommend suppliers.
Force Majeure - Answer -superior or irresistible force
Assignment - Answer -Transfer of one's rights and/or duties under a contract
Claims - Answer -Any right to payment or to receive any equitable remedy
Protest - Answer -Suppliers may protest if they believe they have been treated unfairly
Limitation of Liability - Answer -Assigns caps to the amount of risk a contracting party is
responsible for
consequential damages are included, for example, owner's lost revenue
May take the form of a maximum of:
-fees
-agreed amounts
-insurance based amounts
Estoppel - Answer -A legal theory under which a person is barred from asserting or
denying a fact because of the person's previous acts or words.
Bidder's Conference - Answer -Takes time to conduct; used for more complex bidding
situations; detailed information where dialog with the buyer and seller are required with
engineering and supplier.
Liquidated Damages - Answer -An amount, stipulated in the contract, that the parties to
a contract believe to be a reasonable estimation of the damages that will occur in the
event of a breach.
Warranty - Answer -a confirmation of the quality or performance of a good or service
Cancellation - Answer -Implies cause and does not excuse the 'causing' party from
damages resulting from its failure to perform.
Termination - Answer -1. For cause or default
2. For convenience
3. Frustration of purpose
4. Inexcusable delay
MANAGEMENT
Contract - Answer -The total legal obligation that is the result of an agreement. It is
legally enforceable written or oral agreement between two or more competent parties
that defines a job or service to be performed. It is the total legal obligation that is the
result of an agreement.
Contract Elements - Answer -Offer, acceptance, consideration, competent parties &
legality of purpose
Promissory Estoppel - Answer -Legal theory under which a definitive promise is made
by one party and justifiably relied on by another. Includes a promised, promise and
promise (that may not have been honored).
Specification - Answer -Description of a product or service and quantitative acceptance
criteria. Includes what the service or product must do. Acceptance criteria is used to
measure outcomes and successes.
Why request an informal bid? - Answer -Solicit budgetary information for budget
preparation. Puts the buying organization in the most advantageous position to solicit an
offer.
Type of Specification that gives buyer most control - Answer -Design Specification
Type of Specification that gives Supplier most control - Answer -Performance
Specification
Internal VS. External Specification - Answer -If these are not the same, the product will
cost more.
Caucus - Answer -Planned or unplanned break in negotiations that gives negotiation
team the opportunity to discuss strategy, tactics or progress.
Negotiation Plan Steps - Answer -1. Conduct an in-depth analysis of supplier's proposal
2. Set Objectives/goals/positions
First step when preparing for a negotiation? - Answer -Select suppliers to be part of the
negotiation. Then conduct an in-depth review of the supplier's proposal.
What is the most important consideration when setting a response date and time for bid
receipts? - Answer -Understand supplier's ability to respond in time allotted.
,Consider the organization's long term strategy/long-range goals - Answer -Most
important negotiating responsibility of the SMP
Opening Position - Answer -When negotiation is part of the supplier selection process,
this is the supplier's quote.
Cultural Differences Exist between parties - Answer -Most likely reason
misunderstandings occurs during negotiation
E-Auction benefits - Answer -1. Reduction in cycle time 2. Increased information
transparency 3. Increased competitiveness due to nature of e-auction process.
E-Auction products - Answer -Not standardized, not complex, transactional,
price/volume are variables as part of this solicitation practice.
Maximum Value - Answer -Why negotiations are used to obtain ______________
SOW - Answer -Defines what a product must look like or do; quantitative to measure
performance; outlining the specific services a contractor is expected to perform,
generally indicating the type, level of quality of service, as well as the time schedule
required.
Included in SOW - Answer -1. Work breakdown structure 2. Hold points or milestones
3. Performance evaluation factors.
Laws & Regulations - Answer -What is always important to understand when doing
business in a country outside of the organization?
Purchase Order - Answer -An offer by the buying organization; a contract does not
exist until the supplier either issues an acknowledgement or fulfills the terms of the PO.
Document the final terms and conditions agreed upon by the parties - Answer -What is
one of the best reasons to sign a contract with a supplier?
SMP preparing for negotiation - Answer -Review organization's strengths and
weaknesses as well as those of the supplier and compile this information into Porter's 5
forces and SWOTT
Porter's 5 Forces - Answer -1. The extent and intensity of direct competition 2. Threat
of entrants 3. Threat of substitutes 4. Power of Buyers 5. Power of suppliers
SWOTT - Answer --strengths
-weaknesses
-opportunities
-threats
-trends
,RFI - Answer -Information request not binding on either party; results are usually in the
form of a price list and catalogs and helps suppliers in the budgeting process.
Drawbacks of RFI - Answer -Overused & supplier may not respond
Price Analysis - Answer -Examination of a supplier's price proposal or bid by
comparison with reasonable benchmarks, without examination and evaluation of
separate elements of cost and profit making up the price.
Cost Analysis - Answer -An evaluation of actual or anticipated cost data (material,
labor, overhead, general administration & profit)
Quotation - Answer -Statement of price which may be given in response to a request or
otherwise. May or may not be a binding offer; reliable way to determine existing market
price.
BATNA - Answer -best alternative to a negotiated agreement
Most important trait of effective negotiator - Answer -Planning
Most important characteristics of a negotiator - Answer -1. Planning ability 2. High
tolerance for ambiguity 3. Desire to achieve
Win-Win (Cooperational) - Answer -Likely to be used when both parties have high
degree of concern for their own and the other's outcome. Occurs likely when the SMP
and supplier want to do business with each other.
Win-Lose (adversarial/competitive) - Answer -Likely to be used when the negotiator has
a high-degree of concern for his or her own outcome and a low degree of concern for
the other party's outcome. When one party has a strong bargaining position relative to
the other and/or high degree of concern/low degree of concern.
Lose-Lose (confrontational) - Answer -Likely to be used when both negotiators have
low degree of concern for their own and the other's outcome. Likely to occur when both
parties prefer not to do business with each other but are forced to do so.
Bogey Tactic - Answer -The supply management professional tells the supplier that
their organization likes the product but that $X is all that they will pay. Often brings a
favorable response from the supplier.
Negotiation Strategies - Answer -1. Reveal no position 2. Reveal the optimistic position
(most common when SMP has supplier's proposal) 3. Reveal optimistic position and
then immediately offer target position.
, Consortiums - Answer -Several organizations combine purchasing power for selected
items to gain leverage in the marketplace to reduce costs.
Co-Op - Answer -Serves members in a single industry such as hospitals, universities &
county governments. Members play no role in management/activities but can
recommend suppliers.
Force Majeure - Answer -superior or irresistible force
Assignment - Answer -Transfer of one's rights and/or duties under a contract
Claims - Answer -Any right to payment or to receive any equitable remedy
Protest - Answer -Suppliers may protest if they believe they have been treated unfairly
Limitation of Liability - Answer -Assigns caps to the amount of risk a contracting party is
responsible for
consequential damages are included, for example, owner's lost revenue
May take the form of a maximum of:
-fees
-agreed amounts
-insurance based amounts
Estoppel - Answer -A legal theory under which a person is barred from asserting or
denying a fact because of the person's previous acts or words.
Bidder's Conference - Answer -Takes time to conduct; used for more complex bidding
situations; detailed information where dialog with the buyer and seller are required with
engineering and supplier.
Liquidated Damages - Answer -An amount, stipulated in the contract, that the parties to
a contract believe to be a reasonable estimation of the damages that will occur in the
event of a breach.
Warranty - Answer -a confirmation of the quality or performance of a good or service
Cancellation - Answer -Implies cause and does not excuse the 'causing' party from
damages resulting from its failure to perform.
Termination - Answer -1. For cause or default
2. For convenience
3. Frustration of purpose
4. Inexcusable delay
