CIPS Level 4 Module 1
The Purchasing process - correct answer 1. Define Specification.
2. Select Supplier
3. Contract Agreement
4. Ordering
5. Expediting
6. Evaluation Follow up
Definition of Procurement & Supply - correct answer recognition of the fact that the purchasing function
has a role in not just "buying inputs" but in "securing supply"
Direct Costs - correct answer These are costs which can be identified directly with the production of a
good or service; e.g. raw materials.
Usually strategic or leverae suppliers
Indirect Costs - correct answer These are costs which cannot be matched against each product because
they need to be paid whether or not the production of good or services takes place; e.g. rent on the
premises.
Kraljic Matrix - correct answer A tool for portfolio analysis: a four-box matrix that reflects the
segmentation of spend based on an assessment of the value of the spend relative to the market risk to
acquire
1. Leverage Suppliers
2. Strategic Suppliers
3. Routine Suppliers
4. Bottleneck Suppliers
CAPEX is - correct answer 1. Capital expenditures are for major purchases that will be used in the future.
,2. The life of these purchases extends beyond the current accounting period in which they were
purchased.
3. Because these costs can only be recovered over time through depreciation, companies ordinarily
budget for 4. CAPEX purchases separately from preparing an operational budget.
OPEX - correct answer Operating expenses are the costs for a company to run its business operations on
a daily basis.
CAPEX - correct answer 1. Useful beyond its curent year
2. Lump sum up front
3. 3-10 year accounting lifespan for depreciaiton
4. Listed as preprty or equipment
5. Tax deducted as asset depreciated
Name the 13 stages of the procurement cycle - correct answer 1. Understand the need.
2. Market Commodity options.
3. Develop Stratgey/ Plan.
4. Pre-procurement / market test.
5. Develop required documentation.
6. Supplier Selection.
7. Issue invitation to tender.
8. Bid / tender evaluation.
9. Contract Award.
10. Warehouse logistics & receipt.
11. Contract performance review and continuous improvement.
12. Supplier relationships / contract management.
13. Asset management / end of life.
Scope of Procurement - correct answer 1. Contributor of Added Value
2. Manages cost of procured materials & services on behalf of an organisation
,3. Helps manage inventory
4. Works alongside logistics partner function
5. Helps mange quality in procurement
6. Manages delivery performance
7. Manages & controls waste in the supply chain
Porters Value Chain - correct answer Primary - Inbound Logistics, Operations, Outbound Logistics,
Marketing & sales, Services
Support Activities - Firm Infrastructure, HR Management, Technology, Procurement
Action points for CAPEX purchasing - correct answer 1. Documentation or guidline and standard
procedure
2. Cross-functional team for appraisal & evaluation
3. Appropriate project evaluation methology
4. Process automation (E-platform)
5. TCO / Life cycle costing
6. Regular review for better control & monitoring
5 rights of procurement - correct answer Right Quality
Right Quantity
Right Price
Right Place
Right Time
Right Quality - correct answer goods which are of satisfactory quality and fit for their intended purpose
e.g. ensuring an accurate specification of the requirement and its quality standards.
, Right Quantity - correct answer sufficient to meet demand and maintain service levels while minimising
stock holding e.g. by ensuring that there is accurate demand forecasting and efficient inventory
management.
Right Place - correct answer goods delivered to the appropriate delivery point, packaged and
transported so as to secure their safe arrival in good condition e.g. by including transport instructions
including packaging requirements as part of purchase orders.
Right Time - correct answer delivery of goods at the right time to meet demand, i.e. not too late but not
so early as to incur unnecessary inventory costs e.g. by ensuring accurate demand management, placing
orders in time for suppliers to provide timely delivery and ensuring that suppliers are aware of delivery
requirements.
Right Price - correct answer securing all of the above at a reasonable, fair, competitive and affordable
price. Ideally, minimising procurement costs in order to maximise profit e.g. by carrying out price and
supplier cost analysis and/or by carrying out competitive tendering and negotiation. The 'right' price is
one that represents good value for money.
Life Cycle cost (LLC) - correct answer The total cost throughout its life including planning, design,
acquisition and support costs and any other costs directly attributable to owning or using the asset".
Total Cost of Ownership (TCO) - correct answer 1. TCA
2. Tooling
3. Insurance
4. Operation
5 Maintenance
6 Training
7. Storage
8. Disposal
TCO Acquisition costs - correct answer Acquisition/Physical Hardware costs include the cost of
equipment or property before taxes, but after commissions, discounts, purchasing incentives, and
closing costs.
The Purchasing process - correct answer 1. Define Specification.
2. Select Supplier
3. Contract Agreement
4. Ordering
5. Expediting
6. Evaluation Follow up
Definition of Procurement & Supply - correct answer recognition of the fact that the purchasing function
has a role in not just "buying inputs" but in "securing supply"
Direct Costs - correct answer These are costs which can be identified directly with the production of a
good or service; e.g. raw materials.
Usually strategic or leverae suppliers
Indirect Costs - correct answer These are costs which cannot be matched against each product because
they need to be paid whether or not the production of good or services takes place; e.g. rent on the
premises.
Kraljic Matrix - correct answer A tool for portfolio analysis: a four-box matrix that reflects the
segmentation of spend based on an assessment of the value of the spend relative to the market risk to
acquire
1. Leverage Suppliers
2. Strategic Suppliers
3. Routine Suppliers
4. Bottleneck Suppliers
CAPEX is - correct answer 1. Capital expenditures are for major purchases that will be used in the future.
,2. The life of these purchases extends beyond the current accounting period in which they were
purchased.
3. Because these costs can only be recovered over time through depreciation, companies ordinarily
budget for 4. CAPEX purchases separately from preparing an operational budget.
OPEX - correct answer Operating expenses are the costs for a company to run its business operations on
a daily basis.
CAPEX - correct answer 1. Useful beyond its curent year
2. Lump sum up front
3. 3-10 year accounting lifespan for depreciaiton
4. Listed as preprty or equipment
5. Tax deducted as asset depreciated
Name the 13 stages of the procurement cycle - correct answer 1. Understand the need.
2. Market Commodity options.
3. Develop Stratgey/ Plan.
4. Pre-procurement / market test.
5. Develop required documentation.
6. Supplier Selection.
7. Issue invitation to tender.
8. Bid / tender evaluation.
9. Contract Award.
10. Warehouse logistics & receipt.
11. Contract performance review and continuous improvement.
12. Supplier relationships / contract management.
13. Asset management / end of life.
Scope of Procurement - correct answer 1. Contributor of Added Value
2. Manages cost of procured materials & services on behalf of an organisation
,3. Helps manage inventory
4. Works alongside logistics partner function
5. Helps mange quality in procurement
6. Manages delivery performance
7. Manages & controls waste in the supply chain
Porters Value Chain - correct answer Primary - Inbound Logistics, Operations, Outbound Logistics,
Marketing & sales, Services
Support Activities - Firm Infrastructure, HR Management, Technology, Procurement
Action points for CAPEX purchasing - correct answer 1. Documentation or guidline and standard
procedure
2. Cross-functional team for appraisal & evaluation
3. Appropriate project evaluation methology
4. Process automation (E-platform)
5. TCO / Life cycle costing
6. Regular review for better control & monitoring
5 rights of procurement - correct answer Right Quality
Right Quantity
Right Price
Right Place
Right Time
Right Quality - correct answer goods which are of satisfactory quality and fit for their intended purpose
e.g. ensuring an accurate specification of the requirement and its quality standards.
, Right Quantity - correct answer sufficient to meet demand and maintain service levels while minimising
stock holding e.g. by ensuring that there is accurate demand forecasting and efficient inventory
management.
Right Place - correct answer goods delivered to the appropriate delivery point, packaged and
transported so as to secure their safe arrival in good condition e.g. by including transport instructions
including packaging requirements as part of purchase orders.
Right Time - correct answer delivery of goods at the right time to meet demand, i.e. not too late but not
so early as to incur unnecessary inventory costs e.g. by ensuring accurate demand management, placing
orders in time for suppliers to provide timely delivery and ensuring that suppliers are aware of delivery
requirements.
Right Price - correct answer securing all of the above at a reasonable, fair, competitive and affordable
price. Ideally, minimising procurement costs in order to maximise profit e.g. by carrying out price and
supplier cost analysis and/or by carrying out competitive tendering and negotiation. The 'right' price is
one that represents good value for money.
Life Cycle cost (LLC) - correct answer The total cost throughout its life including planning, design,
acquisition and support costs and any other costs directly attributable to owning or using the asset".
Total Cost of Ownership (TCO) - correct answer 1. TCA
2. Tooling
3. Insurance
4. Operation
5 Maintenance
6 Training
7. Storage
8. Disposal
TCO Acquisition costs - correct answer Acquisition/Physical Hardware costs include the cost of
equipment or property before taxes, but after commissions, discounts, purchasing incentives, and
closing costs.
