When analyzing direct and indirect costs of potential suppliers for negotiations and planning pur- chasing budget, the procurement manager collects reports from specialist organisations like Mintel, Gartner and Forrester.Which kind of information source is used by the procurement manager?
Answer(s): C
Using Porter's value chain helps procurement professionals know what are direct and indirect costs of supplier. Information on direct and indirect costs will have been collected as part of the market analysis. Information sources that may help include the following:- Company annual reports- Market data- Technical data- Request for information- Plan visits- Discount listsMarket data is the information that is collected and analysed by specialist organisations like Mintel, Gartner, Forrester,...
CIPS study guide page 98-105LO 2, AC 2.3
Honda of America Manufacturing is a well established automobile manufacturer. It purchases tens of thousands of materials and parts from suppliers, however, only few of them are strategic. To these suppliers, Honda's procurement manager requires them to send details of labour, materials, overhead cost and profit. However, the suppliers are reluctant to submit such confidential infor- mation. Is the procurement manager's action appropriate?
With strategic suppliers, the aim should be to work co-operatively with them to find ways of reducing costs to achieve a target cost. It is necessary to work with the suppliers in carrying out open book costing by having first persuaded them of the need to do it. Open book can be used to establish a Target Cost, a Compensation Event value and can eventually be used to ensure the payment of actual costs to an organization. A number of forms of contract cater for this functionality of which only the NEC goes to into any great depth of methodology.If the suppliers worry about leak of confidential information, procurement team can suggest them to sign a non-disclosure agreement. The buying organisation should also comply with data protection regulations. The Employer / individual responsible for a project's costs should ultimately take a pragmatic and sensible approach with regard to commercially or personally sensitive data provided by the contractor. The primary goal of all open book cost management is to provide Employer comfort and security in the accuracy of commercial data; this effectively means striking a balance between undertaking full audits and blind faith.
CIPS study guide page 32LO 1, AC 1.2
Royal Navy is preparing a through-life contract. They put to the contract a term on rectification of operational defects and planning and delivery of Fleet Time Support Periods.Which part of through- life requirement does this term belong to?
Answer(s): B
There are 6 main components of the through-life requirements of an asset: Design, Manufacture, Installation, In-service support, Decommission and disposal and Customer support. Rectification of operational defects and planning and delivery of Fleet Time Support Periods are maintenance activities which belong to in-service support. You may have chosen Customer support. However, in through-life asset management context, customer support does not include maintenance services. Instead, it is the services that go along the stages of asset life. It may include consulting, communication and information exchange.Source: Andrew Graves
CIPS page 130-131LO 3, AC 3.2
Bob is a new procurement specialist at XYZ Ltd. He is assigned to categorise the company's sup-plies. After analysing, Bob realises that a group of low value products is sourced from a tiny geo-graphical area which is prone to flooding.What would be the best strategy to manage this category of products?
In the scenario, the products have low value and high risk of supply. This group is known as bottleneck or critical in Kraljic's portfolio matrix. The objective for such items would be securing the supply. The company can achieve this goal by 'making' the products themselves, or finding an alternative option.
CIPS study guide page 82-84LO 2, AC 2.1
Aldar Properties is a property developer in UAE. In last month, it spent $2,160 for 10 tons of steel. In this month, it had planned 10% increment in budget for steel comparing to last month. But the number of orders boosted and total spend on steel reached $1,992.1 while Aldar has imported 11 tons.What is the main cost driver of steel budget?
Answer(s): D
In this question, you have to calculate price variance and quantity variance.Last month, 1 tonne of steel costed $216. This month, the price decreases to $181.1. Price variance = (P1 - P2)*Q2 = ($216-$181.1)*11 = $383.9Quantity variance = (Q1-Q2)*P1 = -$216Price variance is greater than quantity variance, therefore, price variance is the main cost driver.LO 1, AC 1.4
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