QUESTION: 21

Which of the following can help both parties to break the vicious cycle of blame when a relationship needs repairing? Select TWO that apply.

Both parties understand each other's goals
Focusing on positions
Conflict management skills
Constant shadowing and oversights
Emotional-based assessment

Answer(s): A,C

Explanation:

In order to break vicious cycle of blame, procurement will need to use their negotiation and conflict management skills, adopting a collaborative and integrative approach. Your first action should be to establish the facts that led to the situation where the relationship broke down. Most day-to-day relationship between buying organisations and suppliers do not of course involve procurement staff, so you will need to consult with your business partners internally to establish their point of view of where the issue and sources of conflict are. You should also contact the supplier and get their side of the story - this is particularly to when you have previously identified the supplier as critical or otherwise important to your operations. Ideally you will be able to apply principled negotiation here, separating the people from the issue, focusing on interests and not positions, and then looking for options of mutual benefits.

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QUESTION: 22

An experienced procurement professional is developing strategies for forthcoming negotiations with her key supplier. To avoid negotiation deadlocks, she identifies the reasons why negotiations could fail.
Which of the following are most likely to be reasons for negotiation failures? Select TWO that apply.

Underlying interests of TOP are overlooked
MIL objectives are well established
Both parties focus on common interests
Buyer helps to create a co-operative atmosphere
Unachievable objectives were set up

Answer(s): A,E

Explanation:

It has been said that most negotiations are won (or lost) at the preparation stage. Success in a negotiation cannot be claimed unless you can refer back to your objectives and show how you have achieve them. In broad terms, negotiation plans/strategies involve 4 key activities:
1. Developing and prioritising your objectives and limits
2. Seeking to understand TOP's objectives
3. Developing concession plans
4. Planning the resources and logistics required and agreeing team roles. Questions to gain an understanding of why a negotiation failed Did we collect and make effective use of all information available when preparing for the negotiation?
Did we set objectives for the negotiation that were stretching and achievable and established MIL objectives?
Did we determine a strategy for the negotiation?

Did the other party understand our needs correctly?
Were we aware of the underlying interests of the other party? Were our proposals convincing enough for acceptance by the other party? Did we explore different variables in the negotiation? Did we fully understand all proposals?
Did we give any unplanned concessions and did we check the importance of these? Did we focus on common interests?
Did we ask a range of questions?
Did we get answers to all our questions?
Could we answer all the questions addressed to us in a proper and positive way? Did we summarise effectively?
Did we use different methods of persuasion in the negotiations? Which tactics did we use and what effect did they have? Did our negotiating team work well as a team?
Did we help to create a co-operative atmosphere

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QUESTION: 23

The buyer's bargaining power tends to be relatively higher than supplier's bargaining power in which of the following circumstances?

The buyer does not have the option to move to an alternative supplier
The buyer's spend takes up a small proportion of supplier revenue
The buyer demand is so urgent that it can't be postponed
The buyer is large in size relative to its suppliers

Answer(s): D

Explanation:

Buyer power gives customers/consumers (buyers) the ability to squeeze industry margins by pressuring firms (the suppliers) to reduce prices or increase the quality of services or products offered.
There are four major factors to consider when determining the bargaining power of buyers:
1. Number of buyers relative to suppliers: If the number of buyers is small relative to that of suppliers, the buyer's power will be stronger.
2. Dependence of a buyer's purchase on a particular supplier: If a buyer is able to get similar products/services from other suppliers, buyers depend less on a particular supplier. Therefore, the power of the buyer would be greater.
3. Switching costs: If there are not many alternative suppliers available, the cost of switching is high.
Therefore, buyer power would be low.
4. Backward Integration: If the buyer is able to integrate or merge suppliers, the buyer has greater bargaining power over the existing suppliers.
When is Bargaining Power of Buyers High/Strong?
There are fewer buyers relative to that of suppliers
The switching costs of the buyer are low
If the buyer is able to backward integrate
The buyer purchases product in bulk (high volume)
The buyer is able to get similar product/services from other suppliers

The buyer purchases the majority of the seller's products Several substitutes are available on the market
Product is not differentiated

Reference:

CIPS study guide page 54-56
What is the Bargaining Power of Buyers?

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QUESTION: 24

Which of the following is the most appropriate pricing arrangement in contracts where major inputs are commodities?

Price adjustment mechanism
Cost reimbursable pricing arrangement
Standard schedule of rates
Fixed pricing arrangement

Answer(s): A

Explanation:

In contracts which have major commodity input, the price is determined by market forces with no individual supplier or buyer able to influence it significantly. Prices are much more variable even within long term contracts and seeking a fixed price would create financial risks for both the buyers and the suppliers. It is often intelligent to agree a contract price adjustment mechanism to allow for market price changes so both sides share risk.

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QUESTION: 21

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QUESTION: 22

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QUESTION: 23

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QUESTION: 24

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