Which of the following are behaviours that builds trust between the buyer and the supplier in business relationship? Select TWO that apply.
Answer(s): A,C
Trust-building behaviours are as following:Joint-effort issue resolutionOpen sharing of informationOpen and honest discussion on root cause of failuresJoint planning focusing on value for money and risk sharing Commercial transparency and co-proposition of cost reduction and service improvement programmesJoint recognition and celebration of successes
Which of the following is categorised as fixed cost?
Answer(s): B
An organisation's expense can be categorised into three groups:Fixed Costs costs that do not change with output.Variable Costs costs that vary in direct proportion to output. Semi-variable costs costs that are a combination of the above, with both a fixed and variable element.Among the four options:"Land rental paid in advance": This is fixed cost. The rental won't increase when the production increases."Additional pallet hires due to higher demand in year-end season": This can be identified as semi- variable cost (or step cost)."Governments taxes": The taxes are often levied by a percentage of income or revenue. Therefore, it is variable"Raw materials for next year production": This is obviously variable cost.
CIPS study guide page 79-84Study tips: Fixed variable and semi-variable costs - AAT Comment
Which of the following are effective approaches when procurement professionals negotiate with monopoly suppliers?1. Delaying payment with monopoly suppliers as long as possible to increase bargaining power2. Setting up stronger BATNA3. Engaging in the negotiation with a distributive approach4. Eliminating requirements in the specification that prioritises monopoly suppliers
Answer(s): D
In most commercial negotiations with monopolistic organisations, one can expect that in general they will have far greater bargaining power - you will need them more than they need you. There BATNA is stronger in the short run, but over time their power can be challenged effectively. Ways of dealing with monopoly suppliers include the following:Making yourself an attractive buyerSeeking out alternatives / substitutes in a private or public manner Designing out the requirement that forces you to go to the monopoly suppliers, or seek to make the product, or threaten to make it yourself if feasibleLobbying government or campaigning, as part of an industry or trade body, for a reduction in barriers to entry that support the monopoly
XYZ Ltd needs to purchase a bundle of IT products from suppliers. The procurement manager requests details of costs regarding designing and managing those products. After receiving reports from suppliers, she realises that they have charged up to a 1, 095% mark-up on IT products. In order to ensure value for money, which of the following should be a priority pricing arrangement of the procurement manager in the negotiation with these IT suppliers?
In the scenario, the main cost driver is suppliers' mark-up. The priority should be limit the margin to be added. XYZ Ltd can agree "cost plus" contracts with their suppliers to ensure no IT product purchased exceeds an agreed maximum margin level. Procurement teams can use their benchmarking tools to police these contracts. Cost plus contracts are agreements where the contractor's pricing is based on itemising allowable costs and then adding an agreed margin. Market penetration pricing - pricing low to win a large share of the marketMarket skimming - pricing a new product high in order to make a large profit from the purchases by initial customers. This is an effective strategy only in the absence of competition.When competition appears, market skimmers usually drop their pricesPremium pricing - usually pricing high because the market is prepared to pay extra for the kudos associated with the product, thanks to, say, a reputation for quality, or a highly fashionable brand name, and so on
At which stage in a negotiation would questions be asked to obtain missing information?
There are 5 key phases of negotiation:The opening phase: confirm understanding and get the issue on the table The testing phase: check assumption and confirm understanding The proposing phase: asking 'if'The bargaining phase: using tradeablesThe agreement and closing phaseThe testing could take the form of questions following a presentation by either side or questions on a tender or proposal document received by the buyer from the potential supplier. The testing phase is necessary to confirm that your approach and objectives are appropriate for the negotiation situation you now find yourself in. Careful listening, observation and interpretation of TOP's responses may give indication of the following:Areas where TOP is willing and unwilling to make concessions What factors or issues TOP places a high value onIf there are any non-commercial or emotional factors that may be pertinent TOP's underlying interests - why they are taking the position they are.
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