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CPSM Questions

1. A supply manager holds a pre-performance conference with a chosen supplier. This event falls under which of the following areas of responsibility?
(A) Contract administration
(B) Contract closeout
(C) Earned value management
(D) Project planning

2. A supply manager has been asked to participate in a cost management program to help her organization generate more working capital. Which of the following is the BEST way for the supply manager to contribute to that goal?
(A) Establishing a standard cost system
(B) Employing a cost modeling tool
(C) Focusing on a standardization program
(D) Implementing a contribution to margin analysis

3. A buyer for a large gourmet specialty company has been tasked with identifying any situation that could raise prices or create bottlenecks. The goal is to ensure a reliable, cost-effective flow of ingredients for final blending into products at the company plant. The buyer has been analyzing supplier fluctuations in available capacity. Which of the following is MOST likely to cause supply problems for the company?
(A) A supplier’s recently expanded production facility has been underutilized.
(B) Favorable growing conditions have yielded unusually high harvests.
(C) A supplier’s second-largest plant is up for sale as part of corporate streamlining.
(D) A buyer can schedule deliveries for the producer’s off-peak season.

ANSWERS:

1. Option A is correct because contract administration is an ongoing process, beginning with review of specifications or deliverables and continuing through the solicitation process to contract completion. Meeting with the supplier before work begins helps ensure both parties understand expectations and are prepared to work together. Contract closeout (Option B) takes place at the end of performance and includes verification that all work has been completed satisfactorily, accepted, invoiced and paid for. Earned value management (Option C) is a system implemented to establish relationships between cost, schedule and technical aspects of a project, then measure results. Project planning (Option D) encompasses not just contract administration, but also all aspects of a project, including internal elements.

Bibliographic Key: #1A: Contracting and Negotiation, 1-A-5, "Administer contracts/purchase orders from award to completion or termination." #2: Chapter 8, "Supplier Relationship Management" #5: Chapter 26, "Contract and Subcontract Writing and Management"

2. Option C is correct. Standardization will improve leverage in acquiring a smaller group of products in higher volume, providing lower prices. Standardization will also reduce inventory because few items are carried. Both of these will result in increased cash, and therefore working capital for the organization. Option A is not correct, as a standard cost system would not increase cash. Rather it projects cost based upon predetermined unit costs. Option B is not correct, as a cost-modeling tool is typically used by supply managers to understand the logic of a supplier’s pricing. Option D is not correct, as a margin analysis is one of the measures used to determine the level of a supplier’s cost management.

Bibliographic Key: #1A: Cost and Finance, 1-B-2, "Develop cost management program, strategies for purchases." #2: Chapter 3, "Strategic Cost Management"

3. Option C is correct. A producer that has reduced capacity dramatically (selling plant versus shutting down a line) will have less ability to respond to increased demand and is thus less likely to offer pricing breaks. Option A is not correct. Having greater production capacity available but unused offers incentives for the producer to increase orders. Option B is not correct. Ample supplies of raw materials eliminate a potential capacity bottleneck and may also keep prices from rising significantly. Option D is not correct, because scheduling deliveries around the producer’s seasonality does not address the specialty company’s needs.

Bibliographic Key: #1A: Sourcing, 1-E-3, "Plan and communicate sourcing and supply strategies based on forecasting data." #2: Chapter 2, "Developing Sourcing Strategies"