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CPSM® Update

3 Questions, 3 Answers

January/February 2012, eSide Supply Management Vol. 5, No. 1

In every edition, eSide offers three sample questions — and answers — from the CPSM® and CSM™ Diagnostic Practice Exam to help you prepare to pursue your CPSM® or CSM™ certification. First, answer all three questions; then, scroll down to the "3 Answers" section to find out how you fared.

3 Questions

Question #1: A supply manager is negotiating a contract with a supplier to purchase one million components. To determine a pricing arrangement satisfactory to both parties, which of the following is LEAST appropriate?

(A) Evaluating the supplier's current cost data
(B) Establishing a cost goal
(C) Reviewing the supplier's anticipated costs
(D) Performing a make-buy analysis

Question #2: All of the following are components of a nation's balance of payments EXCEPT

(A) balance of trade
(B) capital account fluctuations
(C) currency exchange rate
(D) official reserve account changes

Question #3: A company's legal department is establishing budgets for the upcoming calendar year. The organization's general counsel identifies several cases of litigation involving intellectual property rights that could impact several product development projects. It is imperative that the budget include appropriate funding to retain external legal counsel. The general counsel asks the supply manager to assist in preparing the budget for the legal costs for these cases. Which of the following is the BEST course of action for the supply manager to take?

(A) Solicit proposals form qualified external law firms
(B) Estimate costs based on recent contracts for similar matters
(C) Provide general counsel with hourly rates from qualified attorneys
(D) Perform a should-cost analysis for each major IP matter

3 Answers

Question #1: Option D is correct because a make-buy analysis, while useful in broader source planning, does not determine whether a supplier's pricing is reasonable in terms of the market. Instead, it assists in decisions about making a product (or providing a service) in-house rather than purchasing from outside sources. The other three options — evaluating supplier's current cost data (A) and anticipated costs (C), and establishing a cost goal (B) — are typical parts of the cost/price analysis.

References: CPSM® and CSM™ Study Guide, 1st Edition (Book 1 — Foundation of Supply Management), pages 21-22; ISM Professional Series (Book 1 — Foundation of Supply Management), page 172; The Supply Management Handbook (7th Edition), page 500.

Question #2: Option C is correct because the balance of payments is a measure of the difference in the flows of funds across a nation's boundaries. Currency exchange rate is the price of one nation's currency as it is exchanged for another, not a measure of the volume of funds flowing across borders. Balance of trade (Option A) is the difference between the values of a country's exports and imports. Capital accounts (Option B) are investment flows across national boundaries. The official reserve account (Option D) is made up of a country's foreign currency holdings, gold, and special drawing rights with the International Monetary Fund.

References: CPSM® and CSM™ Study Guide, 1st Edition (Book 2 — Effective Supply Management), pages 18-19; ISM Professional Series (Book 2 — Effective Supply Management Performance), page 116.

Question #3: Option A is correct because soliciting proposals from qualified firms will provide current information on rates and other costs. Since inclusion of appropriate funding in budgets has been deemed imperative, using figures from past contracts (Option B) raises concern that these may not take into account rising rates within the legal community or changes in complexity of the issues involved. Obtaining hourly rates from qualified attorneys (Option C) is more limited than soliciting proposals (Option A). Since no method of obtaining those rates is specified, there may be wide variations in rates if all attorneys do not receive the same Scope of Work information. Supply management may not have the information necessary for a should-cost analysis of such specialized professional services (Option D).

References: CPSM® and CSM™ Study Guide, 1st Edition (Book 3 — Leadership in Supply Management), pages 27-28.

For more information on ISM's professional credentials, visit the Institute's website.

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