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CPSM® Update

3 Questions, 3 Answers

July/August 2012, eSide Supply Management Vol. 5, No. 4

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: Which of the following is the MOST effective method for negotiating with the sole supplier of a unique item?

(A) Price analysis negotiations
(B) Price comparison negotiations
(C) Cost analysis negotiations
(D) Adversarial negotiations

Question #2: A manufacturer of men's sport coats has been a supplier for many years to a regional retail chain. Based on internal seasonal demand forecasts, the manufacturer orders fabric, and arranges production overseas. After the coats are manufactured, they are placed on plain plastic hangers and shipped to a domestic distribution center. As the orders are received from various retailers, the coats are placed on wooden hangers emblazoned with the retailer's logo. Recently, the manufacturer has begun placing the coast on the retailers' hangers at the point of manufacture. This change is MOST likely the result of the effective implementation of


Question #3: For this question, refer to the following elements of a supply management strategic plan:

(A) Commodity segmentation
(B) Supplier strategies
(C) Advanced acquisition plan
(D) Objective of the supply function

From the above list, select the elements referred to by this statement: "This element addresses relative risks."

3 Answers

Question #1: Option C is correct because analyzing the sole-source supplier's costs may produce ideas for cutting those costs, or at least give reasonable justification for them. Price analysis (Option A) or price comparison (Option B) is likely to be limited in cases where a unique item is available from only one supplier. These two options may be more productive where the marketplace offers wider competition. Since the buying organization needs this unique item, and the supplier may seek to strengthen its role in a niche market, an adversarial negotiation style (Option D) may not be effective for either party.

References: CPSM® and CSM™ Study Guide, 1st Edition (Book 1 — Foundation of Supply Management), pages 33-34; ISM Professional Series (Book 1 — Foundation of Supply Management), pages 181-182; The Supply Management Handbook (7th Edition), pages 470-471, 500.

Question #2: Option B is correct because early supplier involvement (ESI) seeks to draw on a supplier's expertise to improve specifications, product development, order fulfillment lead time, and similar concerns. In this case, eliminating the extra step of changing hangers at the distribution center could lower overall costs and/or shorten delivery time. Supplier managed inventory (SMI) (Option D) is an inventory management system that makes the supplier responsible for monitoring stock levels at the customer's location and replenishing them as needed. Collaborative planning, forecasting and replenishment (CPFR) (Option A) is sometimes considered an extension of SMI. It facilitates collaborative processes across the supply chain. For example, a retailer shares demand forecasts with suppliers upstream in the supply chain so they can produce and deliver goods at lower costs. Manufacturing resource planning (MRP II) (Option C) is a method for effective planning of all resources used in a manufacturing organization — business, sales, operations, production, scheduling, and more.

References: CPSM® and CSM™ Study Guide, 1st Edition (Book 2 — Effective Supply Management), pages 33-39; ISM Glossary.

Question #3: Option B is correct because supplier strategies include analyzing benefits and risks of various sourcing options. Examples of risks include stockouts versus excess inventory, speed compared to reliability, and lowest initial price weighed against total cost of ownership.

References: CPSM® and CSM™ Study Guide, 1st Edition (Book 3 — Leadership in Supply Management), pages 25-27; ISM Professional Series (Book 3 — Leadership in Supply Management), pages 148-149; The Supply Management Handbook (7th Edition), pages 81-98.

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

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