Qs Flashcards

Question

An automotive company purchases high quality steel to produce components. The steel is an important raw material and the contract value is enormous. They sources the steel from oversea and contact some potential suppliers. One of the potential suppliers invites the procurement team to their premise for a new business opportunity. Should the procurement team accept the invitation? Options: A. No, because negotiating over telephone is enough to collect information on supplier's capability B. Yes, because the visit would increase the buyer's bargaining power C. Yes, because this is an opportunity to assess the supplier's capacity D. No, because the travel would incur unnecessary costs

Answer 1

Answer: C In the scenario, the value of contract as well as the importance of purchased item justify the procurement's travel. Visiting a supplier at their HQ or operational facility may facilitate the procurement team in assessing, albeit briefly, the culture of the organisation, how busy they seem and how staff engage with each other. A visit is a good opportunity to assess supplier's capacity. LO 2, AC 2.2

Answer 2

Answer: A Distributive approach to negotiation used when the interested parties are attempting to divide something up or distribute something of value, also known as zero-sum approach or win-lose. Win-lose approach is useful when the relationship with the other party (TOP) is short-term and once-off. The question mentions 4 types of relationship: Adversarial: Both seek to maximize position at the expense of the other. Almost no trust, communication and cooperation. These suppliers will probably provide non-core products or services with the buyer purchasing them on a one-off basis. Outsourcing relationship: Use competent suppliers to manage non-core businesses previously done in-house. Require high level of trust and collaboration Partnership: Both work closely on long term development by sharing information, technology and ideas.High level of trust with the aim to benefit both parties (win-win) Strategic alliance: Both parties identify areas where they could collaborate to create mutual benefits Among these 4 types of relationship, only adversarial is once-off. Then it is the correct answer.

Answer 3

Answer: C A supply curve will slope upward from left to right showing more supply at higher prices, as illustrated in the graph below: A movement along the supply curve will be brought about by a change in price, but a shift of the whole curve will be caused by a determinant other than price: - The physical feasibility and time and energy required to produce the products - Technology and innovation - The objectives of the producers and their future expectations - Prices of other goods and services - Government's policies LO 2, AC 2.2

Answer 4

Answer: C Good negotiators are attuned to all stimuli and not just the verbal and written information exchanged. Tone of voice, body language, facial expressions and other clues from TOP are noticed, and with experience and knowledge, interpreted correctly. This interpretation may also involve knowledge of culture norms and values. A smile, a 'yes' and the type of hospitality received, (in thebusiness context), can mean very different things in different international business cultures. Trained negotiators will consider non-verbal communication (such as nodding and smiling) and body language as one source of signal from TOP, but will rarely rely wholly on this as a guide to what TOP is thinking or feeling. Furthermore, international and regional cultural considerations must be included here to avoid errors in interpretation. Emotional intelligence also has an important role in forming a more holistic perspective of what TOP may be thinking or feeling.

Answer 5

Answer: B, E The agreement and closingphase is the phase when it is either clear through explicit language, or strongly suggested through non-verbal signals, that TOP is ready to move to agreement. Judging when to close can be difficult and as with phases of the negotiation, experience, observation, practice and reflection will be the best ways to learn here. In the closing phase, procurement should: - Watch for closing/buying signals - Check to ensure all issues have been resolved - Consider using visual aids to summarise - Use 'summary close' - Make a decision to conclude/close - Seek agreement in principle if TOP does not have the final authority - Make your own private notes on the final agreement - Shake hands on the agreement - Leave the meeting as soon as possible thereafter. LO 3, AC 3.1

Answer 6

Answer: D Essential goods andservices such as electricity, fuel, basic food stuffs, commuter transport and habitual products such as tobacco, alcohol and sugar-based drinks are often sited as facing a relatively inelastic demand curve. This means when the price goes up, the quantity demanded does not decrease very much and so they are often the target of government taxation. LO2, AC 2.2

Answer 7

Answer: D An oligopoly exists when there are small number of producers that exert a significant influence in the market. Oligopoly's main characteristics are discussed as follows: - Interdependence The most important feature of oligopoly is the interdependence in decision¬-making of the few firms which comprise the industry. This is because when the number of competitors is few, any change in price, output, product etc. by a firm will have a direct effect on the fortune of its rivals, which will then retaliate in changing their own prices, output or products as the case may be. - Importance of advertising and selling costs A direct effect of interdependence of oligopolists is that the various firms have to employ various aggressive and defensive marketing weapons to gain a greater share in the market or to prevent a fall in their market share. For this various firms have to incur a good deal of costs on advertising and on other measures of sales promotion. Therefore, there is a great importance of advertising and selling costs under conditions of market situation characterised by oligopoly - Group behaviour Another important feature of oligopoly is that for the proper solution to the problem of determination of price and output under, it analysis of group behaviour is important. - Indeterminateness of demand curve facing an oligopolist In this question, 'Prices in oligopoly are predicted to fluctuate widely and frequently' is an incorrect statement as producers in oligopoly often try to set up price. Prices fluctuate more frequently in perfect competition. LO 2, AC 2.2

Answer 8

Answer: A In the scenario, the manager propose to 'split the difference', which means each party will accept some of their demands and concede some. This is known as 'Compromise'. Reference: [Reference: CIPS study guide page 163-165, ]

Answer 9

Answer: B, C LO 1, AC 1.4

Answer 10

Answer: A The zone of possible agreement (ZOPA) or bargaining range is considered an area where two or more negotiating parties may find common ground. It is this area where parties will often compromise and strike a deal. In order for negotiating parties to find a settlement or reach an agreement, they must work towards a common goal and seek an area that incorporates at least some of each party's ideas. The zone of proximal development refers to the difference between what a learner can do without help and what he or she can achieve with guidance and encouragement from a skilled partner. There is no Walk away area. Walk away point is a position from which you cannot concede any more ground and must walk away/decline a deal. Best alternative to a negotiated agreement is a fallback or backstop position if the negotiation fails to result in an agreement/no deal is agreed. LO 1, AC 1.2

Answer 11

Answer: B Power, or more precisely perceptions of power, are critically important in understanding the commercial negotiation process. From a commercial negotiation point of view (under any circumstances, either integrative or distributive approach), CIPS is interested in power from both a personal and organisational perspective. When you are negotiating on behalf of your employer, you bring the power of your organisation (its brand, reputation and purchasing spend) as well your own personal power (6 sources of personal power, based on French and Raven's power base model) to the negotiation. In both integrative and distributive approaches, personal power plays an important role. It helps both parties push through negotiating barriers and secure commitment and final agreement LO 1, AC 1.3

Answer 12

Answer: D The equilibrium price initially at P0 with quantity Q0, when supply curve shifts to the left, it will converge with demand curve at new equilibrium pointwith price P1 and quantity Q1. As you can see from the graph, P1 is greater than P0 and Q1 is smaller than Q0.

Answer 13

Answer: B A useful and simple shorthand for preferrednegotiation styles is summarised by four simple descriptor: 'warm', 'tough', 'logical' and 'dealer', which can be applied to describe individuals' dominant preferred style in most circumstances. Warm - a people person Tough - a hard-nosed negotiator Logic- a numbers person Dealer - a trader who loves bargaining Strengths, weaknesses of logical style are described below:

Answer 14

Answer: B Reference: [Reference:, - CIPS study guide page 103, - Principles of Microeconomics 2e, 2017, Open Stax - RiceUniversity., LO 2, AC 2.2]

Answer 15

Answer: D, E, F Indirect costs are those cost that are not directly attributable to production. Examples of indirect costs including the following: Indirect labour: This covers every person in the factory who does not directly perform a production operation such as managers, supervisors, engineers, store personnel,clerks, maintenance staff, porters, canteen staff, security and cleaners etc. Expenses: Included in this element is every fixed and variable expenses incurred in operating the factory, such as rent, rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by a clothing factory. Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the makeup of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance materials, chalk & pins. Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following: Direct Materials: Direct materials are all the materials and trimmings which go into the construction and finish of the garment. Typically, these materials would include cloth, lining, fusible, zips pads, tapes, labels, tickets, hangers and packaging materials. Direct Labour: This cover the cost of all the labor directly involved in producing the garment and could include cutting, fusing, regular sewing, special machine operations, pressing, finishing, inspection and packing. Labor of all types and grade has a directoverhead which include holiday pay, sick pay, fringe benefits etc and the statutory payments made by the employer for each employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee’s wage, it becomes the basis for calculating direct labor costs.

Answer 16

Answer: A There are 3 major costing methods: Marginal costing * Uses marginal cost of producing addition units * Uses variable cost to derived a unit cost (does not include fixed cost) * Fixed cost treated as a ‘period cost’ and deducted, as a total amount, from total contribution to profit for the period, in the firm’s profit and loss account Absorption costing * Calculates total cost of producing product * In addition to variable cost, a fair proportion of fixed cost is allocated to (absorbed) eachunit of output, as a fixed cost per unit Activity based costing * Similar to absorption costing but with fixed cost allocated to products on the basis of the cost of activities used in producing them LO 2, AC 2.1

Answer 17

Answer: B, C, F Below are some examples of cost input that can be analysed in PPCA process: - Material costs - Process and labour costs - Employment costs - Overhead costs - Distribution costs - Depreciation on equipment - Profit If you want to learn more on PPCA, you can study from OGC document here: https://webarchive.nationalarchives.gov.uk/20100609100650/www.ogc.gov.uk/documents/Cost_Price_analysis(1).pdf LO 2, AC 2.1

Answer 18

Answer: C Principled negotiation is based on four fundamentals: people, interest, options andcriteria: 1st Principle: separate the people from the problem: Negotiator should depersonalise the situation and accepting that the subject matter of the negotiation. This can be difficult for untrained negotiators, but this is a key skill to develop 2ndprinciple: focus on interests, not positions: It is important in principled negotiations not to focus on their parties' positions (what are expressed during negotiations), but on the interests (underlying needs) behind them 3rd principle: invent options for mutual gains: this principle aims to help the parties find a solution that both would benefit from. The more options - or tradeables - that can be brought to the table the better. 4th principle: insist on using objective criteria: is about making sure that the negotiation stays focused on outcomes based on objective criteria and that it is productive. LO 1, AC 1.2

Answer 19

Answer: D 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 tradeables The agreement and closing phase The 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 on If there are any non-commercial or emotional factors that may be pertinent TOP's underlying interests - why they are taking the position they are.

Answer 20

Answer: B In the scenario, the length of payment period is particularly important to the supplier as they are investing new facilities. Otherwise, the buyer's company has apositive cash flow position and budget is available for a shorter payment terms. So this tradeable (payment period) is important to supplier but it is not a significant problem with the buyer. This tradeable will fall within 'Easy concession to trade' quadrant in the following matrix: If the tradeable fall within this quadrant, Sally should shorten the payment period in supplier's favour and try to win as many concessions as possible in return. Asking for a discount may be a reasonable trade-off. LO 2,AC 2.3

Answer 21

Answer: C Distributive approach to negotiation used when the interested parties are attempting to divide something up or distribute something of value, also known as zero-sum approach or win-lose. Commercial situations often demand a distributive bargaining approach, if the 'pie' is inherently of a fixed size. In this case, any conflicts must be resolved by sharing it. In win-lose approach, a negotiator wants to maximise the value obtained in a single deal, the relationship with the other party is not important. Therefore, a strong party may win more than 50% of the metaphorical 'pie'. It should not be assumed that win-win can be applied to all commercial negotiations, or that win-lose approaches are inherently inferior.

Answer 22

Answer(s): A Explanation: Understanding where and with whom your supplier spends their money, or understanding the 'cost breakdowns' or 'price build-up' of the goods and services you purchase from the supplier, will help you know where and when they can offer price concessions. Cost information can be expressed with more impact through graphs that can be created using Excel and PowerPoint or other softwares. There are two commonly used models known as 'spend waterfall' and 'spend tree'. Spend waterfall shows the build-up of costs, while the spend tree shows all the spends that an organisation makes. There is no graph known as 'spend candlesticks'. Candlestick chart is a style of financial chart used to describe price movements of a security, derivative, or currency. The aggregate expenditure model is a method of calculating GDP. The aggregate expenditure model focuses on the relationships between production (GDP) and planned spending: GDP = planned spending = consumption + investment + government purchases + net exports.

Answer 23

Answer(s): A,D Explanation: There are several pricing strategies used by suppliers: Cost-plus pricing Total variable + Fixed cost + profit Premium pricing based on branding. Supplier determines to charge a very high price, not connected with cost structures, usually based on its reputation and/or the perception that the product/service is of a superior quality. This strategy typically found in the early part of the product life cycle/when demand exceeds supply. Penetration pricing - Supplier attempts to enter a new market or extend its share in an established one. It is characterised by price reductions to increase volume, followed by steady price increases; may even be loss leading at start (no profit made) Marginal cost pricing covers only variable cost Market pricing suppliers prices in line with what the market is willing to pay

Answer 24

Answer(s): A Explanation: In the scenario, to exchange cost cutting, the purchasing manager promises to 'reward' supplier shorter payment period. This is an example of reward power, which results from one person's ability to compensate or reward another for compliance. The reward does not need to be money, but could be introduction to other buyers in the group, positive references, agreement to trial new product, quicker payment or indeed any other variable that the buyer knows is attractive and valued by the supplier.

Answer 25

Answer(s): C Explanation: Professor Gavin Kennedy highlights that we need to distinguish negotiation from other forms of decision-making by focusing on what is unique about it (the voluntary exchange) and not shared by other techniques such as persuasion, gambling (e.g., coin tossing), command decision, instruction, litigation and coercion.

Answer 26

Answer(s): B,E Explanation: There are many factors that can influence the balance of power in a negotiation. These factors are classified into 3 levels: Macro level: STEEPLE framework: social, technological, economic, environment, political, legal and ethical Micro level: Porter's five forces: One-to-one buyer-supplier dynamics. The question asks about the micro factors that increases supplier's bargaining power. Among 5 answers, only 2 are likely to increase buyer's power: There are no close substitutes for rubber: the buyer has to buy rubber, not any other material. Costs of changing suppliers are high: buyer entails a large barrier if they want to switch supplier. Other answers cannot be correct because: SRI sets up its own rubber plantation: Buyer secures its own supply SRI's purchase amount makes significant proportion of supplier revenue: Suppliers are reliant on buyer. If the buyer stops buying from them, they can face serious cash flow problems Rubber from different suppliers is virtually similar: undifferentiated product would shift the power balance towards buyer.

Answer 27

Answer(s): A,B Explanation: There are multiple sources of divergent positions that can arise in situations where money is exchange for goods and services. There are 2 different types of sources. Those that arise from the content or subject matter of the negotiation (what is being negotiated) and those that arise from the process of negotiation (how it is being negotiated). Sources of divergent positions - the process of negotiation: Line of best fits is the line that goes approximately through the middle of the data points with an equal number of data points above and below it. Line of best fits is a method of calculating medium value in statistics. Standard terms and conditions are basic terms and conditions of business governing transactions that do not have a definitive contract, usually designed to be included in form documents such as orders. While there may be conflicts regarding standard terms and conditions, they are about the content of negotiation, not the process. Type of purchase: when buying organisation makes an decision to purchase an item, a buyer is faced with three possible scenarios. The item to be bought could be a straight re-buy, a modified re-buy or a new purchase. Decision on type of purchase is purely an internal decision.

Answer 28

Answer(s): D Explanation: Trust is the expectation that the other party will behave in a predictable and mutually acceptable way. In inter-firm relationships, the presence and absence of trust can affect the level of cost in a relationship. The existence of trust is taught to lower the transaction cost in a relationship. Dr. Mari Sako identified taxonomy of 3 types of trust in commercial relationship, which is very useful from the perspective of procurement. Contractual trust: Trust based on the contract with TOP. This is potentially the weakest source of trust if there is nothing else to base the trust on, but it is the quickest to establish. Competence trust: Trust based on TOP's professional qualifications or proven or certified technical capability or experience. Goodwill trust: Trust based on knowing TOP has your interest at heart and will not behave opportunistically. This is potentially the strongest type of trust, but it takes the longest time to build.

Answer 29

Answer(s): B Explanation: Essentially, for trained negotiators under most circumstances, the physical locations of negotiations and the room layout should not make much difference to the outcomes of the meeting. It is reasonable to assume that most commercial negotiations are based at least initially on a principled- or pragmatic-type approach. It is arguable also that any advantage gained through intentionally creating an uncomfortable environment to put short-term pressure on TOP is likely to be short-lived as TOP will likely reflect on this later and seek means to get even.

Answer 30

Answer(s): B Explanation: Gross Domestic Product (GDP) is the monetary value of the goods and services manufactured or supplied in a financial period. In general terms, when the GDP rate falls or slows down, there will be a fall in demand for goods and services demanded in the economy, with a fall in firms' revenue and profit margins. When GDP is rising, there will be an increase in demand. Consumer Price Index (CPI) is weighted measurement that evaluates the average cost of a basket of goods bought by a consumer. Producer Price Index (PPI) is average changes in prices that a producer receives in return for its goods or services. Small Business Lending Index (SBLI) is an indicator of small business lending trends.

Answer 31

Answer(s): A,D Explanation: Becoming a preferred customer to supplier's perspective can increase the purchaser's leverage in negotiation. Beside the size of buying organisation or its spend, the following may be sufficient to differentiate the buyer from other buying organisations: Simple procurement processes: Using SRM technology may help to simplify the process Simple contracting processes Clear and concise documentation: Reduced paperwork helps both supplier and buyer save their time and resources. Absence of onerous supplier terms and conditions On-time payment Transparent processes: Unclear tender award criteria can be seen as opaque. Suppliers who attended the tendering processes cannot know the reasons why their bids are rejected and hesitate to attend other tendering. Ethical behaviour: Suppliers may prefer a buyer who adopts CSR policy because they can predict potential customer's behaviour. Demands for kickback are unethical behaviours.

Answer 32

Answer(s): B Explanation: Different questioning styles can be used to elicit desired responses:

Answer 33

Explanation: There are two major persuasion methods: 'push' and 'pull'. Persuasion can be defined as encouraging someone to do something that you want them to do for you. Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do. Persuasion can be considered as 'pushing' on TOP so that they can accept the change in attitude or behaviour as a result of your actions. Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of their reflection and thinking, and not your direct actions. There are multiple variables to consider when choosing between 'push' and 'pull'. Professor Fiona Dent of Ashridge Business School proposes situations when each style might be most appropriate, breaking down push into 'directive' and 'reasoning' and 'pull' into 'collaborative' and 'visionary': In the scenario, Rose intends to let both parties exchange their views and ideas so that solutions to current problems can be found. This is the typical characteristic of collaborative (pull) method.

Answer 34

Answer(s): D Explanation: Direct costs are those costs of a product/service directly attributable/traceable to its production, for example, the costs of labour and materials directly used to produce the goods/services which the organisation sells.

Answer 35

Answer(s): A,E Explanation: Giving positive group and individual feedback is easy, as is self-congratulation and, in many cases, it is hoped, this will be an accurate reflection on actual performance. When it comes to developmental or difficult feedback, it is only natural to want to move on and not reflect on the negative or developmental points, or why a negotiation did not achieve its objectives. But this is a mistake. The best learning opportunities come from reflection on what could be done better, and this can be achieved without blame, threat or condemnation. Everyone and every team will make mistakes and/or have areas where they could have improved. Clearly, if every reflection session concludes that an individual or team keeps making the same mistake, then there is a case to change roles or consider alternative approaches. About Dos and Don'ts of reflection, you can refer here: https://offices.depaul.edu/human- resources/employee-relations/Documents/Self%20Assesement.pdf

Answer 36

Answer(s): A Explanation: As a financial metric, the margin of safety (safety margin) is equal to the difference between current or forecasted sales and sales at the break-even point. The margin of safety is sometimes reported as a ratio, in which the aforementioned formula is divided by current or forecasted sales to yield a percentage value. The figure is used in both break-even analysis and forecasting to inform a firm's management of the existing cushion in actual sales or budgeted sales before the firm would incur a loss. This is a question that a student met in her actual exam. The margin of safety is not even mentioned in the CIPS study guide.

Answer 37

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.

Answer 38

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.

Answer 39

Answer(s): A,C,E Explanation: Collaborating is both assertive and cooperative. When collaborating, an individual attempts to work with the other person to find a solution that fully satisfies the concerns of both. It involves digging into an issue to identify the underlying concerns of the two individuals and to find an alternative that meets both sets of concerns. Collaborating between two persons might take the form of exploring a disagreement to learn from each other's insights, resolving some condition that would otherwise have them competing for resources, or confronting and trying to find a creative solution to an interpersonal problem.

Answer 40

Answer(s): B Explanation: Integrative, interest-based negotiation can facilitate constructive, positive relationship and establish contracts between parties on a foundation of goodwill. It is important to note it can only facilitate these positive outcomes, it does not guarantee that the other party will not seek to be opportunistic at a later time during the life of the contract. Previous knowledge of the behaviours of the other party regarding honouring contractual and other commitments will be useful here in predicting long- term outcomes, not ensuring that they will not leverage their advantages.

Answer 41

Answer(s): B Explanation: The assumption is false, because when a procurement professional negotiates on behalf of his employer, he brings the power of his organisation (its brand, reputation and purchasing spend) as well his own personal power (that which is embedded within him) to the negotiation. From a negotiation perspective, both organisational and personal power have the ability to influence the behaviours of other or the cause of event. This power is clearly core to negotiation, and of enormous important in seeking to achieve the objectives.

Answer 42

Answer(s): B Explanation: Ray Carter coined the mnemonic STOPS WASTE to remind buyers of 10 cost-reduction ideas they can ask for themselves and their suppliers in any situation when considering a key purchase input. Stop Waste by: Standardisation - is there a standard specification? Transportation - is the inbound transport classification appropriate Over-engineered - is the specification too tight? Packaging - can packaging be reduced or eliminated? Substitutes - is there a cheaper substitute material Weight - is there opportunity to reduce weight of the product? Any unnecessary processing - is there any unnecessary design or feature? Supplier's input - are suppliers able to assist with the cost reduction To make - is it more economical to make or buy? Eliminate - if no one uses the feature, can it be eliminated? SAMOA is a useful acronym for checking and testing the information gathered from the Internet: Source Audience Methodology Objectivity Accuracy OWN-IT is acronym for 5 steps in the process of collecting and analysing the data and information needed in any field: Outline Wide search Narrow search Increase your stockpile of information Transform your stockpile into new knowledge A SMART goal is used to help guide goal setting. SMART is an acronym that stands for Specific, Measurable, Achievable, Realistic, and Time-bound.

Answer 43

Answer(s): D Explanation: Developing specific negotiation strategies in areas where risk or spend is high involves analysing a wide range of objectives and variables within the context of the organisation's business requirements. The first stage in any negotiation preparation is to define your overall objectives which may be related to a single variable such as price in the case of a standardised requirement, or many variables in the case of capital equipment. Your negotiating strategies and tactics will all be focused on achieving overall objectives.

Answer 44

Answer(s): A,E Explanation: Activity-based costing is an alternative approach to traditional absorption costing. The characteristics of these two methods are illustrated in the graph below:

Answer 45

Answer(s): A,B Explanation: If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lower prices. Below are 7 types of saving levers:

Answer 46

Answer(s): C,E Explanation: In the opening phase, parties should confirm understanding and get the issues on the table. The testing phase is an information gathering stage where the hypothesis and assumption you have made in the planning stage can be tested or confirmed or disproved. Opening questions (those that start with 'what', 'how', 'why') are used at the opening and testing stages to uncover needs and underlying motives, and to allow the buyer to get a feel of what is in store in the negotiation. Probing questions are also useful to check that the supplier fully understand their offering, as well as your needs, and can also be used to communicate to the supplier that you know this category well. These questions are typically useful at the opening and testing stages.

Answer 47

Answer(s): D Explanation: Trust is the expectation that the other party will behave in a predictable and mutually acceptable way. In inter-firm relationships, the presence and absence of trust can affect the level of cost in a relationship. The existence of trust is taught to lower the transaction cost in a relationship. Dr. Mari Sako identified taxonomy of 3 types of trust in commercial relationship, which is very useful from the perspective of procurement. Contractual trust: Trust based on the contract with TOP. This is potentially the weakest source of trust if there is nothing else to base the trust on, but it is the quickest to establish. Competence trust: Trust based on TOP's professional qualifications or proven or certified technical capability or experience. Goodwill trust: Trust based on knowing TOP has your interest at heart and will not behave opportunistically. This is potentially the strongest type of trust, but it takes the longest time to build. Otherwise, trust also has legal meaning. A trust is a legal document that can be created during a person's lifetime and survive the person's death. A trust can also be created by a will and formed after death. Charitable trusts are trusts which benefit a particular charity or the public in general.

Answer 48

Answer(s): C,E Explanation: Expert power is based on a person's high levels of skill and knowledge, formal training, qualifications and experience in a particular procurement category would give someone expert status and mean that in negotiation their voice is listened to as a more objective, informed knowledge leader. Expert power is based on facts, knowledge, research, insight and study. Legitimate power comes from rules, formal authority, organisation rank, staff rate or official position held. Reward power comes from one person's ability to compensate or reward another for compliance. Referent power stems from their personality, way of engaging with others and habit of acting in a way that is in line with a strong set of values and principles.

Answer 49

Answer(s): A Explanation: There are two major persuasion methods: 'push' and 'pull'. Persuasion can be defined as encouraging someone to do something that you want them to do for you. Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do. Persuasion can be considered as 'pushing' on TOP so that they can accept the change in attitude or behaviour as a result of your actions. Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of their reflection and thinking, and not your direct actions. There are multiple variables to consider when choosing between 'push' and 'pull'. Professor Fiona Dent of Ashridge Business School proposes situations when each style might be most appropriate, breaking down push into 'directive' and 'reasoning' and 'pull' into 'collaborative' and 'visionary': Using logical and objective reasons is one of the typical characteristics of persuasion reasoning method.

Answer 50

Answer(s): A Explanation: At the first stage of CIPS Procurement and Supply Cycle (Understand need and develop a high-level specification), procurement professional mainly negotiate with internal stakeholders. They have a duty to proportionately and constructively challenge specification if there's genuine doubt over the need or how the need is expressed. This is called demand management. Their first duty is to the organisation's treasury, not to functional managers. Demand management including: negotiation/challenge between procurement and internal stakeholders over the need/requirement/specification. Remember that in any process or product, the greatest opportunity for cost reduction is at the design stage.

Answer 51

Answer(s): D Explanation: In microeconomics, equilibrium price is determined when the quantity demanded is equal to the quantity supplied at equilibrium price in a market, there will be no shortages and no surpluses. If we combine our supply and demand curves on one graph, the point at which they converge determines the equilibrium price. If the price is set above this price and you read across the graph you will see the supply excess demand and there will be a surplus. In order to reduce this surplus, the price will need to fall. The scenario is illustrated in the graph below:

Answer 52

Answer(s): B Explanation: Contribution = Price - Variable cost Break-even point (volume) = Fixed cost/Contribution

Answer 53

Answer(s): B Explanation: To answer this question, you should know The seller's perspective as in 'How to Negotiate Professionally': In the scenario, the buyer's spend is low, while they seem unattractive to seller (as they tend to pay late). So the buyer is classified as Nuisance in seller's perspective.

Answer 54

Answer(s): A,E Explanation: Connected stakeholders are those who, by contractual or commercial relationships, have a significant stake in organisation activity. As a general rule, connected stakeholder (with the exception of suppliers) have a low level of influence on procurement negotiations. Examples of connected stakeholders are: suppliers, customers, bank where the organisation opens its account, shareholders.

Answer 55

Answer(s): D Explanation: There are many tactics and ploys that can be used to persuade others, particularly those not trained in negotiation. But in general these tactics should be used with care, as they can backfire; and in situations where a long-term relationship is desired, they can be, if detected, become an irritant to TOP. Tactics are particularly effective if and when you are dealing with untrained negotiators, in consumer's buying situation and in once-off encounter.

Answer 56

Answer(s): C Explanation: An adversarial relationship in purchasing and supply arises when identical or equivalent good or services are available from competing suppliers and buyers/sellers are trying to gain an advantage over each other. Low levels of trust are characteristic of adversarial relationships. The outcome when two organisations with adversarial negotiate is most likely to be win-lose. Reference: Adversarial purchasing - Wikipedia CIPS study guide page 32-35

Answer 57

Answer(s): D Explanation: The opening stage of the negotiation covers the very first few minutes when the parties meet and greet each other and are seated in the negotiation room in preparation for the main event. Typical behaviours at the opening stage: 'dos' and 'don'ts' Do's Be punctual and well presented (welcome their arrival) Break the ice with small talks Start the conditioning process Check authority Check agenda Consider using visual aid to set out key objectives or make key points Don'ts Use strong, pushy, cold or tough style at the opening Put down marker at this stage Criticise other organisations/TOP's previous contacts/third parties. In this scenario, Diana has made her proposal right at the opening stage. This is an example of 'don'ts'. Good negotiators are very careful about 'red lines'. If she puts such barrier up too early, the supplier may not try to look for more creative solutions later in the negotiation.

Answer 58

Answer(s): B Explanation: In 1959, French and Raven described five bases of power: 1. Legitimate This comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient. 2. Reward This results from one person's ability to compensate another for compliance. 3. Expert This is based on a person's high levels of skill and knowledge. 4. Referent This is the result of a person's perceived attractiveness, worthiness and right to others' respect. 5. Coercive This comes from the belief that a person can punish others for noncompliance. Six years later, Raven added an extra power base: 6. Informational This results from a person's ability to control the information that others need to accomplish something. In the scenario, Neville attracts and keeps good relationship with his colleagues not because of neither position nor reward nor coercion. He has good skills and kindness, which increase his charisma. His source of power is referent power. Reference: CIPS study guide page 47-50 French and Raven's Five Forms of Power

Answer 59

Answer(s): B,E,F Explanation: Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following: Materials and services bought-in: In steel manufacturer, raw materials are iron ores, scrap metal, coals, etc Labour or wages: money paid to staff for the work involved in producing the product. Other expenses: other charges incurred that can be specifically attributed to a particular product, batch or service

Answer 60

Answer(s): C Explanation: In the scenario, anyone who has concerns can join a meeting to raise their thoughts. The project team takes the stakeholders' ideas into account. This is known as coalition: A group of people or organisations come together and work collaboratively to achieve some goals. Specifically in this scenario, the goal is creating a high-quality and unified specification for an important project. Reference: CIPS study guide page 164-165 What Is a Coalition Anyway?

Answer 61

Answer(s): A,C Explanation: There are two major persuasion methods: 'push' and 'pull'. Persuasion can be defined as encouraging someone to do something that you want them to do for you. Persuasion is reasoning with someone so that they will believe or do something they might not otherwise do. Persuasion can be considered as 'pushing' on TOP so that they can accept the change in attitude or behaviour as a result of your actions. Influence is the ability to affect the manner of thinking of another. Influence can be considered as pulling on TOP so that you achieve the same result, but TOP feels they have changed their attitude or behaviour as a result of their reflection and thinking, and not your direct actions. There are 5 options in this question: 'Threat of punishment, costs and damage': The influencer tries to 'push' the other party to act as he/she wants by using force. This method is effective but short-lived. The influencer also risks to developing reputation for being heavy handed and dictatorial. 'Argument based on information, logic and reason': The influencer uses logic and reasons to persuade the other party. This is also known as 'Persuasive Reasoning' (Push) 'Using language and imagery to `paint a picture others can see'': The influencer seeks to influence another by understanding the other's emotions, and stimulating that party's imagination to visualise the desired future goal of the influencer. This is also known as 'visionary (pull)' 'Working together to define the problem, the goals and the best solution': In this technique, the person seeking to influence another involves the other party in the decision making process. This is known as 'collaborative (pull)' 'Listening to, involving and supporting others': In this technique, the person seeking to influence another tries to discover the other party's emotion and aims at mutual understanding. This is also a collaborative approach.

Answer 62

Answer(s): A Explanation: According to Paul Steele's 'The Seller's Perspective', customer can be classified into 4 categories as below: In this scenario, although SBL's spend claims large portion in suppliers' revenues, their draconian treatment will reduce SBL's attractiveness in supplier's perspective. SBL falls into Exploit quadrant. With exploitable customers, suppliers tend to 'milk' the customer and charge a high price to compensate for all the pain customer put on them.

Answer 63

Answer(s): B Explanation: Monopolies exist in many markets in real life for very different reasons: Ownership of a Key Resource: When one company exerts sole control over a resource that is necessary for the production of a specific product, the market may become a monopoly. For example, the only medication deemed acceptable to treat a disease comes from a particular ingredient X, and knowledge of this ingredient X is owned by a single family owned company. The company can, therefore, be said to have a monopoly over ingredient X that is needed to cure the disease because it is the only company that can produce a product deemed acceptable. Government Franchise: In certain instances, a monopoly may be explicitly created by the government if it grants a single company, whether private or government-owned, the right to conduct business in a particular market. For example, when a national railways transportation service is created by the government, in most cases they are granted a monopoly on the operation of passenger trains in the country. As a result, other firms are only able to offer passenger train services with the cooperation and/or permission of the government-owned provider. Intellectual Property Protection: Extending intellectual property protection to a company in the form of patents and copyrights is yet another way in which monopolies are created. When a government does this, it is in fact giving a single company an exclusive right to provide a particular product / service to the market. Patents and copyrights work in providing owners of intellectual property with the right to act as an exclusive provider of a new product for a specific length of time. This creates a temporary monopoly in the market with regards to new products and services. Natural Monopoly: A market may also become a monopoly simply because it may be more cost- effective for one company to serve the whole market than to have several smaller firms in competition with one another. A company with virtually unlimited economies of scale is referred to as a natural monopoly. Such firms become monopolies due to their position and size, which makes it impossible for new entrants in the market to compete price-wise. Natural monopolies are common in industries with high fixed costs and low marginal costs of operation such as providers of television, telephone, and internet services. In this question, 'A single firm is very large' is not enough to tell whether this market is monopolistic.

Answer 64

Answer(s): B Explanation: In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting at quieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor's average costs will be higher at low and high capacity utilisation.

Answer 65

Answer(s): A,C Explanation: Trust-building behaviours are as following: Joint-effort issue resolution Open sharing of information Open and honest discussion on root cause of failures Joint planning focusing on value for money and risk sharing Commercial transparency and co-proposition of cost reduction and service improvement programmes Joint recognition and celebration of successes

Answer 66

Answer(s): B Explanation: 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 market Market 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 prices Premium 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

Answer 67

Answer(s): A Explanation: The objective of the buyer here is to improve supplier cost structures over time, which requires them to have insight into supplier's current cost information. Purchase price cost analysis (PPCA) can help here. PPCA is a method for gathering, analysing and using price and cost information in a systematic way. The process allows the identification of future savings and opportunities to improve current costs. STEEPLE analysis is used to analyse the macro environment that may have impact on an organisation. Competitive rivalry is a part of Porter's Five Forces which is a tool for strategy making. Volume concentration is a way to increase the purchasing quantities in order for a buying organisation to improve its leverage in negotiation.

Answer 68

Answer(s): A Explanation: Integrative negotiation is a negotiation strategy in which the involved parties work together to find a solution that satisfies the needs and concerns of each. This process often involves group brainstorming and creative thinking for individuals to suggest different ideas that benefit both parties. Compromising is often common in integrative negotiation, and both sides may need to give up certain needs to reach a solution. Honesty can also promote successful integrative negotiation because it can lead to a comprehensive understanding of the issue and what each party needs to be satisfied with the result. Reference: CIPS study guide page 29-31 Integrative Negotiation: Definition, Tips and Examples | Indeed.com

Answer 69

Answer(s): C Explanation: According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles: In this scenario, the buyer's bargaining power is stronger than suppliers', and the relationship is transactional. Therefore, to get the most preferable outcome, the procurement professional can take an assertive approach, while he doesn't need to co-operate closely with these suppliers. Competing will be the most appropriate approach to negotiation in this scenario so that the buying organisation can get a better deal.

Answer 70

Answer(s): D Explanation: Absorption costing is an approach to allocating overheads in which indirect costs are loaded or absorbed into direct costs related to specific jobs, processes or outputs, using an estimated basis of allocation.

Answer 71

Answer(s): A,B,E Explanation: Buying organisation may increase its leverage with suppliers by concentrating spend. Supplier spend consolidation can take many forms as outlined below: Vendor base reduction: straightforward reduction of number of suppliers in any category Volume pooling: pooling cross organisational requirement until your order volume is high enough to attract new bidders/additional discounts Volume redistribution: making recommendations following spend analysis to move from one supplier to another Volume consolidation across categories: certain purchase requirements may be common across a number of categories Standardisation and harmonisation of specifications: analysis of specifications and standards for a high spend purchased input, may show that there is a little difference between them and that the specification can be standardised or at least harmonised across the group or across national, regional or global operations. Forming purchasing consortia: buyers may decide to come together and combine their purchase volumes to attract better deals.

Answer 72

Answer(s): D,E Explanation: Professional buyers, when planning or engaging in negotiation with suppliers, should always be aware of where the intended and actual relationship with this supplier is positioned on the 'spectrum' or 'continuum' of commercial relationships. The relationship spectrum describes the range of commercial relationships between a buyer and supplier based on richness of communication, longevity and mutual dependence. In the question, the contract is simple one-off (or spot buy), which means the relationship will likely to be more transactional. In such relationship, price is the most important criteria and buyer may adopt arm's-length approach.

Answer 73

Answer(s): B,E,F Explanation: A useful model of personal power that has survived the test of time and provide a simple way to analyse negotiation in French and Raven's Power Base Model, which describes six bases of power:

Answer 74

Answer(s): B,C Explanation: In difficult negotiations and disputes, hardball tactics like punishment and threats often seem like the only way to win concessions. Some negotiators seem to believe that hardball tactics are the key to success in any negotiation. They resort to extreme demands and even unethical behaviour to try to get the upper hand in a negotiation. The following are 8 typical hardball tactics: 1. Good cop / Bad cop 2. Low ball / High ball 3. Bogey 4. The Nibble 5. Chicken 6. Intimidation 7. Aggressive Behaviour 8. Snow Job You can read the details of each tactic here. In the contrary to hardball tactics, negotiators can adopt integrative approach to the negotiation. Some of integrative tactics are: 1. Expand the Pie 2. Bridging 3. Post Settlement Settlement Et cetera

Answer 75

Answer(s): C Explanation: In the scenario, the buyer states that permission from senior management is required to shorten payment period and she only has authority to sign off a deal in which the payment period lasts at least 30 days. The buyer is using lack of authority. The buyer also repeats the matter again throughout the negotiation. This is a common tactic known as broken record.

Answer 76

Answer(s): D,E,F Explanation: Indirect costs are those cost that are not directly attributable to production. Examples of indirect costs including the following: Indirect labour: This covers every person in the factory who does not directly perform a production operation such as managers, supervisors, engineers, store personnel, clerks, maintenance staff, porters, canteen staff, security and cleaners etc. Expenses: Included in this element is every fixed and variable expenses incurred in operating the factory, such as rent, rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by a clothing factory. Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the makeup of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance materials, chalk & pins. Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following: Direct Materials: Direct materials are all the materials and trimmings which go into the construction and finish of the garment. Typically, these materials would include cloth, lining, fusible, zips pads, tapes, labels, tickets, hangers and packaging materials. Direct Labour: This cover the cost of all the labor directly involved in producing the garment and could include cutting, fusing, regular sewing, special machine operations, pressing, finishing, inspection and packing. Labor of all types and grade has a direct overhead which include holiday pay, sick pay, fringe benefits etc and the statutory payments made by the employer for each employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee's wage, it becomes the basis for calculating direct labor costs.

Answer 77

Answer(s): D Explanation: The MyersBriggs Type Indicator (MBTI) is an introspective self-report questionnaire indicating differing psychological preferences in how people perceive the world and make decisions. MBTI indicates personality preferences in four dimensions. The ThomasKilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual's response to conflict situations. Mill's RESPECT mnemonic is set out by Harry A. Mills which describes seven steps to agreements An intelligence quotient (IQ) is a total score derived from a set of standardized tests designed to assess human intelligence.

Answer 78

Answer(s): D Explanation: Supplier conditioning is the process of influencing a supplier or suppliers to behave in a certain way, or to accept certain circumstances. Within a negotiation, the buyer needs to make sure that the supplier has a number of messages in mind, about the outcomes that the buyer needs to achieve and about the shared sense of purpose that buying organisation has in achieving these outcomes. Supplier appraisal is a process of evaluating a supplier's ability to carry out a contract in term of quality, delivery, price and other contributing factors. Supplier positioning is the process of classifying spend with a supplier in terms of the profit potential and supply risk and assists in prioritising categories of spend and developing the right strategy. Supplier selection is the process of selecting a supplier to acquire the necessary materials to support the outputs of organisations. Selection of the best and/or the most suitable suppliers is based on assessing supplier capabilities (Shih et al., 2004).

Answer 79

Answer(s): D Explanation: Skilled negotiators seek to understand the needs of the other parties, as well as their own. In doing so, it allows them to determine a strategy that their own needs are met. Failing to understand the other party's needs is one of the most common reason for an unsuccessful negotiation. In the commercial negotiation, procurement team does not negotiate with organisation, they negotiate with individuals. It is therefore important to recognise that there are two levels of needs: The organisation - What the organisation wants to achieve. This is generally well stated and understood The individual - what is in it for the individual? This is generally not stated, rarely discussed, but very motivational. It is vitally important therefore that time is invested in understanding the needs of the individual Skilled negotiators are aware of the needs that occur at both levels, and develop creative options and strategies that attempt to satisfy these needs.

Answer 80

Answer(s): B,C Explanation: Coercive power comes from the belief that a person can punish other for non-compliance, and can be considered as the flip side of reward power. Coercive power rests in the individual's ability to change other people's behaviour through threat, intimidation, use of guilt, ability to embarrass or shame, or withdrawal of benefits,...

Answer 81

Answer(s): B Explanation: Internal stakeholder support will be important not just at the initial negotiation of the contract, but potentially throughout the life of the contract right through to exit. As a general rule, connected stakeholders (with the exception of suppliers) have a low level of influence on procurement negotiations. Suppliers are connected stakeholders who have contractual relationships with the organisation. Commercial negotiation objective should be driven by the business needs of the organisation, and not just the instinct of procurement.

Answer 82

Answer(s): D Explanation: In the study guide, CIPS lists 5 stages of an negotiation: The opening phase: confirm understanding and get the issues on the table. At this stage, both parties should check agenda, authority and create atmosphere conducive to agreement The testing phase is an information gathering stage where the hypothesis and assumptions you have made in the planning stage can be tested and confirmed or disconfirmed The proposing phase: Both sides may start making tentative proposals regarding their offering. The bargaining phase: Both parties trade concessions; the preliminary stages are over and proposals move from being tentative and general to being more definite and specific. The agreement and closing phase: both parties should seek agreement or if TOP does not have the final authority, some sort of acknowledgement of what key terms are should be sought.

Answer 83

Answer(s): A Explanation: If interest rate are too low and credit is too, cheap rates can fund a spending boom with consumers and businesses buying (investment) more than they can afford to pay back.

Answer 84

Answer(s): A,B,D Explanation: All one-to-one commercial negotiations between a specific purchaser and a specific supplier take place within an industrial market and a larger business environment characterised by multiple forces which both parties typically have little control over. STEEPLE framework highlights the 6 main external influences on a business LO 1, AC 1.3

Answer 85

Answer(s): D Explanation: There are four types of questions that can be used in a commercial negotiation: Hypothetical questions, where you ask about a possible situation or abstract concept, are very useful at the testing and proposal phases. Hypothetical question does not state any commitment as it is only about 'if something happens, then ...'. This type of question can be useful at giving suggestion. LO 3, AC 3.3

Answer 86

Answer(s): A Explanation: Asking questions the right way is both an art and a science. Ask the question the wrong way, and the other negotiator might act like a turtle, becoming defensive and withdrawing into their shell. Ask the question the right way, and the other negotiator might "spill the beans.". Closed Questions: How and when to use them? Closed questions are those that require a short and focused answer, and are especially helpful in the beginning stages of the negotiation to encourage interaction. They can be used to clarify a point, or to reconfirm certain facts. For example, you can use a closed question to confirm the amount of units the company can produce in a week, or to clarify that what they are really saying is that they don't feel comfortable outsourcing their accounts to India. Most closed questions only require a simple "yes" or "no" response, so there really isn't much room for misinterpretation great for finding out where both you and they stand. Reference: CIPS study guide page 169 What Questions Can We Ask In Negotiations?

Answer 87

Answer(s): A Explanation: In order to answer this question, you should better consider each option: 'Exchange rate' is the value of one nation's currency versus the currency of another nation or economic zone. This is a macroeconomic factor. 'Elasticity' refers to the degree to which individuals, consumers or producers change their demand or the amount supplied in response to price or income changes. This is a microeconomic factor Consumer tastes refer to the products and services that consumers consciously choose over others. Consumer tastes are so powerful that they can change how businesses conduct their activity. Like elasticity, this is also a microeconomic factor. Among 4 options, only risk management is the internal factor. Risk pricing is a strategy applied by many companies in the world. To learn how to price the risk, you can read an article from McKinsey: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/how-to-price-risk- to-win-and-profit This is a question that a student met in her actual exam. The knowledge section is unknown. LO: Unknown, AC: Unknown