Qs Flashcards
Procurement team is required to improve leverage with their suppliers through spend consolidation. To check whether there is any opportunity to consolidate spend, which of the following should be priority of procurement team?
Options:
A. Spend analysis
B. Value engineering
C. Price analysis
D. Total cost analysis
Answer:
A
In order to identify opportunities where you can increase your leverage with supplier, you need to understand your spend. Undertaking spend analysis of your accounts payable (AP) data is an essential first step here.
’What specific tests do you carry out to ensure quality is achieved?’ This is an example of which type of negotiation question?
Options:
A. Leading
B. Probing
C. Reflective
D. Closed
Answer:
B
The question requires more detailed answer, it is an example of probing question.
Probing questions are typically follow-up questions, and aim to elicit more detailed information on the back of the answer elicited from theopen questions. Probing question are also useful to check that the supplier fully understand their offering, as well as your needs, can also be used to communicate to the suppliers that you know this category well.
LO 3, AC 3.3
When is the best time to adopt accommodating style according to Thomas-Kilmann conflict mode instrument?
Options:
A. When both buyer and supplier want to find an integrative solution as their concerns are too important to be compromised
B. When buyer needs to gather more information to gain more advantages in later negotiations
C. When preserving harmony and avoiding disruption with supplier are especially important
D. When buyer and supplier have equal power but are strongly committed to mutually exclusive goals
Answer:
C
According to Thomas-Kilmann conflict model instrument, there are 5 conflict management styles:
Accommodating is an unassertive andcooperative approach to resolving the conflict. Accommodating means conceding to the other party with little debate or fight, not challenging or strongly putting forward your own point of view and generally giving and yielding to the other party’s point of view. Accommodating is best used when:
- When others can resolve the conflict more effectively
- When the issue is much more important to the other person than to yourself - to satisfy the needs of others and to show you are reasonable
- To build upsocial credit for later issues which are important to you
- When continued competition would only damage your cause
- When preserving harmony and avoiding disruption are especially important
- To aid in the managerial development of subordinates by allowing them to experiment and learn from their own mistakes
LO 1, AC 1.1
When is the best time for buyer to propose the negotiation agenda to potential supplier?
Options:
A. At opening stage
B. At conclusion stage
C. At testing stage
D. At preparation stage
Answer:
D
A business negotiation agenda is a formal agreed upon list of goals to be achieved or items to be discussed in a particular order during a meeting or negotiation. Agendas can be formal and obvious, or informal and subtle in negotiations.
The agenda is one of the main structural elements of negotiation, in addition to such questions as site, identification of participants, and elements of timing. Together, they answer the who, what, when, and where questions. As with other aspects of negotiation, the agenda can be used either manipulatively to enhance leverage or to improve the prospects for agreement and the possibilities for mutual gain. In most cases, it will be used both ways, reflecting the nature of negotiation as a “mixed-motive” situation.
Although it can be instrumental to [research] volunteer as a sole source to write the agenda, in most cases it becomes a joint activity to construct a consensual basis for subsequent negotiation. In these situations, agenda-building becomes one of the pre-negotiation activities that set the tone for the relationship (Saunders, 1985). In other situations, the parties may engage in actual negotiation without a formal or written agenda. When this occurs, the risks and uncertainties may be high but the party who appreciates the importance of the informal agenda has a tremendous advantage.
Whether one plans it or not, during the course of negotiation the parties will discuss a finite set of issues in some sequence and from a particular perceptual framework. Consciousness of the universality and centrality of the agenda is prerequisite to guiding negotiation to a successful conclusion.
Reference: [Reference:, CIPS study guide page 146-150, Managing the negotiation agenda | SpringerLink, What is Negotiations Agenda - Negotiation Coaching (brightfocusconsult.com), ]
The buyer’s bargaining power tends to be relatively higher than supplier’s bargaining power in which of the following circumstances?
Options:
A. The buyer does not have the option to move to an alternative supplier
B. The buyer’s spend takes up a small proportion of supplier revenue
C. The buyer demand is so urgent that it can’t be postponed
D. The buyer is large in size relative to its suppliers
Answer:
D
Buyer power gives customers/consumers (buyers) the ability to squeeze industry margins by pressuring firms (the suppliers) to reduce prices or increase the quality of services or products offered.
There are four major factors to consider when determining the bargaining power of buyers:
- Number of buyers relative to suppliers: If the number of buyers is small relative to that of suppliers,the buyer’s power will be stronger.
- Dependence of a buyer’s purchase on a particular supplier: If a buyer is able to get similar products/services from other suppliers, buyers depend less on a particular supplier. Therefore, the power of the buyer would be greater.
- Switching costs: If there are not many alternative suppliers available, the cost of switching is high. Therefore, buyer power would be low.
- Backward Integration: If the buyer is able to integrate or merge suppliers, the buyer has greater bargaining power over the existing suppliers.
When is Bargaining Power of Buyers High/Strong?
There are fewer buyers relative to that of suppliers
The switching costs of the buyer are low
If the buyer is able to backward integrate
The buyer purchases product in bulk (high volume)
The buyer is able to get similar product/services from other suppliers
The buyer purchases the majority of the seller’s products
Several substitutes are available on the market
Product is not differentiated
Reference: [Reference:, CIPS studyguide page 54-56, What is the Bargaining Power of Buyers?, ]
An experienced procurement professional is developing strategies for forthcoming negotiations with her key supplier. To avoid negotiation deadlocks, she identifies the reasons whynegotiations could fail. Which of the following are most likely to be reasons for negotiation failures? Select TWO that apply.
Options:
A. Underlying interests of TOP are overlooked
B. MIL objectives are well established
C. Both parties focus on common interests
D. Buyer helps to create a co-operative atmosphere
E. Unachievable objectives were set up
Answer:
A, E
It has been said that most negotiations are won (or lost) at the preparation stage. Success in a negotiation cannot be claimed unless you can refer back to your objectives and show how you have achieve them. In broad terms, negotiation plans/strategies involve 4 key activities:
- Developing and prioritising your objectives and limits
- Seeking to understand TOP’s objectives
- Developing concession plans
- Planning the resources and logistics required and agreeing team roles.
Questions to gain an understanding of why a negotiation failed
Did we collect and make effective use of all information available when preparing for the negotiation?
Did we set objectives for the negotiation that were stretching and achievable and established MIL objectives?
Did we determine a strategy for the negotiation?
Did the other party understand our needs correctly?
Were we aware of the underlying interests of the other party?
Were our proposals convincing enough for acceptance by the other party?
Did we explore different variables in the negotiation?
Did we fully understand all proposals?
Did we give any unplanned concessions and did we check the importance of these?
Did we focus on common interests?
Did we ask a range of questions?
Did we get answers to all our questions?
Could we answer all the questions addressed to us in a proper and positive way?
Did we summarise effectively?
Did we use different methods of persuasion in the negotiations?
Which tactics did we use and what effect did they have?
Did our negotiating team work well as a team?
Did we help to create a co-operative atmosphere
It may be more difficult to buy on a credit from supplier who locates in a country with a hyperinflation? Is this assumption true?
Options:
A. No, because supplier’s bank will take risks from currency fluctuation
B. Yes, because thesupplier’s currency will lose its value overtime
C. Yes, because buyer has more advantage if they make payment in their own currency
D. No, because the higher the inflation rate, the stronger the supplier’s currency
Answer:
B
If the inflation rate is running high, then obtaining credit as a buyer is normally more difficult or expensive as money in the future will be worth less than money today.
Which of these personal power bases stems from the manager’s position in the organisation and the authority that lies in that position?
Options:
A. Coercive power
B. Legitimate power
C. Expert power
D. Reward power
Answer:
B
Legitimate power comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient. Legitimate power comesfrom rules, formal authority, organisation rank, staff grade or official position held. In commercial negotiation, legitimate power can be demonstrated by job title and rank.
LO 1, AC 1.3
Which of the following is definition of elasticity of demand in microeconomics?
Options:
A. The percentage change in the quantity demanded divided by the percentage change in income
B. The percentage change in price of a good divided by the percentage change in the quantity demanded of that good.
C. The percentage change in the quantity demanded of a good divided by the percentage change in the price of that good
D. The percentage change in income divided by the percentage change in the quantity demanded
Answer:
C
Elasticity refers to the responsiveness of quantity demanded or quantity supplied to a change in price or another factor:
The price of a product can be described as being elastic if a small change in price leads to a big change in demand.
The price of a product can be described as being inelastic if a big change in price leads to a small change in demand.
Jasmine and the IHL sales team have a negotiation scheduled with one of AB’s lead buyers, Samuel, at AB’s premises. This is one of the biggest negotiations that Jasmine has been involved in and is eager not to make any mistakes. Jasmine has heard from a colleague that Samuel tends to adopt an integrative negotiation style. IHL senior management decides to send a team of three members to the negotiation. Jasmine is among the team and she is assigned to check body language, reactions, feeds insight to her leader and to record important comments and information from the meeting for minutes. Which of the following are roles of Jasmine in the forthcoming negotiation? Select TWO that apply.
Options:
A.Secretary
B.Commercial expert
C.Technical expert
D.Chief negotiator
E.Observer
Answer:
A, E
A negotiating team can be as few as two people, and one person can play one or more of these roles:
As from the scenario, Jasmine will act as an observer and a scribe (or secretary).
Which of the following are most likely to be characteristics of a perfectly competitive market? Select TWO that apply
Options:
A. In a competitive market, both buyers and sellers areprice givers
B. Firms can freely enter or exit the market
C. In a perfectly competitive market, each seller has a large impact on the market price
A perfectly competitive market consists of products that are all slightly different from one another
D. There are many buyers and sellers in the market
Answer:
B, D
A perfectly competitive market is one with the following features:
- There are many firms producing identical or very similar (homogeneous) goods or services
- There are no barriers toentry to the market or exit from the market - anyone can enter or leave easily
- Both producers and customers have perfect knowledge of the market place, prices, costs of production and influences on demand and supply
Under these conditions, the price andquantity will always tend toward equilibrium as any producer that sets a price above equilibrium will not sell anything at all, and any producer that sets a price below a equilibrium will obtain 100% market share in theory. The demand curve is perfectly elastic, which means that it will be horizontal. In a perfectly competitive market, it is difficult to increase profits through pricing, and suppliers instead must focus on their cost structure. As these conditions imply, there are few if any examples of perfectly competitive market.
LO 2, AC 2.2
In airline industry, suppliers prefer to adopt dynamic pricing in order to constantly monitor and change their fares inresponse to market conditions. Dynamics pricing is based on which costing method?
Options:
A. Activity-based costing
B. Cost plus costing
C. Absorption costing
D. Marginal costing
Answer:
D
Dynamic pricing is the practice of dynamically calculating the price of a product or service in order to incorporate real-time market conditions, input costs, and/or competitive perspectives. Dynamic pricing which is based on marginal costing, is used by airlines and many other organisations.
Marginal cost is the cost of producing an additional unit of output. Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.
Which of the following is NOT a barrier to entry in amonopolized market?
Options:
A. The costs of production make a single producer more efficient than a large number of producers
B. A single firm is very large
C. The government gives a single firm the exclusive right to produce some good
D. A key resource is owned by a single firm
Answer:
B
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 saidto 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 propertyprotection 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 costsand 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.
Which of the following is categorised as fixed cost?
Options:
A. Additional pallet hires due to higher demand in year-end season
B. Land rental paid in advance
C. Governments taxes
D. Raw materials for next year production
Answer:
B
Anorganisation’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.
Reference: [Reference:, CIPS study guide page 79-84, Study tips: Fixed variable and semi-variable costs - AAT Comment, ]
According to Fiona Dent and Mike Brent, which of the following are characteristics of Push approach? Select TWO that apply.
Options:
A. Inspirational
B. Persuasion
C. Collaborative
D. Seeking commitment
E. Directive
Answer:
B, E
According to the book ‘Influencing: Skills and techniques for business success’ by Fiona Dent and Mike Brent, there are two major influencing styles. Push tends to be directive. It tells, and is clear and resolute, but needs to be employed in situations where firmness is required because of difficulties that exist or weakness is evident. Pull is more participatory and collaborative. It seeks to incorporate everyone’s perspective. It can appear wishy-washy if not skillfully employed. That approach should be followed which is most likely to secure commitment and not mere compliance.
The two divisions can be further divided into four style categories: directive; persuasive reasoning; collaborative – team oriented, people oriented to inspire them with a vision. The directive style relies on your expertise and reputation being respected by others, and where there really does seem to be one answer. It is “I” driven whereas persuasive reasoning is more “we” and issue driven. Directive styles can make the user appear as “a bull in a china shop”; persuasive reasoning can be portrayed as tough guy.
Collaborative influencing takes the “we” element further and seeks to mobilise everyone’s ideas in a journey of discovery. It may have the flavour of “I’m your best friend”, which may not go down too well. Visioning style is concerned to stir people’s emotions in support of achieving an objective. This last one has been used by demagogues to stir people’s hearts and minds for evil purposes as well as good.
A useful table offers the benefits, problems, words and body language associated with each style along with advice on when to use and when to avoid each. Cases and exercises illustrate these styles.
Empathy comes in for extended treatment with the definition of “standing in the other’s shoes”. This does not necessarily happen just intuitively, and therefore before a specific influencing effort there should bean intense effort to think about the other person or persons and to sense what it might feel like to be them – their hopes, fears, concerns, what turns them on, what turns them off, where are they coming from.
Reference: [Reference:, Influencing by Fiona Elsa Dent and Mike Brent, 2006 (bd-cons.com), CIPS study guide page 163-165, ]
A procurement professional is preparing for a negotiation with supplier. She is setting targets for price which her company is seeking to achieve. Which of the following acronyms can help her identify limits before engaging in the negotiation?
Options:
A. MIL
B.RAQSCI
C.TIMWOOD
D.PPCA
Answer:
A
MIL criteria indicate 3 limits that negotiator should establish:
M - Must achieve: minimum target/maximum you can concede on this point; the mandatory requirement or fall back position
I - Intend to achieve: realistic target you are aiming for on this point
L – Like to achieve: stretch target to achieve on this point.
PPCA is purchase cost analysis
TIMWOOD indicates 7 types of waste in Lean principles
The RAQSCI model is a mnemonic summary of a business model used to define and structure business requirements
Which of the following are most likely to help buyer become preferred customer in supplier’s perspective? Select TWO that apply.
Options:
A. Onerous supplier terms and conditions
B. Compliance with agreed repair lead time
C. Shorter payment period
D. Reduction in delivery errors
E. Ensuring an increased number of repeat orders
Answer:
C, E
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
- Simple contracting processes
- Clear and concise documentation
- Absence of onerous supplier terms and conditions (onerous supplier terms and conditions mean that obligations imposed on suppliers are greater than their gains)
- On-time payment: The reduction in hassle for both supplier and the buyer, if bills are paid on time, is significant. From the customer’s perspective it could also be the opener to agreeing preferential payment terms. A supplier may weigh up that payment on time at 60 days is worth taking, over the current 30-day terms that slip to 90 days and beyond.
-Transparent processes
- Ethical behavior
LO 1, AC 1.3
One difference between perfect competition and monopolistic competition is that…?
Options:
A. In perfect competition, firms produce slightly differentiated products
B. A perfectly competitive industry has fewer firms.
C. Monopolistic competition has no barriers to entry
D. Firms in monopolistic competition face a downward-sloping demand curve
Answer:
D
Monopolistic competition exists in market where there are many competing producers but they will try to use product differentiation. Although their products may be very similar, their ability to differentiate means that they can act as monopolies in short run, irrespective of the actions of their competitors.
In perfect competition, there are no barriers to entry to the market or exit from the market. In monopolistic competition, there tend to be fewer barriers to entry or exit in these markets than in oligopolistic markets, but it doesn’t mean that there are absolutely no barriers to entry in monopolistic competition.
In perfect competition, the demand curve is perfectly elastic, which means that it will be horizontal. Otherwise, in monopolistic competition market, the demand curve will have normal downward slope.
LO 2, AC 2.2
A supplier’s mark-up on all products is 25%. Supplier’s profit margin is…?
Options:
A. 20%
B. 30%
C. 75%
D. 15%
Answer:
A
A procurement professional is preparing for a negotiation of purchasing non-critical commodity products. He knows that the product can be easily replaced by other substitutes in the market. The negotiation for these products is typified by which of the following?
Options:
A. The buyer should focus on wider costs and risk elements
B. The approach must be collaborative
C. There will be only limited negotiation
D. There will be regular structured negotiations
Answer:
C
With non-critical commodity products, the relationship will be transactional. Buyer should not spend too much time and effort into the negotiation.
Which of the following should be adopted to minimise the conflict between parties in commercial negotiation?
Options:
A. The rule of law
B. Ground zero
C. Ground beam
D. Ground rules
Answer:
D
Ground rules are the basic rules for doing something (Cambridge Dictionary). A negotiation goes more smoothly if ground rules are adopted. Then if something goes awry at a later time, you can point out the ground rule that has been violated.Procurement professional should seek to minimise conflict over process through agreeing ‘ground rules’ and approach as far as possible with the other party in advance of any negotiation meetings.
There should be two sets of ground rules: 1) groundrules for the negotiations between the two parties and 2) ground rules for the negotiating team itself. This article is about the negotiating team ground rules.
The rule of law is the condition in which all members of society, including its political leaders, accept the authority of the law.
Ground zero describes the point on the Earth’s surface closest to a nuclear detonation. In the case of an explosion above the ground, ground zero refers to the point on the ground directly below the nuclear detonation.
The Ground Beam is the beam which is provided usually at the foundation level to support building walls, joists, etc.
From the principled point of view about negotiation environment, which of the following is a true statement?
Options:
A. Advantage gained from uncomfortable negotiation environment is likely to last long after the negotiation
B. The room layout can be seen as a source of tactical advantage
C. Home advantage should not be exploited to win a temporary advantage
D. There is no ideal negotiation environment in real life
Answer:
C
From a principled point of view, the focus of negotiation is on resolving the issue and not on winning temporary advantage over TOP through exploiting home advantage. From the principled point of view, the location and room layout should not be viewed as a source of tactical advantage and should not be used to try to gain advantage over TOP or unfairly influence them in the meeting room.
From a pragmatic point of view, not all of these elements in the ideal negotiation environment may be feasible, so the host may have to make compromises and explain these to TOP.
From a distributive point of view, the host will seek to create an advantage for themselves either explicitly or more subtly. It is arguable 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.
Which of the following types of questions should be used most often in the proposing phase?
Options:
A. Hypothetical questions
B. Probing questions
C. Closed questions
D. Open questions
Answer:
A
At the proposing phase either side may start making tentative proposals regarding their offering. In the case of negotiation where TOP has already submitted a tender or proposal, this stage may provide an opportunity for them to make proposals to improve on their initial offers in general or in areas highlighted by the buying side in advance.
The word ‘if’ is very useful at this stage and allows you to test tentative proposals without committing yourself. Skilled negotiators use language very carefully. The questions with ‘if’ are hypothetical ones.
Which of the following are effective approaches when procurement professionals negotiate with monopoly suppliers?
- Delaying payment with monopoly suppliers as long as possible to increase bargaining power
- Setting up stronger BATNA
- Engaging in the negotiation with a distributive approach
- Eliminating requirements in the specification that prioritises monopoly suppliers
Options:
A. 1 and 4 only
B. 3 and 4 only
C. 2 and 3 only
D. 2 and 4 only
Answer:
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 isstronger 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 buyer
Seeking 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 feasible
Lobbying government or campaigning, as part of an industry or trade body, for a reduction in barriers to entry that support the monopoly
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:
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
Win-lose approach is most likely to be associated with which of the following type of relationship?
Options:
A. Adversarial
B. Partnership
C. Strategic alliance
D. Outsourcing
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.
All of the following shift the supply of watches to the right except…?
Options:
A. An advance in the technology used to manufacture watches
B. A decrease in the wage of workers employed to manufacture watches
C. An increase in the price of watches
D.
Manufacturers’ expectation of higher watch prices in the future
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
A negotiation is coming to the end. Both parties haven’t had any official commitments. Right before leaving the room, the buyer strongly disagrees with supplier’s set up prices and requests a discount. The supplier doesn’t reply but nods and smiles. Can the buyer consider these actions as an acceptance?
Options:
A. Yes, because smiling shows supplier’s readiness in signing the deal off
B. No, because nodding and smiling are etiquette of polite rejection
C. No, because nodding and smiling are not clear signs of neither acceptance nor rejection
D. Yes, because negotiator should rely on non-verbal communications only
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.
Which of the following should be done by the procurement team at the closing stage of a negotiation? Select TWO that apply.
Options:
A. Gloat publicly about the deal
B. Seek agreement in principle if TOP does not have the final authority
C. Tell TOP that they could have got a better deal
D. Accept ambiguity or uncertainty
E. Leave the meeting as soon as possible
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
Which of the following would cause a demand curve for a good to be price inelastic?
Options:
A. There are a great number of substitutes for the good
B. The consultancy service
C. The luxury goods
D. The necessary goods
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
Which of the following statements about oligopoly is incorrect?
Options:
A. A few firms play an important role in the sale of a product
B. Oligopolistic firms recognize their interdependence
C. One firm’s behaviour is a function of what its rivals do
D. Prices in oligopoly are predicted to fluctuate widely and frequently
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
During a negotiation, a procurement manager suggests that the two companies should split the difference which would benefit both the supplier and buyer. Which persuasion method is she using?
Options:
A. Compromise
B. Threat
C. Good cop/bad cop
D. Logic
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, ]
Which of the following are intangible values created by trust in business relationships? Select TWO that apply.
Options:
A. Higher revenues
B. Positive feedbacks from customers
C. More focus on core business
D. Increasing response time to request
E. Frequent conflict escalation
Answer:
B, C
LO 1, AC 1.4
Which of the following is the area where two or more negotiating parties may find common ground?
Options:
A. Zone of potential agreement
B. Zone of proximal development
C. Walk away area
D. Best alternative to a negotiated agreement
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
Personal power is only used in distributive approach. Is this statement true?
Options:
A. Yes, because only distributive approach to negotiation requires strong personal power
B. No, because personal power can be very helpful in integrative approach
C. No, because only organisational power will optimise the negotiation outcomes
D. Yes, because one party will abuse coercive power to maximise the gain
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
When prices of input materials increase, supply curve shifts to the left while demand remains stable. The shift of supply will tend to cause which of the following?
Options:
A. An increase in the equilibrium price and quantity
B. A decrease in the equilibrium price and quantity
C. A decrease in the equilibrium price and an increase in the equilibrium quantity
D. An increase in the equilibrium price and a decrease inthe equilibrium quantity
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.
Which of the following is considered a strength of a ‘logical’ style negotiator?
Options:
A. Assertive
B. Methodical
C. Friendly and accessible
D. Interrelate issues easily and make quick decisions
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:
Which of the following will shift the supply curve to the right?
Options:
A. Changes in customer taste
B. New disruptive technology
C. Decreased market price of substitute products
D. Increased customers’ disposable income
Answer:
B
Reference: [Reference:, - CIPS study guide page 103, - Principles of Microeconomics 2e, 2017, Open Stax - RiceUniversity., LO 2, AC 2.2]
Which of the following are most likely to be indirect costs of a garment manufacturer? Select THREE that apply.
Options:
A. Packaging material
B. Textile
C. Zips pads
D. Maintenance materials
E. Utilities
F. Depreciation of machinery
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.
In which of the following costing methods, overhead costs are applied in proportion to production volume?
Options:
A. Absorption costing
B. Mark-up costing
C. Activity-based costing
D. Marginal costing
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
Information generated through Purchase Price Cost Analysis can be useful to the purchaser, by helping to identify which of the following costs relating to the supplier? Select the THREE that apply.
Options:
A. External costs
B. Profit
C. Material costs
D. Market costs
E. Budgeted costs
F. Depreciation on equipment
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
Which of the following are most likely to be fundamentals of Fisher & Ury’s principled negotiation?
- Depersonalise the argument
- Focuson positions
- Generate creative options
- Using subjective criteria
Options:
A. 2 and 3 only
B. 2 and 4 only
C. 1 and 3 only
D. 1 and 4 only
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
At which stage in a negotiation would questions be asked to obtain missing information?
Options:
A. The bargaining stage
B. The proposing stage
C. The opening stage
D. The testing stage
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.
Sally is negotiating with an oversea supplier on the price and payment period. Her company and the supplying organisation are equal in bargaining power.The supplier says that they are investing in new facilities and machinery so the payment period should not be longer than 30 days. Sally knows that her company often pays the suppliers after 45 days from the delivery, but at the moment the company has positive cash flow and it is able to pay immediately. Which of the following should be Sally’s concession plan?
Options:
A. Contend on the normal payment period
B. Shorten payment period but ask for a discount
C. Agree with supplier’s payment period without any further demand
D. Demand for a discount without any other concessions
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
