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CIPS L4M2 exam consists of a 2-hour paper-based exam that contains 60 multiple-choice questions. L4M2 exam is designed to test the candidate's knowledge and understanding of the course content. Candidates who successfully complete the exam will be awarded with the CIPS Level 4 Diploma in Procurement and Supply, which is internationally recognized as a benchmark of excellence in procurement.
The Chartered Institute of Procurement and Supply (CIPS) is a globally recognized professional body for procurement and supply chain management. CIPS offers various qualifications to help individuals build their careers in procurement and supply chain management. One of the qualifications offered by CIPS is the Level 4 Diploma in Procurement and Supply.
NEW QUESTION # 108
A conformance specification with designs should contain more detail than a performance specification with outputs. Is this statement TRUE or FALSE?
- A. True, the supplier will need to allow for innovation
- B. False, the outputs should include detailed drawings of the requirement
- C. False, outputs are usually easier to describe than designs
- D. True, the supplier will need to know exactly what is required
Answer: D
NEW QUESTION # 109
What are the direct risks that can result from procurement receiving inadequate specifications from a research and development department?
- A. Increased labour costs
- B. Increased business size
- C. Under or over delivery of goods
- D. Under or over statement of need
Answer: C
NEW QUESTION # 110
Which of the following are typically included in a conformance specification? Select TWO that apply.
- A. Product functions
- B. Packaging requirements
- C. Brand name
- D. List of outcome
- E. Product dimensions
Answer: B,E
Explanation:
A conformance specification is a specification that defines the technical and physical characteristics and/or measurements of a product, such as physical aspects (e.g. dimensions, colour, and surface finish), design details, material properties, energy requirements, processes, maintenance requirements and operational requirements.
On the other hand, performance specification typically includes list of output or outcome or func-tional requirements. Brand name can be a part of performance specification because brand is a re-minder of quality that customers remember. For example, when talking about Roll Royce, people will think about an elegant car.
NEW QUESTION # 111
What is the document that defines the activities, deliverables and timelines a supplier must carry out during contract performance?
- A. Work instruction
- B. Statement of work
- C. Framework agreement
- D. Project initial document
Answer: B
Explanation:
Statement of Work (SoW) is the document that captures and defines all aspects of your project. You'll note the activities, deliverables and the timetable for the project. It's an extremely detailed document as it will lay the groundwork for the project plan.
Project Initial Document is an important document and should precede any specification writing project. It sets out the scope of the project and it is the team's mandate from senior management Work instructions are also called work guides, Standard Operating Procedures (SOPs), job aids or user manuals, depending on the situation. In any case, the purpose of work instructions is to clearly explain how a particular work task is performed.
Framework agreements are arrangements between one or more buyers and one or more suppliers that provide the terms governing contracts to be established for a certain period of time, in particular with regard to price and, where necessary, the quantity envisaged.
NEW QUESTION # 112
When developing a business case for a new product, a procurement department must consider...
- A. The supply market
- B. Terms and conditions of contract
- C. Indirect costs
- D. The supplier positioning model
Answer: A
NEW QUESTION # 113
Which of the following are characteristics of effective financial markets?
* Market stability is maintained
* Market volatility is encouraged
* Investment is encouraged
* The level of regulation is reduced
- A. 1 and 2 only
- B. 3 and 4 only
- C. 1 and 3 only
- D. 2 and 4 only
Answer: C
NEW QUESTION # 114
Which of the following is the best definition of target costing?
- A. The net present cost of the purchase or project and all future revenues flowing from it discounted back to the present time.
- B. The cost of a product after analysing its components step by step
- C. The total of all costs in acquiring goods or services from the inception of the demand for them until their safe and satisfactory delivery at the point required.
- D. A product cost estimate derived from a competitive market price.
Answer: D
Explanation:
Target costing is an activity aimed at reducing the life-cycle costs of new products, while ensuring quality, reliability, and other consumer requirements by examining all possible ideas for cost reduction at the product planning, research and development and prototyping phases of production. But it is not just a cost reduction technique; it is part of a comprehensive strategic profit management system.
Reference:
LO 3, AC 3.4
NEW QUESTION # 115
Honda of America Manufacturing is a well established automobile manufacturer. It purchases tens of thousands of materials and parts from suppliers, however, only few of them are strategic. To these suppliers, Honda's procurement manager requires them to send details of labour, materials, overhead cost and profit.
However, the suppliers are reluctant to submit such confidential infor-mation. Is the procurement manager's action appropriate?
- A. Yes, because strategies can be introduced for reducing cost and improving the supplier relationships.
- B. Yes, because the procurement manager can get a good insight from the market
- C. No, because procurement manager should conduct life-cycle analysis
- D. No, because no suppliers are willing to show sensitive information on their costs and profit.
Answer: A
Explanation:
With strategic suppliers, the aim should be to work co-operatively with them to find ways of reducing costs to achieve a target cost. It is necessary to work with the suppliers in carrying out open book costing by having first persuaded them of the need to do it. Open book can be used to establish a Target Cost, a Compensation Event value and can eventually be used to ensure the payment of actual costs to an organization. A number of forms of contract cater for this functionality of which only the NEC goes to into any great depth of methodology.
If the suppliers worry about leak of confidential information, procurement team can suggest them to sign a non-disclosure agreement. The buying organisation should also comply with data protection regulations. The Employer / individual responsible for a project's costs should ultimately take a pragmatic and sensible approach with regard to commercially or personally sensitive data provided by the contractor. The primary goal of all open book cost management is to provide Employer comfort and security in the accuracy of commercial data; this effectively means striking a balance between undertaking full audits and blind faith.
NEW QUESTION # 116
Procurement should work closely with colleagues in accounts when creating an annual budget. This is because the budget will help the company ...
- A. Process supplier invoices quicker
- B. Define terms and conditions of the contract
- C. Plan its finances for the next year
- D. Plan its functional strategy for the next year
Answer: C
NEW QUESTION # 117
Which of the following would a buyer include when issuing an output specification to suppliers?
- A. The characteristics of the components
- B. A product sample
- C. The manufacturing processes required
- D. A requirements brief
Answer: D
Explanation:
Detailed Explanation:An output specification defines the desired outcome or result of the procurement rather than specifying how the result should be achieved. A requirements brief outlines the goals, leaving flexibility for the supplier to propose solutions. Reference: CIPS Level 4, Output Specifications in Procurement.
NEW QUESTION # 118
Which of the following factors are likely to be direct barriers to a new entrant in a supply market?
- A. Value to price
- B. Availability of substitutes
- C. Threat of forward integration
- D. Cost advantages
- E. Brand identity
Answer: D,E
Explanation:
There are many types of barriers to entry into a market. Some of these include:
- Economies of Scale: When manufacturing or selling at a large scale, companies are able to avail cost advantages because per unit costs of the product fall. So the more the company produces in quantity the more the benefit. When existing companies have this advantage, it can act as a barrier to entry because a new entrant will have to try to match the scale to achieve the same cost ad-vantage as the existing company. This may not be possible at the initial stage.
- A Differentiated Product: If the product being sold by the existing company or companies is highly differentiated or enjoys strong brand loyalty, then this can act as a strong barrier to entry. The new entrant will have to invest in creating a product with newer and unique features and bene-fits that surpass those offered by the old company. In addition, there will need to be strong efforts to break existing brand loyalties and shift them to a new untested company.
- High Capital Costs: If an industry requires huge capital investments at the onset, then this will act as a barrier to entry for many of the potential entrants. Only those will attempt to enter the competitive fray who have the resources to make this high initial investment.
- Other Cost Advantages: Apart from those cost benefits that come from economies of scale, there are other advantages that an existing firm may enjoy. These include access to the best suppliers, an understanding of existing materials and knowledge of their quality, possession of any necessary and important patents, and proprietary information and technological knowledge. There are also learning advantages, achieved over years of business and experience.
- Cost of Switching: The cost associated with a consumer's move from one company or product or another is called the switching cost. If there are significant switching costs, then a new entrant may not be able to create means of removing these. Or, they may have to offer significant advantage to counter these switching costs at their own expense.
- Distribution Network: Often, distribution relationships are well established and may prove to be a strong barrier to entry for a new company. A new entrant will obviously need access to these dis-tribution channels but will need to invest extra in order to engage distributors who have established relations with existing competitors.
- Suppliers: As with distributors, suppliers may be vital to the operations of a new business. Exist-ing suppliers may have contracts or loyalties with existing companies and may prove to be difficult to form relationships with.
- Legal and Government Created Barriers: Government and regulatory requirements such as permits and licenses may be a strong barrier to entry. There may also be laws governing ways to conduct business that may conflict with a company's practices in other countries.
- Barriers to Exit: Interestingly, barriers to exit may act as a deterrent to entry by new companies. If a company is unable to easily leave a competitive environment in case business does not work out, then it will have to stay and compete even if that is a detrimental business practice. In this case, the company may choose to not enter the market in the first place.
Reference:
LO 2, AC 2.2
NEW QUESTION # 119
Which of these are advantages of using a conformance specification? Select TWO that apply.
- A. It provides evidence of requirements if there is a dispute
- B. It forces consideration of actual product needs
- C. It enables supplier flexibility and product innovation
- D. There is a smaller supplier base to select from
- E. It enables value-for-money solutions
Answer: A,B
NEW QUESTION # 120
Which of the following positively affects a buyer's company cash flow? Select TWO that apply:
- A. A customer agrees to pay the buyer's company upon purchase
- B. The bank grants a loan to the buyer's company
- C. Payment of dividends to the buyer company shareholders
- D. Buyer's company offers sales discounts and promotions
- E. A supplier reduces its payment terms to payment on receipt
Answer: A,B
Explanation:
Detailed Explanation:
* A (Customer payment upon purchase): Immediate payments improve cash flow.
* D (Loan): Loans provide cash inflow, though they may increase liabilities.Options like supplier payment on receipt (C) negatively impact cash flow, and sales promotions (B) may increase expenses.
Reference: CIPS Level 4, Financial Management in Procurement.
NEW QUESTION # 121
Which of these causes variances in budgets?
* Quantity discounts
* Substitute goods
* Loan repayments
* Corporation tax
- A. 1 and 2 only
- B. 2 and 4 only
- C. 2 and 3 only
- D. 1 and 4 only
Answer: A
Explanation:
Detailed Explanation:
* Quantity discounts: Changes in order quantities can lead to cost savings, impacting budget forecasts.
* Substitute goods: Using alternative products can alter planned expenses, causing budget deviations.
Loan repayments and taxes are fixed financial obligations and do not directly impact procurement budgeting. Reference: CIPS Level 4, Cost Management.
NEW QUESTION # 122
When preparing through-life specification, which of the following requirements should procure-ment team define besides the physical asset? Select TWO that apply.
- A. Logistics and installation
- B. Objectives
- C. Available substitute
- D. Customer service
- E. Market analysis
Answer: A,D
Explanation:
Through-life Management involves the life-cycle management of the products, services and activities required to deliver a fully integrated capability to the customer, while reducing the cost of ownership for the customer.
Diagram, table Description automatically generated
Source: Andrew Graves
With through-life management, buyer not only cares about the physical asset but also other factors like customer services and maintenance.
NEW QUESTION # 123
Which of the following factors might prompt an organisation to procure an alternative product? Select THREE that apply:
- A. Switching cost
- B. Relative value to money between options
- C. Brand loyalty
- D. Buying organisation's propensities to change
- E. Easy access to distribution channel
- F. Threat of retaliation
Answer: A,B,D
Explanation:
According to Michael Porter, the threat of substitution, is a function of three factors:
* The relative value/ price of a substitute compared to an industry's product
* The cost of switching to the substitute
* The buyer's propensity to switch
(Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p. 278). Free Press. Kindle Edition.) Reference:
LO 2, AC 2.2
NEW QUESTION # 124
Which of the following are considered as direct costs in a construction company? Select TWO op-tions
- A. The materials and supplies needed for the company's day-to-day operations.
- B. Clerical assistants who maintain the office
- C. Advertising and marketing communication
- D. An employee is hired to work on a project, either exclusively or for an assigned number of hours
- E. Raw materials
Answer: D,E
Explanation:
Direct costs are directly associated with the production of a good or service. In this question, 'An employee is hired to work on a project, either exclusively or for an assigned number of hours' and 'Raw materials' are directly related to producing the product.
Indirect costs are the general costs of the organisation - these costs cannot easily be attributed to specific products or services (also known as overheads). 'The materials and supplies needed for the company's day-to- day operations' or 'Clerical assistants who maintain the office' or 'Advertising and marketing communication' is example of indirect cost.
NEW QUESTION # 125
What will be the result of retaliation between business rivals in an industry?
- A. Greater bargaining power of suppliers
- B. More new entrants
- C. Higher exit barrier
- D. Lower profit
Answer: D
Explanation:
Industry rivalry-or rivalry among existing firms-is one of Porter's five forces used to deter-mine the intensity of competition in an industry. Other factors in this competitive analysis are:
- Barriers to entry
- Bargaining power of buyers
- Bargaining power of suppliers
- Threat of substitutes
Industry rivalry usually takes the form of jockeying for position using various tactics (for example, price competition, advertising battles, product introductions). This rivalry tends to increase in intensity when companies either feel competitive pressure or see an opportunity to improve their position.
In most industries, one company's competitive moves will have a noticeable impact on the competition, who will then retaliate to counter those efforts. Companies are mutually dependent, so the pattern of action and reaction may harm all companies and the industry.
Some types of competition (for example, price competition) are very unstable and negatively influence industry profitability. Other tactics (for example, advertising battles) may positively influence the industry, as they increase demand or enhance product differentiation.
References
Porter, M. (1998). Competitive Strategy. New York: Free Press. pp. 17-23.
CIPS study guide page 86-87
LO 2, AC 2.2
NEW QUESTION # 126
Which type of specification is less time-consuming to develop?
- A. Conformance specification
- B. Technical drawings
- C. Outcome-based specification
- D. Design specification
Answer: C
Explanation:
There are two major types of specification: conformance and performance specifications. They have the following characteristics:
Table Description automatically generated
Since performance specification is often a list of outputs or outcomes, it usually takes less time to develop than conformance specification.
NEW QUESTION # 127
GSC Ltd is a manufacturer of car parts. To accommodate growing demands of electric cars, the company is developing a new component which requires different type of steel. The project team estimates that the component will be ready for production in 1.5 years. Until then, they need to keep the production busy.
After checking the inventory records, the production team sees that the company has 3 months of stock. The lead time for each batch is two months. Which of the following should be a priority ac-tion of the company?
- A. Standardise the specification
- B. Make a call-off order to current supplier
- C. Create new specification to current supplier
- D. Create new specification to new supplier
Answer: B
Explanation:
The scenario is very long with many distracting data. Students need to read carefully and use their experience to solve this problem.
The company is developing a new component which requires different type of material. But this component will not be available for mass production in 1.5 years. This means the company still needs to produce the current components with current materials until the development is finished. They must continue purchase the materials from current supplier through call-off orders. This situation is an example of straight re-buy.
Reference:
LO 1, AC 1.1
NEW QUESTION # 128
Bob is a new procurement specialist at XYZ Ltd. He is assigned to categorise the company's sup-plies. After analysing, Bob realises that a group of low value products is sourced from a tiny geo-graphical area which is prone to flooding. What would be the best strategy to manage this category of products?
- A. Source this group of products from only one supplier
- B. Find an alternative source to secure supply
- C. Assign some of procurement jobs to user department
- D. Form partnership relationship with the current supplier
Answer: B
Explanation:
In the scenario, the products have low value and high risk of supply. This group is known as bottleneck or critical in Kraljic's portfolio matrix. The objective for such items would be securing the supply. The company can achieve this goal by 'making' the products themselves, or finding an alternative option.
Reference:
LO 2, AC 2.1
NEW QUESTION # 129
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To prepare for the CIPS L4M2 exam, candidates need to have a good understanding of procurement principles and practices, as well as a strong knowledge of the business environment. Study materials and exam preparation courses are available from CIPS, as well as from a range of other providers.
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