CIPS L4M1 - Question & Answer Past exam
questions Latest Update 2024-2025 Actual Exam
Questions and 100% Correct Answers
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O1. Explain FIVE differences between operational expenditure and capital expenditure.`
- CORRECT ANSWER: Capital expenditure items are charged to a capital account,
whereas operational expenditure is charged to a profit and loss account
Capital items are procured for a long period of time and have a lifespan of many years.
Operational items are procured for short term consumption
Capital items tend to be high value assets, whereas operational items tend to be
comparatively inexpensive
The procurement of capital items involves complex requirements and decisions about
expenditure are likely to involve a wide range of stakeholders. Operational expenditure
is usually less complex and often involves repeat spends
Preparation work on capital expenditure is likely to be lengthy and will involve building a
business case, investment appraisal and the option to buy or lease. Operational
expenditure tends to be more straight forward and budgets are pre-set for regular
demand
Capital procurement is less frequent than the procurement of operational items, which
is usually on a regular basis
O1. FIVE elements of the total cost of ownership of capital equipment - CORRECT
ANSWER: 1. pre acquisition costs
2. purchase price
3. operating costs
4. maintenance and repair costs
5. downtime costs and end of life/decommissioning costs
O1. It is widely believed that it is important to attempt to reduce costs and add value
throughout the supply chain. Explain THREE innovative strategies that might achieve
such goals - CORRECT ANSWER: 1. value engineering
,2. lean supply
3. agile supply
4. TQM
5. JIT and
6. value added negotiations/relationships
O1. Outline FIVE differences between purchasing goods and purchasing services. -
CORRECT ANSWER: 1. Goods are tangible, services are intangible:
2. Services cannot be separated from their supplier:
3. Heterogeneity: goods are usually uniform in nature while services are unique at each
delivery
4. Services 'perish' immediately on delivery whereas goods can be stored until required
5. Products are easier to specify, being tangible
O1. Outline FIVE ways in which improving the quality of a product can add value for an
organisation. - CORRECT ANSWER: Improved quality can add value by reducing the
need for appraisal and prevention activities, which will save time and money.
Improved quality will mean that the risk of failure is reduced. This should lead to a
reduction in losses incurred due to poor quality products reaching the consumer.
Improved quality will result in fewer goods being rejected or having to be re-worked,
which will reduce costs for the organisation.
Improved quality should improve brand image, resulting in more customers, increased
revenue and profits, which have the effect of adding value.
Similarly, if an improvement in the quality of the product has improved the brand image,
customers are more likely to be loyal, resulting again in higher revenue and profits.
Improved quality should mean that quality control measures can be reduced, thereby
saving costs
O1. Outline why supply chain management (SCM) may be unattractive for some
organisations. - CORRECT ANSWER: high investment in finances and resource, a
closer supplier relationship might not be appropriate if transactional purchases are
involved, there are risks associated with closer relationships such as complacency and
loss of control over confidential information.
, O1. potential benefits of a supply chain management (SCM) approach to procurement
and supply - CORRECT ANSWER: derive from eliminating waste activities, improving
responsiveness in the continuous flow of value and other efficiency projects. Other
benefits might include access to resources and expertise throughout the chain,
collaborative quality management, improved communication, integrated systems and
data share, co-ordinated demand forecasting, agility in faster lead-times and innovation,
transparency reducing stock levels and waste.
O1. The main focus for procurement and supply is that value can be added either by
cutting costs or by securing operational efficiency.
Describe FIVE methods through which value may be achieved in procurement and
supply using these approaches - CORRECT ANSWER: The use of value analysis, to
eliminate non-essential features ; this technique involves looking critically at the
elements that make up a product or service and investigating whether they are
necessary
Challenging user generated specifications, to minimise variety, stock proliferation and
over-specification, with costs being cut as a result
Consolidating demand, by aggregating orders or forming a consortium, in order to
lower costs through bulk discounts or economies of scale
Eliminating or reducing inventory, through systems such as JIT, to reduce the costs of
holding stock
International sourcing, to take advantage of low-cost country production, although this
involves higher risks and higher costs, in terms of transport and possible taxes
Negotiating with suppliers to reduce the cost of inputs
Working with supply chain partners to minimise waste, with the technique of lean
supply
O2. activities that take place post contract award - CORRECT ANSWER: there are a
vast range of answers to choose from such as expediting orders, payment, contract
management, supplier management, contract review and learning lessons, any activity
within the purchase to pay process and contract termination preparation
O2. Describe FOUR potential costs of using electronic systems in procurement and
supply. - CORRECT ANSWER: The high capital investment and set-up costs of the
electronic systems, including hardware and software items
