CIPS L4M1 Scope and Influence of Procurement and Supply
Exam Questions and Answers.
What is Procurement? - ANS Procurement is a STRATEGIC function of a business
obtains something tangible as goods or Intangible as services. Include Purchasing
Inventory, Logistics, Supply, Waste Management Quality, Cost, Added Value
What is purchasing? - ANS Is the ACT of physically ordering and buying something.
What is Supply? - ANS Is the INFRASTRUCTURE which ensures that products and
services get from supplier to the customer.
What is inventory? - ANS the stock of goods, materials or products
What is a stock? - ANS Asset available in the warehouse
What is asset? - ANS Value of everything an organization owns
Fixed cost - ANS Costs do not change (Salaries, Insurance, and Rent)
Variable Cost - ANS Costs do change as they are linked to the business (Raw Material,
Extra hours)
Directly Cost (Direct Procurement) - ANS Cost associated with the Job or production
(Raw material, Man Power)
Indirectly Cost (Indirect Procurement) - ANS Not associated with the Job (Clean Liquid,
Stationary, Mobile phones contracts, MRO - Maintenance repairs and Operations.
Primary Sector of the Economy - ANS The part of the economy that draws raw
materials from the natural environment (Cotton, Oil, Silver, Wheat)
Secondary sector of the Economy - ANS The part of the economy that transforms raw
materials into manufactured goods (Light Bulbs, Nuts and Bolts, Metal housing, Plastic
fittings)
Finished goods - ANS Units of products that have been completed but not yet sold to
customers (Shoes, Beds, Clothes, Jeweler)
Stock Procurement Includes - ANS can be stored and inventory Raw Material,
Components and Finished Goods.
Non-Stock Procurement Includes - ANS are not stored and not listed in the Organization
inventory (Cleaning Services, Internet Contract, Insurances, Advertising Campaigns)
,Explain why the procurement department should be consulted before an organization
spends money. - ANS Procurement can influence the majority of the costs within an
organization:
1. - Evaluating potential suppliers
2. - Involved in preparing specifications
3. - Review Quality standards
4. - Assess ethical requirements
5. - Compare buy or lease options
6. - Investigate transport
7. - Review packing options.
8. - Research total life cost
9. - Calculate currency differences
10. - Benchmark prices
11. - Ensure assets are fit for a propose
Total life Cost (TLC) - ANS The total amount a product will cost an organization.
Mentioned some examples of NON-STOCK INTANGIBLE procurements. - ANS
Insurance, Marketing, Salaries/Pensions, Cleaning, IT and Catering Services, Staff
Development, Electricity, Gas, Rent or Mortgage.
Mentioned some examples of STOCK TANGIBLE procurements. - ANS Components,
Stationary, Uniforms
Mentioned some examples of CAPITAL NON-STOCK TANGIBLE procurements. - ANS
Machinery, Buildings, Lands, Vehicles
Cape (Capital Expenditure) - ANS the cost associated to assets of an Organization (The
value of a Capital Purchases reduce overtime, the amount of the asset depreciated)
OPEX (Operating Expenditure) - ANS Cost Associated with the running of an
Organization, such as electricity, labor, transport, rent, the raw material (Day to day
running of the business)
What is a budget? - ANS Financial plan for a set period on how much can spend
money.
Depreciation - ANS the reduction overtime in the value of an asset held by the
company.
What should a procurement professional consider when sourcing a capital purchase? -
ANS the TCL - Total Cost of Life, Depreciation.
Procurement Process - ANS A cross-functional business process that originates when a
company needs to acquire goods or services from external sources, and it concludes
when the company receives and pays for them.
,What are the stages of the procurement cycle process? - ANS 1.-Understand the need
2. - Market/commodity
3. - Develop a strategy
4. - Pre procure
5. - Develop Documentation
6. - Supplier Selection
7. - ITT/RFQ
8. - BID/TENDER
9. - Contract Award
10. - Warehouse Logistics
11. - Contract Performance
12. - SRM & SC Management
13. - Asset Management
List the Pre-award process (Sourcing) in Procurement Cycle - ANS from 1 to 8
1.-Understand the need
2. - Market/commodity
3. - Develop a strategy
4. - Pre procure
5. - Develop Documentation
6. - Supplier Selection
7. - ITT/RFQ
8. - BID/TENDER
Mention the award process (Contract/ PO) in Procurement Cycle - ANS 9. - Contract
Award
List the Post-award process (Contract Management) in Procurement Cycle - ANS 10. -
Warehouse Logistics
11. - Contract Performance
12. - SRM & SC Management
13. - Asset Management
Product specification - ANS describes the technical criteria
Typical Specification Outlines - ANS Description, Drawing, Color, Materials, Quantity,
Packing, Quality.
Performance Specifications - ANS Simple to prepare. Open up the supplier market and
promote innovation and competition by letting suppliers offer the solution to the required
need.
Conformance Specifications - ANS Usually difficult to prepare. Ensure that the
product/service is exactly as required and that there is not variance. (Recipes, Chemical
formulas, engineering drawings)
, Why should a service specification contain as many details as possible? - ANS to
ensure that the standard of quality demand is met.
Rights of Procurement - ANS 1. - Right Quantity
2. - Right Quality
3. - Right Time
4. - Right Place
5. - Right Price
Define why the five rights of procurement and supply are important to the procurement
professional. - ANS 1. - Quantity: if is wrong Warehouse Could be overstocked and
Production could be stop.
2. - Quality: Essential of getting value of money.
3. - Time: If products are not received, serious consequences for the production.
4. - Place: Additional cost may be incurred if delivery sent to wrong destination.
5. - Price: Must be fair and reasonable, need to consider Currency, Taxes, and
Incoterms.
What is the other right of procurement and supply? - ANS Right Source (Selection of the
right source is a very important)
TCO (Total Cost of Ownership) - ANS The cost incurred by owning a product
throughout its useful life, including acquisition, use maintenance and disposal.
TCA (Total Cost of Acquisition) - ANS The cost incurred in acquiring a product from
sourcing to receiving and installed.
Elements of TCO - ANS TCA
Tooling
Insurance
Operation
Maintenance
Training
Storage
Disposal
TCO Formula - ANS = TCA (Total Cost of Acquisition) + OC (Operational Cost) + MC
(Maintenance Cost) + DC (Downtime Cost) + ELC (End Life Cost)
What are the TCO & the TCA? - ANS The TCO helps to understand how much a
product or service cost an organization to obtain.
