ENRICHING PROCUREMENT MINDS

DIPLOMA LEVEL 4 REVISION QUESTIONS

L4M2 – DEFINING BUSINESS NEED

Q1. Which of the following is a feature of a straight re-buy purchase? It will be...

a. A new business case required

b. A revised requirements document
c. An existing specification
d. A new competitive tender

Answer: C

Q2. An organisation is reviewing the products delivered by its supplier. After reaching the
conclusion, they realise that there are features that needs to be added to the product they
have been buying due to some changes in customer preferences. What type of purchase is the
organisation intending to make

a. A new buy
b. A modified re-buy
c. A straight re-buy
d. An evaluated re-buy

Answer: B

Q3. Which of the following document is used as a justification for procuring a specific product
that the organisation requires?

a. Business case
b. Risk register
c. Specification
d. Force majeure

Answer: A

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Q4. Which of the following are examples of direct costs for a manufacturing company? Select
TWO that apply.

a. Raw materials
b. Stationery
c. Salary of workers
d. Salary of supervisors
e. Telephone bills

Answer: A, C

Q5. Costs that do not vary with the level of output are known as which of the following?

a. Variable costs
b. Step cost
c. Semi-variable costs
d. Fixed costs

Answer: D

Q6. The point at which the level of output for the organisation equals to the total costs is
known as which of the following?

a. The equilibrium point

b. The breakeven point
c. The cost-benefit analysis
d. No profit point

Answer: B

Q7. In a commercial negotiation, it is always important for the buyer to understand the
potential supplier’s breakeven point. Is this statement true?

a. No, researching about supplier’s breakeven point will waste time for the negotiation to
commence especially where the time of essence

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 b. Yes, understanding supplier’s breakeven point helps the buyer know if the supplier is
charging high unreasonable prices
c. No, breakeven point is important only when the buyer is interested in the quality of
goods supplied
d. Yes, understanding supplier’s breakeven point will ensure that delivery lead times are
significantly reduced

Answer: B

Q8. Which of the following correctly describes the reasons for undertaking an effective
purchase cost analysis?

1. Identifying the risks associated with purchase

2. Devise strategies for reducing costs
3. Gather information of availability in international trade
4. Improve supplier relationships

a. 1 and 4
b. 2 and 3
c. 2 and 4
d. 1 and 3

Answer: A

Q9. Which of the following are the sources of price comparators for the procurement manager
undertaking a price analysis? Select TWO that apply.

a. Prices paid in the past

b. Prices charged by competitor companies
c. Published prices
d. The cost of supplier operation
e. International commodity prices

Answer: A and C

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Q10. Under which circumstances is competitive tendering a suitable approach to identifying
suitable potential suppliers? Select the THREE that apply.

a. One supplier ahead of others in terms of technical expertise

b. High purchase value to justify the cost of the overall process
c. An adequate number of capable supplier in the market
d. Urgent requirement to be fulfilled
e. Unclear specifications about the buyer’s need
f. Suppliers are technically qualified and willing to participate

Answer: B, C and F

Q11. What are the types of interventions that one has to take into account when brainstorming
ways to create a procurement business case?

1. Quality interventions
2. Market interventions
3. Technical interventions
4. Political interventions
a. 1 and 3
b. 2 and 3
c. 3 and 4
d. 2 and 4

Answer: B

Q12. Clinton has recently been appointed as QUIBCS Limited operations manager. When formulating a
company’s strategy he realised that his company may not always be the best in every aspect of the
operations and that there is other high performing companies in and outside their industries that he
need to compare their activities with. What process is Clinton willing to implement into their strategy?

a. Continuous improvement
b. Benchmarking
c. Business process re-engineering
d. Effective comparison

Answer: B

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Q13. The difference between the actual expenditure and the budgeted expenditure is referred to as
which of the following?

a. Budget difference
b. Cost analysis
c. Budget variance
d. Budget spending

Answer: C

Q14. In which of the following situations is competitive bidding not a suitable approach to be used by
the buying organisation?

1. Price is not the only variable to be considered during evaluation

2. No changes to specifications are anticipated
3. Costs are impossible and easy to estimate
4. There is sufficient time for the process

a. 1and 2
b. 2 and 3
c. 1 and 3
d. 2 and 4

Answer: C

Q15. Which type of benchmarking compares the performance of different functions of the same
organisation?

a. Functional benchmarking
b. Internal benchmarking
c. Competitive benchmarking
d. Generic benchmarking

Answer: A

Q16. Which of the following describes the challenges of using internal benchmarking as a method of
performance comparison?

1. The two organisations compared may have diverse corporate cultures

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 2. Provides limited opportunities for growth
3. May not give best-in-class comparison
4. May be limited if there are intellectual property issues

a. 1 and 2 only
b. 3 and 4 only
c. 2 and 3 only
d. 1 and 4 only

Answer: C

Q17. A procurement organisation always uses outcome-focused specifications and is reviewing how to
remove all barriers that prevent new suppliers from bidding for their contracts. Which of the following
competitive forces is the procurement organisation focusing on?

1. Availability of substitutes
2. Bargaining strength of buyers
3. Bargaining power of suppliers
4. Threats of new entrants

a. 1 and 3 only
b. 2 and 3 only
c. 1 and 4 only
d. 2 and 4 only

Answer: A

Q18. In which of the following situations are buyer powers likely to be strong. Select TWO that apply.

a. Switching costs are low

b. Sellers are more concentrated than buyers
c. Threat of backward integration is low
d. Single supplier controlling sources of supply
e. Buyers are price sensitive

Answer: A and E

Q19. An output-focused specification is known as will of the following

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 a. Performance specification
b. Technical specification
c. Brand
d. Conformance specification

Answer: A

Q20. Which of the following are types of acceptance testing to determine whether a product meets its
specification before being released to customer? Select the THREE that apply.

a. Contract acceptance testing

b. Quality acceptance testing
c. Defects acceptance testing
d. Black box testing
e. Regulation acceptance testing
f. Product acceptance testing

Answer: A, E and F

Q21. An organisation should always ensure that they terminate risks at all times. Is this statement
correct?

a. No, because not all risks are likely to be harmful to the organisation therefore worth taking
b. Yes, because a risk is likely to affect the organisation’s profitability and operations
c. Yes, because an organisation will need to change their culture to adapt to the risk
d. No, because a risk is likely to result in higher profits for the supply chain

Answer: A

Q22. Which of the following are the basic risk mitigation strategies?

1. Transfer
2. Translate
3. Treat
4. Terminate

a. 1 and 2
b. 2 and 3
c. 3 and 4

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 d. 2 and 4

Answer: C

Q23. What are the roles of a project initiation document (PID) when dealing with specifications?

1. Detail out any constraints and dependencies

2. Sets out how confidentiality issues will be handled
3. Provide initial definition and scope of the specification
4. Identify benefits expected from the specification

a. 1 and 3
b. 2 and 3
c. 2 and 4
d. 1 and 2

Answer: A

Q24. Which of the following are the types of wastes that an organisation needs to eliminate? Select the
TWO that apply?

a. Overproduction
b. Reverse logistics
c. Waiting
d. Manufacturing
e. Under-specification

Answer: A and C

Q25. An output specification focuses mostly on...

a. Innovation
b. Performance
c. Technicalities
d. Design

Answer: B

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Q26. Which of the following are commonly used in conjunction with an output-focused specification?

a. Clear conformable standards

b. Detailed technical requirements
c. Key performance indicators
d. Product brand names

Answer: C

Q27. The threat of new entrants is likely to be reduced by which of the following factors?

1. Supplier monopolising sources of supply

2. Favourable legislative regulations
3. High set-up costs
4. Fewer barriers to entry

a. 1 and 3 only
b. 2 and 3 only
c. 1 and 2 only
d. 3 and 4 only

Answer: A

Q28. Supplier power is strong in which of the following situations? Select any TWO that apply.

a. There are no substitutes for switching

b. Suppliers are small and fragmented
c. No threat of forward integration
d. The product or services is differentiated
e. Requirement for a generic product

Answer: A and D

Q29. Direct costs in a manufacturing company include...

1. Raw material costs

2. Product marketing costs

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 3. Costs of machine parts and spares
4. Salaries and wages of production department staff

a. 1 and 2 only
b. 2 and 3 only
c. 2 and 4 only
d. 1 and 4 only

Answer: D

Q30. A statement of work (SoW) is commonly by organisations to define the activities, deliverables and
timelines for the services provided. What are they types of SoW that can be used by an organisation in
projects and services?

1. Design SoW
2. Technical SoW
3. Input-based SoW
4. Performance-based SoW

a. 1 and 3 only
b. 1 and 4 only
c. 3 and 4 only
d. 2 and 3 only

Answer: B

Q31. Which of the following is a main risk of early supplier involvement (ESI) approach?

a. Costly to involve supplier in early product development stage

b. Innovation will be limited since product will be designed around supplier’s capabilities only
c. ESI is more likely to negatively impact collaborative relationship between the parties
d. ESI leads to a reduced variety of product designed b the buying organisation

Answer: B

Q32. Which of the following are the contents of a statement of works (SoW) used by the buying
organisation in services and works? Select any THREE that apply.

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 a. The purpose of the project or service
b. Other competing firms undertaking the same project
c. Where the work will be carried out
d. Expected deliverables of the project
e. Regulations governing the service performance
f. Suppliers contracted for the project

Answer: A, C and D

Q33. The use of a business case is important when undertaking a ‘new-buy’ type of purchase. Is this
statement correct?

a. No, procurement professional only needs to understand what the customer requirements are
before undertaking this type of procurement
b. Yes, a business case assists the procurement professional to be aware of availability issues and
market prices
c. Yes, a business case helps in providing a clear justification why the procurement needs to be
undertaken as well as the risks and benefits
d. No, business case is characterised by high levels of ambiguities and complexities which may
affect effectiveness

Answer: C

Q34. Which of the following are examples of closed problems in the organisation? Select the TWO that
apply.

a. High level of purchase invoice errors

b. Emerging monopoly in a market and competition have to be stimulated
c. An employee under-performing and failing to achieve expected results
d. Individual want to start a category management but the management is not supportive
e. Agreement from senior management is required for the required budget

Answer: A and C

Q35. Examples of qualitative data that procurement professionals gather during market research include
which of the following?

1. Size of the market for a particular product

2. Customer perceptions about the product to be introduced
3. What motivates customer into buying a product

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 4. Number of businesses supplying a particular product

a. 3 and 4 only
b. 1 and 2 only
c. 2 and 3 only
d. 2 and 4 only

Answer: C

Q36. An upstream primary activity in the value chain model concerned with interactions with suppliers is
called...

a. Operations
b. Outbound logistics
c. Sales and marketing
d. Inbound logistics

Answer: D

Q37. Which of the following are the two supporting activities in the value chain model?

1. Sales and marketing

2. Operations management
3. Procurement
4. Human resource development

a. 1 and 2 only
b. 3 and 4 only
c. 2 and 3 only
d. 1 and 3 only

Answer: B

Q38. A procurement organisation is keen to maximise the use of new innovation available, within its
supply market, in the execution of a new significant contract opportunity. Which ONE of the following
will enable the organisation this goal?

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 a. Applying a precise performance framework
b. Establishing a transparent selection criteria
c. Allowing variations to occur
d. Using an outcome-focused specification

Answer: D

Q39. A conventional methodology for risk assessment involves evaluation of which of the following?

1. Probability
2. Responsibility
3. Impact
4. Contingency

a. 2 and 3 only
b. 1 and 3 only
c. 1 and 2 only
d. 3 and 4 only

Answer: B

Q40. Which one of the following is true about the concept normal distribution?

a. It shows variation in extreme points

b. It is used where possible outcome is only two
c. It is depicted as a straight line
d. Most values are around the mean

Answer: D

Q41. Which of the following are advantages of having an effective budgetary control measure in place?

1. Promotes coordination and communication on matters affecting costs and expenditure

2. Prevents an organisation from taking capital expenditure which may result in variances
3. It allows remedial actions to be taken as the budget variance emerge
4. Ensure payments are made early to suppliers promoting their sustainability

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 a. 1 and 2 only
b. 1 and 3 only
c. 2 and 4 only
d. 3 and 4 only

Answer: B

Q42. Which of the following is action should be taken by the organisation when a budget variance occur
which was not anticipated?

a. Cease all organisational expenditures for that particular budget year

b. Restructure the organisation to identify areas where costs have been incurred
c. Investigate the reason why the variance have occurred with aim to find how it might be avoided
d. Cut the salaries of staff in order to reduce expenditure which may cause variance in the budget

Answer: C

Q43. When reviewing a budget for the previous year, the organisation realised that there was a
significant difference between the budgeted and actual wage costs which they need to take into account
for the upcoming budget. Which of the following is the organisation willing to take into account for the
upcoming budge?

a. Overhead variance
b. Labour variance
c. Raw material variance
d. Salary variance

Answer: B

Q44. The generic strategies for achieving competitive advantage in the market include which of the
following?

1. Negotiation
2. Cost leadership
3. Staff retention
4. Differentiation

a. 1 and 2 only
b. 2 and 4 only

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 c. 3 and 4 only
d. 1 and 3 only

Answer: B

Q45. Which of the following is an advantage of an organisation using the ‘customer segmentation
approach’ in the market?

a. The organisation will know about the availability of different inputs to use in their operation
b. Market prices by which to obtain the input will be easily comparable
c. The activities of competitors can be easily benchmarked and performance gaps identified
d. The needs of customers can be easily understood and grouped to be satisfied effectively

Answer: D

Q46. In which of the following situations will a tender be appropriate to use in obtaining a price from a
potential supplier?

1. Price is the only aspect to use in evaluation

2. High value, high risk projects
3. Access to other unknown suppliers is required
4. Suppliers have already been pre-qualified

a. 1 and 4 only
b. 1 and 2 only
c. 2 and 4 only
d. 3 and 4 only

Answer: B

Q47. Which of the following contract documents allows the buyer to describe its requirements to a
potential supplier?

a. Specification
b. Contract variation
c. Performance measurement framework
d. Contract terms

Answer: A

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Q48. Which of the following supporting activity in the value chain model is concerned with ensuring that
flexible and agile workforce is acquired by the organisation?

a. Procurement
b. Inbound logistics
c. Human resource management
d. Firm infrastructure

Answer: C

Q49. Which of the following is a description of performance specification in describing the buyer’s
requirements to a potential supplier?

1. Risk of failure is borne by the supplier

2. Output-focused
3. Input-focused
4. Outlines production methods to be used

a. 1 and 2 only
b. 2 and 3 only
c. 1 and 4 only
d. 3 and 4 only

Answer: A

Q50. Which of the following sector procurers finished products for onward sale to customers with little
or no change carried out in them in the intermediary stage?

a. Manufacturing
b. Agriculture
c. Mining
d. Retail

Answer: D

Q52. Zam Manufacturing Group (Zam) uses a large range of non-complex components that are readily
available from an extensive range of suppliers. The manufacturing process is simple and highly efficient.
Zam’s profit margins are high. Zam’s chief procurement officer (CPO) current concern is the vast range of

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products it both buys and manufacturers. Which one of the following should be a priority action for Zam
to reduce a range of components in its manufacturing process?

a. Implement standardisation
b. Value analysis
c. Process re-engineering
d. Value engineering

Answer: A

Q53. Which of the following are common barriers to entry that could affect competition in the market?

1. Direct labour costs

2. Set up costs
3. Customer switching costs
4. Inventory holding costs

a. 1 and 4 only
b. 2 and 3 only
c. 1 and 3 only
d. 3 and 4 only

Answer: B

Q54. In which of the following situation does the buyer’s bargaining power likely to be higher?

a. Monopoly market
b. Differentiated products
c. Use of cartels by suppliers
d. Generic products provided in the market

Answer: D

Q55. An organisation has a very clear idea of the service it wants and has described the process precisely
in terms of how the supplier must deliver it. It is intending to produce an ‘outcome-focused
specification’. Is this the right specification approach for the organisation to use?

a. Yes, this specification approach allows for maximum control of the supplier

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 b. No, with an outcome-focused specification approach the supplier will decide how to deliver the
service
c. No, the best approach would be an open specification
d. Yes, this specification approach states expressly how the service should operate

Answer: B

Q56. The threat from new entrants is higher where...

1. There are many companies is the industry with no company dominating the market
2. High customer loyalty for a particular existing brand
3. High capital required to enter the market
4. Easy access to distribution channels and suppliers

a. 1 and 2 only
b. 2 and 3 only
c. 1 and 4 only
d. 3 and 4 only

Answer: C

Q57. Costs that change as the level of output increases are known as which ONE of the following?

a. Step costs
b. Fixed costs
c. Indirect costs
d. Variable costs

Answer: D

Q58. Which of the following are environmental considerations throughout a contract life cycle? Select
the TWO that apply.

a. Customer demand
b. Energy usage in manufacturing
c. Standards of ethical behaviour
d. Recyclable packaging
e. Employee welfare

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Answer: B and D

Q59. Which of the following are found within conformance specifications? Select the TWO that apply.

a. Drawings
b. Forecasts
c. Outcomes
d. Outputs
e. Samples

Answer: A and E

Q60. The key difference between value analysis and value engineering is that...

a. Value engineering mostly relates to new products

b. Value engineering is compulsory in most organisations
c. Value analysis is a risk management tool used in projects
d. Value analysis will improve relationships with stakeholders

Answer: A

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