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NEW QUESTION 54
Despite of better improvement rates than other types of benchmarking, functional benchmarking still has downsides. Which of the following is most likely to be a disadvantage of functional benchmarking?

• A. Difference of corporate cultures across companies
• B. Unfair competition
• C. Legal issues regarding intellectual property
• D. Benchmarking can only be undertaken within an industry

Answer: A

Explanation:
Functional benchmarking is a comparison to similar or identical practices (e.g., the picking process for assembling customer orders, maintaining inventory controls of spare computer parts, logistics to move operational forces, etc.) within the same or similar functions outside the immediate industry. Functional benchmarking might identify practices that are superior in your functional areas in whatever industry they may exist. Functional benchmarking would be accomplished at the federal level by comparing the IRS collections process against those of American Express. Comparing copper mining techniques to coal mining techniques is an example in the private sector.
Benefits
- Provides industry trend information
- Quantitative comparisons
- Better improvement rate
Challenges
- Diverse corporate cultures
- Great need for specificity
- Not invented here. syndrome
- Common functions can be difficult to find
- Takes more time than internal or percent
- Must be able to visualize how to adapt the best practices
Source: USN Benchmarking Handbook
LO 1, AC 1.3

NEW QUESTION 55
Ymira is asked to develop the specification for water purifier which will be used at the company headquarter. She believes that the specification can be drafted based on the information available on the Internet, such as blog posts, comparison websites, how-to websites, life hacks, etc. Which of the following traits will make the information more useful?

• A. Subjectivity
• B. Trustworthy sources
• C. Promotional information
• D. Objectivity
• E. Written by inexperienced author

Answer: B,D

Explanation:
Internet is a great source of information, however, information from the Internet needs to be tested for accuracy and reliability. To check the information from the Internet, a buyer can use the criteria with acronym SAMOA:
Source (of the information)
Audience (intended as the recipient of the information)
Methodology (used to collect and analyse the data)
Objectivity (of the information - there should be no bias)
Accuracy
Reference:
LO 3, AC 3.1

NEW QUESTION 56
A procurement team is categorising their purchased items into four quadrants of Kraljic's supply chain portfolio matrix. They realise that there are some low-value items which come from very few suppliers in the market. The organisation is critically dependent on these suppliers. The team plans to reduce the dependence by finding alternative sources. Is this a right course of action?

• A. Yes, the organisation needs to reduce the supply risks
• B. No, there is no way to escape this dependency
• C. Yes, this action will dramatically increase the supplier's bargaining power
• D. No, the organisation should run competitive biddings to exploit the competition

Answer: A

Explanation:
According to Kraljic portfolio matrix, the low-value items with high supply risk are bottleneck items.

The purchasing strategy that is commonly recommended for these products is primarily based on acceptance of the dependence and reduction of the negative effects of the unfavourable position. An alternative strategy suggested by purchasing practitioners is to find other suppliers and move towards the non-critical quadrant.
- Accept dependence, reduce negative consequences: The main focus of this strategy is to assure supply, if necessary even at additional cost. Examples of this strategy are keeping extra stocks of the materials concerned or developing consigned stock agreements with suppliers. By performing a risk analysis firms can identify the most important bottleneck products and consider the implications. A possible action for dealing with unexpected bad dependence positions for certain products is to employ contingency planning.
- Reduce dependence and risk, find other solutions: This strategy is geared towards reducing the dependence on the supplier. The most common way to achieve this is to broaden the specifications of the product or to search for new suppliers.
The procurement team in the scenario has selected reducing dependency by finding alternatives. This is a right strategy for bottleneck item.
Reference:
- CIPS study guide page 82-84
- Purchasing strategies in the Kraljic matrix-A power and dependence perspective, Marjolein C.J. Caniels, Cees J. Gelderman LO 2, AC 2.1

NEW QUESTION 57
Total cost of ownership of a solar panel is $5,000 and it is expected that the panel will make a sav-ing of $1,000 each year. So it would take 5 years for the benefits to repay the investment. Therefore, the firm plans to keep the solar panel for at least 5 years. Is payback period calculation right for making the business decision?

• A. No, because payback period can be only used to calculate the depreciation of a fixed asset
• B. Yes, because it takes everything into account
• C. Yes, because payback period shows how long the firm recovers the investment
• D. No, because payback period doesn't take into account price fluctuations

Answer: C

Explanation:
There are many factors that need to be considered when making a business decision. Costs and benefits are among those factor. To estimate the length of time in which an investment reaches a break-even point, businesses often use the payback period. The payback period refers to the amount of time it takes to recover the cost of an investment.
'Yes, because it takes everything into account': It ignores the time value of money (TVM), unlike other methods of capital budgeting such as net present value (NPV), internal rate of return (IRR), and discounted cash flow.
'No, because payback period doesn't take into account price fluctuations': Though it doesn't take into account price fluctuation, payback period is still useful in financial and capital budgeting.
'No, because payback period can be only used to calculate the depreciation of a fixed asset': Payback period only calculates the length of time in which the benefits of a charge repay its costs.
LO 1, AC 1.3

NEW QUESTION 58
Why should procurement professionals develop business case before seeking approval to purchase capital equipment?

• A. A business case can be used as a replacement of purchase order
• B. Business case is a tool that eliminates all risks associated with the project
• C. Using business case will prevent new entrants from entering the supply market
• D. Devising business case may prompt the procurement to consider different options

Answer: D

Explanation:
A business case is developed during the early stages of a project and outlines the why, what, how, and who necessary to decide if it is worthwhile continuing a project. One of the first things you need to know when starting a new project are the benefits of the proposed business change and how to communicate those benefits to the business.
Preparing the business case involves an assessment of:
- Business problem or opportunity
- Benefits
- Risk
- Costs including investment appraisal
- Technical solutions
- Timescale
- Impact on operations
- Organizational capability to deliver the project outcomes
These project issues are an important part of the business case. They express the problems with the current situation and demonstrate the benefits of the new business vision. Making business case with multiple options and choices also prompts the procurement and senior management to consider alternatives. As a result, the organisation may opt out the best option.
The business case brings together the benefits, disadvantages, costs, and risks of the current situa-tion and future vision so that executive management can decide if the project should go ahead.
Reference:
- CIPS study guide page 19-21
- How to Write a Business Case - Template & Examples | Adobe Workfront
LO 1, AC 1.1

NEW QUESTION 59
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