L4M2 Exam Questions & Answers
Defining Business Needs • CIPS
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Sample L4M2 Questions
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Which of the following would positively affect a buyer's company cash flow? Select TWO that apply.
Comprehensive and Detailed Explanation (from CIPS L4M2 -- Financial Management in Procurement)
Positive cash flow arises when money flows into the business:
A . Bank loan immediate inflow of cash.
D . Customer pays upon purchase quick revenue collection, improving liquidity.
The other options either delay or reduce available cash (outflows).
Relevant L4M2 references:
''Cash flow and working capital in procurement decision-making''
''Financial metrics in business case justification''
A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in specification are higher than ISO standards, her company can achieve greater cost-savings. Is the procurement manager's opinion correct?
Explanation
The specification that is produced too detailed will incur unnecessary cost because it does not allow suppliers to use their expertise in finding the most efficient way to produce it.
'No, because higher requirements in specification, the greater bargaining power of buying organi-sation': more detailed specifications could tighten the supplier base and potentially leave buying organisation with fewer potential supplier. This may reduce buyer's bargaining power in negotia-tion.
'Yes, because higher requirements will help buying organisation find the best supplier': in some circumstances, higher requirements will lead to smaller supplier base. In the worst scenario, there is no supplier who has capability to carry out those requirements
'Yes, because optimising the specification is the only method to achieve value for money': There are other methods to achieve cost saving and value for money, inter alia, volume concentration, relationship restructuring, etc.
LO 3, AC 3.1
FSB Group is developing a building specification that ensures fair labour practices and prioritises local employment. What type of sustainability criteria does this describe?
Comprehensive and Detailed Explanation (from CIPS L4M2 -- Sustainable Procurement and Specifications)
CIPS defines social sustainability as protecting and improving human rights, working conditions, equality, and local community welfare.
This includes:
Fair labour standards
Local employment
Diversity and inclusion
Hence, Option D (Social sustainability) is correct.
Relevant L4M2 references:
''The triple bottom line in procurement''
''Embedding social sustainability in specifications''
When preparing through-life specification, which of the following requirements should procure-ment team define besides the physical asset? Select TWO that apply.
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.
LO 3, AC 3.2
What are the direct risks that can result from procurement receiving inadequate specifications from a research and development department?
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