CIPS L4M2 Exam Practice Test Instant Access

Question 1

Buyers can ascertain the prices by examining information provided by primary and secondary sources of market data. Which of the following is a secondary source of market data?

ASupplier prices provided on price comparison websites

BHistorical records of supplier prices on the buyer's database

CPrice brochures provided by the supplier's sales team

DSuppliers' prices provided on the buyer's request for quotation

Answer : A

Price comparison websites are secondary sources as they aggregate data collected from multiple suppliers. Primary sources (like RFQs and brochures) come directly from the supplier. Reference: CIPS Level 4, Market Data Analysis.

Question 2

A company has installed a new piece of capital equipment but needs to arrange a maintenance contract for three years. The company wants to know as accurately as possible what this price will be for the full contract. What would be an appropriate type of pricing mechanism to use when asking suppliers to quote prices?

AFixed price with adjustment for inflation

BFixed price

CCost plus percentage fee

DCost plus fixed fee

Answer : A

A fixed price with adjustment for inflation provides cost predictability while accounting for potential increases due to inflation. This strikes a balance between fixed costs and market realities. Reference: CIPS Level 4, Pricing Strategies.

Question 3

Which of the following are advantages of zero-based financial budgeting?

Use of previous year figures

Emphasis on short-term planning

Budget treated as flexible

Focus on operational issues

A1 and 4 only

B2 and 4 only

C3 and 4 only

D1 and 2 only

Answer : C

Zero-based budgeting emphasizes starting from scratch and justifying all expenses.

3 (Budget flexibility): Ensures resources are allocated dynamically based on needs.

4 (Focus on operational issues): Encourages alignment with operational priorities rather than historical trends.

Using prior figures (1) is contrary to zero-based budgeting principles. Reference: CIPS Level 4, Financial Planning and Budgeting.

Question 4

The procurement team of an IT hardware manufacturer has been set a target by senior management to reduce the rates paid to the sole supplier of a new and innovative power-saving battery. Which action should the procurement team first consider?

AOffering a framework agreement

BAgreeing rebate thresholds

CDual or multiple sourcing

DOffering economies of scale

Answer : C

Dual or multiple sourcing introduces competition, reducing the sole supplier's bargaining power and leading to cost reductions. Framework agreements (A) or economies of scale (D) may not address the immediate need to reduce rates. Reference: CIPS Level 4, Sourcing Strategies.

Question 5

An IT department has tasked procurement to help produce a conformance specification for new company laptops. Which factor is common within a conformance specification?

AMeets the operational requirements

BTends to be short and specific

CAllows flexibility in the offering

DMeets the specification standard

Answer : D

Conformance specifications outline specific technical standards or requirements that a product must meet. These ensure uniformity and compliance but do not allow flexibility for suppliers to innovate. Reference: CIPS Level 4, Specification Standards.

Question 6

Which of the following are prerequisites to run a successful bidding process? Select TWO that apply:

AThe value of the purchase must be high enough to justify the associated bidding costs of potential suppliers

BThe market contains an adequate number of suitably qualified suppliers

COnly those suppliers who have worked with the buyer in the past are allowed to bid

DBids must be submitted within twenty calendar days

EThe requirement can be met without the need for subcontracting

Answer : A, B

A (Purchase value): A competitive bidding process is only justifiable when the cost of running it is outweighed by its potential value.

B (Qualified suppliers): Ensuring a sufficient number of capable suppliers promotes competition and delivers better results.

Restricting suppliers (C) or rigid timeframes (D) can hinder the process, while subcontracting (E) is not a core consideration in most bids. Reference: CIPS Level 4, Bidding and Tendering.

Question 7

The bargaining strength of suppliers is likely to be high in which of the following situations? Select TWO that apply:

AThe buyer is educated on supply markets

BThere is a limited number of suppliers in relation to buyers

CThe buyer is large in size relative to the supplier

DThe buyer spend is a high proportion of a supplier's revenue

EThe buyer requirement is urgent

Answer : B, E

B (Limited number of suppliers): Fewer suppliers lead to higher bargaining power due to reduced competition.

E (Urgent buyer requirement): Suppliers gain leverage when buyers have limited time to source alternatives.

Education on markets and buyer size are factors that strengthen buyer, not supplier, bargaining power. Reference: CIPS Level 4, Supplier Negotiation and Market Power.

CIPS L4M2 Defining Business Needs Exam Practice Test