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2023 CIPS L4M2: Defining Business Needs –Reliable Latest Torrent

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CIPS L4M2 Exam Syllabus Topics:

Topic 1
  • Understand the use of specifications in procurement and supply
  • Analyse the different types of markets utilised by procurement and supply
Topic 2
  • Provide guidance to internal stakeholders on implementation
  • Implications of the business needs on the types of purchase
Topic 3
  • Identify opportunities to regulate short and longer term specifications
  • Procurement’s role in developing a business case
Topic 4
  • Analyse the criteria that can be applied in the creation of a business case
  • Availability of substitutes and threat of entry
Topic 5
  • Identify sections of specifications for through life contracts
  • Identify how costs and prices can be estimated for procurement activities
Topic 6
  • Approaches to total costs of ownership
  • whole life cycle costing
  • Interpret financial budgets for the control of purchases

CIPS Defining Business Needs Sample Questions (Q65-Q70):

A company buys components from its supplier. However, the supplier has not sent the invoice to the buyer and the buyer will not pay until next month. How will that amount of money be shown in the financial statements of the buying organization?

  • A. Accrued expense
  • B. Accrued interest
  • C. Tax liabilities
  • D. Accounts payable

Answer: A

The buyer won't pay the supplier until next month. This is a liability to the buyer. This amount can be recorded as accrued expense or accounts payable. On the other hand, the supplier has not sent the invoice, so it should be accrued expense.
Both accounts payables and accrued expenses are liabilities. Accounts payable is the total amount of short-term obligations or debt a company has to pay to its creditors for goods or services bought on credit. With accounts payables, the vendor's or supplier's invoices have been received and recorded.
On the other hand, accrued expenses are the total liability that is payable for goods and services that have been consumed by the company or received. However, accrued expenses are those bills in which an invoice or bill has not yet been received. As a result, accrued expenses can sometimes be an estimated amount of what's owed, which is adjusted later to the exact amount, once the invoice has been received.
Conversely, accounts payable should represent the exact amount of the total owed from all of the invoices received.
- CIPS study guide page 55-56
- Understanding Accrued Expenses vs. Accounts Payable ( LO 1, AC 1.4

Due to the growth of consumer electronics market, semiconductor industry develops exponentially. However, the industry is dominated by a dozens of manufacturer. Chipset need to be built in factories with highly controlled environments. New chip factories cost billions of dollars and can take two years to build. Right now, factories are running at full capacity, which produce almost perfect yields, meaning basic chipset can be made for less than a dollar and more advanced versions for not much more. What are the barriers to new entrants in the semiconductor industry?
1. Poor industry growth
2. High set-up costs
3. Economies of scale
4. Low switching costs

  • A. 2 and 4 only
  • B. 2 and 3 only
  • C. 3 and 4 only
  • D. 1 and 4 only

Answer: B

Barriers to entry is an economics and business term describing factors that can prevent or impede newcomers into a market or industry sector, and so limit competition. The most obvious barriers to entry are high start-up costs and regulatory hurdles which include the need for new companies to obtain licenses or regulatory clearance before operation. Also, industries heavily regulated by the government are usually the most difficult to penetrate. Other forms of barrier to entry that prevent new competitors from easily entering a business sector include special tax benefits to existing firms, patent protections, strong brand identity, customer loyalty, and high customer switching costs.
In the scenario, the new factory for chipset manufacturing costs billions of dollars, which indicates high set-up costs. Also, the incumbent manufacturers have reached economies of scale, allowing them to produce the components at optimal price.
The above descriptions are compiled from recent reports on current chip shortage (2021).
- Barriers to Entry Definition (
- CIPS study guide page 96-97
LO 2, AC 2.2

When analyzing direct and indirect costs of potential suppliers for negotiations and planning pur-chasing budget, the procurement manager collects reports from specialist organisations like Mintel, Gartner and Forrester. Which kind of information source is used by the procurement manager?

  • A. Technical data
  • B. Market data
  • C. Company annual report
  • D. RFI

Answer: B

Using Porter's value chain helps procurement professionals know what are direct and indirect costs of supplier. Information on direct and indirect costs will have been collected as part of the market analysis. Information sources that may help include the following:
- Company annual reports
- Market data
- Technical data
- Request for information
- Plan visits
- Discount lists
Market data is the information that is collected and analysed by specialist organisations like Mintel, Gartner, Forrester,...
LO 2, AC 2.3

Which of the following are most likely to increase the buyer's bargaining power?
1. Buyers are price sensitive
2. High set-up cost for new entrants
3. Threat of forward integration is high
4. Threat of backward integration is significant

  • A. 1 and 4 only
  • B. 2 and 4 only
  • C. 2 and 3 only
  • D. 3 and 4 only

Answer: A

Price sensitivity is the degree to which the price of a product affects consumers' purchasing behaviours. Buyer power will be stronger if buying organisation are price sensitive and vice versa.
Backward integration is a form of vertical integration in which a buying organisation expands its role to fulfil tasks formerly completed by businesses up the supply chain. Buyer power is strong if threat of backward integration is high.
Set-up cost is a determinant of threat of new entry. Some industries require very expensive assets in order to make products. The financial risk of entering the industry and not succeeding can deter many potential new entrants. The fewer new entrants, the fewer available substitutes, then the bar-gaining power of buyer can be negatively affected.
Forward integration is a business strategy that involves a form of vertical integration whereby business activities are expanded to include control of the direct distribution or supply of a compa-ny's products. Threat of forward integration is a determinant of supplier's bargaining power.
LO 2, AC 2.2

Which of the following is an assumption of Kano model?

  • A. All types of customer requirements have the same impact on customer satisfaction
  • B. The relationship between product functionality and customer satisfaction is always linear
  • C. Different types of customer requirements have different impact on customer satisfaction
  • D. All customer requirements are basic requirements

Answer: C

Kano model of excitement and basic quality (Kano et al, 1984; Berger et al, 1993; Matzler et al, 1996) brings a different perspective for the analysis of improvement opportunities in products and services because it takes in consideration the asymmetrical and non-linear relationship between performance and satisfaction. The Kano model classifies customers requirements in three categories (figure 3):
a) Basic Requirements. The basic requirements fulfill the basic functions of a product. If they are not present or their performance is insufficient, customers will be extremely dissatisfied. On the other hand, if they are present or have sufficient performance, they don't bring satisfaction. Customers see them as prerequisites. For instance, for luxury automobiles, "air bags" are considered basic. A customer won't feel satisfied if the automobile has "air bag", however he/she will not buy it if "air bag" is not present.
b) Performance Requirements. As for these requirements, satisfaction is proportional to the performance level - the higher the performance, the higher the customer's satisfaction will be and vice-versa. Gas consumption in automobiles is an example of these requirements. Usually customers explicitly demand performance requirements.
c) Excitement Requirements. These requirements are key to customer satisfaction. If they are pre-sent or have sufficient performance, they will bring superior satisfaction. On the other hand, if they are not present or their performance is insufficient, customers will not get dissatisfied. For instance, a surprise gift at the end of a dinner in a restaurant will certainly bring satisfaction, but it will not cause dissatisfaction if not offered. These requirements are not demanded nor expected by customers.
Two other types of requirements may be identified in the Kano model: neutral and reverse ones. Neutral requirements do not bring either satisfaction or dissatisfaction. Reverse requirements bring more satisfaction if absent than if present.
- Integrating Kano model and QFD for Designing New Products
- CIPS study guide page 171-172


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