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CPSL practice questions

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Question 1Supply Management Core

In supply management, which statement best describes the core purpose of the requisition-to-purchase-order cycle?

  1. It forecasts long-range demand for the annual budgeting process.
  2. It converts an approved internal need into a formal commitment to an external supplier. Correct answer.
  3. It reconciles supplier invoices against the general ledger at period end.
  4. It records the physical receipt of goods and triggers payment to the supplier.

Explanation

The requisition-to-purchase-order cycle translates an approved internal requirement into a documented external commitment. Receipt and invoice reconciliation belong to later stages of the procure-to-pay flow, and demand forecasting sits upstream of requisitioning.

Question 2Supply Management Core

A buyer needs a clear specification for a commodity where many suppliers offer interchangeable products. Which specification approach most directly preserves competition?

  1. A design specification naming a proprietary part number
  2. A specification referencing a single supplier's catalog page
  3. A performance specification stating required outcomes and tolerances Correct answer.
  4. A brand-name-only specification with no substitution clause

Explanation

Performance specifications define required outcomes and tolerances without locking in one manufacturer, so multiple suppliers can compete. Proprietary part numbers, brand-only language, and single-catalog references all narrow the field to one source.

Question 3Supply Management Core

Which document typically authorizes a supplier to ship against an agreed quantity at agreed terms after a requisition has been approved?

  1. A debit memo
  2. A receiving report
  3. A purchase order Correct answer.
  4. A material requisition

Explanation

The purchase order is the buyer's formal offer to purchase, stating quantity, price, and terms, and it authorizes shipment. A requisition is an internal request, a receiving report documents delivery, and a debit memo adjusts amounts owed.

Question 4Supply Management Core

A supply manager is segmenting purchased items using a portfolio matrix of supply risk versus profit impact. Which item type calls for long-term partnership and collaborative development?

  1. Bottleneck items
  2. Leverage items
  3. Strategic items Correct answer.
  4. Non-critical items

Explanation

Strategic items combine high profit impact with high supply risk, so they justify long-term partnerships and joint development. Leverage items focus on competitive bidding, bottleneck items on securing supply, and non-critical items on efficient processing.

Question 5Supply Management Core

Which Incoterm places the greatest obligation on the seller for delivery and risk transfer at the named destination?

  1. DDP Correct answer.
  2. EXW
  3. CIP
  4. FOB

Explanation

Delivered Duty Paid requires the seller to deliver to the named place, clear export and import formalities, and pay duties, with risk passing at destination. EXW places the least obligation on the seller, while FOB and CIP transfer risk earlier.

Question 6Supply Management Core

A purchasing department wants to reduce the number of low-value transactions handled by buyers. Which practice best supports that goal?

  1. Raising the approval threshold for every purchase order
  2. Replacing purchase orders with verbal confirmations
  3. Consolidating recurring needs into blanket purchase agreements Correct answer.
  4. Routing all orders through the legal review queue

Explanation

Blanket agreements pre-establish terms and pricing for recurring needs, letting releases replace many small individual orders. Raising thresholds weakens control, verbal confirmations remove documentation, and legal review adds steps rather than removing them.

Question 7Supply Management Core

Which cost category is generally treated as a holding cost in total cost of ownership analysis for purchased inventory?

  1. Supplier tooling amortization
  2. Inventory carrying cost including capital and storage Correct answer.
  3. Inbound freight paid by the buyer
  4. Purchase price of the goods

Explanation

Holding costs cover capital tied up in inventory, storage, insurance, obsolescence, and handling. Purchase price, inbound freight, and tooling are acquisition costs rather than costs of holding stock over time.

Question 8Supply Management Core

In supplier relationship management, which metric most directly reflects a supplier's ability to deliver conforming product on the requested date?

  1. Invoice cycle time
  2. Purchase price variance
  3. On-time in-full rate Correct answer.
  4. Supplier headcount growth

Explanation

On-time in-full measures delivery reliability and quantity accuracy together, which is exactly the ability to deliver conforming quantities on schedule. Price variance, invoice cycle time, and headcount do not measure delivery performance.

Question 9Supply Management Core

A buyer must choose between two suppliers with identical unit prices. Supplier A offers 30-day payment terms; Supplier B requires prepayment. How should the buyer analyze the difference?

  1. Ignore payment terms because unit prices are equal
  2. Compare the cost of capital tied up under each payment term Correct answer.
  3. Choose Supplier B because prepayment reduces risk
  4. Compare only the suppliers' delivery lead times

Explanation

Payment terms change the cash conversion cycle, so the buyer should quantify the cost of funds tied up under prepayment versus deferred payment. Equal unit prices do not make the offers economically equal once financing effects are counted.

Question 10Supply Management Core

A production line consumes 2,400 units per year at a steady rate. Each order costs 150 to process and annual holding cost is 4 per unit. Using the economic order quantity formula, what is the approximate EOQ?

  1. 300 units
  2. 1,200 units
  3. 600 units
  4. 424 units Correct answer.

Explanation

EOQ equals the square root of 2DS divided by H, which here is the square root of 2 times 2,400 times 150 divided by 4, giving the square root of 180,000, about 424 units. The other figures come from omitting a factor or halving incorrectly.

Question 11Supply Management Core

A supplier's contract states that the buyer must accept goods delivered within plus or minus five percent of the ordered quantity. The buyer receives six percent over. What is the most appropriate first action?

  1. Accept only up to the tolerance and resolve the excess with the supplier Correct answer.
  2. Return the excess without notifying the supplier
  3. Reject the whole shipment and cancel the order
  4. Accept the entire shipment and pay the full invoice

Explanation

The tolerance clause allows acceptance up to five percent over, so the buyer should accept within tolerance and negotiate disposition of the excess. Accepting everything waives the contractual limit, and rejecting the whole shipment overreacts to a small excess.

Question 12Supply Management Core

A buyer wants a supplier to invest in dedicated tooling that has no alternative use. Which contractual mechanism best protects the buyer's investment while limiting supplier risk?

  1. A most-favored-customer clause
  2. A price escalation clause tied to commodity indices
  3. A take-or-pay commitment over the tooling payback period Correct answer.
  4. A unilateral termination-for-convenience right

Explanation

A take-or-pay commitment guarantees volume over the payback period, which justifies the supplier's dedicated investment and secures capacity for the buyer. Index clauses, MFN clauses, and unilateral termination do not underwrite capital recovery.

Question 13Supply Management Core

During a competitive bid, a buyer receives three proposals. Two are nearly identical in price and capability, and one is significantly cheaper but lacks required certifications. What is the soundest evaluation approach?

  1. Weight price and non-price criteria against stated requirements and disqualify noncompliant bids Correct answer.
  2. Award to the incumbent supplier regardless of the bids
  3. Extend the bid indefinitely until all bidders match the lowest price
  4. Award to the lowest bidder to demonstrate fairness

Explanation

A structured weighted evaluation against pre-stated requirements keeps the process defensible, and mandatory certifications are pass-fail criteria. Awarding purely on price ignores compliance, while indefinite extension and incumbent preference undermine the competitive process.

Question 14Supply Management Core

A company discovers that a key component comes from a single region exposed to seasonal typhoons. Which sourcing response best reduces supply risk without abandoning the supplier?

  1. Negotiate a lower unit price in exchange for larger order quantities
  2. Reduce inspection frequency to speed up receipts
  3. Increase safety stock and qualify a second source in another region Correct answer.
  4. Extend payment terms to improve working capital

Explanation

Combining buffer inventory with a qualified alternate source addresses both short-term disruption and long-term concentration risk. Price negotiation, payment terms, and reduced inspection do not mitigate the geographic exposure.

Question 15Supply Management Core

A buyer is evaluating a supplier's financial stability before awarding a multi-year contract. Which indicator most directly signals near-term liquidity pressure?

  1. Rising accounts receivable turnover
  2. Growth in the order backlog
  3. Increasing research and development spending
  4. A declining current ratio Correct answer.

Explanation

The current ratio compares current assets with current liabilities, so a declining ratio signals tightening ability to meet short-term obligations. Receivables turnover, R&D spending, and backlog growth do not directly measure near-term liquidity.

Question 16Supply Management Core

A purchasing team finds that a supplier's price rose eight percent while the relevant commodity index rose three percent. What does this gap most likely indicate?

  1. There is a margin or cost element that warrants further negotiation Correct answer.
  2. The buyer should immediately accept the increase
  3. The supplier has fully passed through raw material costs
  4. The commodity index is irrelevant to the price

Explanation

When price growth outpaces the input index, the difference points to margin expansion or other cost drivers that should be examined and negotiated. Accepting the increase or dismissing the index forfeits the buyer's leverage.

Question 17Supply Management Core

A buyer is setting up a consignment inventory arrangement. Which characteristic distinguishes consignment from standard purchase arrangements?

  1. The supplier retains title until the goods are consumed or withdrawn Correct answer.
  2. The buyer pays in full at the time of shipment
  3. The supplier invoices monthly regardless of usage
  4. The buyer takes title when goods are received at the dock

Explanation

Under consignment the supplier keeps title until the buyer draws the stock, so payment follows consumption. Title on receipt, payment at shipment, and time-based invoicing all describe conventional purchase arrangements.

Question 18Supply Management Core

A buyer needs to reduce total lead time for a critical assembly. Which action most directly shortens the supplier's production lead time?

  1. Increasing the buyer's inspection sample size
  2. Requiring additional documentation with each shipment
  3. Sharing demand forecasts and enabling supplier-held buffer stock Correct answer.
  4. Adding a second approval step to the release process

Explanation

Forecast sharing and supplier-held buffers let the supplier produce ahead of orders and cut response time. Inspection, extra documentation, and added approvals lengthen the cycle rather than compress it.

Question 19Supply Management Core

A supply manager must justify a higher-priced local supplier over a cheaper overseas supplier. Which analysis best supports a defensible decision?

  1. Comparing total landed cost including freight, duty, inventory, and risk Correct answer.
  2. Comparing unit prices alone
  3. Comparing each supplier's number of employees
  4. Comparing supplier marketing materials

Explanation

Total landed cost captures freight, duties, carrying costs, quality, and risk that unit price omits, giving a valid basis for comparing sources. Unit price alone or superficial comparisons can invert the true economics.

Question 20Supply Management Core

A contract includes a clause allowing the buyer to terminate for convenience with 60 days' notice. Which consequence should the buyer anticipate?

  1. The supplier loses the right to invoice for completed milestones
  2. The clause removes the buyer's obligation to pay for delivered conforming goods
  3. The supplier bears all unrecovered costs without compensation
  4. The buyer may owe compensation for non-cancellable commitments and work in progress Correct answer.

Explanation

Termination for convenience typically requires the buyer to reimburse non-cancellable commitments and work performed, so exercising it is not cost-free. The clause does not eliminate payment for conforming deliveries or completed milestones.

Question 21Supply Management Core

A buyer observes that a supplier consistently passes inspection on final goods but generates high scrap internally. Why should the buyer care about this internal scrap rate?

  1. Hidden scrap costs can surface later as price increases or capacity constraints Correct answer.
  2. Scrap has no bearing on price or capacity
  3. Scrap only affects the supplier's tax position
  4. Scrap guarantees lower defect rates in delivered goods

Explanation

Internal scrap consumes capacity and inflates supplier cost, which eventually appears in price or delivery performance even if final inspection passes. Ignoring it hides a cost and reliability risk in the relationship.

Question 22Supply Management Core

A manufacturer must choose between making a component in-house and buying it. Fixed in-house tooling is 400,000 and variable cost is 30 per unit; the supplier quotes 50 per unit. At what annual volume does the make option become cheaper?

  1. About 5,000 units
  2. About 13,333 units
  3. About 20,000 units Correct answer.
  4. About 8,000 units

Explanation

Setting 400,000 plus 30Q equal to 50Q gives 20Q equal to 400,000, so Q equals 20,000 units. Above that volume the in-house variable advantage outweighs the fixed tooling investment.

Question 23Supply Management Core

A supplier proposes a price of 100 per unit with a 2 percent discount for payment within 10 days, net 60. What is the approximate annualized cost of forgoing the discount?

  1. About 15 percent Correct answer.
  2. About 12 percent
  3. About 24 percent
  4. About 36 percent

Explanation

Forgoing the discount means paying 2 percent more for 50 extra days of credit, annualized as 0.02 divided by 0.98 times 365 divided by 50, which is roughly 15 percent. Comparing this rate with the firm's borrowing cost guides the decision.

Question 24Supply Management Core

A buyer uses a weighted score model: quality 40 percent, delivery 30 percent, cost 30 percent. Supplier X scores 8, 6, 9; Supplier Y scores 9, 8, 5. Which conclusion follows?

  1. Supplier X wins with a weighted score of 7.7 versus 7.5 for Y Correct answer.
  2. Supplier Y wins with a weighted score of 7.5 versus 7.7 for X
  3. Supplier X wins because its cost score is highest
  4. Supplier Y wins with a weighted score of 7.5 versus 7.5 for X

Explanation

Supplier X scores 0.4 times 8 plus 0.3 times 6 plus 0.3 times 9, which is 7.7, while Supplier Y scores 3.6 plus 2.4 plus 1.5, which is 7.5. The weighting rewards X's cost and quality strength enough to outweigh Y's delivery advantage.

Question 25Supply Management Core

A buyer is negotiating with a sole-source supplier for a specialized casting. Which negotiation approach is most appropriate given the supplier's strong position?

  1. Collaborative problem solving focused on cost drivers and joint value creation Correct answer.
  2. Immediate acceptance of the first offer to preserve the relationship
  3. Aggressive price-only bargaining backed by threats to switch suppliers
  4. Publicly tendering the requirement to create competitive pressure

Explanation

With a sole source holding power, collaborative negotiation that examines cost drivers and creates joint value is more effective than coercion. Threats to switch lack credibility, and public tendering is impractical when no alternative source exists.

Question 26Supply Management Core

A supply manager is defining the scope of the supply management function. Which activity falls under the core responsibility of supply management rather than logistics or operations?

  1. Selecting and contracting with suppliers for critical components Correct answer.
  2. Inspecting incoming goods for defects at the receiving dock
  3. Managing outbound finished-goods warehousing and shipment
  4. Scheduling daily production runs on the assembly line

Explanation

Supply management encompasses sourcing, supplier selection, negotiation, and contract management for goods and services. Production scheduling, outbound warehousing, and receiving inspection are operational or logistics activities that sit outside the core sourcing responsibility.

Question 27Supply Management Core

A supply manager is preparing a spend analysis for the coming year. Which data source provides the most reliable view of total spend by supplier and category?

  1. Accounts payable ledger and purchase order history Correct answer.
  2. Employee expense reports for travel and entertainment
  3. The organization's annual training calendar
  4. Supplier marketing brochures and product catalogs

Explanation

Spend analysis relies on transactional records such as purchase orders and accounts payable data to aggregate spending by supplier, category, and business unit. Marketing materials and unrelated records do not provide actual spend figures.

Question 28Supply Management Core

A supply manager must decide whether a component should be sourced from a single supplier or multiple suppliers. Which factor most strongly favors a single-source strategy?

  1. The buying organization wants to maintain competitive tension among suppliers at all times
  2. The component's demand is highly volatile and the buyer wants to shift volume quickly
  3. The component requires significant relationship-specific investment and volume consolidation to achieve favorable pricing Correct answer.
  4. The component is a standard commodity available from many distributors at similar prices

Explanation

Single sourcing is favored when relationship-specific investments, such as dedicated tooling or joint development, and volume consolidation create economic benefits that outweigh the loss of competitive tension. Standard commodities and volatile demand situations generally favor multiple sources.

Question 29Supply Management Core

A supply manager is categorizing purchased items using a portfolio matrix based on supply risk and profit impact. Which item category requires a partnership-style relationship with the supplier?

  1. Strategic items with high profit impact and high supply risk Correct answer.
  2. Noncritical items with low profit impact and low supply risk
  3. Leverage items with high profit impact and low supply risk
  4. Bottleneck items with low profit impact and high supply risk

Explanation

Strategic items combine high profit impact with high supply risk, so they warrant close collaboration and long-term partnership with suppliers. Leverage items call for competitive bidding, noncritical items for efficient processing, and bottleneck items for supply assurance.

Question 30Supply Management Core

A supply manager is evaluating a potential supplier's quality management system. Which evidence most directly demonstrates that the supplier has a robust process control approach?

  1. A large finished-goods inventory that allows the supplier to fill orders quickly
  2. Certification to a recognized quality management standard and use of statistical process control on key characteristics Correct answer.
  3. A long-standing personal relationship between the supplier's sales director and the buyer
  4. A low quoted unit price relative to competing suppliers

Explanation

Certification to a recognized quality management standard plus statistical process control on key characteristics shows that the supplier manages quality through documented processes and data. Inventory levels, price, and personal relationships do not demonstrate process control capability.

Question 31Supply Management Core

A supply manager is preparing a request for proposal for a complex service. Which element is most important to include so that proposals can be compared on a consistent basis?

  1. A clear statement of work with measurable performance requirements and evaluation criteria Correct answer.
  2. A list of the buyer's preferred payment methods and internal accounting codes
  3. The names of competing suppliers that have been invited to bid
  4. A detailed history of the buyer's past purchases from unrelated categories

Explanation

A statement of work with measurable requirements and disclosed evaluation criteria lets suppliers respond to the same scope and allows the buyer to score proposals consistently. Payment methods, competitor names, and unrelated purchase history do not create a common basis for comparison.

Question 32Supply Management Core

A supply manager is reviewing a supplier's cost breakdown and finds that the supplier's proposed profit margin is significantly higher than the industry average. Which negotiation response is most appropriate?

  1. Challenge the margin with benchmark data and negotiate toward a competitive return while preserving supplier viability Correct answer.
  2. Accept the margin because the supplier has provided a cost breakdown
  3. Terminate the negotiation immediately and award the contract to another supplier without discussion
  4. Demand that the supplier reduce the margin to zero to achieve the lowest possible price

Explanation

An above-market margin should be challenged using benchmark data, with the goal of reaching a competitive but sustainable return for the supplier. Accepting it ignores the buyer's leverage, while demanding a zero margin or walking away without discussion is unnecessarily adversarial.

Question 33Supply Management Core

A supply manager is assessing the total cost of ownership for a capital equipment purchase. Which cost element is most often overlooked when comparing bids solely on purchase price?

  1. The freight charge quoted by the equipment vendor
  2. Ongoing energy consumption, maintenance, and downtime costs over the asset's life Correct answer.
  3. The initial invoice price of the equipment
  4. The sales tax applied at the point of purchase

Explanation

Total cost of ownership includes post-purchase costs such as energy, maintenance, and downtime, which are frequently omitted when buyers compare only initial prices. Invoice price, sales tax, and freight are visible acquisition costs already reflected in the bid.

Question 34Supply Management Core

A supply manager is building a supplier scorecard. Which set of measures best reflects the supplier's overall performance across the dimensions most relevant to supply management?

  1. Quality, delivery, cost, and responsiveness Correct answer.
  2. Number of marketing events attended by the supplier's staff
  3. Supplier headcount, facility square footage, and years in business
  4. Buyer satisfaction with the sales representative's personality

Explanation

Supplier scorecards typically measure quality, delivery, cost, and responsiveness because these dimensions directly affect the buyer's operations and competitiveness. Structural attributes and subjective impressions do not measure ongoing performance against requirements.

Question 35Supply Management Core

A supply manager is developing a risk mitigation plan for a critical purchased part. Which action best reduces the risk of a supply interruption without abandoning the current supplier?

  1. Extend the current supplier's contract term by three years
  2. Qualify a second source and maintain a modest safety stock of the part Correct answer.
  3. Increase the order quantity from the current supplier to obtain a volume discount
  4. Reduce incoming inspection to shorten the receiving cycle

Explanation

Qualifying a second source provides an alternative supply option, and safety stock buffers demand during a disruption. Volume discounts, longer contract terms, and reduced inspection do not create alternative supply or buffer inventory.

Question 36Supply Management Core

A supply manager is negotiating a contract and wants to ensure that the supplier bears responsibility for defects discovered after delivery. Which contract provision addresses this concern?

  1. A price adjustment clause tied to a published commodity index
  2. A force majeure clause excusing performance for events beyond the supplier's control
  3. A warranty clause specifying the supplier's obligation to repair or replace nonconforming goods Correct answer.
  4. A confidentiality clause restricting disclosure of the buyer's specifications

Explanation

A warranty clause defines the supplier's responsibility for defects that appear after delivery and the remedies available to the buyer. Force majeure, price adjustment, and confidentiality clauses address different risks and do not allocate defect liability.

Question 37Supply Management Core

A supply manager is analyzing whether to enter a long-term contract with a supplier in a market where prices are expected to fall. Which contract feature best protects the buyer while preserving the relationship?

  1. A price review mechanism that adjusts pricing to market benchmarks at defined intervals Correct answer.
  2. A most-favored-customer clause that guarantees the buyer the supplier's lowest price to any customer
  3. An automatic renewal clause that extends the contract without review
  4. A fixed price for the entire contract term with no adjustment provision

Explanation

A periodic price review tied to market benchmarks allows the buyer to capture falling prices while maintaining a long-term relationship. A rigid fixed price locks in today's level, automatic renewal removes the chance to renegotiate, and a most-favored-customer clause does not necessarily reflect market declines.

Question 38Supply Management Core

A supply manager is evaluating suppliers for a new product launch and wants to assess their capacity to ramp up production quickly. Which information is most useful for this assessment?

  1. The supplier's advertising budget and brand recognition
  2. The supplier's current accounts receivable balance
  3. The number of years the supplier has been in business
  4. Demonstrated ramp-up curves and available excess capacity from previous programs Correct answer.

Explanation

Ramp-up capability is best judged from evidence of past production ramp-ups and available capacity that can absorb increased volume. Advertising, company age, and receivables do not demonstrate the ability to increase output quickly.

Question 39Supply Management Core

A supply manager is implementing a supplier code of conduct. Which step is most important to make the code effective in practice?

  1. Applying the code to new suppliers while exempting existing suppliers permanently
  2. Distributing the code only to suppliers that request a copy
  3. Publishing the code on the company website and assuming suppliers will read it
  4. Integrating the code's requirements into supplier contracts and monitoring compliance through audits Correct answer.

Explanation

A code of conduct becomes effective when its requirements are embedded in contracts and verified through monitoring such as audits. Publishing alone, limited distribution, or permanent exemptions for existing suppliers leave compliance unenforced.

Question 40Supply Management Core

A supply manager is reviewing a supplier's proposal that includes a cost-plus pricing arrangement. Which condition makes cost-plus pricing most appropriate?

  1. The buyer has complete historical cost data and can benchmark every cost element
  2. The work scope is highly uncertain and the buyer needs the supplier to proceed before requirements are fully defined Correct answer.
  3. The market has many qualified suppliers and prices are highly competitive
  4. The purchased item is a standard commodity with a published market price

Explanation

Cost-plus pricing is appropriate when the scope is uncertain and the parties cannot reliably estimate costs in advance, so the supplier is reimbursed for actual costs plus a fee. Competitive markets, complete cost data, and published commodity prices favor fixed-price arrangements.

Question 41Supply Management Core

A supply manager is preparing for negotiations with a supplier and wants to understand the supplier's likely priorities. Which analysis is most useful for this purpose?

  1. Reviewing the buyer's own internal travel budget for the negotiation team
  2. Assessing the supplier's dependence on the buyer's volume and its available alternatives Correct answer.
  3. Comparing the supplier's office location with the buyer's headquarters
  4. Collecting the personal social media profiles of the supplier's negotiation team

Explanation

Understanding the supplier's dependence on the buyer's volume and its alternatives reveals the supplier's bargaining position and likely priorities. Travel budgets, social media, and office locations do not inform the supplier's business interests.

Question 42Supply Management Core

A supply manager is evaluating whether to use an e-procurement reverse auction for a purchase. Which condition makes a reverse auction most suitable?

  1. The supplier market has only one qualified source for the item
  2. The purchase involves a highly complex, customized system with a single capable supplier
  3. The requirement is well specified and several qualified suppliers can compete on price Correct answer.
  4. The buyer needs to negotiate confidential technical trade-offs with each supplier

Explanation

Reverse auctions work best when specifications are clear and multiple qualified suppliers can bid on price, creating competitive tension. Complex customized systems, confidential trade-offs, and sole-source markets are unsuitable for price-only auctions.

Question 43Supply Management Core

A supply manager discovers that a supplier has been shipping slightly more than the ordered quantity on each delivery. Which contract term most directly governs this situation?

  1. The warranty and defect liability clause
  2. The confidentiality and non-disclosure clause
  3. The quantity tolerance and over-shipment acceptance clause Correct answer.
  4. The force majeure and excused performance clause

Explanation

Over-shipment is governed by the contract's quantity tolerance and acceptance terms, which specify how much variation is permitted and whether the buyer must accept or pay for excess. Warranty, confidentiality, and force majeure clauses address different issues.

Question 44Supply Management Core

A supply manager is calculating the economic order quantity for a purchased part. Which change would increase the economic order quantity?

  1. A decrease in the supplier's unit price
  2. A decrease in the cost to place each order
  3. An increase in the annual demand for the part Correct answer.
  4. An increase in the annual holding cost per unit

Explanation

Economic order quantity rises with higher annual demand and higher ordering cost, and falls with higher holding cost. A decrease in ordering cost or holding cost increase would reduce the economic order quantity, while unit price does not enter the basic formula.

Question 45Supply Management Core

A supply manager is leading a make-or-buy analysis for a component. Which consideration most strongly supports the decision to buy rather than make?

  1. The component is central to the company's proprietary product differentiation
  2. The supplier has specialized process expertise and can achieve lower unit cost through scale Correct answer.
  3. The company has idle capacity and available skilled labor for the process
  4. Making the component would protect confidential design information

Explanation

Buying is favored when suppliers possess specialized expertise and scale advantages that lower total cost. Protecting proprietary technology, using idle capacity, and safeguarding design information are reasons to make rather than buy.

Question 46Supply Management Core

A supply manager is establishing key performance indicators for the purchasing team. Which measure best reflects the team's effectiveness in capturing savings?

  1. The number of purchase orders issued per buyer
  2. The number of suppliers invited to each bid
  3. Savings achieved against baseline prices, validated by finance Correct answer.
  4. The average length of supplier contracts

Explanation

Validated savings against baseline prices directly measure the purchasing team's contribution to cost reduction. Transaction counts, bidder numbers, and contract length are activity or structural measures that do not demonstrate savings.

Question 47Supply Management Core

A supply manager is evaluating a supplier's financial health using ratio analysis. Which ratio best indicates the supplier's ability to meet short-term obligations?

  1. The debt-to-equity ratio, comparing total liabilities with shareholders' equity
  2. The gross margin percentage, comparing gross profit with revenue
  3. The asset turnover ratio, comparing revenue with total assets
  4. The current ratio, comparing current assets with current liabilities Correct answer.

Explanation

The current ratio measures short-term liquidity by comparing current assets with current liabilities, indicating the ability to pay obligations due within a year. Debt-to-equity, gross margin, and asset turnover measure leverage, profitability, and efficiency respectively.

Question 48Supply Management Core

A supply manager is reviewing a supplier's request for a price increase. Which response best applies the principle of fact-based negotiation?

  1. Accept the increase to preserve goodwill and avoid conflict
  2. Request a cost breakdown and compare the claimed cost drivers with published index movements Correct answer.
  3. Reject the increase outright without requesting supporting information
  4. Immediately issue a request for quotation to replace the supplier

Explanation

Fact-based negotiation requires the buyer to test the supplier's claims against verifiable data such as cost breakdowns and index movements before agreeing to a price change. Accepting or rejecting without analysis, or immediately re-sourcing, bypasses the analytical step.

Question 49Supply Management Core

A supply manager is designing a supplier development program for a key supplier with persistent quality problems. Which approach is most likely to produce lasting improvement?

  1. Reducing inspection to lower the buyer's quality costs
  2. Replacing the supplier immediately with the lowest-cost alternative
  3. Issuing penalties for each defect without addressing underlying causes
  4. Jointly diagnosing root causes and providing targeted training and process support Correct answer.

Explanation

Supplier development aims to build the supplier's capability through joint root-cause analysis, training, and process support, producing sustainable improvement. Penalties, replacement, and reduced inspection address symptoms rather than causes.

Question 50Supply Management Core

A supply manager is establishing a consignment inventory arrangement with a supplier. Which accounting treatment distinguishes consignment from a standard purchase?

  1. The buyer does not record the inventory as an asset or a payable until the goods are consumed Correct answer.
  2. The supplier records the inventory as sold when it ships the goods
  3. The buyer records the inventory and payable when the goods arrive at its facility
  4. The buyer pays for the goods in full at the time of shipment

Explanation

Under consignment, the supplier retains title until the buyer consumes or sells the goods, so the buyer recognizes neither inventory nor a payable at delivery. Standard purchases record inventory and a payable on receipt, and consignment does not involve payment at shipment.