CIPS Level 4 Diploma in Procurement and Supply L4M2 Latest Exam Questions

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Earning the CIPS Level 4 Diploma in Procurement and Supply certification can power up your career with the right skills from the start. Candidates need to earn 60 credits by completing 8 core modules as listed:

L4M1 Scope and Influence of Procurement and Supply (12 Credits)
L4M2 Defining Business Need (6 Credits)
L4M3 Commercial Contracting (6 Credits)
L4M4 Ethical and Responsible Sourcing (6 Credits)
L4M5 Commercial Negotiation (6 Credits)
L4M6 Supplier Relationships (6 Credits)
L4M7 Whole Life Asset Management (6 Credits)
L4M8 Procurement and Supply in Practice (12 Credits)

L4M2 latest exam questions are available to help your Defining Business Need exam preparation. Below are the L4M2 exam free demo questions.

Page 1 of 8

1. The position of a product in its life cycle can affect the price that suppliers set. Is this statement correct?

No, in market economy, the state decides the price of all goods and services

Yes, each stage in product life cycle requires different levels of investment in promotion and distribution

No, customer's perception of value is the ultimate determinant of the suppliers' price

Yes, it is always the only factor determining the price

2. A CPO is making a business case for acquiring a new computer system. He has set out objective, generated options, cost and benefit of each option and implementation plan.

Which of the following elements should be included in the business case?

Risk assessment

Operation management

Invitation to tender

Contract management

3. What is the document that defines the activities, deliverables and timelines a supplier must carry out during contract performance?

Statement of work

Project initial document

Framework agreement

Work instruction

4. 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?

No, because higher specification may incur additional costs for the buyer

No, because higher requirements in specification, the greater bargaining power of buying organisation

Yes, because optimising the specification is the only method to achieve value for money

Yes, because higher requirements will help buying organisation find the best supplier

5. British Steel needs to source a set of instruments that will improve quality of steel. Without these instruments British Steel will loss control of the temperature. The bucket may freeze up, or if it is too hot it leaks out of the casting process, damaging the machine. There is limited supply on the market and quality varies greatly.

Which of the following will be the most appropriate managing approach to procure these items?

Bundle these instruments into larger contract

Leverage market competition to drive down cost

Seek continuity of supply

Form partnership with supplier

6. Thani Ltd is a fast growing logistics company with a fleet of 20 tractors. To meet Net Zero objective, the company needs to electrify its fleet. Angelica is assigned to investigate the market price of electrifying services. After the investigation, she realises that the current market price is very expensive and unsustainable for her company. She decides to break down the costs before negotiating with the suppliers.

Which internal stakeholders may help Angelica estimate the breakdown of costs? Select TWO that apply.

Sales and Marketing department

Engineering department

Finance department

Commercial agency

Suppliers

7. The purchase is made in emergency

2 and 4 only

1 and 4 only

1 and 3 only

2 and 3 only

8. What does the acronym RAQSCI stand for?

Relationship, Ability, Quality, Service, Cost, Innovation

Regulatory, Availability, Quality, Service, Cost, Innovation

Regulatory, Availability, Quantity, Sustainability, Inventory

Regulatory, Ability, Quality, Service, Cost, Inventory

Relationship, Availability, Quantity, Sustainability, Cost, Innovation

9. Which of the following standards specifies requirements for a quality management system?

ISO 27001

ISO 9001:2015

ISO 22000:2018

ISO 14001:2015

10. Housing Ltd is inviting a number of contractors to a tender for the construction of a commercial building. In the attachment to the invitation to tender, there is a document which describes the re-quired materials and installation methods. This document is known as...?

Functional specification

Prescriptive specification

Drawings

Performance specification

Page 2 of 8

11. A purchaser is looking for alternative supplies if there is a major disruption to their supply chain, including logistics, manufacturing and all support services.

Which of the following method is that purchaser applying?

Treat the risk

Terminate the risk

Tolerate the risk

Transfer the risk

12. 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?

Yes, the organisation needs to reduce the supply risks

No, the organisation should run competitive biddings to exploit the competition

No, there is no way to escape this dependency

Yes, this action will dramatically increase the supplier's bargaining power

13. Which of the following is the structured approach for defining customer requirements and translating them into technical specification?

Kano model

Thomas-Kilmann model

Quality function deployment

Mendelow's matrix

14. Which of the following factors might prompt an organisation to procure an alternative product?

Select THREE that apply:

Brand loyalty

Relative value to money between options

Buying organisation's propensities to change

Easy access to distribution channel

Threat of retaliation

Switching cost

15. Standardisation

2 and 3 only

1 and 3 only

3 and 4 only

1 and 4 only

16. Which of the following sources of information are considered as primary data? Select TWO that apply.

The information about specific market sectors from trade associations

Commercial publishers of market reports

The collection of data from surveying customers

RFI

Reports in business magazines

17. At which stage of through-life contract management, procurement team needs to identify sources of risk and the ways to mitigate them?

Specification stage

Supplier relationship stage

Tendering stage

Contracting stage

18. Acquiring competitors

3 and 4 only

3 and 5 only

1 and 2 only

2 and 5 only

19. Robert is a senior buyer at MMC Construction Ltd. His company is doing multiple development projects in the country, which increases procurement workload significantly. Meanwhile, most of the tasks are handled manually, which causes bottlenecks in the workflows. The procurement team is overwhelmed by the workload and complains from other departments. From previous experience, Robert knows that electronic system may help his procurement team. He writes a business case to submit to the senior management, in which he insists on the possible productivity improvement by adopting e-system in procurement.

Is Robert's action reasonable?

No, there's no need to make a business case for new purchase

Yes, productivity improvement is a mandatory element in every business case

No, adopting e-system may make procurement department jobless

Yes, his reason may appeal the senior management

20. Which of the following are typically included in a conformance specification? Select TWO that apply.

Product functions

Product dimensions

Brand name

List of outcome

Packaging requirements

Page 3 of 8

21. Which of the following indicates types of waste that procurement department concentrates on when adopting Lean methods?

DOWNTIME

VA/VE

OWN-IT

SCAMPER

22. A procurement manager includes provision on recovery from natural disaster into a through-life specification. Some suppliers suppose that provision is unnecessary. Is procurement manager’s action justified?

No, because with current technology, natural disaster can’t disrupt supply chain.

Yes, because natural disaster may cause risks in organisation’s supply chain

Yes, because the regulations require contract to have recovery provision

No, because this provision will incur unnecessary cost to supplier

23. Which of the following is the new technology that has impact on manufacturing sector?

Social Media

E-commerce

Robotics

Blockchain

24. Sealines Inc is developing its fleet of cargo ships. The company is planning to build a new ship powered by natural gas. Brian, the procurement manager at Sealines, suggests the project team to develop a through-life specification before engaging with the supplier.

Is this a correct approach?

Yes, decommissioning and disposal costs will not be accounted in this approach

Yes, this approach will lower the total cost of ownership

No, a ship is used only once, through-life management is unnecessary

No, the company just needs to select the lowest bidder

25. Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:

To determine the value of each component used

To decide whether there will be sufficient surplus funds to reinvest in the business

To shape and manage supply market

To provide an outline business case for the specification

To find cost reduction opportunities by optimising the components used

26. Which type of specification is less time-consuming to develop?

Outcome-based specification

Design specification

Conformance specification

Technical drawings

27. Low switching costs

2 and 4 only

3 and 4 only

2 and 3 only

1 and 4 only

28. A procurement manager consolidates the company expense on printing and office supplies into broader range of spend category. Other senior managers are concerned that it may increase company’s spend.

Is that concern justified?

No, because the broader range of spend category can increase the value of the contract and the buyer may get volume discount

Yes, because the consolidation may create a large contract that costs more than placing each purchase order

No, because the consolidation will help the supplier to shorten deliver time.

Yes, because the suppliers can’t provide a broader range of products and they will fail to deliver

29. This is the information on an organisation’s activities over the past year

• Sale were $5,000,000. The value of accounts receivable was $450,000 at the start of the year and $525,000 at the end of the year

• The value of direct costs was $2,500,000 and 75% of this was bought on credit

• Indirect costs were $3,000,000 and 25% of this was bought on credit

• During the year the organization spent $1,500,000 on new assets and sold $150,000 of old assets. $1,000,000 of the spend on assets was funded by a bank loan

• The organization declared a dividend of $200,000 at the end of the year but this was not paid for another two months

• Opening balance was $175,000

Which of the following is the bank balance of that organization at the end of the year?

$1,675,000

$1,875,000

$1,700,000

$2,025,000

30. When procuring an IT equipment, at which stage the buyer’s expectations are translated into a technical specification?

Installation

Design

In-service support

Customer support

Page 4 of 8

31. Interserve is a construction contractor in UK. When receiving a huge and complex project, Inter-serve’s procurement manager assesses the risks by quantifying them and recommends other stake-holders to plan mitigating actions. Is the procurement manager’s action justified?

No, because no risks can be quantified, therefore the procurement manager’s action is impossible.

Yes, because procurement manager needs to assess the risks to prioritise and mitigate any potential risks

Yes, because all the risks should be quantified and eliminated completely before they happen

No, because embedding the risk into pricing will decrease the company’s competitiveness

32. Which of the following are considered as direct costs in a construction company? Select TWO op-tions

Raw materials

An employee is hired to work on a project, either exclusively or for an assigned number of hours

The materials and supplies needed for the company’s day-to-day operations.

Advertising and marketing communication

Clerical assistants who maintain the office

33. A procurement manager is requested to source a major component. She needs information on sup-pliers’ direct and indirect cost, fixed and variable costs to prepare for negotiations. Therefore, she collects 17 annual reports from potential suppliers who are competing in the same industry.

In order to estimate an approximate value of fixed and variable costs in that industry, which of the following technique should be adopted by the procurement manager?

Line of best fit

Variance calculation

Total cost of ownership

Open-book costing

34. A charity is reviewing their spend and budget after an operation in flooded areas. They realise that the operators save money against the budgeting plan.

This saving is known as...?

Negative budget

Positive variance

Negative variance

Positive budget

35. Which of the following can directly affect labour variance? Select TWO that apply:

Wage rate per hour

Inflation

Company's budget

Overhead expenditure

Overtime

36. Which of the following areas is specified by ISO/IEC 27001 family?

The dimensions and associated tolerances for a series of housings for piston seals

The requirements for an information security management system

Evaluation and assessment of mutual agreed customer food safety requirements

The requirements for an environmental management system

37. Which of the following provides in-depth detail for both functional and non-functional require-ments and covers assumptions, constraints, performance, dimensions, weights and reliability of a product?

Performance specification

Tolerance

Statement of work

Design specification

38. Which of the following is the technology that disrupts traditional retail?

Self-Driving Cars

Blockchain

E-commerce

Robotics

39. A buying organisation may not have technical capability to produce a highly complex specification.

Which of the following are sources of information that can be used to create the specification? Select

TWO that apply

Standard terms and conditions

Name cards

Industry standards

Suppliers' know-how

Constitution

40. Which of the following is the best definition of target costing?

The net present cost of the purchase or project and all future revenues flowing from it discounted back to the present time.

The total of all costs in acquiring goods or services from the inception of the demand for them until their safe and satisfactory delivery at the point required.

The cost of a product after analysing its components step by step

A product cost estimate derived from a competitive market price.

Page 5 of 8

41. Which of the following might be the consequences of under-specification? Select TWO that apply:

Few suppliers can supply the full range of features

Additional cost to rework

Unfit products or services

Poor competition between suppliers

Higher cost due to inessential features

42. Competitors are increasingly deploying robotics and automation to boost productivity.

Which of the below business sectors does EV Inc belong to?

Construction

Manufacturing

Financial services

Retails

43. Lider Ltd is a leading bathroom furniture manufacturer in India. The company has more than 30 years experience in the market with extended knowledge of engineering and customers' taste. Lider is planning to launch a new type of bath fitting next year which offers Bluetooth connectivity and thermostat display. The company gathers a team of multi-disciplines, including engineering, procurement, sales and marketing. At the first team meeting, the project leader tells the team to discuss which functions will be valued by the customers, and how to deliver those functions with the lowest costs possible.

Which of the following describes the process that the project team is undertaking?

Cost analysis

Standardisation

Value engineering

Just in time

44. Dana is an automobile manufacturer. It has a new electrification strategy that aims at making eco-friendly electric pick-up trucks. To implement this strategy, the procurement department must source new categories of parts that make motors, sensors, solenoids and stators. He starts to analyse the market by identifying specific supply market segments for those parts and finding suppliers who have the best capabilities in those segment. He intends to segment the market based on specific features of the products.

Which variable is used by Dana procurement manager to shape and manage supply market?

Buyer segments

Channel segments

Geographical segments

Product segments

45. Which of the following is a risk to buying organization when using conformance specification?

Buyer is responsible for product failure

Buyer may face liquidity risks

Buyer cannot control the inputs

Time to produce specification is shortened

46. After a project, the procurement team at CLK Ltd meets up and summarises on the performance. They see that they actually spent $5,000 less than planned budget. The team tries to identifies why there is such difference.

This activity is known as...?

Cash flow analysis

Variance analysis

Rolling budget

Cost modelling

47. Which of the following bodies provides standards for the products and services in the US?

ISO

ANSI

AFNOR

BSI

48. Sabic is a petrochemical manufacturer. It wants to digitalise its operation and is looking for new IT system. The procurement manager approaches this matter with a through-life specification. He supposes that stating “good quality” in the specification will be enough for quality standard section. Is the procurement manager’s thought appropriate?

Yes, because the specification should be concise.

No, because “good quality” is an in-house jargon that suppliers are not familiar with

Yes, because IT sector has its own standard of quality, therefore, suppliers may deliver good quality without any further explanation

No, because “good quality” is very ambiguous for suppliers to identify Sabic’s re-quirement

49. Which of the following factors are likely to be direct barriers to a new entrant in a supply market?

Threat of forward integration

Value to price

Brand identity

Availability of substitutes

Cost advantages

50. Due to increasing demand, a local restaurant is requesting its fish vendor to supply larger quantity.

The restaurant manager also asks the vendor whether it is possible to reduce the total price by 5%.

This is known as...?

Straight rebuy

Capital purchase

Modified rebuy

New purchase

Page 6 of 8

51. Which of the following are the fair and reasonable comparators in price analysis? Select TWO that apply:

Pricing formula

Price indices

Strike price

Cost driver

Competitive bidding

52. Facing fiercer competition at home and abroad, IKEA, the leading furniture retailer, needs to im-prove its competitiveness. In order to do this, IKEA must decrease operating costs and improve quality of current and new retail stores. The company establishes a project team. The job of the team is to collect data on performance from multiple stores in several countries, then select the best performing one. The team will work closely with best performing store and study its processes. After the research, the team will recommend best practices to other retail stores. IKEA management can also apply these practices to new stores in the future.

Which of the following correctly describe the process undertaken by IKEA project team?

Internal benchmarking

Competitive benchmarking

Internal audit

Site visit

53. Which of the following activities are considered as primary activities of an organization according to Porter's value chain? Select TWO that apply:

Maintenance

Picking and delivery components

Sourcing transportation services

Trainees recruitment

Assembly design

54. Builder Inc is a rapidly expanding business in construction sector. Due to an increase in projects, it cannot manage the flow of materials by Excel spreadsheets but by more dedicated software.

Who would be a key internal stakeholder in defining software compatibility with company's current system?

Procurement team

IT team

Executive team

Finance team

55. Apple’s CPO is planning a budget for purchasing carbon-free aluminium next year. There are 27.4 tonnes of aluminum in stock, while Apple will need 200 tonnes for production next year and double inventory for production in the following year.

How much aluminum will Apple need to purchase in next year?

172.6 tonnes

117.8 tonnes

282.2 tonnes

227.4 tonnes

56. Which of the following is the core of value analysis process?

Be creative

Develop

Evaluate

Gather information

Carry out functional analysis

57. Warwickshire Ambulance Service (WAS) is an NHS Trust. It operates throughout Warwickshire and the neighbouring areas. It has three core areas of activity, namely the provision of Emergency Ambulance Services, routine Patient Transport Services, and Logistic Medical Services. The agency is working towards higher service level through benchmarking.

Which of the following is the benefit of benchmarking to WAS?

Benchmarking is a panacea for all WAS's problems

It will help WAS create performance standards derived from an analysis of the best in business

It helps WAS identify better ways to deliver service through a cookbook process

It will help WAS analyse the competitors in the industry

58. Which of the following specific markets engage in creation, liquidation and change of ownership of stock?

Financial

Manufacturing

Construction

Agriculture

Retail

59. XYZ Ltd is a large supermarket chain which operates mainly in the UK and Europe. Their customers are increasingly concerned about sustainability. Therefore, procurement manager is required to source the products from suppliers who have good environmental performance.

Which of the following can be an assurance that the supplier has procedures and policies to enhance its environmental performance?

ISO 14001:2015 certificate

ISO 13485:2016 certificate

ISO 22716:2007 certificate

ISO 9001:2015 certificate

60. Which of the following might be consequences of over-specification? Select TWO that apply:

Reducing motion waste

Higher cost due to inessential features

Limiting competition in supply market

Lack of essential features

Better contract management

Page 7 of 8

61. 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?

Yes, because it takes everything into account

No, because payback period can be only used to calculate the depreciation of a fixed asset

No, because payback period doesn’t take into account price fluctuations

Yes, because payback period shows how long the firm recovers the investment

62. Which of the following can cause overhead variance? Select TWO that apply:

Rising production worker's wage rate per hour

Decrease in production volume

Spike in material price

Decreasing packaging costs

Spike in monthly leasing fee

63. Which of the following may allow suppliers free to choose the materials, manufacturing process or delivery process?

Performance specification

Design specification

Technical specifications

Conformance specification

64. Which of the following problems may be identified as closed problems? Select TWO that apply:

A cyber attack takes down whole company’s IT system

Shortage of key medicines in healthcare industry

There are not enough data for procurement analytics

Logistics costs incur a large portion in wholesale prices

The suppliers don’t comply with the company’s policy on underage labour.

65. To strengthen its market presence, ABC Group decided to develop a new product. A cross-functional team was formed to discuss the scope and the functions of the product. They will also survey the potential customers to see what they like, what they love, and what they dislike.

What is this process called?

Value analysis

Cash flow analysis

Product standardisation

Value engineering

66. When a procurement manager considers a substitution, the number and nature of additional functions that substitute provides should be taken into account carefully.

Which of the following ratio could help the procurement manager to make the right decision?

Value to price ratio

Price to Earnings ratio

Reserve requirement ratio

Price to book value ratio

67. Why should the buying organization require the supplier to carry out acceptance testing?

To get the approval from the senior management

To check whether the product matches the specification

To compare between the account payables and account receivables

To see whether the supplier engages in unethical business practice

68. OMK is a Russian steel firm that is expanding market abroad. It plans to build a steel plant in a foreign country. Due to intricate technical requirements, the plant design will be very complex. Procurement department or technical department alone cannot draft the specification. OMK senior management decides that this task must be treated as a project.

Which of the following should be done before writing the specification for new steel plant?

Develop the performance framework for the supplier

Draft the terms and conditions for plant construction contract

Invite suppliers to the tendering process

Develop project initial document

69. Which kind of these following costs belong to fixed costs? Select TWO that apply.

Energy consumption in manufacturing

The annual income tax charged by local authorities

The packaging and distribution costs

The depreciation of capital inputs

The costs of leasing or purchasing capital equipment

70. When procuring a machinery, at which stage buyer must check whether it is working to the standards set out in the design specification?

Installation

Maintenance and repair activities

Customer support

Manufacture

Page 8 of 8

71. Halfords is a major bicycle and car parts retailer with long history in the market. Its suppliers are plentiful and there is no threat of forward integration. Some other smaller retailers are applying 3D-printing technology to make personalized bicycle parts but their market share is relatively low. 3D-printing technology is an example of which competitive force?

Bargaining power of buyer

Threat of substitute

Rivalry within the industry

New entrants may enter the market

72. 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?

Trustworthy sources

Objectivity

Subjectivity

Written by inexperienced author

Promotional information

CIPS Level 4 Diploma in Procurement and Supply L4M2 Latest Exam Questions

CIPS Level 4 Diploma in Procurement and Supply L4M2 Latest Exam Questions

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