Free and Premium CIPS L4M2 Dumps Questions Answers

Explanation

ANSI is the American National Standards Institute. It is responsible for providing technical stand-ards in the US

LO 3, AC 3.1

Explanation

According to Andrew Graves, “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.”

Benefits of through-life asset management can be:

- Lower total life-cycle costs

- Better match between the asset and end-user's needs

- Better supplier capabilities over time because it gains experience of buying organisation's needs.

Explanation

Barriers to Entry to Agriculture: If stakeholders are going to address the need for new, conserva-tion-minded farmers, they must understand the barriers these farmers encounter when transitioning into the profession. A review of the literature revealed a number of barriers—most of them structural—to entry to agriculture. While each barrier is distinct, they are all interconnected. Though not an exhaustive list, the following barriers are ones that were most frequently mentioned in the literature:

- Access to Affordable Land

- Startup Capital

- Lack of Agricultural Knowledge and Experience

- Lack of Knowledge about Farm Business Planning

- Discrimination

- Student Loans

- Limited Access to Markets

- Affordable Housing and Affordable Healthcare

Source: Exploring the Barriers to Entry to Agriculture: Challenges Facing Beginning Farmers in North Carolina - Kelley Robbins-Thompson

Explanation

Based on variability, the costs has been classified into three categories, they are fixed, variable and semi variable. Fixed costs, as its name suggests, is fixed in total i.e. irrespective of the number of output produced. Variable costs vary with the number of output produced. Semi-variable is the type of costs, which have the characteristics of both fixed costs and variable costs (Source: Key Differences).

Among above costs, leasing and depreciation are relatively static and do not change if volume of business activities increase or reduce.

Packaging, utilities and annual business rate (tax) are variable costs.

Explanation

As you can see from the scenario, ABC Group is developing the new product. It might be using value engineering. The latter sentences confirm this: the cross-functional team in ABC is mapping the functions and surveying the customers. Their method is known as Kano model.

Detailed Explanation:Conformance specifications are appropriate when the buyer has precise requirements that must be met. This ensures the final product aligns perfectly with the company’s needs, even if it limits supplier flexibility. Reference: CIPS Level 4, Conformance Specification in Procurement.

Explanation

Technical standards are often produced by a national or international body such as British Standard Institute (BSI)

LO 3, AC 3.1

Explanation

Traditional financial systems operate with a centralised database, usually with a single point of authority. Blockchain technology, on the other hand, allows for a distributed database that holds a growing number of records. Instead of existing in one place, the ledger is continually updated and synchronised across multiple computers in a network. Therefore, any participant in the network with the proper authorisation can view the entire ledger – without relying on an intermediary or any one authority.

Another key feature of blockchain technology is a “smart contract,” which is a self-executing protocol that enforces a previously agreed arrangement. For example, a smart contract could trigger an automatic refund under certain conditions or the automatic payment of an agreed commission after a sale. These smart contracts can eliminate delays in traditional Finance processes, while increasing transparency and reducing reliance on middlemen to follow through on their commitments. Moreover, like other parts of a blockchain, smart contracts are immutable, so they can enhance accuracy in the financial statements.

LO 2, AC 2.1

Detailed Explanation:

A (Production materials): These are directly tied to the production of goods and are variable costs.

D (Manufacturing staff wages): Labour directly involved in the production process is a direct cost.

Indirect costs like salaries, depreciation, and insurance are related to overheads and not directly tied to production. Reference: CIPS Level 4, Cost Structures.

Explanation

The instrument plays a crucial role in steel manufacturing because it presents in the majority of products, in which case lacking this instrument would have significant impact on the organisation's output (production lines stop or damaging other machine). Otherwise, the risk of supply is high because there is limitation in supply. Therefore, it is considered as a strategic item in term of Kraljic's portfolio matrix. Procurement manager should form partnership with suppliers to maximise the value.

The following graph illustrates Kraljic's portfolio matrix:

Explanation

Payback period is the time in which the initial outlay of an investment is expected to be recovered through the cash inflows generated by the investment. It is one of the simplest investment apprais-al techniques.

Since cash flow estimates are quite accurate for periods in the near future and relatively inaccurate for periods in distant future due to economic and operational uncertainties, payback period is an indicator of risk inherent in a project because it takes initial inflows into account and ignores the cash flows after the point at which the initial investment is recovered.

The formula to calculate the payback period of an investment depends on whether the periodic cash inflows from the project are even or uneven.

If the cash inflows are even (such as for investments in annuities), the formula to calculate payback period is:

Payback Period = Initial Investment / Net Cash Flow per Period

When cash inflows are uneven, we need to calculate the cumulative net cash flow for each period and then use the following formula:

Payback Period =A + (B/C)

Where,

A is the last period number with a negative cumulative cash flow;

B is the absolute value (i.e. value without negative sign) of cumulative net cash flow at the end of the period A; and

C is the total cash inflow during the period following period A

Cumulative net cash flow is the sum of inflows to date, minus the initial outflow.

Explanation

3D-printed parts can replace traditional metal parts. They are also more easily customised to fit customer's needs. This technology is an example of threat of substitute in Porter's Five Forces model.

Substitute goods or services that can be used in place of a company's products or services pose a threat. Companies that produce goods or services for which there are no close substitutes will have more power to increase prices and lock in favorable terms. When close substitutes are available, customers will have the option to forgo buying a company's product, and a company's power can be weakened.

Explanation

To answer this question, candidates are required to remember the cash flow cycle and cost entries as well as the impact of their timing on a business.

Diagram Description automatically generated

Source:

Shorter payment term and more inventory are likely to have negative impact on the cash flow be-cause the buyer has to pay sooner and greater.

"Customers agree to pay immediately" will increase the organisation's bank account sooner.

Depreciation has no impact on cash flow as it is only listed in Profit and Loss statement.

Increasing revenue may have negative or positive impact on cash flow, depending on the real situation.

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

The installation stage occurs in In-Service Operations. At this stage, the machinery is shipped and installed on the buyer's premises and check to ensure that it is working to the standards set out in the design specification.

Explanation

Those items make up small portion of spend and the supply risk is low. So it is tactical item according to Kraljic portfolio matrix. Procurement should bundle these items into larger contracts, simplify procurement process.

LO 2, AC 2.1

Explanation

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,...

Detailed Explanation:ISO standards are internationally recognised benchmarks that ensure quality and safety, making them applicable across various industries, including spare parts procurement. This approach improves reliability and supplier compliance. Reference: CIPS Level 4, Standardisation in Procurement.

Explanation

Risk control is the process by which an organization reduces the likelihood of a risk event occurring or mitigates the effects that risk should it occur. CIPS preferred way to determine your risk control strategy is to use the four T’s Process:

Transferring Risk can be achieved through the use of various forms of insurance, or the payment to third parties who are prepared to take the risk on behalf of the organization

Tolerating Risk is where no action is taken to mitigate or reduce a risk. This may be because the cost of instituting risk reduction or mitigation activity is not cost-effective or the risks of impact are at so low that they are deemed acceptable to the business. Even when these risks are tolerated they should be monitored because future changes may make it no longer tolerable.

Treating Risk is a method of controlling risk through actions that reduce the likelihood of the risk occurring or minimize its impact prior to its occurrence. Also, there are contingent measures that can be developed to reduce the impact of an event once it has occurred. Finding an alternative sup-plier is an example of treating the risk.

Terminating Risk is the simplest and most often ignored method of dealing with risk. It is the ap-proach that should be most favored where possible and simply involves risk elimination. This can be done by altering an inherently risky process or practice to remove the risk. The same can be used when reviewing practices and processes in all areas of the business.

If an item presents a risk and can be changed or removed without it materially affecting the busi-ness, then removing the risk should be the first option considered; rather than attempting the treat, tolerate or transfer it.

Explanation

For straight re-buy, the specifications for the products are known. Generally, there will be an existing contract with supplier in place. The business need is challenged annually, only on the annual demand. So effective inventory control will help procurement successfully manage straight re-buy.

Detailed Explanation:A business case allows for the evaluation of alternatives and ensures alignment with strategic goals. It also assesses risks, benefits, and financial impact, providing a comprehensive basis for decision-making. Reference: CIPS Level 4, Capital Expenditure and Business Case Development.

Detailed Explanation: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.

Explanation

This International Standard (ISO 27001:2013) has been prepared to provide requirements for establishing, implementing, maintaining and continually improving an information security management system. The adoption of an information security management system is a strategic decision for an organization. The establishment and implementation of an organization’s information security management system is influenced by the organization’s needs and objectives, security requirements, the organizational processes used and the size and structure of the organization. All of these influencing factors are expected to change over time.

The information security management system preserves the confidentiality, integrity and availability of information by applying a risk management process and gives confidence to interested parties that risks are adequately managed.

It is important that the information security management system is part of and integrated with the organization’s processes and overall management structure and that information security is considered in the design of processes, information systems, and controls. It is expected that an information security management system implementation will be scaled in accordance with the needs of the organization.

This International Standard can be used by internal and external parties to assess the organization's ability to meet the organization’s own information security requirements.

The order in which requirements are presented in this International Standard does not reflect their importance or imply the order in which they are to be implemented. The list items are enumerated for reference purpose only.

ISO/IEC 27000 describes the overview and the vocabulary of information security management systems, referencing the information security management system family of standards (includ-ing ISO/IEC 27003[2], ISO/IEC 27004[3] and ISO/IEC 27005[4]), with related terms and defini-tions.

Explanation

IT equipment is typically linked with through-life contracts. This type of contract not only deal with the specification and the price of a machinery, but also other stages such as design, manufacture, installation, in-service support, decommission and disposal. Among these stages, the design stage is when buyer's requirements are translated into technically correct specification.

Explanation

The difference between the actual spend and budgeted spend is known as variance. The formula for variance is:

Variance = Actual spend - Budgeted spend

Variances can be adverse/unfavourable or favourable ie they can be positive or negative.

Be very careful with these terms. A positive or a negative variance may be favourable or it may be adverse/ unfavourable.

Adverse variances

Adverse variances are those variances that are unfavourable to the firm. Examples would be sales below plan; costs above budget, cash receipts lower than expected, and overtime payment more than forecast.

Favourable variances

Favourable variances are those variances that are beneficial to the business. Examples would be sales ahead of plan, costs below budget, and wages below forecast.

Positive variance

A positive variance occurs where 'actual' exceeds 'planned' or 'budgeted' value. Examples might be actual sales are ahead of the budget.

Negative variance

A negative variance occurs where 'actual' is less than 'planned' or 'budgeted' value. Examples would be when the raw materials cost less than expected, sales were less than predicted, and labour costs were below the budgeted figure.

When the operators create saving, it means that the Actual spend is less than Budgeted spend. Therefore the variance is negative.

Detailed Explanation:A strong business case includes a clear assessment of costs, the expected benefits, and the viable options available. These criteria ensure a structured approach to decision-making and alignment with strategic goals. Reference: CIPS Level 4, Business Case Development.

Explanation

Before a project commences (either capital purchase or switching to a new supplier), a business case should be developed. The business case outlines the why, what, how, and who necessary to decide if it is worthwhile continuing a project.

Basically, the following criteria can be applied to the assessment of a business case:

1. Objectives

This part describes why you are doing the project. The business objective answers the following questions:

- What is your goal?

- What is needed to overcome the problem?

- How will the project support the business strategy?

2. Option identification and selection

Identify the potential solutions to the problem and describe them in enough detail for the reader to understand.

For instance, if the business case and proposed solution makes use of technology, make sure to explain how the technology is used and define the terms used in a glossary. Since most problems have multiple solutions an option appraisal is often needed. This will explore the potential solutions and recommend the best option.

When writing the initial business case the option appraisal is likely to contain a long list of options and will cover many possibilities. As the project continues a number of options will be rejected. The final business case may contain three to five options ― the short list ― that includes a do nothing or benchmark option.

3. Benefits and limitations

The benefits and limitations section describes the financial and non-financial benefits in turn. The purpose is to explain why you need a project.

For instance, to:

- Improve quality

- Save costs through efficiencies

- Reduce working capital

- Generate revenue

- Remain competitive

- Improve customer service

- Align to corporate strategy

The business case should also include any limitations since these present potential risk to the pro-ject.

4. Risk management

The risk assessment summarizes the significant project risks and opportunities and how they are managed. The risks included should cover those that could arise from your project or the organiza-tion’s ability to deliver change.

This section answers the following questions:

- What risks are involved?

- What are the consequences of a risk happening?

- What opportunities may emerge?

- What plans are in place to deal with the risks?

- Every project should include a risk log.

When writing a business case, make sure this is included as it explains how risk and opportunity are managed.

5. Implementation plan

The outline plan provides a summary of the main activities and overall timescale ― project schedule ― for the project.

Ideally, the project should be divided into stages with key decisions preceding each stage. Use this section to answer the following questions:

- What is required?

- How is it done?

- Who does what?

- When will things happen?

This outline plan lists the major deliverables and includes a brief project description plus accountabilities for each activity.

In the scenario, the CPO has set out objective, generated options, cost and benefit of each option and implementation plan. In order to make the business case more compelling, he should reinforce it with risk management.

Explanation

In this question, you have to calculate price variance and quantity variance.

Last month, 1 tonne of steel costed $216. This month, the price decreases to $181.1. Price variance = (P1 - P2)*Q2 = ($216-$181.1)*11 = $383.9

Quantity variance = (Q1-Q2)*P1 = -$216

Price variance is greater than quantity variance, therefore, price variance is the main cost driver.

LO 1, AC 1.4

Detailed Explanation:The bargaining strength of suppliers and buyers is a key factor influencing market competitiveness, as outlined in frameworks like Porter’s Five Forces. These forces dictate pricing, supply availability, and value delivery. Reference: CIPS Level 4, Market Analysis and Competitive Forces.

Explanation

There are four common types of budgets that companies use: (1) incremental, (2) activity-based, (3) value proposition, and (4) zero-based.

Incremental budgeting takes last year’s actual figures and adds or subtracts a percentage to obtain the current year’s budget. It is the most common method of budgeting because it is simple and easy to understand.

Activity-based budgeting is a top-down budgeting approach that determines the amount of inputs required to support the targets or outputs set by the company. For example, a company sets an out-put target of $100 million in revenues. The company will need to first determine the activities that need to be undertaken to meet the sales target, and then find out the costs of carrying out these ac-tivities.

In value proposition budgeting, the budgeter considers the following questions:

- Why is this amount included in the budget?

- Does the item create value for customers, staff, or other stakeholders?

- Does the value of the item outweigh its cost? If not, then is there another reason why the cost is justified?

Value proposition budgeting is really a mindset about making sure that everything that is included in the budget delivers value for the business. Value proposition budgeting aims to avoid unneces-sary expenditures – although it is not as precisely aimed at that goal as our final budgeting option, zero-based budgeting.

As one of the most commonly used budgeting methods, zero-based budgeting starts with the as-sumption that all department budgets are zero and must be rebuilt from scratch. Managers must be able to justify every single expense. No expenditures are automatically “okayed”. Zero-based budgeting is very tight, aiming to avoid any and all expenditures that are not considered absolutely essential to the company’s successful (profitable) operation. This kind of bottom-up budgeting can be a highly effective way to “shake things up”. This is the method used in the scenario.

Detailed Explanation:

Procurement teams bring valuable market insights, helping stakeholders understand supplier capabilities, potential risks, and alternative solutions. This knowledge ensures that specifications are both realistic and aligned with market conditions. Reference: CIPS Level 4, Specification Development and Supplier Collaboration.

Detailed Explanation:

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.

Explanation

When using conformance specification, the buying organisation is responsible for the performance of the purchase. If the product fails due to poorly designed specification, the buyer is wholly responsible for it. It cannot blame the supplier for the failure because they still provided 'fit for purpose' product.

'Time to produce specification is shortened': Conformance specification requires details on dimen-sion, materials, design, etc. With such requirements, time to produce a complete conformance specification is often longer than producing performance specification.

'Buyer cannot control the inputs': Conformance specification is a list of inputs from buyer, so buyer has control over the inputs that will make the product. It also means that buyer is responsible for any product failure.

'Buyer may face liquidity risks': Liquidity means that how quick a business turns its assets into cash. This is a financial term, it does not link directly with specification failure.

Explanation

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 (or Must-be requirement). The basic requirements fulfill the basic func-tions 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 (or One-dimensional 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 (or Attractive requirements). These requirements are key to cus-tomer satisfaction. If they are present 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 require-ments bring more satisfaction if absent than if present.

Diagram Description automatically generated

Explanation

According to Michael Porter, the threat of substitution, is a function of three factors:

• The relative value/ price of a substitute compared to an industry’s product

• The cost of switching to the substitute

• The buyer’s propensity to switch

(Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p. 278). Free Press. Kindle Edition.)

Explanation

There are 6 main components of the through-life requirements of an asset: Design, Manufacture, Installation, In-service support, Decommission and disposal and Customer support.

Rectification of operational defects and planning and delivery of Fleet Time Support Periods are maintenance activities which belong to in-service support. You may have chosen Customer support. However, in through-life asset management context, customer support does not include maintenance services. Instead, it is the services that go along the stages of asset life. It may include consulting, communication and information exchange.

Diagram, table Description automatically generated

Source: Andrew Graves

Explanation

The scenario is very long with many distracting data. Students need to read carefully and use their experience to solve this problem.

The company is developing a new component which requires different type of material. But this component will not be available for mass production in 1.5 years. This means the company still needs to produce the current components with current materials until the development is finished. They must continue purchase the materials from current supplier through call-off orders. This situation is an example of straight re-buy.

Explanation

Value Analysis (VA) is concerned with existing products. It involves a current product being ana-lysed and evaluated by a team, to reduce costs, improve product function or both. Value Analysis exercises use a plan which step-by-step, methodically evaluates the product in a range of areas. These include costs, function, alternative components and design aspects such as ease of manufac-ture and assembly.

According to the Value Methodology standard, there are 6 phases to a Value Analysis:

- Information

- Function Analysis

- Creative

- Evaluation

- Development

- Presentation

1. Information

In this first phase, the team attempts to understand why the project exists and who or what it is to produce. They obtain project data, present the original design or product concepts, and understand the project scope. Schedule, costs, budget, risk, and other non-monetary issues are studied until the team is comfortable with the concept of the project, what it is to produce, and who its end users are.

This step also includes things like site visits and meetings with the project team, if required. Project documents like plans, drawings, specifications, and reports are obtained and the value engineering team becomes familiar with them.

2. Function Analysis

This step represents the meat and potatoes (core) of the value analysis. The team attempts to determine the functions the project serves. Functions come in two forms:

- Primary functions are those that represent the reason for the project’s existence, for example, a building project might have adequate plumbing as a primary function.

- Secondary functions are those that the project serves without being core to the project. For example, a building project might have as a secondary function maintaining the view of the neighboring building.

The functions are described in verb/noun pairs, such as “supply water to all suites,” or “Maintain view of adjacent park.” For a project like this, the team should come up with 10 – 15 functions. You might be surprised how many secondary functions exist for most projects. Subject matter experts would be a great resource, but in their absence an appropriate level of brainstorming and analysis are necessary.

The team should also identify value-mismatched functions to focus the improvements on. For ex-ample, maybe a large obstruction is preventing the view of the adjacent park from too many suites resulting in a potential mismatch of the cost vs. functional benefit. This is investigated in the next step.

3. Creative

This phase represents the generation of improvement ideas. The team develops alternative ways that the project can perform the functions that have been identified. At this step, the functions are looked at individually and each one gets a list of alternative ways to perform the function. There is no judging between the importance of the various functions.

4. Evaluation

At this stage, a priority is given to each project improvement idea. The ideas are discussed and potential costs are determined. Once the risk-reward profile of each idea is itemized, the team has determined which ideas are worth implementing into the project or feature.

A few years ago, there was a pedestrian bridge built near my home which was originally designed for emergency vehicles. Although this type of design is standard practice for the bridges of this type, the value engineering team identified that emergency vehicle passage was not needed (verb/noun pair = ‘maintain passage for emergency vehicles‘). Also, a second major outcome of this value analysis was to change the design to an aesthetic, curved bridge because it was in a prominent location. The redesign of the bridge cost some money but this was more than made up by the cost of the bridge construction. Thus, the value analysis paid for itself about 10 times over in the reduced construction cost, and the bridge was significantly more aesthetic.

5. Development

Once the value improvement options have been whittled down to the ones that make sense, the value engineering team develop the options to the point of passing them back to the original project team. They must be clearly written and explained so that the project owner and stakeholders can understand how it benefits the project and act on it. Any potential negative factors are identified. Potential costs and cost savings are itemized.

6. Presentation

This last phase represents the presentation of the alternatives to the stakeholders. Often value engineering represents a change in the normal practices that people are used to, an “out of the box thinking.” Thus the best salesperson on the team is often the best one to do the presentation.

Some typical products of a value engineering analysis are a briefing document, risk analy-sis, present worth analysis, advantages vs. disadvantages, etc.

Explanation

The Performance Specifications define what the system being designed must do, and not how it must do it. In this step a list of needs and wants should be created. The needs are customer requirements, while the wants are engineering desires. If a buyer adopts performance specification, the supplier will be free to choose how to make and deliver the product.

A technical specification document outlines how you’re going to address a technical problem by designing and building a solution for it.

A design specification is a detailed document providing a list of points regarding a product or pro-cess. For example, the design specification could include required dimensions, environmental fac-tors, ergonomic factors, aesthetic factors, maintenance that will be needed, etc. It may also give specific examples of how the design should be executed, helping others work properly (a guideline for what the person should do).

With conformance specification the buyer says what they want and how they want it and the supplier has to meet this

Explanation

One of the biggest disruptors in retail has been e-commerce. According to a report by IDC, in the month of December 2018, which is also the holiday season in the west, the e-commerce sector globally, has grown by 20 percent.

LO 2, AC 2.2

Explanation

"A firm's relative position within its industry determines whether a firm's profitability is above or below the industry average. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus." (Reference: Porter, Michael E., "Competitive Advantage". 1985, Ch. 1, pp 11-15. The Free Press. New York.)

Creating stand-out products and brands is considered as Differentiation. An organisation that is not clear about which of these three strategies to use is described as 'stuck in the middle'

LO 2, AC 2.1

Detailed Explanation:Social sustainability focuses on ethical considerations like fair labour practices, inclusivity, and community development. By addressing these criteria, FSB Group aligns with responsible business practices. Reference: CIPS Level 4, Sustainability in Procurement.

Explanation

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).

Explanation

The hospital is buying too many product variants. This may cause bottleneck in its operation and increase operational expense. So procurement manager suggests to standardise products.

This is an example of the benefits of product standardisation:

Saint Thomas Health, a system of 5 hospitals, needed to find a way to reduce costs. They were purchasing different SKUs for products that were very similar, in this case, labels. They bought label rolls for $3 and a very similar product for $1. This oversight in product purchases impacted the overall costs of the system. After partnering with a sole source vendor it was able to save $200,000 over a four year span. They accomplished this simply by standardizing label products. These savings, however, only account for the immediate savings from standardizing products. The saving that are not factored into that number are the savings from soft or hidden costs.

On a national scale, hospitals lose millions of dollars per year in hidden expenses due to missed opportunities for cost containment and incorporation. Some of the hidden elements that increase overall costs for a healthcare provider include the following:

- Redundant purchasing

- Freight

- Excessive purchase orders

- Multiple vendor relations

- Low efficiency

- Joint commission fines

- HAI

By implementing product standardization, hospitals and health systems reduce vendors, are able to reduce SKUs, purchase orders, inefficiency, freight costs, fines, and off-contract spending. All of this adds up to large savings for the organization as a whole.

96% of the respondents in the survey agree that consolidating suppliers and standardizing product purchases across organization would reduce hidden costs.

Explanation

ISO 9001:2015 specifies requirements for a quality management system.

ISO 14001:2015 specifies the requirements for an environmental management system that an or-ganization can use to enhance its environmental performance. ISO 14001:2015 is intended for use by an organization seeking to manage its environmental responsibilities in a systematic manner that contributes to the environmental pillar of sustainability.

ISO 22000:2018 specifies food safety management systems — Requirements for any organization in the food chain

ISO 27001 provides requirements for an information security management system.

LO 3, AC 3.1

Explanation

Cracks on the jet engine is a closed-end problem. A typical problem solving process has 8 steps:

Step 1: Define the Problem

- What is the problem?

- How did you discover the problem?

- When did the problem start and how long has this problem been going on?

- Is there enough data available to contain the problem and prevent it from getting passed to the next process step? If yes, contain the problem.

Step 2: Clarify the Problem

- What data is available or needed to help clarify, or fully understand the problem?

- Is it a top priority to resolve the problem at this point in time?

- Are additional resources required to clarify the problem? If yes, elevate the problem to your leader to help locate the right resources and form a team.

- Consider a Lean Event (Do-it, Burst, RPI, Project).

- Ensure the problem is contained and does not get passed to the next process step.

Step 3: Define the Goals

- What is your end goal or desired future state?

- What will you accomplish if you fix this problem?

- What is the desired timeline for solving this problem?

Step 4: Identify Root Cause of the Problem

- Identify possible causes of the problem.

- Prioritize possible root causes of the problem.

- What information or data is there to validate the root cause?

Step 5: Develop Action Plan

- Generate a list of actions required to address the root cause and prevent problem from getting to others.

- Assign an owner and timeline to each action.

- Status actions to ensure completion.

Step 6: Execute Action Plan

- Implement action plan to address the root cause.

- Verify actions are completed.

Step 7: Evaluate the Results

- Monitor and Collect Data.

- Did you meet your goals defined in step 3? If not, repeate th 8-Step Process.

- Were there any unforeseen consequences?

- If problem is resolved, remove activities that were added previously to contain the problem.

Step 8: Continuously Improve

- Look for additional opportunities to implement solution.

- Ensure problem will not come back and communicate lessons learned.

- If needed, repeat the 8-Step Problem Solving Process to drive further improvements.

ANA has already known what is going on, the next step they should adopt is collecting more infor-mation on the problem. If the airline is hurry to the solution, it may choose 'Generate options ad-dressing the issue'. The crack on turbine blade can be welded, or the airline replaces a new blade. However, jumping to solution without knowing the root cause does not completely solve the prob-lem. The root cause is unaddressed, then it may occur in the future. Therefore, the airline should still collect information to find the root cause, then remove it.

Explanation

Risks like natural disasters - fire, flood, or weather-related event, and cyber-attacks can disrupt the supply chain seriously. Threats and disruptions mean a loss of revenue and higher costs, which leads to a drop in profitability. And businesses can't rely on insurance alone because it doesn't cover all the costs and the customers who move to the competition. Risks must be identified early and supplier should have a plan that ensures continuous operations during disasters.

There are several steps many companies must follow to develop a solid business continuity plan. They include:

- Business Impact Analysis: Here, the business will identify functions and related resources that are time-sensitive. (More on this below.)

- Recovery: In this portion, the business must identify and implement steps to recover critical business functions.

- Organization: A continuity team must be created. This team will devise a plan to manage the disruption.

- Training: The continuity team must be trained and tested. Members of the team should also complete exercises that go over the plan and strategies.

Explanation

Life cycle costing is a key asset management tool that takes into account the whole of life implications of planning, acquiring, operating, maintaining and disposing of an asset.

The process is an evaluation method that considers all ownership and management costs. These include;

- Concept and definition;

- Design and development;

- Manufacturing and installation;

- Maintenance;

- Support services; and

- Retirement, remediation and disposal costs.

End of life costs often comprise of decommissioning, removing and disposal costs. In the copier scenario, the end of life costs equal to removal cost, which is $150.

Explanation

A business case is developed during the early stages of a project and outlines the why, what, how, and who necessary to decide if it is worthwhile continuing a project. One of the first things you need to know when starting a new project are the benefits of the proposed business change and how to communicate those benefits to the business.

Preparing the business case involves an assessment of:

- Business problem or opportunity

- Benefits

- Risk

- Costs including investment appraisal

- Technical solutions

- Timescale

- Impact on operations

- Organizational capability to deliver the project outcomes

These project issues are an important part of the business case. They express the problems with the current situation and demonstrate the benefits of the new business vision. Making business case with multiple options and choices also prompts the procurement and senior management to consider alternatives. As a result, the organisation may opt out the best option.

The business case brings together the benefits, disadvantages, costs, and risks of the current situa-tion and future vision so that executive management can decide if the project should go ahead.

Explanation

Specification is the most important document in procurement because it sets out the quality which supplier must provide. If there is no spec or the spec lacks clarity and details, supplier's perfor-mance may vary and possibly lower than actual requirements. This puts the buyer at risks. On the other hand, if the spec is clear and detailed, the supplier is liable to provide 'fit for purpose' products or perform the service at required level of quality. This will ensure that the buyer achieve 'Right Quality'.

Explanation

Printing and office supplies are often considered as low risk, low value items. Consolidation low value, low risk items into a broader range will dramatically increases the value of the contract and leverage of buying organisation in the negotiation.

Explanation

There are three basic groups of WLC (whole life-cycle costing) models:

- Decision support models

- Simulation models: Life cycle cost is an essential approach to decide on alternative rehabilitation strategies for infrastructure systems. Monte Carlo simulation approach is used to develop a stochastic life cycle cost (SLCC) model and methodology in order to compare different rehabilitation scenarios/alternatives for infrastructures, such as water mains. This method assumes that some inputs are randomly variable in a range of values.

- Optimisation models

Explanation

Primary activities consist of inbound logistics, operations, outbound logistics, sales & marketing, service.

Second activities consist of firm infrastructure, human resource management, technology development and procurement

The following graph illustrate the value chain (Source: Smartsheet)

Graphical user interface, diagram Description automatically generated

Picking and delivery components is inbound logistics.

Maintenance is an example of operations activity.

Sourcing transportation services is an activity of procurement

Assembly design is an activity in research and development (Technology)

Recruiting is an activity of human resource management

Explanation

"Standards are often produced by professional bodies (maybe national or international bodies). Standards tend to be stable for a period of time, therefore, they are likely to be static and discourage innovation."

Explanation

A product’s life cycle portrays the length of time a product is in the market; from the beginning of its introduction to consumers until it is removed from shelves and phased out. This cycle is often divided into four phases: introduction, growth, maturity, and decline. Depending on the relevant stage, companies will set an according strategy to achieve their desired targets. Pricing and promotions play a pivotal role in the design of these product life cycle strategies. Therefore, product life cycle management, the process of strategizing ways to continuously support and maintain a product, is seen more and more at pricing mature players and could bring real value to your company.

Introduction phase: during the introduction phase, the new product is introduced to consumers and a substantial amount of money is invested in advertising and marketing campaigns to bring awareness of the product to the customer. In this phase competition is low, but units sold will also correspondingly be quite low as well still. Consumers need to be convinced of the benefits of the product. Lots of articles never make it beyond this phase: e.g. 3D televisions.

Profits in the introduction stage tend to be low or there may even be a loss. This is because the cost of marketing to establish product awareness plus distribution costs can be far higher than the revenue received from sales. This can be offset to a degree by 'skimming' price in the very early stages. Skimming a price is where a business charges the highest price that it thinks the market will bear initially until product recognition brings in other buyers and then the price drop.

Growth phase: when it’s shown there is proven demand for the product and consumers are buying it, the next stage will be its growth phase. This phase is punctuated by increasing demand, increas-ing production and an increase in the competitive landscape. Availability of the product is under-standably paramount during this phase, going out of stock is unthinkable during the growth period.

The electric car is an example of a product that is currently in the midst of the growth phase.

Maturity phase: normally the maturity phase is the phase that is characterized by declining production and marketing costs due to synergies and economies of scale. During this phase the first signs of market saturation occur and most consumers or households already own the product. Sales numbers still grow, but at a slower pace. In the maturity phase, price competition becomes intense, a broader range of distribution channels are deployed and competition is more focused on competitive pricing, marginal product differences or the difference in services or promotions. This period in the PLC is often said to be the ‘cash-cow period’.

That being said, the idea of ‘Maturity from the start’ also exists. This occurs when a brand decides to launch a product extension and directly follows up the maturity phase of an earlier version of the product. For example, the iPhoneX followed up from the ‘normal’ iPhone-series and therefore the iPhoneX never had to undergo the introduction or growth phase, but immediately started in its maturity phase.

Decline phase: the final phase of the PLC is entered once the product loses market share to other, newer products and the competitive landscape becomes too hard to survive. During this stage, de-mand declines, companies are left with overstock with prices and margins getting depressed. Therefore retailers and brands normally start stunting with promotions during the decline of the PLC to sell their final stock.

A well-known example of a product that has been through the decline phase were the Nokia phones; sales results dramatically decreased after the introduction of the iPhone.

Explanation

In construction, specifications are written documents that describe the materials and workmanship required for a development. They do not include cost, quantity or drawn information but need to be read alongside other contract documentation such as quantities, schedules and drawings.

Specifications vary considerably depending on the stage to which the design has been developed, ranging from performance (open) specifications that require further design by a contractor or sup-plier, to prescriptive (closed) specifications where the design is already complete when the project is tendered.

Prescriptive specifications give the client more certainty about the end product when they make their final investment decision (i.e. when they appoint the contractor), whereas a performance specification gives the contractor and suppliers more scope to innovate and adopt cost effective methods of work, potentially offering better value for money.

Typically, performance specifications are written on projects that are straight-forward, standard building types, whereas prescriptive specifications are written for more complex buildings, or buildings where the client has requirements that might not be familiar to contractors and where certainty regarding the exact nature of the completed development is more important to the client.

Performance specification has some disadvantages:

- Well-defined performance metrics are needed to ensure that the specified performance will achieve the desired outcome

- Require reliable, practical, economical tests of performance

- Evaluations are subjective and require additional time and effort to complete

Therefore, if a performance specification is used, the buying organisation will have to ensure that they are able to define and conduct tests on whether supplier's solution can deliver the desired out-come.

Explanation

Copious amounts of waste can occur in the workplace, particularly in a manufacturing process, but do you know what the eight most commons wastes are and how they impact your organization?

Taiichi Ohno, considered the father of Toyota Production System, created a lean manufacturing framework, which was based on the idea of preserving (or increasing) value with less work. Any-thing that doesn't increase value in the eye of the customer must be considered waste, or "Muda", and every effort should be made to eliminate that waste. The following 8 lean manufacturing wastes, mostly derived from the TPS, have a universal application to businesses today. The acro-nym for the eight wastes is DOWNTIME. Downtime stands for:

- Defects

- Overproduction

- Waiting

- Not utilizing talent

- Transportation

- Inventory excess

- Motion waste

- Excess processing

OWN-IT is the acronym for the process of collecting and analysing the data and information needed in any field

SCAMPER is acronym for options addressing the underlying issues and achieving target

VA/VE is value analysis and value engineering

LO 3, AC 3.4