CORE ISM Exam Lab Questions

The best course of action is to determine with senior management and internal stakeholders the acceptable levels of risk for each product. This collaborative approach ensures that the organization has a clear understanding of its risk tolerance and can develop appropriate strategies to mitigate those risks. It involves assessing the potential impact of risks on the business and aligning risk management strategies with the company's overall objectives. This preparation is crucial for effective negotiations with suppliers, ensuring that all parties are on the same page regarding risk management.

References

Risk Management in Supply Chains by David L. Olson and Desheng Dash Wu

COSO (Committee of Sponsoring Organizations of the Treadway Commission) ERM (Enterprise Risk Management) Framework

ISO 31000 Risk Management Standards

Context: Evaluating bids for a delivery van with consideration of cost and potential buyback offers.

Cost Calculation:

Supplier J: $50,000

Supplier K: $52,500 with a $3,000 buyback.

Opportunity Cost: The present value (PV) factor for 5 years at 10% is 0.62.

Supplier K’s Net Cost: $52,500 - ($3,000 * 0.62) = $52,500 - $1,860 = $50,640

Comparison: Supplier J’s cost is $50,000, Supplier K’s effective cost is $50,640.

Lifecycle Savings: Supplier K offers a buyback, which provides future value and offsets initial higher cost.

Conclusion: Over the van's life cycle, Supplier K's offer results in cost savings considering the buyback.

References

Capital Budgeting Techniques by Brigham and Ehrhardt.

Present Value calculations and decision-making in procurement.

Purpose of RFI: A Request for Information (RFI) is used to gather information about the capabilities of potential suppliers.

Market Intelligence: RFIs are useful for understanding the market landscape, including the general capabilities and capacity of suppliers.

Supplier Capabilities: It allows the buying firm to assess the technical, operational, and financial capabilities of suppliers before proceeding to more detailed procurement steps.

Broader Scope: Unlike RFQs and RFPs, which are more specific, RFIs are open-ended and exploratory, making them ideal for gathering a wide range of information. References

CIPS (Chartered Institute of Procurement & Supply) guidelines on supplier selection processes.

Insourcing the manufacture of a major product, motivated by public relations considerations, is most likely aimed at improving community ties. By bringing production in-house, the company can create local jobs, invest in the local economy, and demonstrate a commitment to the community. This can enhance the company's reputation, foster goodwill, and potentially lead to stronger community support and loyalty.

References:

"Insourcing: Bringing Discrete Manufacturing Back to America" by Lisa Shuler.

Harvard Business Review articles on corporate social responsibility (CSR).

Studies on community impact of local manufacturing from the Economic Policy Institute (EPI).