ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 1:

  ABC, Inc. Is a large accounting partnership with member firms In 120 countries. ABC's international sourcing team is responsible for establishing contracts with the company's suppliers around the world. While the quality of negotiated and executed contracts remains impeccable, the sourcing team has received numerous complaints about delays in processing contracts. The delays primarily occur at the contract execution stage, when the assigned sourcing specialist must obtain internal approvals from multiple parties, including international suppliers and member firms. Because of these delays, suppliers must wait until a contract is duly executed before they can start providing services, which has a significant impact on the member firms' commitments to their clients. Which of the following is the BEST course of action for the sourcing team to take to address this issue?

  A. Allow suppliers to start the implementation of services as soon as they reach an agreement in principle, and formalize the paperwork later on
  B. Subscribe to a digital signature service and execute contracts online, rather than sending the paperwork overseas via courier
  C. Hire additional sourcing staff to manage the volume and reduce delays, and have the member firms cover the extra budget
  D. Allow member firms to execute contracts directly with their suppliers, in order to avoid processing delays
  B. Subscribe to a digital signature service and execute contracts online, rather than sending the paperwork overseas via courier

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  explanation:

  Explanation

  The primary issue faced by ABC, Inc.'s international sourcing team is the delay in processing contracts due to the need for multiple internal approvals from international suppliers and member firms. The best course of action should streamline the contract execution process, reducing the time taken for internal approvals and facilitating quicker commencement of services by suppliers. Option A suggests allowing suppliers to start implementing services upon reaching an agreement in principle. This can lead to legal and compliance issues if the formal contract does not reflect the agreed terms or if it is not finalized in time. Option C proposes hiring additional staff, which could alleviate the workload but may not address the core issue of procedural delays. Additionally, it increases operational costs. Option D recommends allowing member firms to execute contracts directly, which can lead to inconsistencies and a lack of centralized control over contracts, potentially resulting in quality and compliance issues. Option B, subscribing to a digital signature service, directly addresses the delay issue by enabling faster execution of contracts through online approvals. Digital signatures are legally binding in many jurisdictions and can streamline the approval process significantly. This approach maintains the quality and consistency of the contracts while reducing the time required for execution.

  References: Institute for Supply Management (ISM) guidelines on contract management. Research on the benefits of digital signature services in supply chain management.

• Question 2:

  Development of which of the following would be MOST beneficial for supplier technologies and processes important to the buying organization?

  A. Center of excellence
  B. Supplier engagement forum
  C. Best practices solutions team
  D. Joint research and development team
  D. Joint research and development team

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  explanation:

  Explanation

  A joint research and development (RandD) team is most beneficial for developing supplier technologies and processes important to the buying organization. By forming a joint RandD team, both the buying organization and the supplier can

  collaborate closely to innovate and improve technologies and processes that are directly aligned with the organization's strategic goals. This collaboration fosters knowledge sharing, leverages combined expertise, and enhances mutual

  commitment to achieving advanced technological solutions and process improvements that benefit both parties.

  References:

  Monczka, R., Handfield, R., Giunipero, L., and Patterson, J. (2020). Purchasing and Supply Chain Management. Cengage Learning.

  ISM (Institute for Supply Management) resources on supplier collaboration and joint development.

• Question 3:

  One of TUV Company's largest suppliers has been performing poorly, and the quality of its services does not meet the needs of a particular stakeholder. Which of the following is the BEST way for TUV's supply manager to evaluate how to establish service level agreements (SLAs) to improve the performance of this supplier?

  A. Request that the supplier provide a set of metrics to be used in measuring performance
  B. Develop measurements of supplier performance with the stakeholder, and include those measurements in an amendment to the contract
  C. Notify the supplier that its level of performance is not acceptable, and renegotiate contract pricing to reflect the supplier's performance
  D. Notify the supplier of the performance issues, and terminate the contract if the supplier does not correct performance within thirty days
  B. Develop measurements of supplier performance with the stakeholder, and include those measurements in an amendment to the contract

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  explanation:

  Explanation

  Identify Stakeholder Needs: Understanding the specific performance issues as identified by the stakeholder.

  Collaborative Measurement Development: Working with the stakeholder to develop specific, measurable, achievable, relevant, and time-bound (SMART) performance metrics. Contract Amendment: Including these agreed-upon performance

  metrics in the contract ensures that the supplier is contractually obligated to meet these standards. Monitor and Review: Regularly reviewing these performance metrics to ensure continuous improvement and compliance by the supplier.

  References: Supplier Performance Management Literature Contract Management Best Practices Service Level Agreement Guidelines

• Question 4:

  XYZ, Inc. currently has a transactional relationship with suppliers, but would like to work strategically with them. The firm wants to initially focus attention on the most critical suppliers. To do this, they should FIRST reach out to

  A. suppliers with the highest dollar sales volume
  B. suppliers with whom the firm rarely or never has face-to-face meetings
  C. suppliers with the highest unit volume
  D. suppliers rated as vital according to key department metrics
  D. suppliers rated as vital according to key department metrics

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  explanation:

  Explanation

  To transition from transactional to strategic relationships with suppliers, XYZ, Inc. should first focus on suppliers rated as vital according to key department metrics. These metrics may include criteria such as supplier performance, strategic importance, criticality of the supplied materials or services, and overall impact on the firm's operations. By concentrating on these vital suppliers, the company can develop stronger, more collaborative relationships that drive mutual benefits and strategic value.

  References: "Purchasing and Supply Chain Management" by Robert M. Monczka, Robert

  B. Handfield, Larry

  C. Giunipero, and James L. Patterson Institute for Supply Management (ISM) guidelines on supplier relationship management and strategic sourcing

• Question 5:

  A supply manager for an electronics distributor is asked to buy new routers for the company's wireless network. The supply manager is provided with a detailed scope of work and a list of potential bidders. However, the firm is also interested

  in investigating alternative solutions available on the market. The original equipment was purchased over 5 years ago and the budget is unknown, but it is roughly estimated at $250,000.

  Given these circumstances, the MOST appropriate approach for the supply manager would be to issue which of the following?

  A. Request for quote
  B. Invitation to bid
  C. Request for proposal
  D. Request for information
  D. Request for information

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  explanation:

  Explanation

  Given the circumstances, issuing a Request for Information (RFI) is the most appropriate approach. An RFI allows the supply manager to gather comprehensive information about alternative solutions available in the market. This is particularly

  useful since the original equipment was purchased over five years ago, and there might be new technologies and solutions that better meet the company's needs. An RFI helps in understanding the capabilities of different suppliers and the

  latest products before proceeding to a more detailed Request for Proposal (RFP) or Request for Quote (RFQ).

  References:

  ISM (Institute for Supply Management). Effective Use of RFIs in the Procurement Process.

  CIPS (Chartered Institute of Procurement and Supply). Sourcing and Tendering Procedures.

• Question 6:

  PQR, Inc. is a large international life insurance company. PQR's vice president of sales asks the firm's supply manager to require that any future procurement contracts contain a provision which obligates the supplier to make PQR's insurance products available to the supplier's employees for optional purchase. In this situation, the supply manager should

  A. ask legal counsel to review national and local laws in determining the legality of the request
  B. accommodate the request, as the provision contains no absolute requirement that a supplier's employees purchase any insurance
  C. decline the request on the grounds that it is Illegal
  D. decline the request, as it is contrary to the principle of buying and selling based on the fundamental criteria of quality, cost, and service
  A. ask legal counsel to review national and local laws in determining the legality of the request

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  explanation:

  Explanation

  Evaluate the Legality: The request to include a provision obligating suppliers to make insurance products available to their employees involves potential legal implications. National and Local Laws: Different jurisdictions have varying laws

  regarding what can be included in procurement contracts, especially concerning employment and insurance.

  Legal Counsel Consultation: Engaging legal counsel ensures that the supply manager is adhering to the appropriate legal framework and avoids any possible legal issues for PQR. Mitigate Risks: By consulting with legal counsel, the supply

  manager can mitigate any risks associated with including such provisions, ensuring the company remains compliant with relevant laws.

  References:

  Contract Law Textbooks Corporate Governance Guidelines Legal Compliance Resources

• Question 7:

  During its first annual business review, a supplier requests an increase in pricing. The supplier's survey results show a rating of 2.9 out of 5 possible points (with 3.0 being acceptable). Market indices indicate that the supplier's industry has experienced no price increase. In this situation, which of the following is the BEST course of action for the buyer to take?

  A. Ask the supplier to respond to the survey results item by item, to determine the efficacy of the request
  B. Review the survey results with the supplier asking how it plans to address the concerns, and discuss the economic factors supporting the price increase
  C. Reestablish service level agreement expectations and deny any increase at this time
  D. Inform the supplier that the market indices do not support an increase, and issue a 30-day cure letter warning of contract breach based on the survey results
  B. Review the survey results with the supplier asking how it plans to address the concerns, and discuss the economic factors supporting the price increase

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  explanation:

  Explanation

  Supplier Request for Price Increase: Despite a low survey rating and stable market prices, the supplier requests a price increase. Engaging the Supplier: Reviewing survey results and discussing them ensures that the supplier understands

  the buyer's concerns and expectations.

  Economic Factors: Discussing economic factors provides a clearer picture of whether the price increase is justified.

  Collaborative Approach: This method fosters a collaborative relationship and seeks to address underlying issues before making pricing decisions.

  References: ISM. (n.d.). Managing Supplier Performance Reviews. CIPS. (n.d.). Effective Supplier Relationship Management.

• Question 8:

  A supply manager is planning a major sourcing event and wants to increase competition, especially by small and minority-owned businesses. The supply manager strives to maintain fairness with all suppliers. Which of the following is the BEST way to encourage diverse suppliers to participate?

  A. Apply a percentage decrease on unit costs during evaluation
  B. Expand advertising of bidding opportunities
  C. Adjust delivery requirements
  D. Modify contract terms and conditions
  B. Expand advertising of bidding opportunities

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  explanation:

  Explanation

  Objective: The supply manager aims to increase competition and encourage participation from small and minority-owned businesses while maintaining fairness. Expanding Advertising: Broadening the advertising reach for bidding

  opportunities ensures that diverse suppliers are aware of and can participate in the sourcing event. Inclusivity: This approach promotes inclusivity by making information about opportunities accessible to a wider audience, increasing the

  likelihood of diverse suppliers bidding. Fairness: Ensuring that bidding opportunities are well-publicized helps maintain a level playing field for all potential suppliers.

  References:

  ISM. (n.d.). Promoting Supplier Diversity in Procurement.

  CIPS. (n.d.). Strategies for Inclusive Supplier Engagement.

• Question 9:

  EFG uses specialized components from Supplier A in the manufacture of state-of-the-art testing equipment. Supplier A has been very successful in meeting EFG's stringent quality specifications, which has been critical for EFG. EFG learns that Supplier A plans to acquire a smaller firm which makes components similar to those under contract with EFG. EFG is concerned that the supplier may transfer its contract to the new subsidiary, leading to compromises in quality. Given this situation, which of the following is the BEST course of action for EFG to take?

  A. Negotiate with Supplier A to remove the changes clause from the contract
  B. Negotiate with Supplier A to strengthen the indemnification clause in the contract
  C. Negotiate with Supplier A to add a consent of assignment clause to the contract
  D. Take no action, as Supplier A must supply the chips at the same quality level no matter who manufactures them
  C. Negotiate with Supplier A to add a consent of assignment clause to the contract

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  explanation:

  Explanation

  Understand the Acquisition Impact: Recognize the potential risks associated with Supplier A acquiring a smaller firm and possibly transferring contracts.

  Protect Quality Standards: Ensuring that EFG's stringent quality requirements are met is crucial.

  Consent of Assignment Clause: Adding this clause ensures that Supplier A cannot transfer the contract to another entity without EFG's consent, maintaining control over the quality.

  Negotiate Terms: Discuss and agree upon the specifics of this clause with Supplier A to safeguard EFG's interests.

  References:

  Monczka, R. M., Handfield, R. B., Giunipero, L. C., and Patterson, J. L. (2016). Purchasing and Supply Chain Management. Cengage Learning.

  Gattorna, J. (2015). Dynamic Supply Chains: Delivering Value Through People. Pearson.

• Question 10:

  After working for several years at ABC, Inc.--a large manufacturing company--Smith moves to a senior position at XYZ, a smaller firm which is part of ABC's family of companies. In an effort to lower costs, Smith begins negotiations with a

  supplier that sells to both ABC and XYZ. While at ABC, Smith was able to negotiate very favorable contracts for parts and services. However, Smith is unable to obtain as favorable terms for XYZ with the same supplier.

  To improve XYZ's position, which of the following is the BEST course of action for Smith to take?

  A. Inform the supplier that the contracts will be cancelled unless concessions are made
  B. Apply knowledge of ABC's operations to demand better pricing
  C. Issue an RFI to identify other potential suppliers
  D. Combine requirements of XYZ with ABC to leverage volume
  D. Combine requirements of XYZ with ABC to leverage volume

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  explanation:

  Explanation

  Smith's challenge is to obtain favorable terms from a supplier for XYZ similar to those previously secured for ABC. The best course of action is to combine the requirements of XYZ with ABC to leverage the volume. This approach enhances bargaining power by presenting a larger, consolidated order, which can incentivize the supplier to offer better pricing or terms. This strategy leverages the economies of scale and the supplier's interest in maintaining a strong relationship with both companies in the same family.

  References: Supply Chain Management: Strategy, Planning, and Operation by Sunil Chopra and Peter Meindl Purchasing and Supply Chain Management by Robert M. Monczka, Robert

  B. Handfield, Larry

  C. Giunipero, and James L. Patterson