ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 1:

  The ability to explain how and why decisions are made in support of business plans is important because it allows a supply manager to

  A. influence internal stakeholders
  B. reduce the amount of needed input from key stakeholders
  C. align goals to supply management's mission
  D. prevent supply chain disruptions
  A. influence internal stakeholders

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  Explanation

  The ability to explain how and why decisions are made in support of business plans is important because it allows a supply manager to influence internal stakeholders. By clearly communicating the rationale behind decisions, supply

  managers can gain buy-in and support from other departments, ensuring alignment and cooperation. This influence is crucial for the successful implementation of supply chain strategies and achieving organizational goals.

  References:

  ISM (Institute for Supply Management). Effective Stakeholder Management.

  CIPS (Chartered Institute of Procurement and Supply). Communication Skills for Supply Chain Professionals.

• Question 2:

  A supply management team reviews all documents dealing with processes and procedures for the supply management function. Each team member reviews the documents and reports back to the group on the accuracy of the information, particularly concerning financial transactions. Any discrepancies are documented, updated, and submitted to senior management for approval. Which of the following is the MOST important legal requirement for this activity?

  A. Ensuring processes meet the requirements of Sarbanes-Oxley and similar laws
  B. Ensuring processes address issues and requirements of contract and commercial laws
  C. Ensuring processes adhere to requirements of anti-corruption/anti-bribery laws
  D. Ensuring processes address the concerns of the legal team on intellectual property laws
  A. Ensuring processes meet the requirements of Sarbanes-Oxley and similar laws

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  Explanation

  The supply management team is reviewing documents related to processes and procedures, with a focus on financial transactions. The most important legal requirement for this activity is:

  Sarbanes-Oxley Act Compliance: Ensuring that processes meet the requirements of the Sarbanes-Oxley Act (SOX) is critical. SOX mandates strict reforms to improve financial disclosures and prevent accounting fraud. Internal Controls:

  Verify that the processes have robust internal controls to ensure accurate financial reporting and safeguard against financial discrepancies.

  Documentation and Approval: Discrepancies should be documented, updated, and submitted for

  approval to ensure transparency and accountability.

  Ensuring compliance with SOX and similar laws is paramount because these regulations directly impact the integrity and accuracy of financial reporting, which is crucial for maintaining investor confidence and legal compliance.

  References:

  Sarbanes-Oxley Act (SOX) compliance requirements.

  Institute for Supply Management (ISM) guidelines on financial process management.

• Question 3:

  A supply manager solicits bids for janitorial services. The incumbent cost is $20,000 per month to perform Scope A. After working with internal stakeholders, obtaining bids, and performing negotiations, a new supplier is awarded the

  agreement. The new supplier's cost is $19,000 per month to perform Scope A as well as Scope B, which was previously performed by another supplier at a cost of $2,000 per month.

  What is the annual cost reduction?

  A. $24,000
  B. $36,000
  C. $12,000
  D. $48,000
  B. $36,000

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  Explanation

  To determine the annual cost reduction:

  Calculate the current annual cost: $20,000/month for Scope A + $2,000/month for Scope B = $22,000/month. Annually, this is $22,000 * 12 = $264,000. Calculate the new annual cost with the new supplier: $19,000/month for both Scope A

  and Scope

  B. Annually, this is $19,000 * 12 = $228,000.

  Determine the annual cost reduction: $264,000 (old annual cost) - $228,000 (new annual cost) =

  $36,000.

  References:

  Procurement and Supply Chain Management by Kenneth Lysons and Brian Farrington

  Principles of Supply Chain Management: A Balanced Approach by Joel

  D. Wisner, Keah-Choon Tan,G. Keong Leong

• Question 4:

  PQR Inc. sponsors numerous large events involving all of its divisions. PQR's supply manager proposes that the firm coordinate this spend to bring significant savings and simplify administration. However, PQR's top management believes that each division would prefer to deal with its own event planners. In this situation, which of the following is the BEST course of action for the supply manager to take?

  A. Invite leading suppliers to make presentations to management
  B. Assemble a team representing all divisions to discuss future meeting needs
  C. Gather updated information and re-introduce the proposal to top management
  D. Implement the proposed program on a trial basis and evaluate the results
  B. Assemble a team representing all divisions to discuss future meeting needs

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  Explanation

  Current Situation: PQR Inc. sponsors large events, and there's a proposal to coordinate the spend across all divisions for savings and simplified administration.

  Top Management's Concern: Each division prefers dealing with its own event planners.

  Inclusive Approach: Assembling a team with representatives from all divisions allows for a collaborative discussion on future meeting needs. Collective Decision Making: This approach ensures that all divisions have input and can address

  concerns, leading to a more accepted and effective coordination strategy.

  References:

  ISM. (n.d.). Cross-Functional Teams in Procurement.

  CIPS. (n.d.). Coordinating Spend and Collaboration Across Divisions.

• Question 5:

  A supply manager for UVW, Inc. Is considering the use of lead division buying. Which of the following factors is MOST supportive of such efforts?

  A. Each division needs products tailored to its own production.
  B. There is ongoing involvement of the engineering department.
  C. Several divisions use consistent quantities of the same item.
  D. Deliveries must be coordinated with production schedules.
  C. Several divisions use consistent quantities of the same item.

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  Explanation

  Lead Division Buying: This strategy involves one division taking the lead in purchasing for multiple divisions within an organization.

  Supporting Factor: Consistent quantities of the same item used by several divisions support lead division buying.

  Economies of Scale: Consistent demand allows for bulk purchasing, leveraging economies of scale, and achieving cost savings.

  Standardization: Consistent usage across divisions promotes standardization, simplifying the procurement process and supplier management.

  References:

  CIPS. (n.d.). Lead Division Buying and Centralized Procurement.

  ISM. (n.d.). Strategies for Efficient Procurement Management.

• Question 6:

  FGH, Inc. has purchased components from Supplier A for many years. The supplier's performance has been very good, with reliable deliveries and consistently high quality. As contract renewal approaches, Supplier A informs FGH's supply manager that a significant price increase is anticipated, based primarily on the costs of building a new production facility. The supply manager has been directed to negotiate a new contract with Supplier A only if it agrees to maintain current pricing. Which of the following is the BEST way for the supply manager to prepare for negotiations with Supplier A?

  A. Determine if the parts made by Supplier A can be produced elsewhere
  B. Discuss alternate product designs with engineering
  C. Enlist FGH's executive management to participate in negotiations
  D. Research into whether Supplier A's recent expansion costs are reasonable
  A. Determine if the parts made by Supplier A can be produced elsewhere

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  Explanation

  Current Situation: Supplier A has provided reliable and high-quality components to FGH, Inc. for many years.

  Price Increase Notification: Supplier A informs FGH of a significant anticipated price increase due to building a new production facility. Negotiation Directive: FGH's supply manager is directed to negotiate a new contract only if Supplier A

  agrees to maintain current pricing. Preparation for Negotiation: Determining if the parts can be produced elsewhere provides the supply manager with leverage in negotiations. This research will show whether FGH has alternative sources or if

  Supplier A holds a monopoly on the components.

  Negotiation Leverage: Knowing that there are alternative suppliers can strengthen FGH's negotiating position, possibly leading to more favorable terms or at least a better understanding of the market.

  References: ISM. (n.d.). Strategic

  Sourcing and Supplier Selection. CIPS. (n.d.). Effective Negotiation Strategies in Procurement.

• Question 7:

  DEF, Inc. is a multinational oil company expanding into a new geographic region. The firm's policy is to purchase locally for its operations whenever possible. Thus, DEF needs to find sources of materials, basic equipment, and standard bulk items within the new region. Given this situation, which of the following is the BEST way for DEF to proceed?

  A. Hold a supplier conference followed by a Request for Information (RFI)
  B. Issue a Request for Information (RFI) followed by a Request for Quotation (RFQ)
  C. Issue a Request for Information (RFI) followed by a purchase order
  D. Hold a supplier conference followed by a Request for Quotation (RFQ)
  B. Issue a Request for Information (RFI) followed by a Request for Quotation (RFQ)

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  Explanation

  Need for Local Suppliers: DEF, Inc. is looking for local sources of materials, equipment, and bulk items in a new geographic region. RFI Process: Issuing an RFI allows DEF to gather information about potential suppliers in the new region,

  understanding their capabilities and offerings. RFQ Process: Following the RFI with an RFQ enables DEF to obtain detailed quotations from the shortlisted suppliers based on the information gathered, ensuring competitive pricing and terms.

  Strategic Sourcing: This approach aligns with strategic sourcing principles by thoroughly understanding the supplier market before seeking quotations.

  References:

  CIPS. (n.d.). Effective Use of RFIs and RFQs in Procurement.

  APQC. (2019). Best Practices in Supplier Selection and Evaluation.

• Question 8:

  A sourcing manager is negotiating a contract with a human resources supplier that has access to employee data, including social security numbers. The supplier proposes an annual cap of $10,000 on overall liability. In this situation, which of the following is the MOST important stakeholder for the sourcing manager to consult in regard to this supplier?

  A. Risk Management
  B. Operations
  C. Legal
  D. Information Technology (IT)
  C. Legal

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  Explanation

  When negotiating a contract involving sensitive employee data, including social security numbers, it is crucial to consult the legal department. The legal team can provide guidance on the implications of liability caps, data protection

  regulations, and potential risks associated with data breaches. They ensure that the contract complies with applicable laws and that the company's interests are adequately protected.

  References: Contract law, data protection regulations, best practices in supplier management for sensitive data.

• Question 9:

  According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO) framework, which of the following Is an element of effective internal controls?

  A. Documenting
  B. Monitoring
  C. Management
  D. Auditing
  B. Monitoring

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  Explanation

  According to the COSO framework, effective internal controls are composed of several key elements that ensure the reliability of financial reporting, compliance with laws and regulations, and the effectiveness and efficiency of operations.

  Documenting: While important, it is a part of the overall control activities and processes.

  Monitoring: This is a core component of the COSO framework, involving continuous assessment of the internal control system's performance. Management: This is involved in executing controls but is not itself a specific element of internal

  controls in the COSO framework. Auditing: This is an independent review of internal controls but is not listed as one of the primary components in the COSO framework.

  Therefore, monitoring is an essential element of effective internal controls according to the COSO framework.

  References:

  COSO Internal Control-Integrated Framework.

  Committee of Sponsoring Organizations of the Treadway Commission (COSO) guidelines.

• Question 10:

  A supply manager conducts a two-step bidding process for production material. A supplier is selected and a contract is signed. During the post-contract debriefing session, another supplier offers a lower price and payment terms that are more advantageous to the buying organization. Should the supply manager accept the supplier's offer?

  A. Yes, because it is the legal duty of the supply manager to consider new information.
  B. Yes, because the financial Interests of the buying organization are the primary consideration.
  C. No, because a binding contract has been signed.
  D. No, because the quality provided by the low bidder would be in doubt.
  C. No, because a binding contract has been signed.

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  Explanation

  Once a contract has been signed, it becomes a legally binding agreement. Accepting a new offer after signing a contract would breach the existing contract, leading to potential legal and financial repercussions. Yes, because it is the legal

  duty of the supply manager to consider new information: This is incorrect as the primary duty is to honor existing contracts. Yes, because the financial interests of the buying organization are the primary consideration: While financial interests

  are important, they do not override the legal obligations of a signed contract. No, because a binding contract has been signed: This is correct. The signed contract legally binds both parties, and accepting a new offer would violate the terms of

  the existing contract. No, because the quality provided by the low bidder would be in doubt: While quality is a consideration, the primary reason for not accepting a new offer is the legal binding nature of the signed contract.

  Therefore, the supply manager should not accept the new offer because a binding contract has been signed.

  References:

  Contract law principles.

  Best practices in procurement and contract management.