ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 131:

  In portfolio analysis, purchases for which the buying organization consolidates spend with a handful of suppliers but still maintains competition are BEST classified as

  A. bottleneck
  B. routine
  C. strategic
  D. leverage
  D. leverage

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  Explanation

  In portfolio analysis, purchases for which the buying organization consolidates spend with a handful of suppliers but still maintains competition are BEST classified as

  D. leverage. This classification is used when a company uses its buying power to consolidate spend and negotiate better terms, while still keeping a competitive environment among a few suppliers to ensure optimal value and innovation.

• Question 132:

  DEF, Inc. has a choice of several transportation providers in the immediate area. The firm decides to conduct a spend analysis to identify opportunities for cost savings through service standardization. In this situation, which of the following will be MOST Important for the company to analyze?

  A. Pricing for alternative travel modes such as rail and air
  B. Labor rates for frequently utilized locations
  C. Local laws and regulations regarding transportation
  D. Pricing at international locations
  A. Pricing for alternative travel modes such as rail and air

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  Explanation

  DEF, Inc. wants to conduct a spend analysis to identify opportunities for cost savings through service standardization. In this context:

  Option A, analyzing pricing for alternative travel modes such as rail and air, is crucial. Understanding the cost differences between various modes of transport can help DEF, Inc. identify the most cost-effective options and standardize services

  based on cost efficiency.

  Option B, labor rates for frequently utilized locations, while important, is more relevant to operational costs rather than transportation cost savings. Option C, local laws and regulations regarding transportation, is necessary for compliance but

  not directly related to cost savings through standardization. Option D, pricing at international locations, is also important but might not provide the immediate opportunities for cost savings through standardization in the immediate area.

  Therefore, analyzing pricing for alternative travel modes will offer the most significant insights for cost-saving opportunities.

  References:

  Spend analysis methodologies in logistics.

  Research on cost-saving strategies through transportation mode comparison.

• Question 133:

  A machining company outsources its recycling program to a third party. The third party recycles the metals from the production area, but neglects to recycle the aluminum cans from the break room, as this stipulation was not included in the service-level agreement. This situation is MOST likely a result of the supply manager's failure to have an appropriate

  A. scope of work
  B. performance goal
  C. warranty
  D. conflict management plan
  A. scope of work

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  Explanation

  The situation where the third party recycles metals but not aluminum cans from the break room is likely due to an incomplete scope of work. The scope of work should clearly outline all tasks and responsibilities, including specific details like recycling aluminum cans. Performance goals (Option B) and warranties (Option C) deal with performance standards and product guarantees, respectively, while a conflict management plan (Option D) addresses dispute resolutions, none of which directly relate to the failure in defining the recycling tasks.

  References: Contract Management Guide Service-Level Agreement Best Practices

• Question 134:

  A buying firm receives samples from a supplier. The samples pass endurance testing, and a production batch is ordered and received. Soon after, it is found that the production parts break much sooner than the samples did. The supplier

  claims the life requirements of the parts are not stated in the warranty clause of the contract and thus denies liability.

  Which of the following is TRUE in this situation?

  A. Express warranties only apply to products inspected immediately upon receipt, and thus the buyer is not protected.
  B. Express warranties are only specific assurances documented by the seller, and if quality is not documented, the buyer is not protected.
  C. If the life expectancy of the product is not clearly defined in the product specifications, there Is no protection.
  D. Express warranties may be in the form of a sample, and therefore the buyer is protected.
  D. Express warranties may be in the form of a sample, and therefore the buyer is protected.

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  Explanation

  Express Warranties: These are explicit guarantees made by the seller regarding the quality or performance of the goods.

  Form of Warranty: An express warranty can be communicated through various forms, including samples, descriptions, and affirmations of fact. Implication of Samples: When a buyer receives a sample and bases their purchasing decision on

  it, the sample sets an expectation for the production batch. Protection Under Law: According to the Uniform Commercial Code (UCC) in the United States, if the seller provides a sample, the actual goods delivered must match the quality of

  the sample. Conclusion: Given the parts received do not meet the quality of the samples provided, the buyer is protected as the samples served as an express warranty.

  References: Uniform Commercial Code (UCC) Article 2, Section 2-313.

• Question 135:

  Which of the following is the GREATEST benefit of inviting suppliers to visit the buyer's facility?

  A. Attendees can see how their products are used in the buying company's products.
  B. Attendees have a chance to analyze and benchmark against the competition.
  C. Attendees are given insight into new initiatives and strategic imperatives.
  D. Attendees can meet the customer's supply management team.
  A. Attendees can see how their products are used in the buying company's products.

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  Explanation

  Inviting suppliers to visit the buyer's facility allows them to observe firsthand how their products integrate into the buyer's operations. This visibility can enhance the suppliers' understanding of the buyer's needs and performance expectations,

  leading to better product development and more efficient service. It also fosters stronger relationships and collaboration, which can be critical for addressing any issues that arise and for continuous improvement efforts.

  References:

  Supplier Relationship Management: How to Maximize Vendor Value and Opportunity by Jonathan Hughes and Danny Ertel.

  ISM (Institute for Supply Management) Supplier Management guidelines.

• Question 136:

  A product's labor content is $10 and its overhead is $12.50. The product sells for $36.50 per unit. Over the past year, supply management has reduced the product's cost of materials from $14 per unit to $12. How much have supply management's efforts contributed to profit?

  A. $2.00
  B. $2.50
  C. $3.00
  D. $4.00
  A. $2.00

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  Explanation

  Initial Cost Calculation: Initially, the product's cost includes labor ($10), overhead ($12.50), and materials ($14). Thus, the total cost is $36.50 per unit.

  Cost Reduction: Supply management reduces the cost of materials from $14 to $12, decreasing the

  total cost per unit to $34.50.

  Contribution to Profit: The reduction in cost directly translates to an increase in profit per unit. The

  cost reduction is $2 per unit ($14 - $12).

  Profit Calculation: As the selling price remains $36.50, the new profit per unit after cost reduction is the selling price minus the new total cost ($36.50 - $34.50), which results in an increased profit of $2 per unit.

  References:

  ISM Glossary of Key Supply Management Terms

  CIPS Cost Management Tools and Techniques

• Question 137:

  A foundation maintains ongoing relationships with agents in several remote locations. The agents are recruited to serve as instructors for the foundation's microbusiness development program. The foundation's supply manager learns that one of the agents has gone outside the defined area of responsibility by having repairs made to the local office after a storm. The agent explains that the building was unusable and potentially dangerous, and had to be repaired. The agent tried to contact the foundation headquarters to request approval for the repairs, but communications were down. Which of the following is the BEST course of action for the supply manager to take?

  A. Reprimand the agent in writing, and consider termination if the agent oversteps authority again
  B. Require the agent to bear the cost of all repairs made without approval
  C. Create a new reporting structure for satellite offices to mitigate communication problems
  D. Ratify the action and authorize payment for repairs made at the agent's direction
  C. Create a new reporting structure for satellite offices to mitigate communication problems

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  Explanation

  Context: The agent acted outside their defined area of responsibility due to emergency circumstances (storm damage).

  Agent's Action: The agent repaired the local office because it was unsafe and attempted to contact headquarters but failed due to communication issues.

  Assessment: The agent's decision was necessary and justified given the situation.

  Ratification: Ratifying the action acknowledges the agent's initiative and ensures the foundation's operations and safety are maintained. Payment Authorization: Authorizing payment for the repairs ensures the agent is not penalized for making

  a necessary decision in an emergency. Conclusion: This approach maintains the relationship with the agent and shows support for proactive problem-solving under difficult conditions.

  References:

  Emergency Management and Incident Response by FEMA.

  Contract and Agency Law principles.

  Best practices in supply chain risk management.

• Question 138:

  A supply manager holds a competitive, sealed bid for a piece of capital equipment. The equipment is of critical importance to the company's operations. The potential bidders include local, national, and international suppliers, as the company

  wants to receive as many bids as possible.

  After the bid closing date, but before bid opening, a bidder contacts the supply manager and states that it made an error in its delivery time. The supplier asks if it can submit a corrected bid prior to opening. Which of the following is the BEST

  action for the supply manager to take?

  A. The supply manager should allow the supplier to submit a corrected bid subject to the approval of management during the bid opening.
  B. The supply manager should allowthe supplier towithdraw its bid.
  C. The supply manager should allowthe supplier tosubmit a corrected bid.
  D. The supply manager should allow the supplier to withdraw its bid, but suspend it from bidding for another six months.
  B. The supply manager should allowthe supplier towithdraw its bid.

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  Explanation

  Allowing the supplier to withdraw its bid is the best course of action because it maintains the integrity of the competitive bidding process. Accepting a corrected bid would compromise the fairness of the process and could lead to disputes or perceptions of favoritism. Suspension is unnecessarily punitive for an honest mistake.

  References: ISM Handbook of Supply Management: Guidelines for Competitive Bidding FAR (Federal Acquisition Regulation): Handling Bid Mistakes

• Question 139:

  Items of low value and complexity are typically categorized as which of the following

  A. Tactical
  B. Leverage
  C. Strategic
  D. Critical
  A. Tactical

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  Explanation

  Items of low value and complexity are typically categorized as tactical. These items are routine purchases that do not significantly impact the company's overall strategy or operations. They are often managed through standard procurement

  processes and do not require extensive analysis or strategic planning. The focus is on efficiency and cost-effectiveness in their acquisition and management.

  References:

  Kraljic, P. (1983). Purchasing Must Become Supply Management. Harvard Business Review.

  Van Weele, A.J. (2018). Purchasing and Supply Chain Management: Analysis, Strategy, Planning and Practice.

• Question 140:

  Which of the following is the BEST reason to develop relationships with a small number of suppliers?

  A. To identify innovation opportunities
  B. To obtain pricing improvements
  C. To decrease internal cultural barriers
  D. To Improve sourcing opportunities
  B. To obtain pricing improvements

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  Explanation

  Developing relationships with a small number of suppliers can provide several advantages, but the best reason in a supply management context is:

  To identify innovation opportunities: While important, this can be achieved with both few and many suppliers.

  To obtain pricing improvements: Focusing on fewer suppliers often results in better negotiation leverage and volume discounts, leading to pricing improvements.

  To decrease internal cultural barriers: This is less directly related to supplier relationship management.

  To improve sourcing opportunities: This can be done with multiple suppliers as well.

  Thus, the best reason to develop relationships with a small number of suppliers is to obtain pricing improvements.

  References:

  Supply chain management textbooks on supplier relationship management.

  Articles on the benefits of strategic supplier partnerships.