ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 141:

  A business unit conducts discussions with key management members that Include category overviews, contracting executive summaries, local content spending plans, sourcing timelines, and cost management/value creation. These presentations can BEST be described as which of the following?

  A. Commodity segmentation
  B. Contracting plan
  C. Spend analysis
  D. Category action plan
  D. Category action plan

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  Explanation

  The business unit conducts discussions that include category overviews, contracting executive summaries, local content spending plans, sourcing timelines, and cost management/value creation. These elements collectively describe a

  strategic approach to managing a specific category of spend.

  Commodity segmentation refers to dividing products or services into categories based on similar characteristics.

  Contracting plan outlines the approach for negotiating and establishing contracts.

  Spend analysis involves examining historical spending to identify patterns and opportunities for cost savings.

  Category action plan is a comprehensive approach that includes all aspects of managing a category, from market analysis to implementation strategies. Given the scope and elements involved in the discussions described, they align best with

  a category action plan which encompasses category overviews, contracting summaries, and strategic planning for sourcing and cost management.

  References:

  Institute for Supply Management (ISM) guidelines on category management.

  CIPS (Chartered Institute of Procurement and Supply) literature on category management best practices.

• Question 142:

  A commodity manager at company headquarters is given responsibility for consolidating spend among all the company's locations, with the goal of leveraging larger volumes. The manager collects data on spend categories, analyzes the information by supplier and type of material, and sends out goals for combining spend and reducing the number of suppliers. Several locations express reluctance to participate, saying that their needs for quality and delivery of critical parts have not been taken into consideration. Based on this situation, which of the following errors was MOST likely made by the commodity manager?

  A. Data were collected for too short a period of time.
  B. Sourcing files were insufficiently documented.
  C. Stakeholder Input was not sought or considered.
  D. Analysis factors were poorly chosen.
  C. Stakeholder Input was not sought or considered.

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  Explanation

  The commodity manager likely failed to seek or consider stakeholder input, leading to reluctance from various locations. Effective spend consolidation requires understanding and addressing the specific needs and concerns of all

  stakeholders involved, particularly regarding quality and delivery requirements. Without this, the proposed changes might not align with the operational realities and expectations of the locations, causing resistance.

  References: Stakeholder management principles, change management in procurement, spend analysis techniques.

• Question 143:

  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

  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 144:

  It takes an employee 30 minutes to produce the first unit of an item. If an 80% unit learning curve is in effect, what is the projected time required to produce the eighth unit?

  A. 15.36 minutes
  B. 19.21 minutes
  C. 24.00 minutes
  D. 12.30 minutes
  A. 15.36 minutes

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  Explanation

  To calculate the projected time required to produce the eighth unit under an 80% learning curve, we use the learning curve formula. The learning curve indicates that each time production doubles, the time required per unit decreases to 80%

  of the previous time.

  References:

  Chase, R. B., Jacobs,

  F. R., and Aquilano, N. J. (2006). Operations Management for Competitive Advantage. McGraw-Hill.

  Learning curve theory and application articles from professional operations management resources.

• Question 145:

  A supply manager Is conducting financial analyses of bidders. The supply manager wants to select the supplier that is the most efficient in its use of assets. Based on the following information, which supplier should the supply manager choose?

  A. Supplier D:Netincome=50, Assets = 20
  B. Supplier A:Netincome=100,Assets=100
  C. Supplier B:Netincome=200,Assets=100
  D. Supplier C:Netincome=200,Assets=400
  A. Supplier D:Netincome=50, Assets = 20

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  Explanation

  The supply manager is looking for the supplier that is most efficient in its use of assets, which is measured by the return on assets (ROA). ROA is calculated as net income divided by total assets.

  For each supplier:

  Supplier A: ROA = 100 / 100 = 1.0

  Supplier B: ROA = 200 / 100 = 2.0

  Supplier C: ROA = 200 / 400 = 0.5

  Supplier D: ROA = 50 / 20 = 2.5 Supplier D has the highest ROA, indicating it is the most efficient in its use of assets.

  References:

  Financial Management for Supply Chain Management by Michael

  D. Waters Principles of Corporate Finance by Richard A. Brealey, Stewart

  C. Myers, and Franklin Allen

• Question 146:

  A manufacturing company with plants and suppliers in numerous locations wants to cut its travel budget for the next year by 20%. Which of the following is MOST likely to help reduce travel costs?

  A. Expanding use of video conferencing as an alternative to travel
  B. Obtaining discounts from preferred providers of travel services
  C. Sending an individual rather than a team when conducting site visits
  A. Expanding use of video conferencing as an alternative to travel

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  Explanation

  To reduce travel costs, expanding the use of video conferencing as an alternative to travel is the most effective solution. Video conferencing can significantly cut down on the need for physical travel, allowing for virtual meetings and

  collaboration. This approach not only reduces travel expenses but also saves time and increases productivity by enabling more frequent and flexible communication without the need for extensive travel.

  References:

  "Supply Chain Management: Strategy, Planning, and Operation" by Sunil Chopra and Peter Meindl Articles on cost management and technology adoption in supply chain management from the Journal of Business Logistics

• Question 147:

  Which of the following is the MOST important reason for supply management to share company business plans with current and prospective suppliers?

  A. To set the stage for supplier concessions and discounts
  B. To remind suppliers how important supply management is to their success
  C. To show suppliers the benefits of investing time and resources into the relationship
  D. To prevent any problems or misunderstandings in the buyer/supplier relationship
  C. To show suppliers the benefits of investing time and resources into the relationship

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  Explanation

  Sharing Business Plans: When supply management shares company business plans with suppliers, it provides transparency and insight into the company's future direction and goals. Supplier Investment: By understanding the company's plans, suppliers can see the potential long-term benefits of the relationship, encouraging them to invest time, resources, and innovation to meet the company's needs. Strategic Alignment: This alignment helps in building stronger partnerships, fostering collaboration, and ensuring that suppliers are aligned with the company's strategic objectives. Avoiding Problems: While preventing misunderstandings and setting the stage for discounts are benefits, the primary reason is to demonstrate the value of the relationship to suppliers.

  References: ISM Professional Series: Supplier Relationship Management CIPS Guide to Supplier Relationship Management

• Question 148:

  IJK, Inc. is currently under contract with Supplier X to provide parts utilized in retail products manufactured by IJK. Demand for UK's products is expected to increase dramatically, and thus the firm's supply manager wants to explore possible cost savings. Supplier X has been a reliable supplier for many years and provides excellent quality, on-time service, and a willingness to work with UK on improvements. However, the supply manager believes Supplier X's price is too high, as a competitor is offering a lower price. Given this situation, which of the following is the BEST course of action for UK's supply manager to take?

  A. Demand concessions from Supplier X
  B. Meet with Supplier X with the intent of working to reduce costs
  C. Do nothing for the moment, but wait to see how much volume increases
  D. Transition to the competitor offering the lower price
  B. Meet with Supplier X with the intent of working to reduce costs

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  Explanation

  Given Supplier X's long-standing reliability, quality, and willingness to collaborate, the best approach for the supply manager is to meet with Supplier X to discuss cost reductions. This collaborative approach maintains the positive relationship

  and leverages Supplier X's established performance. The supply manager can present the competitor's lower pricing as a benchmark, encouraging Supplier X to find ways to reduce costs without sacrificing quality or service.

  References:

  Supplier Relationship Management: Unlocking the Hidden Value in Your Supply Base by Jonathan O'Brien

  "Negotiation and Supplier Management" - Institute for Supply Management (ISM)

• Question 149:

  Which financial document best indicates a supplier's profitability?

  A. Cash Flow Statement
  B. Balance Sheet
  C. Income Statement
  D. Trial Balance
  C. Income Statement

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  Explanation

  The income statement provides a clear view of a supplier's revenues, costs, and net profit, helping evaluate profitability.

• Question 150:

  What is the landed cost per unit for the following item? Item cost$.76 Packaging for shipment$.02 Shipping from Indonesia$.14 Duty$.03 Customs clearance$.10 Storage at buyer's warehouse$.09 Shipment from warehouse to plant$.06

  A. $1.14
  B. $1.03
  C. $1.05
  D. $1.20
  D. $1.20

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  Explanation

  Item cost: $0.76 Packaging for shipment: $0.02 Shipping from Indonesia: $0.14 Duty: $0.03 Customs clearance: $0.10 Storage at buyer's warehouse: $0.09 Shipment from warehouse to plant: $0.06 Calculate the total landed cost per unit:

  Sum of all the costs.

  Total Landed Cost = $0.76 + $0.02 + $0.14 + $0.03 + $0.10 + $0.09 + $0.06 = $1.20

  References:

  CIPS. (n.d.). Understanding Total Landed Cost in Procurement.

  ISM. (n.d.). Calculating Total Landed Cost for Procurement Decisions.