ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 171:

  A supply manager needs to ensure that all suppliers adhere to environmental regulations. Which document should include these requirements?

  A. Service Level Agreement
  B. Code of Conduct
  C. Non-Disclosure Agreement
  D. Confidentiality Clause
  B. Code of Conduct

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  Explanation

  The supplier Code of Conduct defines social, ethical, and environmental compliance requirements, ensuring all vendors follow corporate responsibility policies.

• Question 172:

  A buying firm learns that its sole supplier of a critical part is being sued by an employee for negligence. The firm is currently in negotiations with this supplier. To minimize or avoid risk, which of the following is the BEST tactic for the buying firm to utilize in this situation?

  A. Postpone the negotiations until after the suit is settled
  B. Request more favorable payment terms
  C. Complete the negotiations while monitoring the situation
  D. Purchase an all-risk insurance policy
  C. Complete the negotiations while monitoring the situation

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  Explanation

  In this situation, the best tactic is to continue negotiations while keeping an eye on the lawsuit's progress. This approach allows the buying firm to proceed with securing the critical part needed for operations without significant delays.

  Postponing negotiations (A) could lead to operational disruptions, while requesting more favorable payment terms (B) might not address the underlying risk associated with the lawsuit. Purchasing an all-risk insurance policy (D) could be a

  complementary action but does not directly resolve the immediate need to negotiate terms with the supplier.

  References: Concepts of risk management and supplier relationship management in supply chain and procurement textbooks.

• Question 173:

  A company has recently moved to outsourcing and low-cost country sourcing for two key product lines, and the supply manager has seen some of the cost savings erode as the supply chain and related distances increase. However, the supply manager is certain that by working with the new supply base, many of the savings previously earned could be regained, especially since raw material lead times have actually decreased in the marketplace, and cycle time in most offshore assembly plants has been reduced by 35%. Which of the following should be employed?

  A. Value chain analysis
  B. Supplier alliance development
  C. Supplier mentorship
  D. Multi-tier purchase agreements
  B. Supplier alliance development

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  Explanation

  The supply manager aims to regain the lost cost savings by collaborating closely with the new supply base. Supplier alliance development is a strategic approach that involves working together with suppliers to improve processes, reduce

  costs, and enhance overall performance. Given the reduction in raw material lead times and offshore assembly cycle times, a strong alliance with suppliers can streamline the supply chain, optimize efficiencies, and restore cost savings.

  References:

  Strategic Supply Chain Management by Cohen and Roussel.

  Best practices in supplier relationship management and alliance development.

• Question 174:

  A company's accounting department implements a new system to track liabilities for capital assets. The reports developed by this system exclude some important indirect procurement data (e.g., transactions related to test equipment), as this information is tracked by another system. Which of the following is the BEST course of action for the firm to take in this situation?

  A. Estimate the total debts and assets being tracked outside the system and correct any large variances on a quarterly basis
  B. Notify senior management that reports from the new system may understate the company's debts and assets
  C. Notify the entire organization of the issue during the next iteration of the tool
  D. Take no action, as the aggregate numbers reported to shareholders will not be severely affected
  B. Notify senior management that reports from the new system may understate the company's debts and assets

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  Explanation

  The new accounting system implemented by the company's accounting department excludes some important indirect procurement data, leading to incomplete reports. The best course of action is to notify senior management about the

  potential understatement of the company's debts and assets. This ensures transparency and allows senior management to take necessary steps to address the issue, such as integrating the data from the other system or adjusting their

  decision-making processes accordingly.

  References:

  Financial Accounting Standards Board (FASB). Reporting standards and guidelines.

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

  Control-Integrated Framework.

• Question 175:

  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

  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 176:

  Questions pertaining to standardizing products, reducing the number of suppliers, and combining volumes to attain better pricing are BEST addressed by which of the following?

  A. Category strategy
  B. Spend analysis
  C. ERP system
  D. Category action plan
  A. Category strategy

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  Explanation

  A category strategy involves analyzing and managing specific categories of products or services to achieve better pricing, quality, and supplier relationships. By standardizing products, reducing the number of suppliers, and combining

  volumes, the company can leverage its purchasing power to negotiate better terms and conditions. This approach is comprehensive and strategic, focusing on optimizing procurement and supply chain management for specific categories.

  References:

  CIPS (Chartered Institute of Procurement and Supply). Category Management in Procurement.

  ISM (Institute for Supply Management). Strategic Sourcing and Category Management.

• Question 177:

  During negotiations with a supply manager from FGH Inc., a supplier states that if FGH buys the 200 gigabyte version of its software package at a price of $700, the supplier will include a never-before-sold malware license valued at $147. FGH needs both the malware and the software package. If the supply manager agrees to the offer, FGH may claim a

  A. cost savings
  B. cost variance
  C. cost avoidance
  D. cost reduction
  C. cost avoidance

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  Explanation

  Supplier Offer: The supplier offers the 200-gigabyte software package at $700, including a malware license valued at $147. FGH's Needs: FGH needs both the software package and the malware license.

  Cost Avoidance: By accepting the supplier's offer, FGH avoids the additional cost of purchasing the malware license separately. Cost avoidance refers to actions taken to prevent incurring costs in the future.

  References: ISM. (n.d.). Understanding Cost Savings and Cost Avoidance. CIPS. (n.d.). Cost Management in Procurement.

• Question 178:

  A company's internal ordering system for indirect spend generally works well, though one group of products is often ordered under the wrong commodity codes, making spend history inaccurate. Which of the following will MOST likely improve data accuracy?

  A. Issuing new ordering instructions to all internal departments
  B. Reviewing orders online before they are finalized
  C. Adding a drop-down menu for selecting item categories
  D. Reporting order accuracy rates to the users' supervisors
  C. Adding a drop-down menu for selecting item categories

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  Explanation

  Context: The internal ordering system is mostly effective, but misclassification of one product group under incorrect commodity codes is an issue.

  Problem: Incorrect commodity codes lead to inaccurate spend history.

  Solution: Introducing a drop-down menu helps users select the correct item categories, reducing errors.

  User-Friendliness: A drop-down menu simplifies the selection process, minimizing the chance of incorrect entries.

  Accuracy Improvement: Automating and guiding the selection process ensures data accuracy.

  Conclusion: This approach is likely to improve data accuracy without requiring extensive training or procedural changes.

  References:

  Data Management for Procurement by CIPS.

  Best practices in spend analysis and data classification.

• Question 179:

  According to the Law of Agency, a supply manager acting as an agent makes decisions and acts in whose interest(s)?

  A. The interests of the profession
  B. His/her personal interest
  C. The interest of the organization that employs him/her
  D. The interests of the supplier which overlap with those of the buyer
  C. The interest of the organization that employs him/her

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  Explanation

  The Law of Agency establishes the legal relationship where an agent (in this case, the supply manager) acts on behalf of a principal (the organization). The supply manager, as an agent, has a fiduciary duty to act in the best interests of the organization that employs them. This means making decisions and taking actions that align with the organization's goals, policies, and best interests, rather than personal interests, professional norms, or overlapping interests of suppliers.

  References: CIPS (Chartered Institute of Procurement and Supply) guidelines on the Law of Agency "Supply Management" by David N. Burt, Sheila Petcavage, and Richard Pinkerton

• Question 180:

  A supply manager concludes that the best source for a critical component is a manufacturer located in an overseas country. The supplier's pricing and reputation are excellent, but it is in an area that Is politically and economically unstable. The supply manager has no experience in this country, but needs to build a relationship with the supplier. Given this situation, which of the following will be MOST helpful in the long-term?

  A. A secure EDI system established with the overseas supplier
  B. The establishment of an international supply management office
  C. A clause in the contract stating that the buyer's language will serve as the lingua franca
  D. The employment of a trading agent to facilitate transactions
  D. The employment of a trading agent to facilitate transactions

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  Explanation

  Given the political and economic instability of the supplier's location, employing a trading agent can be the most helpful long-term solution. A trading agent, with expertise in the local market and conditions, can navigate complexities, facilitate

  transactions, and manage risks associated with dealing in an unstable region. This agent can provide on-the-ground support, ensure smoother communication, and help build a strong relationship with the supplier.

  References:

  "Global Supply Chain Management: Leveraging Processes, Measurements, and Tools for Strategic Corporate Advantage" by Matt Drake Articles on international trade and risk management in supply chain management journals