ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 201:

  A large manufacturing firm has offices across the country. The company wants to obtain the best price and reduce administrative costs associated with procuring office supplies. Which of the following would be BEST suited to the firm's needs?

  A. Blanket agreement
  B. Indefinite delivery contract
  C. Master purchasing agreement
  D. Manufacturing resource planning
  A. Blanket agreement

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  Explanation

  A blanket agreement is best suited to the firm's needs to obtain the best price and reduce administrative costs for procuring office supplies. A blanket agreement allows the company to negotiate a fixed price for supplies over a specified

  period and simplifies the procurement process by reducing the need for multiple purchase orders. This type of agreement can leverage the firm's total buying power to achieve cost savings and reduce the administrative burden associated

  with frequent individual purchases.

  References:

  Monczka, R. M., Handfield, R. B., Giunipero, L. C., and Patterson, J. L. (2015). Purchasing and Supply Chain Management.

  ISM (Institute for Supply Management). (2020). ISM Glossary of Key Supply Management Terms.

• Question 202:

  A firm is developing a solicitation to purchase materials in order to meet the needs of a new product launch. The firm anticipates that some or all of its existing suppliers will respond to the solicitation. Given this situation, which of the following is the BEST requirements gathering approach for the firm?

  A. Describe, define, document and build approach
  B. Joint requirements development sessions
  C. Repetitive requirements gathering and testing
  D. Pilot and redesign approach
  B. Joint requirements development sessions

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  Explanation

  Situation Context: The firm is developing a solicitation for materials for a new product launch, and existing suppliers are expected to respond. Collaboration Need: Joint requirements development sessions involve collaborating with key stakeholders, including existing suppliers, to gather comprehensive requirements. Detailed Understanding: This approach ensures a detailed and accurate understanding of the needs, leveraging the suppliers' expertise and knowledge of their capabilities. Alignment: It aligns the expectations of all parties involved, resulting in more precise and effective solicitation documents. Outcome: This method increases the likelihood of receiving proposals that meet the firm's exact requirements and supports a successful new product launch.

  References: ISM Professional Series: Supply Management Core CIPS Guide to Procurement Requirements Gathering

• Question 203:

  Which negotiation approach focuses on maintaining long-term mutual benefit?

  A. Competitive bargaining
  B. Collaborative negotiation
  C. Positional bargaining
  D. Concession trading
  B. Collaborative negotiation

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  Explanation

  Collaborative negotiation emphasizes partnership, trust, and shared value, strengthening supplier relationships over time.

• Question 204:

  A small company identifies a market need for a new device. However, the firm is relatively young and does not have much design expertise. In this situation, which of the following would be the BEST option for bringing the new product concept to market?

  A. Develop detailed performance specifications for potential suppliers to use
  B. Develop detailed design specifications for potential suppliers to use
  C. Issue a detailed Statement of Work (SOW) for the new device
  D. Engage in a multiple sourcing arrangement to gather several design solutions
  A. Develop detailed performance specifications for potential suppliers to use

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  Explanation

  Company's Limitations: The firm is young and lacks design expertise.

  Performance Specifications: Developing detailed performance specifications focuses on what the new device should achieve rather than how to design it. Leveraging Supplier Expertise: This approach allows potential suppliers to use their

  design expertise to meet the performance requirements, which is beneficial given the company's lack of design capability. Ensuring Quality and Innovation: By setting clear performance criteria, the company ensures that the new product

  meets market needs and leverages suppliers' strengths to deliver innovative solutions.

  References:

  ISM. (n.d.). Developing Specifications and Standards in Procurement.

  Harvard Business Review. (2016). How to Develop Effective Product Specifications.

• Question 205:

  Which of the following is the FIRST step in developing a supplier diversity strategy?

  A. Establish measurable goals for diverse supplier participation
  B. Identify potential diverse suppliers in the marketplace
  C. Obtain executive sponsorship for the program
  D. Define the policy and purpose of the initiative
  D. Define the policy and purpose of the initiative

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  Explanation

  Defining the policy and purpose establishes the foundation for the supplier diversity strategy, ensuring alignment with corporate values and compliance before measurable goals are set.

• Question 206:

  When evaluating bids, the MOST critical aspect Is ensuring the quote meets the solicitation's

  A. quality requirements
  B. specifications
  C. technical capabilities
  D. terms and conditions
  B. specifications

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  Explanation

  When evaluating bids, ensuring the quote meets the solicitation's specifications is most critical. Specifications detail the precise requirements that the product or service must fulfill. While quality, technical capabilities, and terms and conditions

  are also important, specifications are the primary criteria for determining if the bid meets the needs of the project. Without meeting the specifications, the bid cannot be considered viable, regardless of other factors.

  References: Procurement and supply chain management textbooks, bid evaluation guidelines.

• Question 207:

  MNO Inc. is a U.S.-based manufacturing company that imports sub-assemblies from Asia and incorporates them into several products. The firm orders in large quantities to obtain the lowest price per unit, and then pulls the items as required to produce finished goods. MNO wishes to improve its cash flow and seeks ways to reduce the impact of import duties. Which of the following Is the BEST approach for the company to use?

  A. Review tariff classifications for potential savings opportunities
  B. Place goods in a bonded warehouse and delay duty payment
  C. Apply for duty refunds when goods are exported
  D. Obtain a temporary import bond
  B. Place goods in a bonded warehouse and delay duty payment

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  Explanation

  Placing goods in a bonded warehouse allows MNO Inc. to defer the payment of import duties until the goods are withdrawn for use. This can improve cash flow by delaying duty payments and reducing the immediate financial burden. Goods stored in a bonded warehouse are not subject to import duties until they are removed from the warehouse, which helps in managing cash flow more effectively.

• Question 208:

  A machine that costs $200,000 is expected to realize an annual savings of $35,000. What is the simple ROI for this piece of equipment?

  A. 57.5%
  B. 31.5%
  C. 20.0%
  D. 17.5%
  D. 17.5%

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  Explanation

  To calculate the simple Return on Investment (ROI), we use the formula:

  (which can be considered as

  the net return) is $35,000, we can plug these values into the formula:

  Therefore, the simple ROI for this piece of equipment is 17.5%1.

• Question 209:

  A U.S. firm receives several blds for a piece of specialized testing equipment. A supplier from Japan quotes a price of 360,000 Yen. If the current exchange rate is 90 Yen per U.S. Dollar, what will the price be in U.S. dollars?

  A. $3,240
  B. $40,000
  C. $32,400
  D. $4,000
  C. $32,400

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  Explanation

  To determine the price in U.S. dollars for the specialized testing equipment quoted at 360,000 Yen with an exchange rate of 90 Yen per U.S. Dollar:

  Understand the exchange rate: 1 USD = 90 Yen.

  Convert the quoted price in Yen to USD: Price in USD=360,000 Yen90 Yen/USD\text{Price in USD} = \frac{360,000 \text{ Yen}}{90 \text{ Yen/USD}}Price in USD=90 Yen/USD360,000 Yen Price in USD=4,000 USD\text{Price in USD} = 4,000

  \text{ USD}Price in USD=4,000 USD

  Thus, the price in U.S. dollars is $4,000.

  References:

  Currency conversion principles.

  Current exchange rates from financial news sources.

• Question 210:

  Which of the following contract types is an agreement to pay a specified price when the items or services have been delivered and accepted?

  A. Incentive
  B. Fixed price incentive
  C. Firm fixed price
  D. Cost
  C. Firm fixed price

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  Explanation

  A firm fixed price (FFP) contract is an agreement where the buyer agrees to pay a specified price when the items or services have been delivered and accepted. This type of contract provides certainty in pricing for both the buyer and the supplier, ensuring that the supplier bears the risk of cost overruns. Incentive contracts (Option A) provide additional payments based on performance, fixed price incentive (Option B) includes some flexibility in final costs, and cost contracts (Option D) reimburse the supplier for allowable costs plus a fee.

  References: Types of Contracts in Supply Management Procurement and Contract Management Literature