ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 211:

  During a business downturn, a supply manager for RST, Inc. learns that its key supplier is becoming concerned about the firm's unpaid invoices. In this situation, the BEST course of action for the supply manager to take would be to

  A. negotiate a payment plan that accommodates RST's situation but still incentivizes the supplier to do business with RST
  B. find another supplier with more favorable payment terms
  C. notify the supplier that future orders will likely be at risk without extended payment terms
  D. renegotiate the supplier's contract to include a clause that allows RST the option of returning unused goods for a full refund
  A. negotiate a payment plan that accommodates RST's situation but still incentivizes the supplier to do business with RST

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  Explanation

  The firm initially agreed to buy ethylene at $1000 per metric ton but renegotiated to $890 per metric ton after 3 months. For the first three months, the price difference is cost avoidance because the market price was $900 per metric ton, and

  the firm avoided paying this price. For the remaining nine months, the difference between the original contract price ($1000) and the renegotiated price ($890) represents a cost reduction.

  Cost avoidance: (900 - 890) * 200 * 9 = $180,000

  Cost reduction: (1000 - 890) * 200 * 9 = $198,000 Total savings: $264,000 cost reduction + $240,000 cost avoidance.

  References: Cost management principles in procurement, cost avoidance vs. cost reduction strategies.

• Question 212:

  Which of the following would be classified as indirect spend?

  A. Raw materials
  B. Office supplies
  C. Components for production
  D. Packaging materials
  B. Office supplies

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  Explanation

  Office supplies are indirect because they support operations but are not part of the finished product.

• Question 213:

  A supply manager is working with multiple management layers to create a procurement policy. Which of the following should the supply manager do FIRST in order to ensure that this policy is successfully adopted by the organization?

  A. Host a meeting with key external suppliers to understand engagement for policy adoption
  B. Host a meeting with key internal stakeholders to review the proposed policy
  C. Engage business unit sponsors to ensure adoption throughout the organization
  D. Verify that senior management approves and distributes the policy to the organization
  B. Host a meeting with key internal stakeholders to review the proposed policy

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  Explanation

  Initial Steps in Policy Creation: The supply manager needs to ensure the policy is successfully adopted across the organization. Engaging Internal Stakeholders: Hosting a meeting with key internal stakeholders is the first step to gather input,

  address concerns, and ensure the policy aligns with organizational needs. Stakeholder Buy-in: This approach helps in gaining the support and buy-in from those who will be directly affected by the policy, making its implementation smoother.

  Policy Review and Feedback: Reviewing the proposed policy with internal stakeholders allows for adjustments based on practical insights and encourages a sense of ownership among stakeholders.

  References:

  CIPS. (n.d.). How to Develop and Implement a Procurement Policy.

  Supply Chain Management Review. (2017). Effective Procurement Policy Development and Implementation.

• Question 214:

  A supply manager for JKL, Inc., a high-tech services firm, is asked to expedite an order for training on new fire suppression equipment. The equipment Is due to arrive within the month and must be put into immediate use to comply with

  governmental regulations. A training company has already been found by JKL's human resources department and has committed to providing classes on a rush schedule. JKL has not done business with this training firm before, although they

  have received excellent evaluations from other clients.

  In this situation, which of the following is the FIRST action the supply manager should take?

  A. Negotiate a master service agreement and SOW with the training company
  B. Review the training company's pricing
  C. Request an invoice from the training company
  D. Notify the training company that no contract exists because human resources did not have proper authority
  A. Negotiate a master service agreement and SOW with the training company

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  Explanation

  The first action the supply manager should take is to negotiate a master service agreement (MSA) and a statement of work (SOW) with the training company. This establishes the terms and conditions for the services to be provided, including

  scope, deliverables, timelines, and pricing. An MSA and SOW provide a clear framework for the working relationship, ensuring that both parties understand their responsibilities and expectations. It mitigates risks associated with service

  delivery, especially given the urgent need for training and the fact that JKL has not previously worked with this training company.

  References:

  Legal Aspects of Purchasing and Supply Chain Management by Ian Longdin.

  Professional Services Procurement: How to Assess and Prioritize the Value of Consulting Services by Magnus Carlsson.

• Question 215:

  A manufacturing firm creates a steering committee to review a proposal to manufacture a new product. The product is regarded by the firm's sales team as a customer requirement based on "voice of the customer" input. In the past, this product was seen as a high-risk noncore item, but the situation has now changed enough for the firm to warrant consideration. The firm's supply manager is tasked with developing a sourcing plan for the steering committee. In this situation, which of the following is the NEXT course of action the supply manager should take?

  A. Conduct a strengths, weaknesses, opportunities and threats (SWOT) analysis
  B. Conduct market research on the options available for the product discussed
  C. Create a request for information (RFI) and find the best qualified suppliers with which to develop a sourcing plan
  D. Create a scope of work outlining the requirements, and submit it to stakeholders for review and approval
  D. Create a scope of work outlining the requirements, and submit it to stakeholders for review and approval

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  Explanation

  In developing a sourcing plan for a new product, the first logical step for the supply manager is to create a scope of work (SOW). The SOW should detail the specific requirements and expectations for the product, including quality, delivery,

  performance specifications, and any other pertinent criteria. Once the SOW is prepared, it should be submitted to stakeholders for review and approval. This ensures alignment and buy-in from all relevant parties before proceeding with the

  procurement process.

  References:

  The Procurement and Supply Manager's Desk Reference by Fred Sollish and John Semanik

  Project Management Institute (PMI) guidelines

• Question 216:

  One of TUV Company's largest suppliers has been performing poorly, and the quality of its services does not meet the needs of a particular stakeholder. Which of the following is the BEST way for TUV's supply manager to evaluate how to establish service level agreements (SLAs) to improve the performance of this supplier?

  A. Request that the supplier provide a set of metrics to be used in measuring performance
  B. Develop measurements of supplier performance with the stakeholder, and include those measurements in an amendment to the contract
  C. Notify the supplier that its level of performance is not acceptable, and renegotiate contract pricing to reflect the supplier's performance
  D. Notify the supplier of the performance issues, and terminate the contract if the supplier does not correct performance within thirty days
  B. Develop measurements of supplier performance with the stakeholder, and include those measurements in an amendment to the contract

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  Explanation

  Identify Stakeholder Needs: Understanding the specific performance issues as identified by the stakeholder.

  Collaborative Measurement Development: Working with the stakeholder to develop specific, measurable, achievable, relevant, and time-bound (SMART) performance metrics. Contract Amendment: Including these agreed-upon performance

  metrics in the contract ensures that the supplier is contractually obligated to meet these standards. Monitor and Review: Regularly reviewing these performance metrics to ensure continuous improvement and compliance by the supplier.

  References: Supplier Performance Management Literature Contract Management Best Practices Service Level Agreement Guidelines

• Question 217:

  Which of the following will be MOST useful for gathering market intelligence and data on the general capabilities of potential suppliers?

  A. Request for information (RFI)
  B. Statement of work (SOW)
  C. Request for proposal (RFP)
  D. Price quotes
  A. Request for information (RFI)

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  Explanation

  Purpose of RFI: A Request for Information (RFI) is used to gather information about the capabilities of potential suppliers.

  Market Intelligence: RFIs are useful for understanding the market landscape, including the general capabilities and capacity of suppliers. Supplier Capabilities: It allows the buying firm to assess the technical, operational, and financial

  capabilities of suppliers before proceeding to more detailed procurement steps. Broader Scope: Unlike RFQs and RFPs, which are more specific, RFIs are open-ended and exploratory, making them ideal for gathering a wide range of

  information.

  References:

  CIPS (Chartered Institute of Procurement and Supply) guidelines on supplier selection processes.

• Question 218:

  An aerospace company has a long-standing partnering relationship with a supplier to develop a new technology. This technology gives the buying organization a competitive advantage. Which of the following BEST describes this type of supplier?

  A. Approved
  B. Strategic
  C. Transactional
  D. Preferred
  B. Strategic

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  Explanation

  A supplier that collaborates closely to develop new technology and provides a competitive advantage is best described as:

  Approved: This generally refers to suppliers that meet basic qualification criteria.

  Strategic: This term denotes a supplier with whom the company has a long-term partnership, often involving significant collaboration and integration, contributing to competitive advantages. Transactional: These suppliers are engaged for

  routine purchases without significant collaboration. Preferred: This status is higher than approved but does not necessarily imply a strategic partnership.

  Given the context, the supplier is best described as strategic.

  References:

  Supplier relationship management literature.

  Institute for Supply Management (ISM) guidelines on strategic partnerships.

• Question 219:

  A company that wants to add value to its operations should work with its suppliers on which of the following?

  A. Increasing communication
  B. Using continuous improvement
  C. Monitoring material costs
  D. Lengthening payment terms
  B. Using continuous improvement

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  Explanation

  To add value to its operations, a company should work with its suppliers on continuous improvement initiatives. Continuous improvement involves ongoing efforts to enhance products, services, or processes, which can lead to increased

  efficiency, reduced waste, better quality, and cost savings over time. This approach fosters a collaborative relationship with suppliers, encouraging innovation and joint problem-solving, ultimately benefiting both parties.

  Increasing communication: While important, it is more of a foundational aspect rather than a direct value-adding strategy.

  Using continuous improvement: This directly leads to value addition by systematically refining operations and achieving higher standards.

  Monitoring material costs: Important for cost control but doesn't inherently add value beyond ensuring costs are managed.

  Lengthening payment terms: Affects cash flow management but does not necessarily add operational value.

  Therefore, the most appropriate strategy to add value is working on continuous improvement.

  References:

  Institute for Supply Management (ISM) guidelines on supplier collaboration.

  Lean manufacturing principles on continuous improvement (Kaizen).

• Question 220:

  What is the PRIMARY objective of benchmarking in supply management?

  A. To identify best practices and performance gaps
  B. To evaluate contract risk exposure
  C. To define total supplier cost structure
  D. To establish contract renewal criteria
  A. To identify best practices and performance gaps

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  Explanation

  Benchmarking compares internal performance against industry leaders to identify areas for improvement and competitive advantage.