ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 221:

  When developing a supplier exit strategy, which of the following is generally considered the MOST important internal consideration?

  A. Minimizing termination penalties
  B. Developing and enforcing policies
  C. Obtaining the lowest possible price
  D. Maintaining continuity of supply
  D. Maintaining continuity of supply

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  Explanation

  Assess Risk: Understand the risk associated with terminating a supplier and the impact on the supply chain.

  Continuity of Supply: Ensuring that there is no disruption in the supply of critical materials or services is paramount.

  Strategic Planning: Developing a comprehensive exit strategy that includes alternative suppliers or contingency plans.

  Minimizing Impact: Minimize any negative impact on production schedules, customer commitments, and overall supply chain stability.

  References: Supplier Exit Strategies Risk Management in Supply Chain Continuity Planning Resources

• Question 222:

  An international company is conducting its annual review of its supply management processes to confirm compliance to corporate legal requirements. An external audit team plans to visit each location. Which of the following is the MOST important activity each supply management professional should perform in order to prepare for the audit?

  A. Review the order, receipt, and payment process with the accounting department
  B. Review the ISM Principles and Standards of Ethical Supply Management Conduct
  C. Review company supply management policies with strategic suppliers
  D. Review supply management activities to verify adherence to policies and procedures
  D. Review supply management activities to verify adherence to policies and procedures

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  Explanation

  To prepare for an external audit focused on compliance with corporate legal requirements, it is essential to ensure that all supply management activities adhere to the company's policies and procedures. This involves a thorough review and

  verification process, which helps identify and address any discrepancies or non-compliance issues before the audit, ensuring a smooth and successful audit outcome.

  References:

  Guidelines on preparing for external audits in supply chain management.

  ISM Principles and Standards of Ethical Supply Management Conduct.

• Question 223:

  A supply manager for JKL, Inc. finds a potential new supplier for an item included In a finished product. Quality and service are comparable to those of the current supplier, and the new supplier's cost per unit is $.03 lower than that of the current supplier. Making the transition to the new supplier will require changes to operations costing approximately $12,000. How many units would JKL need to buy in order to justify changing suppliers?

  A. 400,001
  B. 40,001
  C. 36,001
  D. 360,001
  A. 400,001

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  Explanation

  To determine how many units JKL, Inc. needs to buy to justify changing suppliers, the following steps are taken:

  Calculate the Cost Savings per Unit:

  Current supplier cost per unit: X

  New supplier cost per unit: X - $0.03

  Savings per unit: $0.03

  Determine the Transition Cost:

  Transition cost to the new supplier: $12,000

  Calculate the Break-Even Point:

  The break-even point is when the total savings equal the transition cost.

  Number of units = $12,000 / $0.03

  Number of units = 400,000

  Therefore, JKL, Inc. needs to buy 400,001 units to justify changing suppliers, as the 400,000 units would only cover the transition cost, and any additional units would result in actual savings.

  References:

  Cost-benefit analysis in supply chain management.

  Break-even analysis principles in procurement decisions.

• Question 224:

  XI Corporation awards a contract for the building of a prototype critical to its introduction of a new product line. To protect itself against delays and unsatisfactory quality, which of the following is MOST appropriate for Xi's supply manager to require from the contractor?

  A. Performance bond
  B. Letter of credit
  C. Earnest money
  D. Payment bond
  A. Performance bond

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  Explanation

  A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. In the context of XI Corporation, requiring a performance bond from the contractor is most

  appropriate to protect against delays and unsatisfactory quality. This bond ensures that if the contractor fails to perform the contractual obligations, the bond issuer will cover the costs to complete the project or compensate for the financial

  losses incurred. It provides a financial assurance that the project will meet the required standards and timelines.

  References:

  Construction Contracting: Business and Legal Principles by Richard

  H. Clough and Glenn A. Sears.

  Principles of Supply Chain Management: A Balanced Approach by Joel

  D. Wisner, Keah-Choon Tan, and

  G. Keong Leong.

• Question 225:

  An audit identifies discrepancies in purchasing and payments within a specific division of a company. An investigation determines that a supply manager has been paying invoices for materials not yet received. Though the firm has mechanisms in place to report any concerns, the supply manager was granted the authority to place orders, receive material, and pay invoices, and therefore none of the employees believed this was a reportable offense. This situation represents a failure of which of the following?

  A. Risk assessment
  B. Monitoring of activities
  C. Information and communication
  D. Control activities
  D. Control activities

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  Explanation

  The situation represents a failure of control activities. Control activities are the policies and procedures that ensure management directives are carried out effectively. In this case, the lack of separation of duties and inadequate oversight allowed the supply manager to perform multiple conflicting roles (placing orders, receiving materials, and paying invoices) without proper checks and balances, leading to discrepancies and potential fraud.

  References: Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Framework Internal Auditing: Assurance and Advisory Services by Urton Anderson, Michael Head, and Chris Bailey

• Question 226:

  A software design firm has traditionally done most of its work in-house, including support services and distribution management. The firm is planning a large expansion, and is evaluating how the various departments can support It. The chief executive officer (CEO) recommends concentrating on core competencies to increase the firm's agility and emphasize what differentiates them from competitors. Which of the following is the BEST way supply management can support this recommendation?

  A. Conduct a spend analysis on strategic items
  B. Develop and implement an organization-wide strategic sourcing plan
  C. Develop better e-procurement processes
  D. Identify opportunities to outsource non-core business functions
  D. Identify opportunities to outsource non-core business functions

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  Explanation

  Context: The firm is expanding and looking to concentrate on core competencies to increase agility and differentiate from competitors.

  Core Competencies: These are the unique capabilities that give a firm a competitive advantage.

  Supply Management's Role: To support the CEO's recommendation, supply management should focus on outsourcing non-core activities. This allows the firm to allocate more resources and focus on what they do best. Outsourcing: By

  identifying non-core functions that can be outsourced, the firm can become more agile, reduce costs, and improve efficiency. Evaluation: Conducting a spend analysis or developing better e-procurement processes are useful, but they don't

  directly address the CEO's strategy of focusing on core competencies. An organization-wide strategic sourcing plan is broader and less focused on core vs. non-core activities.

  Conclusion: The best way for supply management to support the recommendation is by identifying and outsourcing non-core business functions.

  References:

  Core Competency Theory by Prahalad and Hamel.

  Strategic Management of Supply Chains by David Simchi-Levi.

  Supply Chain Management: Strategy, Planning, and Operation by Sunil Chopra.

• Question 227:

  A buyer suspects that two suppliers are colluding in a bid. What is the MOST appropriate course of action?

  A. Reject both bids and reissue the solicitation
  B. Award to the lowest-priced supplier
  C. Request revised bids from both suppliers
  D. Notify legal and compliance departments
  D. Notify legal and compliance departments

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  Explanation

  Reporting suspected collusion ensures compliance with antitrust laws and maintains procurement integrity.

• Question 228:

  A rapidly-growing food service company Is creating a service level agreement (SLA) for laundry services. The current supply base has invested in new machines. Which of the following should be the PRIMARY focus area of the new SLA?

  A. Distance from the company
  B. Cost
  C. Quality
  D. Supplier capacity
  C. Quality

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  Explanation

  When creating a service level agreement (SLA) for laundry services, especially for a rapidly growing food service company, it is crucial to focus on the most impactful area.

  Distance from the company: Relevant for logistics but not the primary concern.

  Cost: Important but secondary to ensuring service quality.

  Quality: This should be the primary focus to ensure that the laundry services meet the necessary standards, which is critical for maintaining hygiene and customer satisfaction in the food service industry.

  Supplier capacity: Important to ensure they can handle the volume but can be addressed within the quality parameters.

  Therefore, the primary focus area of the new SLA should be quality.

  References:

  Service level agreement best practices.

  Quality management in service procurement.

• Question 229:

  Which of the following is the BEST long-term strategy for creating top line revenue growth and increased sales for both an organization and its key suppliers?

  A. Identifying low cost options for high volume components
  B. Reaching out to suppliers for innovative ideas on products and services
  C. Reviewing current scope of work (SOW) standards with suppliers
  D. Asking sales and marketing for the latest information on industry trends
  B. Reaching out to suppliers for innovative ideas on products and services

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  Explanation

  Reaching out to suppliers for innovative ideas on products and services is the best long-term strategy for creating top-line revenue growth and increased sales for both the organization and its key suppliers. Collaborating with suppliers can lead to new product developments, process improvements, and innovative solutions that drive growth and competitive advantage. Identifying low-cost options (Option A) focuses on cost reduction rather than growth. Reviewing SOW standards (Option C) and asking sales and marketing for industry trends (Option D) are useful but not as impactful as direct collaboration with suppliers for innovation.

  References: The Procurement and Supply Manager's Desk Reference by Fred Sollish and John Semanik Supply Chain Collaboration: How to Implement CPFR and Other Best Collaborative Practices by Ronald K. Ireland and Colleen Crum

• Question 230:

  A company's major supplier of sub-assemblies provides excellent quality and reasonable costs. However, shipping delays and damage in transit make this supplier less reliable than desired. The supply manager would like to retain this supplier if possible, but is concerned about the reliability issues. Given this situation, which of the following is the BEST course of action for the supply manager to take?

  A. Negotiate lower prices to compensate for the impact of delivery problems
  B. Collaborate with the supplier to improve its outbound logistics
  C. Increase forecasting lead times and safety stock for the supplier's products
  D. Give the supplier a deadline by which to remedy unsatisfactory performance
  B. Collaborate with the supplier to improve its outbound logistics

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  Explanation

  The best course of action is to collaborate with the supplier to improve its outbound logistics. This approach addresses the root cause of the reliability issue--shipping delays and damage in transit. Working closely with the supplier can lead to

  process improvements, better packaging solutions, and enhanced logistics practices. This collaboration can help maintain the supplier relationship while improving reliability and ensuring a consistent supply of sub-assemblies.

  References:

  Supplier Relationship Management (SRM) principles

  Lean Supply Chain and Logistics Management by Paul Myerson

  Case studies from the Council of Supply Chain Management Professionals (CSCMP)