ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 231:

  HIJ, Inc. is planning to purchase a generic, well specified item offered by many suppliers. This will be HIJ's first time purchasing an item of this type. The market is highly competitive, and HIJ has identified many pre-qualified suppliers. HIJ needs a standard weekly delivery of two full truckloads of the item to meet a fixed production schedule. In this situation, which of the following is likely to yield the BEST value for HIJ?

  A. Request for qualifications
  B. Invitation for bid
  C. Request for information
  D. Reverse auction
  D. Reverse auction

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  Explanation

  In a highly competitive market with many pre-qualified suppliers for a well-specified item, a reverse auction is likely to yield the best value for HIJ, Inc. Reverse auctions drive suppliers to offer their best prices in a competitive bidding

  environment, potentially lowering costs for standard, commoditized items. This approach is especially effective when the item specifications are clear and there is sufficient competition.

  References: Procurement sourcing strategies, competitive bidding techniques, reverse auction best practices.

• Question 232:

  A firm issues an RFQ for specialty electronics to be used within a new product line. Internal needs are assessed and specifications are prepared by engineering. The bid is sent to five current suppliers, all of whom are familiar with the firm's supply chain. However, only two of these suppliers respond, and their quotes are much higher than expected. Which of the following is the MOST likely explanation for what occurred?

  A. The internal needs were not adequately addressed.
  B. The specifications were too narrow.
  C. The suppliers were not qualified.
  D. The specifications were too broad.
  B. The specifications were too narrow.

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  Explanation

  When only two suppliers respond to an RFQ and their quotes are much higher than expected, it is likely that the specifications were too narrow. Narrow specifications can limit the number of suppliers who are capable of meeting the

  requirements, reducing competition and driving up prices. Reviewing and potentially broadening the specifications can attract more suppliers and result in more competitive pricing.

  References:

  ISM (Institute for Supply Management). Effective RFQ Process Management.

  CIPS (Chartered Institute of Procurement and Supply). Developing Specifications and Requirements.

• Question 233:

  EFG, Inc., a research firm, buys an ultra-high efficiency filter from Supplier A, which is the only capable source for this component. Supplier A informs EFG that the filter will soon be discontinued. EFG's supply manager finds filters with similar --though not identical--characteristics from another source and brings a small sample in for testing. The initial results are acceptable. Given this situation, which of the following is the MOST appropriate next step for the supply manager to take?

  A. Seek additional suppliers for the product
  B. Quantify potential savings and report them to top management
  C. Build a collaborative relationship with the new source
  D. Review specifications and performance needs with stakeholders
  D. Review specifications and performance needs with stakeholders

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  Explanation

  Initial Testing Results: Acceptable initial results indicate potential but require further validation.

  Stakeholder Consultation: Engaging stakeholders to ensure that the alternative filter meets all performance and specification needs. Detailed Review: Conducting a thorough review of the specifications and performance requirements to

  ensure the alternative filter's suitability. Future Planning: Based on stakeholder feedback, plan the next steps which could involve further testing, additional supplier engagement, or adjustments in procurement strategy.

  References:

  Procurement and Supply Chain Management Texts Stakeholder Engagement Strategies Product Testing and Evaluation Guidelines

• Question 234:

  MNO, Inc. purchases benchmarking data services from Supplier X, which is the sole source for data relevant to MNO's industry. In recent months, Supplier X's pricing has increased and its technical support has worsened. MNO's supply manager is preparing to negotiate for contract renewal with Supplier X and needs to resolve these concerns. Which of the following is the BEST course action for the supply manager to take before conducting negotiations?

  A. Determine whether data can be collected from other sources, to bring the services in-house
  B. Compare Supplier X's rates against similar services to establish reasonable costs
  C. Develop win-win scenarios to add long-term value in a collaborative relationship
  D. Revise the Service Level Agreement (SLA) with Supplier X, with penalties for non-performance
  C. Develop win-win scenarios to add long-term value in a collaborative relationship

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  Explanation

  Identify the Issues: The supply manager should first clearly outline the specific issues with Supplier X, such as the price increases and declining technical support. Develop Win-Win Scenarios: Before entering negotiations, it is essential to

  develop scenarios that can create mutual benefits for both MNO, Inc. and Supplier X. This approach fosters a collaborative relationship rather than an adversarial one. Long-term Value: By focusing on long-term value, the supply manager can

  address the current issues and also set a precedent for future interactions. This may involve proposing solutions like better support mechanisms or more favorable pricing structures in exchange for commitments from MNO.

  Collaborative Relationship: Building a collaborative relationship helps in negotiating terms that are beneficial and sustainable for both parties. This includes working together to find efficiencies or improvements that can lead to cost savings or

  enhanced service levels.

  References:

  CIPS: "Guide to Supplier Relationship Management"

  ISM: "Negotiation Strategies for Long-Term Supplier Relationships"

• Question 235:

  Parts characterized by high cost/value and low technical complexity are categorized as

  A. specialized
  B. custom
  C. off-the-shelf
  D. standardized
  C. off-the-shelf

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  Explanation

  Parts characterized by high cost/value and low technical complexity are best categorized as

  C. off-the-shelf. Off-the-shelf items are typically readily available and do not require customization, which aligns with the description of having low technical complexity. Despite their higher cost or value, these parts are standardized and can be used without modification12.

• Question 236:

  A supplier fails to deliver critical parts on time, causing a production halt. Which contract clause protects the buyer from financial losses?

  A. Liquidated damages
  B. Force majeure
  C. Payment on delivery
  D. Termination for convenience
  A. Liquidated damages

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  Explanation

  Liquidated damages clauses predetermine compensation for delays or nonperformance, protecting the buyer from financial impact.

• Question 237:

  A US-based manufacturing firm receives a quoted price for an item from an offshore supplier of $.40 each (in US dollars), delivered duty paid to its US plant per Incoterms. 2020 rules, in minimum quantities of 20,000 units. The buying

  organization uses 80,000 units per year, and the carrying cost is 25%. The item price is fixed for one year. What are the total costs of purchasing annual requirements from this supplier?

  A. $36,000
  B. $33,000
  C. $32,000
  D. $40,000
  C. $32,000

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  Explanation

  Given Data:

  Unit price: $0.40

  Annual usage: 80,000 units

  Carrying cost: 25%

  Minimum order quantity: 20,000 units

  Total Purchase Cost:

  Unit price multiplied by annual usage: $0.40 * 80,000 = $32,000

  Additional Costs:

  As the item price is fixed and includes delivery (DDP Incoterms. 2020), there are no additional duties or transportation costs.

  Carrying Cost Calculation:

  For the minimum order quantity, the carrying cost is not a factor because the question specifies a fixed price per unit delivered.

  Conclusion: The total cost of purchasing 80,000 units per year at $0.40 each is $32,000.

  References:

  Incoterms. 2020 by International Chamber of Commerce (ICC).

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

  The Handbook of Logistics and Distribution Management by Alan Rushton, Phil Croucher, and Peter Baker.

• Question 238:

  A supply manager is drafting a request for proposal (RFP) for courier services. Which of the following requirements is MOST likely to affect external stakeholder satisfaction?

  A. Accuracy of invoices
  B. Fuel efficiency of delivery vehicles
  C. Liability insurance coverage
  D. On-time delivery
  D. On-time delivery

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  Explanation

  On-time delivery is a critical factor affecting external stakeholder satisfaction because it directly impacts the supply chain's reliability and efficiency. External stakeholders, including customers and partners, depend on timely deliveries to meet

  their operational and service requirements. Any delays can lead to disruptions, increased costs, and dissatisfaction. While other factors like invoice accuracy, fuel efficiency, and liability insurance are important, they do not have as immediate

  and significant an impact on stakeholder satisfaction as on-time delivery.

  References:

  Coyle, J.J., Langley, C.J., Novack, R.A., and Gibson, B.J. (2016). Supply Chain Management: A Logistics Perspective.

  Murphy, P.R., and Knemeyer, A.M. (2018). Contemporary Logistics.

• Question 239:

  Which KPI best measures supplier responsiveness?

  A. On-time delivery rate
  B. Defect rate per shipment
  C. Purchase order cycle time
  D. Cost avoidance percentage
  A. On-time delivery rate

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  Explanation

  On-time delivery is the key indicator of responsiveness, showing how quickly and reliably a supplier fulfills commitments.

• Question 240:

  According to the Kraljic matrix, how should a product with high business impact and low supply market complexity be categorized?

  A. Bottleneck
  B. Leverage
  C. Strategic
  D. Noncritical
  B. Leverage

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  Explanation

  In the Kraljic matrix, a product with high business impact and low supply market complexity is categorized as a leverage item. Leverage items have a significant impact on the business and are typically sourced from multiple suppliers,

  allowing the buyer to leverage their purchasing power to obtain favorable terms and conditions.

  References:

  Purchasing Must Become Supply Management by Peter Kraljic, Harvard Business Review

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