ISM ISM-CORE Online Practice Questions and Exam Preparation

ISM ISM-CORE Online Questions & Answers

• Question 251:

  The supply manager for TUV Inc. is planning for negotiations with a supplier of software critical to TUV's order processing system. The supplier informs the supply manager that support for this software will soon be dropped. Upgrading to a newer version will be cost prohibitive for TUV. Given this situation, which of the following is the BEST course of action for TUV's supply manager to take prior to negotiations?

  A. Contact each team member, ask for ideas on how to negotiate, and confirm what the priorities should be
  B. Engage a trainer to teach the team members the latest negotiating strategies and techniques
  C. Discuss roles, requirements, and strategies with team members, including what information should or should not be shared
  D. Hold a practice session where team members can debate key points one-on-one
  C. Discuss roles, requirements, and strategies with team members, including what information should or should not be shared

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  Explanation

  Review Stakeholder Feedback: Understanding the nature of the negative feedback is the first step. Analyze Scorecard Metrics: If the scorecards have been positive, but the feedback is negative, it suggests a misalignment. Identify Changes

  in Requirements: Stakeholders' needs and expectations might have evolved, and these changes may not be reflected in the current scorecard metrics. Adjust Metrics Accordingly: The scorecards should be updated to align with the new

  requirements to ensure they accurately reflect supplier performance.

  References:

  Monczka, R. M., Handfield, R. B., Giunipero, L. C., and Patterson, J. L. (2016). Purchasing and Supply Chain Management. Cengage Learning. van Weele, A. J. (2018). Purchasing and Supply Chain Management: Analysis, Strategy, Planning

  and Practice. Cengage Learning.

• Question 252:

  A company buys 200 metric tons of ethylene per month. The firm has a one-year agreement with Supplier X to buy the ethylene at $1000 per metric ton. After 3 months, the market price drops to $900 per metric ton, and the firm renegotiates

  the price to $890 per metric ton for the remaining contract term.

  What savings should be reported?

  A. $264,000 cost reduction and $240,000 cost avoidance
  B. $18,000 cost reduction and $180,000 cost avoidance
  C. $24,000 cost reduction and $240,000 cost avoidance
  D. $198,000 cost reduction and $198,000 cost avoidance
  C. $24,000 cost reduction and $240,000 cost avoidance

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  Explanation

• Question 253:

  A supply management department is looking to standardize purchases across the entire organization and leverage spend with fewer suppliers. Which of the following will be MOST useful for determining historical baseline costs?

  A. Spend analysis
  B. Kraljic matrix
  C. Delphi method
  D. Box-Jenkins method
  A. Spend analysis

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  Explanation

  Conduct Spend Analysis: Spend analysis involves the collection, cleansing, classification, and analysis of expenditure data to understand spending patterns. Identify Historical Costs: By analyzing past spending data, the supply management

  department can identify historical baseline costs for various categories. Leverage Data: This data can then be used to negotiate better terms with suppliers, streamline purchasing processes, and reduce costs. Standardization: Spend analysis

  helps in identifying opportunities for standardizing purchases, thus leveraging spend with fewer suppliers and achieving economies of scale.

  References: CIPS: "Spend Analysis and Cost Reduction" ISM: "Spend Analysis: The Key to Strategic Sourcing"

• Question 254:

  A supply manager is preparing the department's budget for the next year. Which of the following is the FIRST step in this process?

  A. Controlling expenditures during the budgetary year
  B. Reviewing the organization's goals
  C. Defining the needed resources
  D. Presenting the budget for review
  B. Reviewing the organization's goals

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  Explanation

  The first step in preparing a department's budget is to understand and align with the organization's overall goals. This ensures that the budget supports the strategic objectives and priorities of the organization.

  Controlling expenditures during the budgetary year: This is part of budget execution and management, not the initial step.

  Reviewing the organization's goals: The first step is to ensure that the budget aligns with and supports the organization's strategic goals and objectives. This alignment ensures that resources are allocated appropriately to achieve these goals.

  Defining the needed resources: This comes after understanding the organization's goals, as it helps to determine what resources are necessary to meet those goals. Presenting the budget for review: This is one of the final steps in the budget

  preparation process. Therefore, the first step in the budget preparation process is reviewing the organization's goals.

  References:

  Financial management best practices.

  Budget preparation guidelines from the Institute of Management Accountants (IMA).

• Question 255:

  Which of the following is considered the HIGHEST level in a supply chain's strategic plan?

  A. Objective of the organization
  B. Commodity segmentation
  C. Supplier differentiation
  D. Acquisition planning
  A. Objective of the organization

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  Explanation

  In the context of supply chain management, the highest level in a strategic plan is the objective of the organization. This is because the objective sets the overarching goals and vision for the entire supply chain. These objectives provide a

  clear direction and purpose, ensuring that all activities and strategies align with the broader goals of the organization. Commodity segmentation, supplier differentiation, and acquisition planning are more specific tactics and strategies that

  support the overall objectives but are not the highest level themselves.

  References:

  APICS Supply Chain Council. (2017). SCOR Model.

  Chopra, S., and Meindl, P. (2016). Supply Chain Management: Strategy, Planning, and Operation.

• Question 256:

  Which of the following is the FIRST step in the category management process?

  A. Conduct contract negotiations with strategic and/or preferred suppliers
  B. Develop a strategy to classify suppliers capable of providing material requirements
  C. Conduct market research to understand the supply market
  D. Build the team and project charter and develop a scope of work
  D. Build the team and project charter and develop a scope of work

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  Explanation

  The first step in the category management process is to build the team, create a project charter, and develop a scope of work. This foundational step ensures that there is a clear understanding of the project's goals, roles, and responsibilities.

  A well-defined project charter aligns the team and stakeholders, sets the project's direction, and helps in developing a comprehensive strategy for managing the category.

  References:

  "Category Management in Purchasing: A Strategic Approach to Maximize Business Profitability" by Jonathan O'Brien.

  Institute for Supply Management (ISM) guidelines on category management.

  Chartered Institute of Procurement and Supply (CIPS) resources on category management.

• Question 257:

  After working for several years at ABC, Inc.--a large manufacturing company--Smith moves to a senior position at XYZ, a smaller firm which is part of ABC's family of companies. In an effort to lower costs, Smith begins negotiations with a

  supplier that sells to both ABC and XYZ. While at ABC, Smith was able to negotiate very favorable contracts for parts and services. However, Smith is unable to obtain as favorable terms for XYZ with the same supplier.

  To improve XYZ's position, which of the following is the BEST course of action for Smith to take?

  A. Inform the supplier that the contracts will be cancelled unless concessions are made
  B. Apply knowledge of ABC's operations to demand better pricing
  C. Issue an RFI to identify other potential suppliers
  D. Combine requirements of XYZ with ABC to leverage volume
  D. Combine requirements of XYZ with ABC to leverage volume

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  Explanation

  Smith's challenge is to obtain favorable terms from a supplier for XYZ similar to those previously secured for ABC. The best course of action is to combine the requirements of XYZ with ABC to leverage the volume. This approach enhances bargaining power by presenting a larger, consolidated order, which can incentivize the supplier to offer better pricing or terms. This strategy leverages the economies of scale and the supplier's interest in maintaining a strong relationship with both companies in the same family.

  References: Supply Chain Management: Strategy, Planning, and Operation by Sunil Chopra and Peter Meindl Purchasing and Supply Chain Management by Robert M. Monczka, Robert

  B. Handfield, Larry

  C. Giunipero, and James L. Patterson

• Question 258:

  Which of the following should be supply management's PRIMARY service or material selection criterion?

  A. Sourcing limitations
  B. Quality
  C. Price
  D. Total cost of ownership
  D. Total cost of ownership

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  Explanation

  The primary criterion for service or material selection in supply management should be the total cost of ownership (TCO). TCO considers not only the purchase price but also all other costs associated with the acquisition, use, maintenance,

  and disposal of the service or material. This holistic view ensures that supply management makes decisions that are cost-effective in the long run, balancing initial costs with operational and end-of-life expenses. Quality (Option B) and price

  (Option C) are important, but they do not capture the full spectrum of costs. Sourcing limitations (Option A) are constraints rather than primary criteria.

  References:

  Supply Chain Management: Strategy, Planning, and Operation by Sunil Chopra and Peter Meindl Total Cost of Ownership Analysis in Procurement

• Question 259:

  A multinational company is in the market to purchase widgets. The firm's standard payment terms are net 80. While negotiating terms and conditions, a supplier offers to provide a 2% discount on the purchase price of the widgets if they are paid within 35 days. This is an example of which of the following?

  A. Profit repatriation
  B. Dynamic discounting
  C. Fixed discounting
  D. Supplier financing
  B. Dynamic discounting

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  Explanation

  Definition: Dynamic discounting is a financial strategy where the buyer can take a discount for early payment, often negotiated on a sliding scale.

  Example Context: The supplier offers a 2% discount if payment is made within 35 days instead of the standard 80 days.

  Benefit: This incentivizes the buyer to pay earlier, improving the supplier's cash flow while offering the buyer a cost saving.

  References:

  Monczka, R. M., Handfield, R. B., Giunipero, L. C., and Patterson, J. L. (2016). Purchasing and Supply Chain Management. Cengage Learning. van Weele, A. J. (2018). Purchasing and Supply Chain Management: Analysis, Strategy, Planning

  and Practice. Cengage Learning.

• Question 260:

  Which of the following is the PRIMARY reason why companies should consistently update internal purchasing policies?

  A. Suppliers might believe they can take advantage of an organization that fails to consistently update policies.
  B. Updating policies is a key metric senior management uses to measure the impact of the purchasing organization on the business.
  C. Auditors expect updates on a regular basis to ensure that the company is consistently reviewing procedures.
  D. The company and market place are constantly undergoing changes.
  D. The company and market place are constantly undergoing changes.

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  Explanation

  The primary reason for consistently updating internal purchasing policies is that the company and marketplace are constantly undergoing changes. These changes could include shifts in market conditions, regulatory updates, technological

  advancements, and evolving organizational needs. Regular updates ensure that purchasing policies remain relevant, effective, and aligned with current best practices and legal requirements. It also helps in mitigating risks and seizing new

  opportunities as they arise.

  References:

  CIPS (Chartered Institute of Procurement and Supply). Procurement Policy and Procedure Guidelines.

  ISM (Institute for Supply Management). Best Practices for Updating Purchasing Policies.