L3M1 Procurement and Supply Environments Questions and Answers

Explanation

There is an expression 'painshare' which is an almost-ironic term referring to the opposite of the situ-ation described in the QUESTION NO: - when something has gone wrong, and the additional cost must be shared between the parties. The other two answers are a little bit facetious.

The correct answer is 'gainshare' when the parties share benefits, according to a pre-agreed ratio or formula.

Explanation

This should be an easy QUESTION NO:. The definition describes nicely one possible form of cost-based price. It is important to try to be able to distinguish cost from price.

The 'target cost incentive' method of pricing might have been tempting as an answer, since the defi-nition shown mentions cost, but it mentions neither target nor incentive, and can therefore be ruled out.

And whole life cost is a different concept altogether.

Explanation

Public sector procurement staff are expected to work and offer their best to their employer, normal-ly without additional reward for creating cost savings, which is part of their work; and they should not receive rewards from suppliers.

This latter point takes us into the area of procurement ethics, which CIPS regards as being particu-larly significant for procurement professionals.

The other answers shown are typical features of public sector procurement.

Explanation

Both wind power and hydro-electric can be used many times over - they are renewable - wind, riv-ers, tides return each day, more or less.

On the other hand, coal, oil as well as wood, turf and gas are non-renewable - that is, there are lim-ited stocks and they will run out.

Many economies are now switching to use of renewables to generate electricity, heat, etc

Explanation

The base rate is often used as a basis for the calculation of other rates, some of which eg credit card repayment rates, bear no resemblance to the base rate. Some longer-term, perhaps more responsible, lending, uses changes in the base rate to determine a repayment rate for debt egmortgage rates. For credit card repayment rates and for late payments in business contracts there is often a considerable amount of freedom to agree relevant rates, but government is often encouraged to influence to try to ensure some level of sanity.

The answer which references procurement of a new 'instrument' is an attempt at humour, 'base' be-ing a type of guitar.

Explanation

Both customers and shareholders are core stakeholders of a private sector organisation, although this fact appears to be somewhat diluted in the minds of some modern-day academics and commenta-tors. The shareholders are the owners of the business - it is for them that everyone is working and their objective is invariably profit. The profit is derived fromreligiously focusing on another core stakeholder group - the customers. If either of these two stakeholder groups is ignored, it is unlikely that happy times lie ahead.

Explanation

Competitive rivalry within an industry.

This can be quite an important point, and why I have such a dislike of the less formal title for the model - the model is about entire industries, not just about a single firm - this is commonly misun-derstood by students (and sadly, some tutors) - and the original Porter title - 'Industry Structure Analysis' - helps us understand that, I think. I find this tool of analysis to be very helpful in under-standing behaviour within sectors, despite criticism of the model and its age from some commenta-tors

The other answers shown are mere fictions.

Explanation

In 2015 an agreement was reached in Paris, France among most world nations to try to limit climate change and its effects.

The other answers shown are simply fictions.

Explanation

Because a wide range of organisations (or even individuals) may respond to an open tender, consid-erable administrative resource may have to be devoted to analysing offers.

Explanation

Biodiversity is significantly under threat, with many species being lost almost daily on Earth.

The other answers given in response to this QUESTION NO:, whilst they can be seen as being broadly relat-ed do not fit the bill precisely.

The BBC's one-hour documentary (2020) 'Extinction - The Facts' explains in all-too-chilling detail the meaning of biodiversity, and is recommended viewing for all.

Explanation

An earlier widely-used definition of value for money as the right combination of price and quality has been updated to include the notion of whole-life costing.

The other answers shown are simply 'red herrings'.

Economy is most easily thought of as paying less, hopefully with no loss of quality, service, etc

Effectiveness is most easily thought of as achieving the right outputs.

What one really seeks is effectiveness. Unfortunately it is possible to be efficient without being ef-fective. An example from my work life is the collection of statistics / 'returns'. I have come across parts of organisations which were very efficient at collecting data, but the data were not used in any meaningful way - the outputs of the efficiency did not add value and did not create useful outputs. There was a lack of effectiveness. The distinction is worthwhile, I think.

Explanation

The answer is 'not-for-profit', meaning 'third sector' (charities, co-operatives, NGOs, etc). This is not the same as 'public sector'. You should be clear on this terminology.

Explanation

Payment (the implication here is 'in full') 60 days after delivery allows the buying organisation time to check the goods carefully, and possibly even use them in that time.

All of the other options would require the buyer to part with money prior to holding the goods, thus exposing that sum to risk. The least risky from the buyer's viewpoint is therefore after 60 days.

Particularly hazardous would be payment at time of order.

Explanation

In the not-for-profit sector, funding often comes from external sources or donors. The beneficiaries of the services are often beneficiaries of services because they don't have funds eg the homeless, the poor, the sick, etc

Thus in this sector, the 'paymaster' is often separated from the recipient of services provided, which has implications for the management of such organisations.

Which is the priority? The one providing funding; or the one receiving the services?

Explanation

It's a supplier quotation.

Both the RFQ and the PQQ (sometimes known as 'SQ') are issued by the buying side, not the sell-ing side.

A commercial invoice doesn't tell you what the price 'would be' - it tells you what is owed after the event (usually - an exception being with prepayment in mind; or a 'proforma invoice' which is issued in some circumstances, especially internationally).

Explanation

The answer is uncertainty avoidance. Even if you have never heard of Hofstede, you can select the correct answer based on the explanation given in the QUESTION NO:.

Although the word 'culture' does not appear in the syllabus, much of Learning Outcome 3.0 can be seen as referring to culture. Some understanding of culture, both organisational culture and national culture is essential to human interactions in the procurement and supply environment. Check out Geert Hofstede's website to learn more about his work.

Explanation

A market with only one buyer is called a 'monopsony'.

There may be other QUESTION NO:s in this test about the other terms shown, so I shall hold back on expla-nation(s) here.

Explanation

To the lay person, they may look the same.

However, for a procurement professional, a fixed price may be altered in some circumstances eg 'fixed price with incentive', 'fixed price with exchange rate adjustment', etc.

A firm price on the other hand cannot be altered, and is the price which will be paid under the con-tract.

An earlier text by Patrick Behan on government contracting refers.

Explanation

This is a broad group of people deriving income from employment, including some skilled people through to unskilled.

A, B and C1 would be those people often referred to as upper middle class or upper class; whereas E would describe a broad group of the poor, the unemployed, etc.

These are rough generalisations regarding people's likelihood of income, taste, lifestyle, etc. To take an extreme example, there is probably not much point in trying to market Dom Perignon (an expen-sive brand of champagne) to the E group. But the E group might welcome promotion of a low-cost brand of tobacco or cigarettes.

Explanation

This is normally true, often resulting in greater complexity in managing public sector organisations.

Explanation

Coal and oil are the correct answers. These are finite resources and will run out some day.

The others shown are renewables.

Explanation

It was Milton Friedman who promoted this view in the second half of the 20th century. This view is now less popular than it was. 'The business of business is business' is another famous quote from Professor Friedman, meaning profit maximisation is what business should be concerned with, not broader social or welfare issues. This thinking takes the view that governments can legislate as nec-essary to cater for society's needs, funding such activities from taxation placed on successful profit-able businesses.

Milton Keynes is a place in UK; J M Keynes was a famous economist who took a different view to Friedman's and John Milton is a famous 17th century English poet.

Explanation

Non-tariff barriers are restraints on international trade which are not so obvious as simple duties or tariffs. Complex procedures can slow things down, reducing the incentive to export to that country resulting in protected domestic business; subsidies to one's own producers make it more difficult for foreign firms to compete - again creating a barrier to trade.

Increased import duties would be a form of tariff (potentially in breach of GATT / WTO agree-ments); reduced import duties would free up / encourage trade.