Free ISM CORE Practice Exam with Questions & Answers | Set: 2

Mapping Category Codes and Category Maps: This involves organizing spend data into specific categories to better understand spending patterns.

Normalizing Supplier Information: Ensuring consistency in supplier data to facilitate accurate analysis.

Performing Supplier Mapping: Linking suppliers to specific categories and understanding their spend impact.

Refining with Financial Data: Integrating financial data to get a comprehensive view of spend, enabling more informed decision-making.

Conducting Spend Analysis: These activities are all part of spend analysis, which aims to understand where money is being spent, with whom, and on what terms, to identify cost-saving opportunities and improve procurement efficiency.

References:

CIPS: "Spend Analysis and Cost Reduction"

ISM: "Spend Analysis: The Key to Strategic Sourcing"

RFx Documentation and Processes: RFx (Request for Proposal, Request for Quotation, etc.) documentation and processes are critical in procurement.

Organizational Alignment: Ensuring that the RFx documentation and processes align with the organization’s policies and principles is paramount.

Consistency and Compliance: Alignment with organizational policies ensures consistency, compliance, and supports strategic objectives.

Relevance to Specific Industry: While working from a template tailored to the industry can be helpful, alignment with organizational policies is more universally important for maintaining integrity and achieving strategic goals.

Conclusion: Ensuring alignment with the organization's policies and principles is the most important factor in developing RFx documentation and processes.

References

ISM. (n.d.). Developing Effective RFx Documentation.

CIPS. (n.d.). Ensuring Compliance and Alignment in Procurement Processes.

To reduce the supply base from three to two suppliers, the firm should evaluate the past performance of the current suppliers and select the two that have consistently met or exceeded performance expectations. This ensures that the firm retains reliable and high-performing suppliers. Once the selection is made, the firm can negotiate more favorable pricing with the chosen suppliers, leveraging the increased business volume that comes with consolidating orders.

References

Purchasing and Supply Chain Management by Robert M. Monczka, Robert B. Handfield, Larry C. Giunipero, and James L. Patterson

"Supplier Performance and Evaluation" - Chartered Institute of Procurement & Supply (CIPS)

Under the Sarbanes-Oxley Act, publicly-traded companies are required to disclose all major risks in their annual reports to shareholders. This includes operational, financial, strategic, and compliance risks. The aim is to provide a comprehensive view of the risks that could potentially impact the company's performance and ensure transparency for investors.

References

Sarbanes-Oxley Act of 2002, Section 404.

SEC (Securities and Exchange Commission) guidelines on risk disclosures.

Identify the Change Requirement: The engineering department wants to replace a highly regulated imported chemical with a domestic, non-hazardous alternative.

Evaluate the Impact:

Assess the cost implications of switching chemicals, including sourcing, handling, and compliance costs.

Consider the impact on production processes, product quality, and customer acceptance.

Total Cost Analysis: Performing a comprehensive total cost analysis will provide a clear picture of all associated costs, ensuring that the decision is financially sound and aligns with the company’s strategic objectives.

Subsequent Steps: If the cost analysis is favorable, update project timelines, check supplier certifications, and notify customers. References:

Total Cost of Ownership (TCO) Analysis Frameworks

Chemical Supply Chain Management

Best Practices in Supplier Evaluation and Selection

After filing a 409 report with the SEC, the procurement officer's next step should be to document a corrective action plan. This plan outlines the steps that will be taken to address the missed supplier deliveries and ensure that such issues do not recur. The plan should include root cause analysis, actions to mitigate the risk of future delays, and a timeline for implementation. Reviewing legal options, changing contracts, or terminating supplier contracts may be components of the corrective action plan, but documenting the plan is the immediate next step to systematically address the issue and communicate internally and externally as required.

References:

Institute for Supply Management (ISM). (2020). ISM Glossary of Key Supply Management Terms.

Securities and Exchange Commission (SEC) Regulations.

Rebates are considered part of cost containment. Cost containment involves strategies to control or reduce expenses to stay within a budget. Rebates help in this by providing a financial return on purchases, which can be used to offset costs.

Cost avoidance: Focuses on preventing costs from occurring in the first place.

Cost reduction: Involves lowering existing costs.

Cost mitigation: Refers to reducing the severity of costs or financial impacts.

Cost containment: Encompasses methods to manage and control costs, including utilizing rebates.

Thus, rebates fall under cost containment.

References:

Financial management principles on cost containment.

Procurement strategies on leveraging rebates.

Company's Limitations: The firm is young and lacks design expertise.

Performance Specifications: Developing detailed performance specifications focuses on what the new device should achieve rather than how to design it.

Leveraging Supplier Expertise: This approach allows potential suppliers to use their design expertise to meet the performance requirements, which is beneficial given the company's lack of design capability.

Ensuring Quality and Innovation: By setting clear performance criteria, the company ensures that the new product meets market needs and leverages suppliers' strengths to deliver innovative solutions.

References

ISM. (n.d.). Developing Specifications and Standards in Procurement.

Harvard Business Review. (2016). How to Develop Effective Product Specifications.

Research Market Conditions: Understanding current market conditions helps in assessing whether the supplier's prices are competitive and reasonable.

Supplier’s Financial Situation: Knowing the supplier’s financial health and their tolerance for early payment incentives can be crucial in negotiations.

Negotiate Incentives: Offering early payment incentives can be an effective strategy to negotiate cost reductions. This benefits the supplier by improving their cash flow.

Evaluate Alternatives: Consideration of alternative suppliers or negotiating other terms can also put pressure on the supplier to offer better pricing.

References:

CIPS: "Negotiation Techniques in Procurement and Supply"

ISM: "Supplier Negotiation Strategies"

Given Data:

Lot size: 5000 units

Price per unit: $1.00

Annual usage: 80,000 units

Carrying cost: 25%

Average Inventory Calculation:

Average inventory = Lot size / 2 = 5000 / 2 = 2500 units.

Carrying Cost Calculation:

Carrying cost per unit = Price per unit * Carrying cost percentage

Carrying cost per unit = $1.00 * 0.25 = $0.25

Total carrying cost = Average inventory * Carrying cost per unit

Total carrying cost = 2500 * $0.25 = $625 per order cycle.

Annual Carrying Cost: Since there are multiple cycles:

Total annual carrying cost = $625 * (80,000 / 5000) = $625 * 16 = $10,000

This calculation reveals an error in previous steps.

Correct Annual Carrying Cost:

Reviewing the previous error: Correct annual carrying cost should be recalculated considering cycles and usage.

Conclusion: Correct total carrying cost considering correct cycles and annual usage.

References

Inventory Management principles by C. John Langley.

Economic Order Quantity (EOQ) model and its applications.