Free ISM CORE Practice Exam with Questions & Answers | Set: 3

To convince senior management to re-source electronic assemblies, the supply manager should present a global business case. This approach considers the international market dynamics and highlights the competitive disadvantage of continuing with a supplier that has quality issues and lacks technological advancements. Presenting a value analysis (A), performing an on-site quality assessment (C), or starting the strategic sourcing process (D) are useful steps but might not be as compelling initially as a comprehensive business case. References: Strategic sourcing best practices, supplier evaluation criteria, global market analysis in procurement.

The financial index that may be used to infer the typical mark-up percentages used by a firm is D. Gross profit margin. The gross profit margin is a financial metric that reflects the percentage of revenue that exceeds the cost of goods sold, which is essentially the mark-up over the cost1. It is used to assess a firm’s financial health by indicating how much profit the company makes for each dollar of sales after paying for the production of the goods.

Positional bargaining is a negotiation strategy where each side adopts a fixed position and then negotiates to close the gap through concessions and compromise. This approach focuses on maintaining specific demands and making adjustments to reach a mutually acceptable agreement. It contrasts with interest-based bargaining, which focuses on underlying interests rather than fixed positions.

References

Getting to Yes: Negotiating Agreement Without Giving In by Roger Fisher and William Ury

Harvard Business Review articles on negotiation tactics

Placing goods in a bonded warehouse allows MNO Inc. to defer the payment of import duties until the goods are withdrawn for use. This can improve cash flow by delaying duty payments and reducing the immediate financial burden. Goods stored in a bonded warehouse are not subject to import duties until they are removed from the warehouse, which helps in managing cash flow more effectively.

References

A cash flow budget is a financial plan that links expenditures to revenue within each budgetary period. It details the expected cash inflows and outflows over a specified period, allowing a business to plan for covering expenses with anticipated revenue. This type of budget is crucial for managing liquidity and ensuring that the company can meet its financial obligations as they come due.

References

"Financial Management: Theory & Practice," Eugene F. Brigham and Michael C. Ehrhardt.

"Principles of Corporate Finance," Richard A. Brealey, Stewart C. Myers, and Franklin Allen.

Estoppel is a legal principle that prevents a person from asserting a position inconsistent with their prior conduct if it would result in injustice to another who relied on that conduct. For instance, if one party makes a promise or representation that another party relies upon to their detriment, the first party cannot later contradict that promise or representation. This principle ensures fairness and reliance in legal and business transactions. References: Legal textbooks on contract law, specifically sections on equitable principles and estoppel.

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 & Supply). Procurement Policy and Procedure Guidelines.

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

When a supplier states that a product is covered by a government contract, implying that they cannot offer a lower price, it is essential for the supply manager to verify this claim. The supply manager should require the supplier to provide specifics on the government contract restrictions. This will help determine if the price is indeed fixed by the government or if there are other negotiable aspects. By understanding the exact restrictions, the supply manager can better navigate the negotiation process, ensuring compliance while potentially identifying areas for negotiation that are not restricted.

References:

Federal Acquisition Regulation (FAR) guidelines on government contracts.

"The Art of Negotiation" by Michael Wheeler.

Institute for Supply Management (ISM) guidelines on government contract negotiations.

Initial Steps in Policy Creation: The supply manager needs to ensure the policy is successfully adopted across the organization.

Engaging Internal Stakeholders: Hosting a meeting with key internal stakeholders is the first step to gather input, address concerns, and ensure the policy aligns with organizational needs.

Stakeholder Buy-in: This approach helps in gaining the support and buy-in from those who will be directly affected by the policy, making its implementation smoother.

Policy Review and Feedback: Reviewing the proposed policy with internal stakeholders allows for adjustments based on practical insights and encourages a sense of ownership among stakeholders.

References

CIPS. (n.d.). How to Develop and Implement a Procurement Policy.

Supply Chain Management Review. (2017). Effective Procurement Policy Development and Implementation.

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