Free ISM CORE Practice Exam with Questions & Answers | Set: 6

When facing issues with payment terms, especially after efforts to make amends, the best approach is to negotiate a reasonable compromise. This maintains the relationship and ensures continued supply. By discussing and agreeing on a plan to return to the original net 30 terms, both parties can address past concerns and establish a clear path forward. This approach balances enforcement of contract terms with practical relationship management.References:

Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond by Deepak Malhotra and Max H. Bazerman.

CIPS guidelines on supplier relationship management and contract negotiation.

In the situation where the selected bidder wants to raise its quoted rates due to the scarcity of qualified trainers:

Binding Quotation: Remind the supplier that their quoted rates are binding. This ensures that the supplier adheres to the terms of the initial agreement, maintaining integrity and preventing cost escalations after the bid has been accepted.

Contract Enforcement: Emphasize the importance of contract enforcement to maintain fairness and transparency in the procurement process.

Negotiation: If necessary, negotiate within the agreed terms, but initially, the focus should be on holding the supplier accountable to their quoted rates.

By reminding the supplier that their quoted rates are binding, the supply manager upholds the integrity of the procurement process and ensures that the organization is not subjected to unexpected cost increases.

References:

Contract management principles in procurement.

Institute for Supply Management (ISM) guidelines on handling procurement disputes and negotiations.

Supplier B's terms of 4%/5, Net 30 are more advantageous. This means a 4% discount is available if the invoice is paid within 5 days, whereas Supplier A offers a 2% discount for payment within 15 days. Paying early (5 days) to get a 4% discount is more beneficial in terms of cost savings compared to a 2% discount for paying within 15 days. The greater discount percentage within a shorter period represents better cash flow management and cost savings.

References:

Financial Terms in Procurement

Cash Flow Management Techniques in Supply Chain

The selection of a new procure-to-pay (P2P) system requires a clear understanding of the specific needs and processes within the organization. By constructing a detailed list of transaction types and estimated processing times, supply management can ensure that the chosen P2P system is capable of handling the organization's workload efficiently and effectively. This step provides a concrete basis for evaluating potential systems and ensures that the selected system will meet the organization's specific requirements. References:

"Procurement Systems: A Guide to Best Practice in Construction" by Gillian Fawcett and Les Ruddock

"Procurement and Supply Chain Management" by Kenneth Lysons and Brian Farrington

Termination for Cause allows the buyer to cease future shipments from a supplier who has failed to meet the delivery schedule while retaining the right to seek damages for the supplier's failure to perform. This option is used when a supplier breaches the contract terms, such as not adhering to delivery schedules. Terminating for cause is a legally supported action that holds the supplier accountable for their performance and allows the buyer to claim damages or seek remedies for any losses incurred due to the supplier's non-compliance. References:

UCC (Uniform Commercial Code) Article 2 - Sales.

ISM (Institute for Supply Management) guidelines on supplier performance and contract termination.

Rejecting Supplier X's offer (Option C) is the best course of action. Once a contract has been awarded through a formal RFP process, reopening or renegotiating after the award undermines the integrity of the procurement process and can lead to legal and ethical issues. Escalating to executive management (Option A) or withdrawing the award (Option D) could disrupt established procurement protocols and fairness. Reopening the RFP (Option B) would compromise the transparency and fairness of the initial process.

References:

Ethical Guidelines in Supply Management

RFP Process Best Practices

Calculate Total Cost per Supplier: This includes the unit price and shipping costs.

Supplier A: Unit cost is $0.69. Shipping cost is $2000 per 10,000 units.

Total cost per unit: $0.69 + ($2000/10,000) = $0.69 + $0.20 = $0.71 per unit.

Supplier B: Unit cost is $0.71. Shipping cost is $1500 per 10,000 units.

Total cost per unit: $0.71 + ($1500/10,000) = $0.71 + $0.15 = $0.715 per unit.

Compare Landed Prices: The total cost per unit for Supplier A is $0.71, and for Supplier B, it is $0.715.

Decision: Supplier A offers the lower landed price at $0.71 per unit compared to Supplier B’s $0.715 per unit.

References

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2016). Purchasing and Supply Chain Management. Cengage Learning.

Christopher, M. (2016). Logistics & Supply Chain Management. Pearson.

When a supply manager conducts due diligence from cost, cultural, and service perspectives to weigh the benefits and risks of outsourcing, they are primarily engaging in analytical problem solving. This involves:

Project management: Overseeing projects and ensuring they are completed on time and within budget, which is not the primary focus here.

Technical knowledge: Understanding specific technical aspects, which may be part of the analysis but not the primary skill.

Analytical problem solving: Evaluating different facets such as cost, culture, and service to make informed decisions about outsourcing.

Functional interaction: Collaborating across different functions, which is necessary but not the core skill in this context.

Thus, the skills being employed are best described as analytical problem solving.

References:

Supply chain management literature on due diligence and risk analysis.

Analytical methods in decision-making.

The best course of action is to collaborate with the supplier to improve its outbound logistics. This approach addresses the root cause of the reliability issue—shipping delays and damage in transit. Working closely with the supplier can lead to process improvements, better packaging solutions, and enhanced logistics practices. This collaboration can help maintain the supplier relationship while improving reliability and ensuring a consistent supply of sub-assemblies.

References

Supplier Relationship Management (SRM) principles

Lean Supply Chain and Logistics Management by Paul Myerson

Case studies from the Council of Supply Chain Management Professionals (CSCMP)

The supply manager is looking for the supplier that is most efficient in its use of assets, which is measured by the return on assets (ROA). ROA is calculated as net income divided by total assets.

For each supplier:

Supplier A: ROA = 100 / 100 = 1.0

Supplier B: ROA = 200 / 100 = 2.0

Supplier C: ROA = 200 / 400 = 0.5

Supplier D: ROA = 50 / 20 = 2.5

Supplier D has the highest ROA, indicating it is the most efficient in its use of assets.

References

Financial Management for Supply Chain Management by Michael D. Waters

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