APP APP Strategic Sourcing & Procurement Planning 1 — Questions and Answers
Question 1: Which analytical tool segments a company's purchases into quadrants based on supply risk and profit impact to guide sourcing strategy?
- SWOT Analysis
- Kraljic Portfolio Matrix (Correct answer)
- ABC Analysis
- PESTLE Analysis
Correct answer: Kraljic Portfolio Matrix
The Kraljic Matrix categorizes purchases into non-critical, leverage, bottleneck, and strategic quadrants, guiding how much effort to invest in each supplier relationship.
Question 2: A 'spend analysis' in procurement is primarily conducted to:
- Evaluate individual supplier financial health
- Identify spending patterns, consolidation opportunities, and savings potential (Correct answer)
- Set the annual procurement department budget
- Measure buyer performance against KPIs
Correct answer: Identify spending patterns, consolidation opportunities, and savings potential
Spend analysis aggregates purchase data across categories and suppliers to reveal maverick spend, consolidation opportunities, and areas for cost reduction.
Question 3: The concept of 'total cost of ownership' (TCO) in procurement decisions includes:
- Only the unit purchase price of goods
- All costs across the full lifecycle including acquisition, operation, maintenance, and disposal (Correct answer)
- The supplier's overhead and profit margin only
- Freight and import duties only
Correct answer: All costs across the full lifecycle including acquisition, operation, maintenance, and disposal
TCO captures every cost associated with an item from initial purchase through end-of-life, providing a more accurate basis for supplier comparison than price alone.
Question 4: In a make-or-buy analysis, which factor MOST strongly suggests that a company should 'buy' rather than 'make'?
- The component is a core strategic competency
- External suppliers can produce it more efficiently at lower cost (Correct answer)
- The company has excess production capacity
- The item requires proprietary technology the company owns
Correct answer: External suppliers can produce it more efficiently at lower cost
When suppliers have superior scale, technology, or expertise that makes external production cheaper and better, buying is preferred over internal manufacturing.
Question 5: Which procurement strategy involves consolidating purchases across multiple business units to leverage combined volume for better pricing?
- Decentralized purchasing
- Category management
- Single sourcing
- Demand aggregation / leveraged buying (Correct answer)
Correct answer: Demand aggregation / leveraged buying
Demand aggregation combines volume from multiple departments or locations into a single negotiating position, increasing bargaining power with suppliers.
Question 6: A procurement 'savings pipeline' report tracks:
- The value of open purchase orders awaiting delivery
- Identified cost reduction initiatives from identification through implementation and capture (Correct answer)
- The procurement team's headcount and operating budget
- Supplier on-time delivery performance over the prior quarter
Correct answer: Identified cost reduction initiatives from identification through implementation and capture
A savings pipeline categorizes cost reduction projects by stage — identified, validated, in progress, and realized — giving management visibility into future savings delivery.
APP APP Strategic Sourcing & Procurement Planning 1
Which analytical tool segments a company's purchases into quadrants based on supply risk and profit impact to guide sourcing strategy?