APP Negotiation & Supplier Management 3 — Questions and Answers
Question 1: A supplier consistently delivers on time but has rising quality defect rates. What is the FIRST step a procurement team should take?
- Immediately terminate the supplier contract
- Issue a formal corrective action request (CAR) (Correct answer)
- Switch all volume to an alternate supplier without notice
- Reduce the supplier's scorecard weight for quality
Correct answer: Issue a formal corrective action request (CAR)
A corrective action request formally documents the problem and requires the supplier to identify root cause and implement fixes.
Question 2: The 'Zone of Possible Agreement' (ZOPA) in negotiation refers to:
- The geographic region where a supplier operates
- The range between each party's reservation price where a deal can occur (Correct answer)
- The list of approved negotiation tactics in a corporate policy
- The maximum discount a buyer can offer
Correct answer: The range between each party's reservation price where a deal can occur
ZOPA is the overlap between the buyer's maximum willingness to pay and the seller's minimum acceptable price.
Question 3: Which document formally defines the expectations, metrics, and remedies governing a supplier's ongoing performance?
- Request for Proposal (RFP)
- Service Level Agreement (SLA) (Correct answer)
- Statement of Work (SOW)
- Purchase Order (PO)
Correct answer: Service Level Agreement (SLA)
An SLA specifies measurable performance standards and outlines consequences or remedies for non-compliance.
Question 4: A buyer uses the 'nibble' tactic at the end of a negotiation. What does this involve?
- Walking away from the deal to test the supplier's reaction
- Requesting a small additional concession after the main deal is agreed (Correct answer)
- Offering a series of escalating concessions to close quickly
- Anchoring with an extremely low opening price
Correct answer: Requesting a small additional concession after the main deal is agreed
The nibble involves asking for one last small add-on (free shipping, extended warranty) after both parties believe terms are settled.
Question 5: Early Supplier Involvement (ESI) in new product development primarily benefits purchasing by:
- Reducing the need for competitive bidding on components
- Allowing suppliers to provide design input that reduces cost and improves manufacturability (Correct answer)
- Locking in pricing before market rates are known
- Eliminating the need for a statement of work
Correct answer: Allowing suppliers to provide design input that reduces cost and improves manufacturability
ESI brings supplier expertise into the design phase, where changes are cheapest and can prevent costly redesigns later.
Question 6: In a cost-plus contract, the supplier's profit is determined by:
- A fixed fee regardless of actual costs
- A percentage or fixed amount added to the supplier's verified actual costs (Correct answer)
- Competitive market pricing benchmarks
- The buyer's budget ceiling minus administrative overhead
Correct answer: A percentage or fixed amount added to the supplier's verified actual costs
Cost-plus contracts reimburse the supplier's allowable costs and add a predetermined profit margin or fee.
Question 7: Which supplier segmentation model categorizes suppliers by the financial impact of supply failure and the difficulty of switching suppliers?
- Pareto analysis
- Kraljic Matrix (Correct answer)
- Porter's Five Forces
- BCG Growth-Share Matrix
Correct answer: Kraljic Matrix
The Kraljic Matrix segments suppliers on two axes — profit impact and supply risk — to guide differentiated management strategies.
APP Negotiation & Supplier Management 3
A supplier consistently delivers on time but has rising quality defect rates.
What is the FIRST step a procurement team should take?