APP Supplier Evaluation & Performance Management 2 — Questions and Answers
Question 1: The weighted scorecard method evaluates suppliers by:
- Ranking suppliers solely by purchase price
- Assigning importance weights to performance criteria and calculating a composite score (Correct answer)
- Selecting only suppliers holding ISO certification
- Counting the total number of past purchases from each supplier
Correct answer: Assigning importance weights to performance criteria and calculating a composite score
The weighted scorecard assigns relative importance percentages to criteria such as quality, delivery, service, and cost, then calculates a weighted composite score for objective comparison.
Question 2: What is the primary goal of a supplier development program?
- To immediately replace underperforming suppliers
- To improve a supplier's capabilities to better meet the buyer's current and future needs (Correct answer)
- To reduce the overall number of suppliers in the supply base
- To transfer manufacturing operations to the supplier's facility
Correct answer: To improve a supplier's capabilities to better meet the buyer's current and future needs
Supplier development programs work collaboratively with suppliers to strengthen their processes, quality systems, and capabilities, improving performance without the disruption of switching suppliers.
Question 3: A Service Level Agreement (SLA) in a supplier contract typically specifies:
- Only the unit price for goods purchased
- Specific measurable performance standards and consequences for non-compliance (Correct answer)
- The supplier's internal financial statements
- A list of the buyer's other approved suppliers
Correct answer: Specific measurable performance standards and consequences for non-compliance
An SLA defines specific, measurable performance standards such as uptime, response times, and delivery rates, along with remedies or penalties if those standards are not met.
Question 4: Supplier segmentation (such as the Kraljic Matrix) helps procurement professionals by:
- Eliminating all sole-source supplier arrangements
- Categorizing suppliers by spend and risk to apply differentiated management strategies (Correct answer)
- Ensuring all suppliers receive equal attention and resources
- Identifying which suppliers have the fastest delivery times
Correct answer: Categorizing suppliers by spend and risk to apply differentiated management strategies
Supplier segmentation classifies suppliers based on spend volume and supply risk, allowing procurement to invest resources strategically—partnering closely with critical suppliers and streamlining management of routine ones.
Question 5: Which financial metric is most commonly used to assess a supplier's ability to meet short-term obligations?
- Return on equity
- Current ratio (Correct answer)
- Earnings per share
- Price-to-earnings ratio
Correct answer: Current ratio
The current ratio (current assets divided by current liabilities) measures a supplier's short-term liquidity and ability to meet near-term financial obligations without disrupting supply.
Question 6: What is the primary benefit of conducting a spend analysis?
- It determines which employees are responsible for purchasing decisions
- It provides visibility into purchasing patterns to identify savings and consolidation opportunities (Correct answer)
- It automatically generates purchase orders for inventory replenishment
- It calculates the depreciation schedule for purchased capital assets
Correct answer: It provides visibility into purchasing patterns to identify savings and consolidation opportunities
Spend analysis reveals where, how, and with whom money is being spent, enabling procurement to consolidate suppliers, negotiate better terms, and eliminate maverick spending.
Question 7: Which of the following best defines 'supplier risk management' in procurement?
- Negotiating lower prices to reduce financial exposure
- Identifying, assessing, and mitigating risks that could disrupt supply from key suppliers (Correct answer)
- Requiring all suppliers to carry the same insurance coverage
- Limiting purchases to suppliers located domestically
Correct answer: Identifying, assessing, and mitigating risks that could disrupt supply from key suppliers
Supplier risk management involves proactively identifying potential disruptions (financial, geopolitical, operational, or natural disasters) and implementing mitigation strategies to protect supply continuity.
APP Supplier Evaluation & Performance Management 2
The weighted scorecard method evaluates suppliers by: