CPP Strategic Sourcing & Procurement 2 — Questions and Answers
Question 1: Which sourcing strategy is MOST appropriate when a commodity has many qualified suppliers and low switching costs?
- Single sourcing
- Sole sourcing
- Competitive bidding (Correct answer)
- Dual sourcing
Correct answer: Competitive bidding
Competitive bidding is best when multiple qualified suppliers exist and switching costs are low, maximizing price competition.
Question 2: A procurement team conducts a 'should-cost' analysis. What is the primary purpose of this technique?
- To determine the buyer's internal budget ceiling
- To model what a product should cost based on materials, labor, and overhead (Correct answer)
- To calculate the total cost of ownership over a contract term
- To benchmark supplier prices against published market indices
Correct answer: To model what a product should cost based on materials, labor, and overhead
Should-cost analysis builds a bottom-up cost model to understand what a product reasonably should cost, strengthening negotiation positions.
Question 3: In strategic sourcing, 'spend analysis' is BEST described as:
- Forecasting future procurement budgets based on historical trends
- Collecting, cleansing, and categorizing expenditure data to identify savings opportunities (Correct answer)
- Auditing supplier invoices for billing accuracy
- Comparing departmental budgets against actual purchase orders
Correct answer: Collecting, cleansing, and categorizing expenditure data to identify savings opportunities
Spend analysis involves organizing and analyzing procurement expenditure data to identify consolidation and savings opportunities.
Question 4: Which of the following BEST describes a 'preferred supplier' designation in a strategic sourcing program?
- A supplier that has the lowest unit price in all categories
- A pre-qualified supplier given priority consideration based on performance and strategic fit (Correct answer)
- A supplier that is the sole source for a critical component
- A supplier that has passed a one-time quality audit
Correct answer: A pre-qualified supplier given priority consideration based on performance and strategic fit
Preferred supplier status is earned through demonstrated performance and strategic alignment, giving that supplier priority in the sourcing process.
Question 5: A company sources 80% of its spend from 20% of its suppliers. This phenomenon is BEST explained by:
- The bullwhip effect
- Pareto's principle (80/20 rule) (Correct answer)
- Porter's Five Forces
- The kraljic matrix quadrant distribution
Correct answer: Pareto's principle (80/20 rule)
Pareto's principle (80/20 rule) commonly describes the pattern where a small percentage of suppliers account for the majority of spend.
Question 6: When evaluating a Request for Proposal (RFP), which criterion should procurement weight MOST heavily for a complex technical services contract?
- Lowest total bid price
- Technical approach and qualifications (Correct answer)
- Shortest delivery timeline
- Largest company size by revenue
Correct answer: Technical approach and qualifications
For complex technical services, the supplier's technical approach and qualifications are most critical to successful delivery.
Question 7: Which sourcing model involves the buyer and supplier sharing risks and rewards in a long-term collaborative arrangement?
- Transactional purchasing
- Vested outsourcing (Correct answer)
- Spot buying
- Reverse auction
Correct answer: Vested outsourcing
Vested outsourcing is a collaborative model where both parties share risks, rewards, and a commitment to mutual success.
CPP Strategic Sourcing & Procurement 2
Which sourcing strategy is MOST appropriate when a commodity has many qualified suppliers and low switching costs?