CPP Strategic Sourcing & Procurement 3 — Questions and Answers
Question 1: A procurement manager is evaluating global sourcing options. Which factor is MOST likely to erode the cost savings of offshore sourcing?
- Lower labor costs in the source country
- Extended lead times and higher inventory carrying costs (Correct answer)
- Favorable currency exchange rates
- Lower import tariff rates
Correct answer: Extended lead times and higher inventory carrying costs
Extended lead times from offshore suppliers increase inventory carrying costs, which can significantly erode unit cost savings.
Question 2: In the context of strategic sourcing, 'category management' refers to:
- Managing supplier payment terms by invoice category
- Grouping related spend categories and developing unified sourcing strategies for each (Correct answer)
- Classifying suppliers by their SIC industry code
- Organizing purchase orders by fiscal year quarter
Correct answer: Grouping related spend categories and developing unified sourcing strategies for each
Category management groups similar spend areas to develop coordinated sourcing strategies that leverage combined volume and expertise.
Question 3: What distinguishes a 'strategic alliance' from a standard supplier contract?
- Strategic alliances are always longer in duration
- Strategic alliances involve shared goals, joint investment, and mutual dependency beyond a simple transaction (Correct answer)
- Strategic alliances always include equity ownership by the buyer
- Strategic alliances require government regulatory approval
Correct answer: Strategic alliances involve shared goals, joint investment, and mutual dependency beyond a simple transaction
Strategic alliances are characterized by shared objectives, joint investments, and interdependency that go far beyond a standard transactional supplier agreement.
Question 4: Which metric BEST measures a supplier's delivery performance over time?
- On-time delivery (OTD) rate (Correct answer)
- Days payable outstanding (DPO)
- Supplier defect rate (PPM)
- Invoice accuracy percentage
Correct answer: On-time delivery (OTD) rate
On-time delivery (OTD) rate directly measures what percentage of deliveries are received on the agreed delivery date.
Question 5: A procurement team is implementing 'demand management' as part of their strategic sourcing initiative. This PRIMARILY involves:
- Forecasting supplier capacity constraints
- Challenging and reducing internal requisitions before they become purchase orders (Correct answer)
- Managing supplier lead time variability
- Negotiating minimum order quantities with suppliers
Correct answer: Challenging and reducing internal requisitions before they become purchase orders
Demand management focuses on scrutinizing and reducing internal demand before purchasing, addressing the root cause of spend.
Question 6: Which of the following BEST defines 'maverick spending' in a procurement context?
- Emergency purchases made outside normal lead times
- Purchases made outside approved contracts and procurement processes (Correct answer)
- Purchases that exceed delegated authority limits
- Purchases from international suppliers without import licenses
Correct answer: Purchases made outside approved contracts and procurement processes
Maverick spending occurs when employees bypass established procurement contracts and processes, undermining negotiated savings and compliance.
Question 7: In strategic sourcing, a 'make-or-buy' analysis is MOST relevant when:
- A supplier requests a significant price increase
- An organization is deciding whether to produce a component internally or outsource it (Correct answer)
- Comparing two competing supplier bids
- Evaluating whether to renew an expiring contract
Correct answer: An organization is deciding whether to produce a component internally or outsource it
Make-or-buy analysis evaluates whether producing internally or outsourcing better serves the organization's cost, quality, and strategic objectives.
CPP Strategic Sourcing & Procurement 3
A procurement manager is evaluating global sourcing options.
Which factor is MOST likely to erode the cost savings of offshore sourcing?