CPSM CPSM Risk Management & Compliance 4 — Questions and Answers
Question 1: A supply manager identifies that a sole-source supplier is located in a region prone to political instability. Which risk mitigation strategy is MOST appropriate?
- Increase safety stock inventory levels only
- Qualify an alternative supplier in a different region (Correct answer)
- Renegotiate pricing to offset potential disruption costs
- Transfer all risk to the supplier via contract penalties
Correct answer: Qualify an alternative supplier in a different region
Qualifying an alternative supplier in a different region directly reduces the concentration risk associated with sole-sourcing from a politically unstable area.
Question 2: Under the U.S. Foreign Corrupt Practices Act (FCPA), which of the following is classified as a permissible payment?
- Payments to foreign officials to secure a contract award
- Facilitating payments to expedite routine government actions (Correct answer)
- Gifts exceeding $100 given to procurement officials abroad
- Kickbacks disguised as consulting fees to third-party agents
Correct answer: Facilitating payments to expedite routine government actions
The FCPA historically recognized a narrow exception for facilitating (grease) payments to expedite routine, non-discretionary government actions, though this exception is very limited and many companies prohibit them anyway.
Question 3: Which document formally records identified supply chain risks, their likelihood, potential impact, and assigned owners?
- Supplier scorecard
- Risk register (Correct answer)
- Statement of work
- Corrective action report
Correct answer: Risk register
A risk register is the centralized log used to track risks, their attributes (likelihood, impact), mitigation strategies, and responsible owners throughout the risk management process.
Question 4: A company discovers its Tier 2 supplier uses conflict minerals from a restricted region. Which compliance framework MOST directly governs this situation for U.S. public companies?
- ISO 14001 Environmental Management
- Dodd-Frank Section 1502 conflict minerals rule (Correct answer)
- REACH chemical substance regulation
- Basel Convention on hazardous waste
Correct answer: Dodd-Frank Section 1502 conflict minerals rule
Dodd-Frank Section 1502 requires U.S. public companies to disclose their use of conflict minerals (tin, tantalum, tungsten, gold) originating from the Democratic Republic of Congo and adjoining countries.
Question 5: In a risk heat map, a risk rated HIGH likelihood and LOW impact would typically be placed in which quadrant?
- Critical — requires immediate escalation and senior management action
- Monitor — track regularly but not a top priority (Correct answer)
- Accept — no action needed
- Transfer — immediately purchase insurance or use contracts
Correct answer: Monitor — track regularly but not a top priority
High-likelihood, low-impact risks fall in the 'monitor' zone where they warrant regular tracking but do not demand the same urgent response as high-impact risks.
Question 6: A supplier's financial health is deteriorating. Which early warning indicator is MOST useful for detecting impending supplier insolvency?
- An increase in the supplier's headcount
- A rising accounts payable days outstanding (DPO) trend (Correct answer)
- Expansion into new product lines
- ISO 9001 recertification completion
Correct answer: A rising accounts payable days outstanding (DPO) trend
A rising DPO trend indicates the supplier is taking longer to pay its own creditors, which is a classic warning sign of cash flow stress and potential insolvency.
Question 7: Which risk response strategy involves shifting the financial consequences of a risk to a third party while retaining ownership of the risk?
- Risk avoidance
- Risk transfer (Correct answer)
- Risk acceptance
- Risk mitigation
Correct answer: Risk transfer
Risk transfer moves the financial burden of a risk to another party (e.g., through insurance or contract indemnification clauses) without eliminating the risk itself.
CPSM CPSM Risk Management & Compliance 4
A supply manager identifies that a sole-source supplier is located in a region prone to political instability.
Which risk mitigation strategy is MOST appropriate?