CPSM CPSM Risk Management & Compliance 5 — Questions and Answers
Question 1: A procurement team conducts a business continuity exercise and discovers a critical component has only a 3-day lead time buffer. Which action BEST addresses this supply continuity risk?
- Immediately switch to a lower-cost alternative supplier
- Establish a dual-source strategy and increase strategic buffer stock (Correct answer)
- Reduce order frequency to consolidate shipments
- Outsource procurement management to a 3PL provider
Correct answer: Establish a dual-source strategy and increase strategic buffer stock
Combining dual-sourcing with increased strategic buffer stock addresses both supplier disruption risk and the inadequate lead time buffer simultaneously.
Question 2: Under the Sarbanes-Oxley Act (SOX), what is the PRIMARY supply management compliance obligation?
- Reporting environmental impact of supply chain operations
- Maintaining accurate financial reporting controls over procurement transactions (Correct answer)
- Ensuring all suppliers hold ISO certifications
- Publishing annual supplier diversity metrics
Correct answer: Maintaining accurate financial reporting controls over procurement transactions
SOX requires companies to maintain strong internal controls over financial reporting, which includes procurement transactions to prevent fraud, errors, and misstatements in financial statements.
Question 3: A company's supplier code of conduct requires annual self-assessments. Which additional verification step provides the STRONGEST assurance of supplier compliance?
- Requiring suppliers to sign a compliance attestation letter
- Conducting on-site third-party audits of supplier facilities (Correct answer)
- Reviewing the supplier's published CSR report
- Asking the supplier's account manager to confirm compliance
Correct answer: Conducting on-site third-party audits of supplier facilities
Third-party on-site audits provide independent, objective evidence of actual conditions, making them far more reliable than self-reported data or attestations.
Question 4: Which type of supply chain disruption is BEST categorized as a 'black swan' event?
- A supplier missing a delivery due to truck driver shortage
- A global pandemic shutting down manufacturing worldwide (Correct answer)
- Raw material price increase due to commodity market fluctuation
- A supplier failing a quality audit
Correct answer: A global pandemic shutting down manufacturing worldwide
A black swan event is a rare, unpredictable, high-impact occurrence that defies normal expectations—a global pandemic fits this definition perfectly.
Question 5: When performing a supplier financial risk assessment, which ratio BEST measures a supplier's ability to meet short-term obligations?
- Debt-to-equity ratio
- Current ratio (current assets / current liabilities) (Correct answer)
- Return on assets (ROA)
- Gross profit margin
Correct answer: Current ratio (current assets / current liabilities)
The current ratio directly measures whether a supplier has sufficient short-term assets to cover its short-term liabilities, indicating near-term financial stability.
Question 6: A company's procurement policy prohibits accepting gifts above $25 from suppliers. An employee accepts a $200 holiday gift basket and discloses it. What is the MOST appropriate organizational response?
- No action required since the employee disclosed the gift voluntarily
- Return the gift and issue a formal ethics policy reminder to all staff (Correct answer)
- Terminate the employee immediately for policy violation
- Require the employee to donate the gift to charity and take no further action
Correct answer: Return the gift and issue a formal ethics policy reminder to all staff
Returning the gift upholds the policy boundary while using the incident as a teaching opportunity through a company-wide reminder reinforces the ethics culture without disproportionate punishment for voluntary disclosure.
Question 7: Which clause in a supply contract MOST directly protects a buyer if a supplier is acquired by a competitor?
- Force majeure clause
- Change of control clause (Correct answer)
- Liquidated damages clause
- Indemnification clause
Correct answer: Change of control clause
A change of control clause gives the buyer the right to terminate or renegotiate the contract if the supplier undergoes ownership change, protecting against conflicts of interest from competitor acquisition.
CPSM CPSM Risk Management & Compliance 5
A procurement team conducts a business continuity exercise and discovers a critical component has only a 3-day lead time buffer.
Which action BEST addresses this supply continuity risk?