CPSM Procurement & Sourcing 5 — Questions and Answers
Question 1: Which sourcing approach is most appropriate when specification requirements are unclear at project outset?
- Competitive sealed bidding (IFB)
- Performance-based contracting with outcome metrics (Correct answer)
- Sole source contract award
- Blanket purchase order with fixed quantities
Correct answer: Performance-based contracting with outcome metrics
Performance-based contracting defines desired outcomes rather than prescriptive specs, giving suppliers flexibility when requirements cannot be fully detailed upfront.
Question 2: A supplier's Cpk index of 1.33 indicates that the process is:
- Barely capable and needs immediate improvement
- Capable and meeting quality specifications with adequate margin (Correct answer)
- Incapable and producing significant defects
- Highly capable and considered Six Sigma level
Correct answer: Capable and meeting quality specifications with adequate margin
A Cpk of 1.33 (4-sigma) demonstrates the process is centered and capable, with a 99.994% yield rate, exceeding the minimum acceptable threshold of 1.0.
Question 3: In international procurement, an Incoterms® DDP (Delivered Duty Paid) term means the seller is responsible for:
- Freight to the port of export only
- All costs and risks including import duties and delivery to buyer's premises (Correct answer)
- Freight and export customs clearance only
- Unloading at the destination port
Correct answer: All costs and risks including import duties and delivery to buyer's premises
DDP represents maximum seller obligation, covering all transport costs, export and import duties, and delivery to the named destination.
Question 4: Which metric best measures procurement's contribution to organizational value beyond cost savings?
- Purchase price variance (PPV)
- Total value delivered, including risk mitigation and innovation (Correct answer)
- Number of active suppliers
- Purchase order cycle time
Correct answer: Total value delivered, including risk mitigation and innovation
Total value delivered captures procurement's broader contributions such as risk reduction, supplier innovation, and supply chain resilience, beyond simple price savings.
Question 5: A 'should-cost' model in procurement is used to:
- Determine the buyer's internal budget ceiling
- Estimate what a product or service should cost based on materials, labor, and overhead (Correct answer)
- Calculate the total cost of ownership over a product's life
- Forecast future commodity price trends
Correct answer: Estimate what a product or service should cost based on materials, labor, and overhead
Should-cost analysis builds up an independent cost estimate from first principles, giving the buyer a fact-based target for negotiation.
Question 6: A buyer discovers that a key supplier is also supplying a direct competitor with the same proprietary design. The most critical contractual clause that should have prevented this is:
- Liquidated damages clause
- Exclusivity clause (Correct answer)
- Force majeure clause
- Indemnification clause
Correct answer: Exclusivity clause
An exclusivity clause contractually prevents the supplier from providing the same product, technology, or design to competing buyers.
Question 7: When evaluating total cost of ownership (TCO) for capital equipment, which cost element is most commonly overlooked?
- Initial purchase price
- Installation and commissioning costs
- End-of-life disposal and decommissioning costs (Correct answer)
- Annual maintenance contract fees
Correct answer: End-of-life disposal and decommissioning costs
Disposal and decommissioning costs are frequently excluded from TCO models despite being significant, especially for equipment containing hazardous materials.
CPSM Procurement & Sourcing 5
Which sourcing approach is most appropriate when specification requirements are unclear at project outset?