CPSM Supply Management Core 5 — Questions and Answers
Question 1: A supply manager discovers that a key supplier is financially distressed. The MOST proactive risk mitigation strategy is to:
- Wait to see if the supplier recovers before taking action
- Immediately dual-source critical components and develop a contingency supplier (Correct answer)
- Reduce purchase volumes to limit financial exposure
- Renegotiate payment terms to extend accounts payable
Correct answer: Immediately dual-source critical components and develop a contingency supplier
Dual-sourcing and qualifying a contingency supplier before a failure occurs ensures supply continuity, whereas reactive measures taken after a collapse often result in costly shortages.
Question 2: Which of the following BEST describes the concept of 'total cost of ownership' (TCO)?
- The invoice price negotiated with the supplier
- All costs associated with acquiring, using, and disposing of a product over its life (Correct answer)
- The combined freight and duties for imported goods
- The cost of goods sold as reported in financial statements
Correct answer: All costs associated with acquiring, using, and disposing of a product over its life
TCO includes acquisition price, ordering costs, receiving and inspection, usage costs, maintenance, downtime, and disposal costs — all costs across the full ownership lifecycle.
Question 3: An organization uses a cross-functional sourcing team that includes engineering, finance, quality, and supply management. This structure PRIMARILY improves:
- Speed of single-buyer purchase order processing
- Alignment of supplier selection with organizational requirements across functions (Correct answer)
- Supplier's understanding of one department's needs
- Procurement department headcount efficiency
Correct answer: Alignment of supplier selection with organizational requirements across functions
Cross-functional sourcing teams ensure that supplier selection and contract requirements reflect the needs and constraints of all stakeholder functions, reducing downstream conflicts.
Question 4: When evaluating a potential international supplier, which factor is UNIQUE to global sourcing compared to domestic sourcing?
- Supplier financial stability assessment
- Currency exchange rate risk and import duty analysis (Correct answer)
- Quality management system certification review
- Lead time and delivery performance evaluation
Correct answer: Currency exchange rate risk and import duty analysis
Currency exchange rate fluctuations and import duties (tariffs, customs fees, and trade compliance requirements) are unique complications that arise specifically in global sourcing decisions.
Question 5: A supply manager is drafting a contract clause to protect the organization if a supplier's costs drop significantly due to material price decreases. The MOST appropriate clause is:
- Liquidated damages clause
- Economic price adjustment clause (Correct answer)
- Force majeure clause
- Most-favored-customer clause
Correct answer: Economic price adjustment clause
An economic price adjustment (EPA) clause ties contract pricing to a published index, allowing prices to move up or down in alignment with actual market conditions for materials or labor.
Question 6: Which performance metric measures the percentage of purchase orders fulfilled from stock without backorders or substitutions?
- Inventory turnover ratio
- Fill rate (Correct answer)
- Order cycle time
- Days of supply
Correct answer: Fill rate
Fill rate measures the proportion of customer or production demand that is met immediately from available inventory, without delays or substitutions.
Question 7: The ISM Code of Ethics prohibits supply management professionals from:
- Joining professional associations outside their employer
- Accepting gifts or entertainment that could influence purchasing decisions (Correct answer)
- Discussing general market trends with multiple suppliers
- Requesting competitive bids on contracts under $10,000
Correct answer: Accepting gifts or entertainment that could influence purchasing decisions
The ISM Code of Ethics requires professionals to avoid conflicts of interest, including accepting gifts or personal benefits from suppliers that could improperly influence sourcing decisions.
CPSM Supply Management Core 5
A supply manager discovers that a key supplier is financially distressed.
The MOST proactive risk mitigation strategy is to: