Supply Chain Management Procurement 5 — Questions and Answers
Question 1: Which payment term gives the buyer the longest time to pay while still incentivizing early settlement?
- Net 30
- 2/10 Net 60 (Correct answer)
- COD (Cash on Delivery)
- Net 90
Correct answer: 2/10 Net 60
2/10 Net 60 allows up to 60 days to pay but offers a 2% discount if paid within 10 days, incentivizing early payment while extending the deadline.
Question 2: In supply chain risk management, what is 'supply base rationalization'?
- Increasing the number of approved suppliers to reduce risk
- Deliberately reducing the number of suppliers to simplify management and increase leverage (Correct answer)
- Auditing all suppliers simultaneously
- Replacing domestic suppliers with international ones
Correct answer: Deliberately reducing the number of suppliers to simplify management and increase leverage
Supply base rationalization strategically reduces the number of active suppliers to lower management complexity and increase bargaining power with remaining vendors.
Question 3: What is a 'framework agreement' in public sector procurement?
- A binding contract specifying exact quantities to be purchased
- A pre-competed agreement allowing multiple call-offs without re-tendering (Correct answer)
- A supplier development roadmap
- A contract that adjusts prices with inflation automatically
Correct answer: A pre-competed agreement allowing multiple call-offs without re-tendering
Framework agreements establish terms with one or more suppliers in advance, allowing agencies to issue call-off orders quickly without a full new tender each time.
Question 4: Which metric measures how efficiently a company converts its purchased inventory into sales revenue?
- Procurement cycle time
- Inventory turnover ratio (Correct answer)
- Supplier on-time delivery rate
- Purchase order accuracy rate
Correct answer: Inventory turnover ratio
Inventory turnover ratio (COGS ÷ average inventory) shows how many times inventory is sold and replaced in a period, reflecting procurement efficiency.
Question 5: What is 'supplier development' in the context of strategic procurement?
- Recruiting new suppliers through trade shows
- Actively working with existing suppliers to improve their capabilities and performance (Correct answer)
- Developing internal procurement staff skills
- Publishing supplier directories for internal use
Correct answer: Actively working with existing suppliers to improve their capabilities and performance
Supplier development involves investing time and resources to help suppliers improve quality, delivery, technology, or processes to better serve the buyer's needs.
Question 6: In procurement, 'landed cost' includes:
- Only the purchase price of the goods
- Purchase price plus all costs to get goods to the buyer's location (freight, duties, insurance) (Correct answer)
- The supplier's manufacturing cost
- The cost of warehousing goods after delivery
Correct answer: Purchase price plus all costs to get goods to the buyer's location (freight, duties, insurance)
Landed cost encompasses the total cost of a product at the buyer's door, including purchase price, shipping, insurance, customs duties, and handling fees.
Question 7: Which procurement practice helps mitigate supply disruption risk by maintaining relationships with backup suppliers?
- Single sourcing
- Dual or multi-sourcing (Correct answer)
- Just-in-time purchasing
- Spot buying
Correct answer: Dual or multi-sourcing
Dual or multi-sourcing spreads purchases across two or more suppliers, ensuring continuity if one supplier experiences disruptions.
Supply Chain Management Procurement 5
Which payment term gives the buyer the longest time to pay while still incentivizing early settlement?