Supply Chain Management Supplier Management 5 — Questions and Answers
Question 1: A company uses an e-procurement portal to run a reverse auction for a commodity purchase. What is the key advantage of this approach?
- It builds deeper long-term relationships with suppliers
- It drives competitive price reduction through real-time bidding among multiple suppliers (Correct answer)
- It ensures the highest quality supplier wins the business
- It simplifies contract terms and reduces legal complexity
Correct answer: It drives competitive price reduction through real-time bidding among multiple suppliers
Reverse auctions create downward price pressure by having multiple suppliers compete in real time, typically resulting in lower purchase prices for commodity goods.
Question 2: Which of the following BEST describes 'consignment inventory' as a supplier arrangement?
- The buyer pays for inventory upon delivery
- The supplier retains ownership of inventory stored at the buyer's facility until it is consumed (Correct answer)
- The buyer warehouses inventory on behalf of the supplier
- The supplier ships inventory only after receiving payment
Correct answer: The supplier retains ownership of inventory stored at the buyer's facility until it is consumed
In consignment, the supplier owns the inventory at the buyer's site and is only paid when the buyer uses or sells it, reducing the buyer's working capital requirements.
Question 3: What is the main objective of a 'supplier rationalization' initiative?
- Increasing the number of approved suppliers to improve competition
- Reducing the supplier base to a manageable number of strategic, high-performing vendors (Correct answer)
- Standardizing supplier contract templates across all categories
- Automating supplier invoice processing through ERP integration
Correct answer: Reducing the supplier base to a manageable number of strategic, high-performing vendors
Supplier rationalization consolidates the supply base by eliminating underperforming or redundant suppliers, focusing resources on fewer, more strategic relationships.
Question 4: A procurement team evaluates suppliers using a weighted scorecard with criteria: price (30%), quality (40%), delivery (20%), and innovation (10%). Supplier A scores 80/80/90/70. What is Supplier A's weighted total score?
- 79
- 81 (Correct answer)
- 80
- 83
Correct answer: 81
Weighted score = (80×0.30)+(80×0.40)+(90×0.20)+(70×0.10) = 24+32+18+7 = 81.
Question 5: Which international standard specifically addresses quality management system requirements that suppliers are often required to certify to?
- ISO 14001
- ISO 9001 (Correct answer)
- ISO 45001
- ISO 31000
Correct answer: ISO 9001
ISO 9001 specifies requirements for a quality management system and is the most widely required supplier quality certification globally.
Question 6: What is 'supply chain mapping' and why is it valuable in supplier risk management?
- Plotting supplier locations on a geographic map to estimate freight costs
- Visualizing multi-tier supplier relationships to identify hidden dependencies and risk concentrations (Correct answer)
- Documenting the procurement process workflow from requisition to payment
- Tracking supplier contract expiration dates on a procurement calendar
Correct answer: Visualizing multi-tier supplier relationships to identify hidden dependencies and risk concentrations
Supply chain mapping reveals Tier 2 and Tier 3 supplier relationships, uncovering hidden single-source dependencies or geographic concentrations that pose unrecognized risks.
Question 7: A supplier requests a price increase of 8% citing rising steel costs. The buyer's contract includes a steel price escalation clause tied to the Producer Price Index (PPI). Steel PPI increased 5% over the contract period. What should the buyer do?
- Accept the full 8% increase as a goodwill gesture
- Approve only a 5% increase per the escalation clause formula (Correct answer)
- Reject the increase entirely since a contract is in place
- Renegotiate the entire contract from scratch
Correct answer: Approve only a 5% increase per the escalation clause formula
The escalation clause formula limits price adjustments to the actual index change (5%), so the buyer should approve 5% and reject the additional 3% unsupported by the index.
Supply Chain Management Supplier Management 5
A company uses an e-procurement portal to run a reverse auction for a commodity purchase.
What is the key advantage of this approach?