CIPS Level 4 Diploma in Procurement and Supply Certification Exam: Defining Business Needs L4M2 Sample Questions

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For IT students and professionals, CIPS Level 4 Diploma in Procurement and Supply should be a good choice to power up their careers with the right skills from the start. To earn the CIPS Level 4 Diploma certification, they need to earn 60 credits by passing eight exams below:

Scope and Influence of Procurement and Supply L4M1 (12 credits)
Defining Business Need L4M2 (6 credits)
Commercial Contracting L4M3 (6 credits)
Ethical and Responsible Sourcing L4M4 (6 credits)
Commercial Negotiation L4M5 (6 credits)
Supplier Relationships L4M6 (6 credits)
Whole Life Asset Management L4M7 (6 credits)
Procurement and Supply in Practice L4M8 (12 credits)

The L4M2 exam is one of the CIPS Level 4 exams, which values 6 credits. We have new L4M2 exam questions online to help you achieve your goal. With our practice tests and study guides, you will understand the concept of Defining Business Needs to pass the L4M2 exam.

Defining Business Needs L4M2 Sample Questions Are Below For Checking

Page 1 of 5

1. Which of the following areas is specified by ISO/IEC 27001 family?

The dimensions and associated tolerances for a series of housings for piston seals

The requirements for an information security management system

Evaluation and assessment of mutual agreed customer food safety requirements

The requirements for an environmental management system

2. What is the output of regression analysis?

Forecasting process

Dependent variables

Line of best fit

Independent variables

3. A hospital extensively spends on medical and implantable devices, medical, surgical and pharma-ceutical supplies, costs of supplies related to buildings and maintenance operations. Hospital’s procurement manager suggests that the hospital has an opportunity to reduce operational costs by reducing variation of medical devices and pharmaceutical supplies.

Which of the following best describe the procurement manager's suggestion?

Process standardisation

Product standardisation

Value engineering

Process re-engineering

4. A procurement manager is writing a conformance specification for a non-core component. She thinks that if the requirements in specification are higher than ISO standards, her company can achieve greater cost-savings.

Is the procurement manager’s opinion correct?

No, because higher specification may incur additional costs for the buyer

No, because higher requirements in specification, the greater bargaining power of buying organisation

Yes, because optimising the specification is the only method to achieve value for money

Yes, because higher requirements will help buying organisation find the best supplier

5. Company A sells a product for $100. The total unit variable costs are $60. Fixed costs as in its ac-count are $20,000.

How many products does the company have to sell to achieve break-even point?

600

550

400

500

6. A procurement organisation is keen to encourage innovation available within the supply market in the execution of an upcoming significant contract opportunity. A team member suggests that the specification should define the performance indicators so that supplier's solution can be checked against them.

Which of the following will enable the organisation to achieve this goal?

Using an outcome focused specification

Establishing transparent selection criteria

Using an output focused specification

Applying a precise performance framework

7. What does the acronym RAQSCI stand for?

Relationship, Ability, Quality, Service, Cost, Innovation

Regulatory, Availability, Quality, Service, Cost, Innovation

Regulatory, Availability, Quantity, Sustainability, Inventory

Regulatory, Ability, Quality, Service, Cost, Inventory

Relationship, Availability, Quantity, Sustainability, Cost, Innovation

8. When a procurement manager considers a substitution, the number and nature of additional func-tions that substitute provides should be taken into account carefully.

Which of the following ratio could help the procurement manager to make the right decision?

Value to price ratio

Price to Earnings ratio

Reserve requirement ratio

Price to book value ratio

9. Competitors are increasingly deploying robotics and automation to boost productivity.

Which of the below business sectors does EV Inc belong to?

Construction

Manufacturing

Financial services

Retails

10. Which of the following is the best definition of target costing?

The net present cost of the purchase or project and all future revenues flowing from it discounted back to the present time.

The total of all costs in acquiring goods or services from the inception of the demand for them until their safe and satisfactory delivery at the point required.

The cost of a product after analysing its components step by step

A product cost estimate derived from a competitive market price.

Page 2 of 5

11. Which of the following bodies provides standards for the products and services in the US?

ISO

ANSI

AFNOR

BSI

12. 1.Sealines Inc is developing its fleet of cargo ships. The company is planning to build a new ship powered by natural gas. Brian, the procurement manager at Sealines, suggests the project team to develop a through-life specification before engaging with the supplier.

Is this a correct approach?

Yes, decommissioning and disposal costs will not be accounted in this approach

Yes, this approach will lower the total cost of ownership

No, a ship is used only once, through-life management is unnecessary

No, the company just needs to select the lowest bidder

13. A purchaser is looking for alternative supplies if there is a major disruption to their supply chain, including logistics, manufacturing and all support services.

Which of the following method is that purchaser applying?

Treat the risk

Terminate the risk

Tolerate the risk

Transfer the risk

14. GE has developed TurboProp engine that is made from over 850 metal parts. These parts are sourced from many suppliers. Value of spend on these parts make up 73% of total spend. Any delay in receiving a part will cause a bottleneck around the production of the engine.

Which of the following should be the best course of action of GE's CPO?

Drive down prices by using market competition

Increase production

Part standardisation

Reduce delivery cost

15. Which of the following is the disadvantage of embedding standards in a specification?

Standards do not improving buyer's bargaining power

Embedding standards into specification requires enormous time and effort

Standards are too static and discourage innovation

Standards are too flexible and may cause ambiguity in the specification

16. A drawing is an example of…?

Statements of work

Technical specifications

Output specifications

Outcome specifications

17. Robert is a senior buyer at MMC Construction Ltd. His company is doing multiple development projects in the country, which increases procurement workload significantly. Meanwhile, most of the tasks are handled manually, which causes bottlenecks in the workflows. The procurement team is overwhelmed by the workload and complains from other departments. From previous experience, Robert knows that electronic system may help his procurement team. He writes a business case to submit to the senior management, in which he insists on the possible productivity improvement by adopting e-system in procurement.

Is Robert's action reasonable?

No, there's no need to make a business case for new purchase

Yes, productivity improvement is a mandatory element in every business case

No, adopting e-system may make procurement department jobless

Yes, his reason may appeal the senior management

18. Which of the following are considered as direct costs in a construction company? Select TWO op-tions

Raw materials

An employee is hired to work on a project, either exclusively or for an assigned number of hours

The materials and supplies needed for the company’s day-to-day operations.

Advertising and marketing communication

Clerical assistants who maintain the office

19. Standardisation

2 and 3 only

1 and 3 only

3 and 4 only

1 and 4 only

20. Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:

To determine the value of each component used

To decide whether there will be sufficient surplus funds to reinvest in the business

To shape and manage supply market

To provide an outline business case for the specification

To find cost reduction opportunities by optimising the components used

Page 3 of 5

21. Andrew is responsible for procurement of capital assets at Lumber Ltd. He is devising new business case for the purchase of a new band saw. The purchase price of the saw is $50,000. Andrew estimates that the machine will generate $10,000 per year of net cash flow.

What is the payback period of this band saw?

10 years

5 years

3 years

4 years

22. Which kind of these following costs belong to fixed costs? Select TWO that apply.

Energy consumption in manufacturing

The annual income tax charged by local authorities

The packaging and distribution costs

The depreciation of capital inputs

The costs of leasing or purchasing capital equipment

23. This is the information on an organisation’s activities over the past year

• Sale were $5,000,000. The value of accounts receivable was $450,000 at the start of the year and $525,000 at the end of the year

• The value of direct costs was $2,500,000 and 75% of this was bought on credit

• Indirect costs were $3,000,000 and 25% of this was bought on credit

• During the year the organization spent $1,500,000 on new assets and sold $150,000 of old assets. $1,000,000 of the spend on assets was funded by a bank loan

• The organization declared a dividend of $200,000 at the end of the year but this was not paid for another two months

• Opening balance was $175,000

Which of the following is the bank balance of that organization at the end of the year?

$1,675,000

$1,875,000

$1,700,000

$2,025,000

24. When should procurement professional tolerate a risk?

When the risk may disrupt the production

When the risk imposes an existential threat

When the risk causes some trivial annoyance

When the risk breaks the relationship with the strategic supplier

25. Apple’s CPO is planning a budget for purchasing carbon-free aluminium next year. There are 27.4 tonnes of aluminum in stock, while Apple will need 200 tonnes for production next year and double inventory for production in the following year.

How much aluminum will Apple need to purchase in next year?

172.6 tonnes

117.8 tonnes

282.2 tonnes

227.4 tonnes

26. Information security

2 and 4 only

1 and 2 only

2 and 3 only

3 and 4 only

27. A buying organisation may not have technical capability to produce a highly complex specification.

Which of the following are sources of information that can be used to create the specification? Select TWO that apply

Standard terms and conditions

Name cards

Industry standards

Suppliers' know-how

Constitution

28. Facing fiercer competition at home and abroad, IKEA, the leading furniture retailer, needs to im-prove its competitiveness. In order to do this, IKEA must decrease operating costs and improve quality of current and new retail stores. The company establishes a project team. The job of the team is to collect data on performance from multiple stores in several countries, then select the best performing one. The team will work closely with best performing store and study its processes. After the research, the team will recommend best practices to other retail stores. IKEA management can also apply these practices to new stores in the future.

Which of the following correctly describe the process undertaken by IKEA project team?

Internal benchmarking

Competitive benchmarking

Internal audit

Site visit

29. Which of the following activities are considered as secondary activities of an organization? Select TWO that apply

Component fabrication

Training

Information system development

Shipping

Service response

30. Thani Ltd is a fast growing logistics company with a fleet of 20 tractors. To meet Net Zero objec-tive, the company needs to electrify its fleet. Angelica is assigned to investigate the market price of electrifying services. After the investigation, she realises that the current market price is very expensive and unsustainable for her company. She decides to break down the costs before negotiating with the suppliers.

Which internal stakeholders may help Angelica estimate the breakdown of costs? Select TWO that apply.

Sales and Marketing department

Engineering department

Finance department

Commercial agency

Suppliers

Page 4 of 5

31. Which of the following is a tool to define roles and responsibilities of a project team?

RACI Matrix

Monte Carlo model

STEEPLE Analysis

SCAMPER Method

32. To strengthen its market presence, ABC Group decided to develop a new product. A cross-functional team was formed to discuss the scope and the functions of the product. They will also survey the potential customers to see what they like, what they love, and what they dislike.

What is this process called?

Value analysis

Cash flow analysis

Product standardisation

Value engineering

33. A procurement manager is requested to source a major component. She needs information on sup-pliers’ direct and indirect cost, fixed and variable costs to prepare for negotiations. Therefore, she collects 17 annual reports from potential suppliers who are competing in the same industry.

In order to estimate an approximate value of fixed and variable costs in that industry, which of the following technique should be adopted by the procurement manager?

Line of best fit

Variance calculation

Total cost of ownership

Open-book costing

34. Threat of backward integration is significant

3 and 4 only

2 and 3 only

1 and 4 only

2 and 4 only

35. Which of the following problems may be identified as closed problems? Select TWO that apply:

A cyber attack takes down whole company’s IT system

Shortage of key medicines in healthcare industry

There are not enough data for procurement analytics

Logistics costs incur a large portion in wholesale prices

The suppliers don’t comply with the company’s policy on underage labour.

36. Which of the following indicates types of waste that procurement department concentrates on when adopting Lean methods?

DOWNTIME

VA/VE

OWN-IT

SCAMPER

37. A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can't be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier's costs plus 10% markup on total costs.

This arrangement is known as...?

Cost-plus fixed-fee

Cost-plus award fee

Cost-plus incentive fee contracts

Cost-plus Fixed percentage

38. Department for Transport (DfT) needs to buy new locomotives to expand the capacity of trains fleet. In 2009, they were criticized for beginning the procurement “without any clear idea of how many trains would be needed, which routes they would run on and what form of power would be required”.

What should procurement manager of DfT do first to manage risk in making the specification?

Identify the possible risks

Monitor the potential risks

Implement mitigating actions

Assess the potential risks

39. Due to increasing demand, a local restaurant is requesting its fish vendor to supply larger quantity. The restaurant manager also asks the vendor whether it is possible to reduce the total price by 5%.

This is known as...?

Straight rebuy

Capital purchase

Modified rebuy

New purchase

40. The purchase is made in emergency

2 and 4 only

1 and 4 only

1 and 3 only

2 and 3 only

Page 5 of 5

41. Which of the following is an useful tool for value engineering?

SAMOA

Kraljic Portfolio Matrix

Star-burst method

Kano model

42. A company is analysing its existing product's components and aims at reducing costs without damaging customer value proposition. They want to check which components are critical and which are unnecessary.

Which of the following should be adopted by the company?

Under specification

Value engineering

Value analysis

Variety reduction

43. Which of the following is a challenge of making a business case for straight re-buys?

Terms and conditions

Research of procurement process

Effective inventory control

Identifying suitable suppliers

44. Why should the buying organisation require the supplier to carry out acceptance testing?

To get the approval from the senior management

To check whether the product matches the specification

To compare between the account payables and account receivables

To see whether the supplier engages in unethical business practice

45. A CPO is analyzing whole life cycle costing of a machinery. He realises that cost elements are not specific but come from a range of values.

Which whole-life costing model should the CPO use to get the most accurate total cost of ownership?

Simulation models

Optimisation models

Decision support models

Kraljic's preferencing model

46. Which of the following factors are likely to be direct barriers to a new entrant in a supply market?

Threat of forward integration

Value to price

Brand identity

Availability of substitutes

Cost advantages

47. XYZ Ltd is a large supermarket chain which operates mainly in the UK and Europe. Their custom-ers are increasingly concerned about sustainability. Therefore, procurement manager is required to source the products from suppliers who have good environmental performance.

Which of the fol-lowing can be an assurance that the supplier has procedures and policies to enhance its environmental performance?

ISO 14001:2015 certificate

ISO 13485:2016 certificate

ISO 22716:2007 certificate

ISO 9001:2015 certificate

48. Why should procurement professionals develop business case before seeking approval to purchase capital equipment?

Using business case will prevent new entrants from entering the supply market

A business case can be used as a replacement of purchase order

Business case is a tool that eliminates all risks associated with the project

Devising business case may prompt the procurement to consider different options

49. A procurement team is categorising their purchased items into four quadrants of Kraljic's supply chain portfolio matrix. They realise that there are some low-value items which come from very few suppliers in the market. The organisation is critically dependent on these suppliers. The team plans to reduce the dependence by finding alternative sources.

Is this a right course of action?

Yes, the organisation needs to reduce the supply risks

No, the organisation should run competitive biddings to exploit the competition

No, there is no way to escape this dependency

Yes, this action will dramatically increase the supplier's bargaining power

50. Which of the following are typical environmental considerations throughout the contract life cycle? Select the TWO that apply.

Modern slavery

Health and safety

Inequality

Waste management

Pollution control

CIPS Level 4 Diploma in Procurement and Supply Certification Exam: Defining Business Needs L4M2 Sample Questions