CORE Exam Dumps - ISM CPSM Questions and Answers

A performance bond is a surety bond issued by an insurance company or a bank to guarantee satisfactory completion of a project by a contractor. In the context of XI Corporation, requiring a performance bond from the contractor is most appropriate to protect against delays and unsatisfactory quality. This bond ensures that if the contractor fails to perform the contractual obligations, the bond issuer will cover the costs to complete the project or compensate for the financial losses incurred. It provides a financial assurance that the project will meet the required standards and timelines. References:

Construction Contracting: Business and Legal Principles by Richard H. Clough and Glenn A. Sears.

Principles of Supply Chain Management: A Balanced Approach by Joel D. Wisner, Keah-Choon Tan, and G. Keong Leong.

Diminished Value: Recognizing that the current category strategy is not yielding desired results.

Exploring Alternatives: Networking with suppliers and launching Requests for Information (RFIs) allows the firm to explore new solutions and innovations that could improve the category.

Engagement with Market: This approach opens up opportunities to engage with the supplier market, potentially identifying new or better ways to meet needs and enhance value.

References

Gattorna, J. (2015). Dynamic Supply Chains: Delivering Value Through People. Pearson.

Lysons, K., & Farrington, B. (2016). Procurement and Supply Chain Management. Pearson.

Context: The firm is expanding and looking to concentrate on core competencies to increase agility and differentiate from competitors.

Core Competencies: These are the unique capabilities that give a firm a competitive advantage.

Supply Management’s Role: To support the CEO’s recommendation, supply management should focus on outsourcing non-core activities. This allows the firm to allocate more resources and focus on what they do best.

Outsourcing: By identifying non-core functions that can be outsourced, the firm can become more agile, reduce costs, and improve efficiency.

Evaluation: Conducting a spend analysis or developing better e-procurement processes are useful, but they don't directly address the CEO's strategy of focusing on core competencies. An organization-wide strategic sourcing plan is broader and less focused on core vs. non-core activities.

Conclusion: The best way for supply management to support the recommendation is by identifying and outsourcing non-core business functions.

References

Core Competency Theory by Prahalad and Hamel.

Strategic Management of Supply Chains by David Simchi-Levi.

Supply Chain Management: Strategy, Planning, and Operation by Sunil Chopra.

Identify the Change Requirement: The engineering department wants to replace a highly regulated imported chemical with a domestic, non-hazardous alternative.

Evaluate the Impact:

Assess the cost implications of switching chemicals, including sourcing, handling, and compliance costs.

Consider the impact on production processes, product quality, and customer acceptance.

Total Cost Analysis: Performing a comprehensive total cost analysis will provide a clear picture of all associated costs, ensuring that the decision is financially sound and aligns with the company’s strategic objectives.

Subsequent Steps: If the cost analysis is favorable, update project timelines, check supplier certifications, and notify customers. References:

Total Cost of Ownership (TCO) Analysis Frameworks

Chemical Supply Chain Management

Best Practices in Supplier Evaluation and Selection

The supply manager is looking for the supplier that is most efficient in its use of assets, which is measured by the return on assets (ROA). ROA is calculated as net income divided by total assets.

For each supplier:

Supplier A: ROA = 100 / 100 = 1.0

Supplier B: ROA = 200 / 100 = 2.0

Supplier C: ROA = 200 / 400 = 0.5

Supplier D: ROA = 50 / 20 = 2.5

Supplier D has the highest ROA, indicating it is the most efficient in its use of assets.

References

Financial Management for Supply Chain Management by Michael D. Waters

Principles of Corporate Finance by Richard A. Brealey, Stewart C. Myers, and Franklin Allen

To calculate the simple Return on Investment (ROI), we use the formula:

ROI = \left( \frac{\text{Net Return on Investment}}{\text{Cost of Investment}} \right) \times 100\%ROI=(Cost of InvestmentNet Return on Investment​)×100%

Given that the cost of the machine is $200,000 and the expected annual savings (which can be considered as the net return) is $35,000, we can plug these values into the formula:

ROI = \left( \frac{35,000}{200,000} \right) \times 100\% = 17.5\%ROI=(200,00035,000​)×100%=17.5%

Therefore, the simple ROI for this piece of equipment is 17.5%1.

Negotiation Tactics: Suppliers can use various tactics to gain an advantage in negotiations.

Power Position: DEF is the primary source for the material and is aware that XYZ has limited alternatives due to lead time constraints.

Delays and Postponements: By delaying negotiations, DEF might be trying to leverage its power position, knowing XYZ cannot easily switch suppliers.

Implications for XYZ: XYZ may feel pressured to concede to DEF’s terms due to the urgency of their need for the materials.

Strategic Response: XYZ needs to consider strategies to mitigate DEF's leverage, such as seeking alternative suppliers in the long term or negotiating better terms to manage future risks. References

Fisher, Ury, and Patton’s "Getting to Yes: Negotiating Agreement Without Giving In".

To ensure Supplier Y improves its KPI scores, the supply manager should require the supplier to submit a detailed written plan outlining specific steps and strategies for improvement. This plan should include measurable targets and timelines for each KPI. By closely monitoring the supplier's progress against this plan, the supply manager can ensure accountability and provide support where needed, fostering a continuous improvement culture.

References

Supplier Evaluation and Performance Excellence: A Guide to Meaningful Metrics and Successful Results by Sherry Gordon

"Key Performance Indicators (KPIs) in Supply Chain Management" - Supply Chain Council

A blanket agreement is best suited to the firm's needs to obtain the best price and reduce administrative costs for procuring office supplies. A blanket agreement allows the company to negotiate a fixed price for supplies over a specified period and simplifies the procurement process by reducing the need for multiple purchase orders. This type of agreement can leverage the firm's total buying power to achieve cost savings and reduce the administrative burden associated with frequent individual purchases.

References:

Monczka, R. M., Handfield, R. B., Giunipero, L. C., & Patterson, J. L. (2015). Purchasing and Supply Chain Management.

ISM (Institute for Supply Management). (2020). ISM Glossary of Key Supply Management Terms.

Contract Law Principles: Generally, a contract is binding if both parties have mutually agreed to the terms.

Error in Bid: If the error in Supplier A's bid was not known or reasonably should not have been known by JKL, Supplier A is obligated to honor the bid.

Breach of Contract: Refusal to perform under these circumstances would constitute a breach of contract by Supplier A.

Possible Remedies: JKL may seek remedies such as enforcing the contract, seeking damages, or re-awarding the contract to another supplier.

References

Contract Law Cases and Textbooks

Legal Precedents on Contractual Errors

Procurement and Supply Chain Management Resources