CPSM^® Update

3 Questions, 3 Answers

March/April 2011, eSide Supply Management Vol. 4, No. 2

In every edition, eSide offers three sample questions — and answers — from the CPSM^® Diagnostic Kit to help you prepare to pursue your CPSM^® certification. First, answer all three questions; then, scroll down to the "3 Answers" section to find out how you fared.

3 Questions

Question #1: A supply manager is negotiating with a critical supplier. The parties have relatively equal bargaining power. Which of the following would MOST likely occur in "win-win" negotiation between these parties?

1. The supply manager and supplier conclude the negotiation by splitting the difference between their respective positions.
2. The supply manager and supplier each find concessions with equal weight/value to provide a balanced outcome.
3. The supply manager and supplier find it necessary to share confidential information.
4. The supply manager and supplier establish an appropriate settlement range for the continuation of negotiations.

Question #2: Which of the following would most likely be effective monitoring techniques for a buyer to take in order to forecast and project future general market conditions and business activity?

1. Follow a single indicator for 12 months and project future variances from it
2. Identify indicators known to lead general business activity, verify their reliability, and use them as a basis for projection
3. Select a group of indicators and project future activity on the basis of current and past movement of these indicators
4. Disregard indicators if seasonal fluctuations are not a part of the business cycle of the company

1. I and II
2. I and IV
3. II and III
4. III and IV

Question #3: A company has the following mission statement: "XYZ Inc. will become the premier provider of the best products in the world." Which of the following would be the MOST effective goals and objectives for supply management to support such a mission?

1. Ensuring that XYZ obtains the right price for the right products/services at the right time at the required quantity
2. Effectively managing supply management activities and supplier relationships to satisfy internal stakeholders of XYZ
3. Ensuring that all personnel perform their responsibilities in an efficient and effective manner
4. Providing a minimum of $200,000 of cost savings or cost avoidance during the next fiscal year

3 Answers

Question #1: Option C is correct. The foundation for win-win negotiations is trust. In this situation, both parties would probably put information on the table that might be considered confidential. In order to establish a win-win relationship, open and honest discussions are a must. Splitting the difference (Option A) is a tactic for quick resolution of minor issues and may or may not occur. There is no requirement that concessions be equal (Option B), only that the outcome be livable for both parties over the long term. Option D is not correct because each party brings in to the negotiation an idea of their settlement range. The greater the overlap of the buyer's and supplier's settlement ranges, the easier it will be to find a mutually satisfactory settlement position, but these ranges are often not shared with the other party.

References: CPSM^® Study Guide, 1st Edition (Book 1 — Foundation of Supply Management), page 27; ISM Professional Series (Book 1 — Foundation of Supply Management), pages 164-165; The Supply Management Handbook (7th Edition), pages 494-495.

Question #2: Option C is correct because. Identifying leading indicators (II) and using those indicators to project future market conditions (III) are key to monitoring future business activity. Options A and B are incorrect because using one indicator (I) would not be a reliable way to project future market activity. Multiple indicators are always more reliable than a single indicator. Option D is incorrect because one would not disregard indicators just for the lack of seasonality. Many indicators are not affected by seasonality.

References: CPSM^® Study Guide, 1st Edition (Book 2 — Effective Supply Management), pages 15-16, 5; ISM Professional Series (Book 2 — Effective Supply Management Performance), pages 108-114; The Supply Management Handbook (7th Edition), pages 619-622.

Question #3: Option A is correct because it encompasses the primary objectives of supply management. Options B and C are likely components of Option A, but each addresses only one aspect of supply management's mission. Setting minimum cost savings (Option D) is a tactical goal and does not address contribution to XYZ's mission.

References: CPSM^® Study Guide, 1st Edition (Book 3 — Leadership in Supply Management), pages 11-12; ISM Professional Series (Book 3 — Leadership in Supply Management), pages 149-150.

For more information on ISM's professional credentials, visit the Institute's website.

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