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CPSM^® Update

3 Questions, 3 Answers

November/December 2010, eSide Supply Management Vol. 3, No. 6

eSide offers sample questions (and answers) from the CPSM^® Diagnostic Kit.

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 for a privately held manufacturing company is preparing an RFP for raw materials. None of the RFP recipients is an incumbent and the award resulting from the RFP is expected to be of significant dollar value. The supply manager is concerned that the lack of publicly available financial information could impact willingness of the prospective suppliers to submit proposals. Which of the following will BEST address the concerns of the prospective bidders?

Escrow letter
Letter of credit
Payment bond
Surety bond

Question 2: Country A has a large and steadily increasing trade surplus with Country B. It is MOST likely to also have

barriers on Country B's imports
shelters on Country B's imports
preferences for Country B's imports
balances on Country B's imports.

Question 3: A supply manager's organization has grown dramatically due to a recent merger. The supply manager hopes to work throughout the organization to achieve greater synergy, and thereby benefit not only the local operation, but those of other branches as well. Which of the following actions is MOST consistent with this goal?

Explaining the benefits of world-class supply management for the expanded organization at the executive council meeting
Surveying other locations to identify parts used by multiple areas, in order to pool demand
Ensuring that supply managers are responsive to internal customers' needs, in order to minimize "backdoor buying"
Proposing changes to inventory management that will have positive effects on service levels

3 Answers

Question 1: Option B is correct because a letter of credit assures a supplier that payment will be made by the issuing bank after terms of the agreement are met. An escrow account (Option A) might also provide some assurance, but can be with any third-party and so may not offer the same degree of financial confidence. A payment bond (Option C) protects the buying organization against claims or liens filed by second-tier suppliers or subcontractors if the prime supplier doesn't pay them. A surety bond (Option D) makes one party (the surety) responsible for the debt of another.

References: CPSM^® Study Guide, 1st Edition (Book 1 — Foundation of Supply Management), page 12; ISM Professional Series (Book 1 — Foundation of Supply Management), page 98.

Question 2: Option A is correct. One reason why Country A has a growing trade surplus (meaning more products exported to Country B's products imported into Country A) may be that Country A has created barriers to the import of Country B's goods. Options B, C and D are not correct because shelters, preferences and balances do not create trade surpluses. In fact, they work to balance trade in both directions.

References: CPSM^® Study Guide, 1st Edition (Book 2 — Effective Supply Management), pages 1-2, 5; The Supply Management Handbook (7th Edition), page 173.

Question 3: Option B is correct because it addresses the particular and immediate advantages of aggregating demand. The other options are applicable to all phases of supply chain management, not just to improvements based on pooling volume from various locations. Option A would not be helpful because the executive council probably already understands the benefits of world-class operations and has other more immediate issues to deal with from the merger. Responsiveness to internal customers' needs (Option C) is a local issue and less likely to be affected by the merger. Changes to inventory management (Option D) may be helpful, but the benefits are less direct and less immediate than pooling demand.

References: CPSM^® Study Guide, 1st Edition (Book 3 — Leadership in Supply Management), page 8; ISM Professional Series (Book 3 — Leadership in Supply Management), pages 147-148; The Supply Management Handbook (7th Edition), page 69.

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

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