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CIPS L4M2 Exam Syllabus Topics:

Topic 1
  • Understand how to devise a business case for requirements to be sourced from external suppliers
  • Producing estimated costs and budgets
Topic 2
  • Identify opportunities to regulate short and longer term specifications
  • Procurement’s role in developing a business case
Topic 3
  • Approaches to total costs of ownership
  • whole life cycle costing
  • Interpret financial budgets for the control of purchases
Topic 4
  • Understand market management in procurement and supply
  • Compare the competitive forces that influence markets
Topic 5
  • Output or outcome, statement of work based specifications
  • Types of market data that can provide information on costs and prices
Topic 6
  • Identify sections of specifications for through life contracts
  • Identify how costs and prices can be estimated for procurement activities
Topic 7
  • Identify the risks that can result from inadequate specifications and mitigation approaches
  • Use information to prepare budgets or to negotiate prices

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CIPS Defining Business Needs Sample Questions (Q30-Q35):

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?

  • A. 282.2 tonnes
  • B. 117.8 tonnes
  • C. 172.6 tonnes
  • D. 227.4 tonnes

Answer: D

The quantity of aluminium Apple needs to buy is calculated as follows:
Quantity needed for production + the inventory needed at the end of the year - inventory at start of the year That formula is quantified as: 200 + 54.8 - 27.4 = 227.4 Reference:
LO 2, AC 2.3

Which of the following are typically included in a conformance specification? Select TWO that apply.

  • A. Packaging requirements
  • B. Product functions
  • C. List of outcome
  • D. Product dimensions
  • E. Brand name

Answer: A,D

A conformance specification is a specification that defines the technical and physical characteristics and/or measurements of a product, such as physical aspects (e.g. dimensions, colour, and surface finish), design details, material properties, energy requirements, processes, maintenance requirements and operational requirements.
On the other hand, performance specification typically includes list of output or outcome or func-tional requirements. Brand name can be a part of performance specification because brand is a re-minder of quality that customers remember. For example, when talking about Roll Royce, people will think about an elegant car.
LO 3, AC 3.1

Why is the specification considered as the most important document in procurement?

  • A. It always shifts the balance of bargaining power in favour of the buyer
  • B. It helps the buyer to gain at supplier's loss
  • C. It provides a mean to appraise the performance of supplier
  • D. It eliminates all possible supply risks

Answer: C

Specification is the most important document in procurement because it sets out the quality which supplier must provide. If there is no spec or the spec lacks clarity and details, supplier's perfor-mance may vary and possibly lower than actual requirements. This puts the buyer at risks. On the other hand, if the spec is clear and detailed, the supplier is liable to provide 'fit for purpose' products or perform the service at required level of quality. This will ensure that the buyer achieve 'Right Quality'.
- CIPS study guide page 116-130
- How fitness for purpose works - Evocurement
LO 3, AC 3.1

A company has a lists of items that make up 15% of total spend. These items also do not largely impact on quality of final product. The supply continuity is secured. Which of the following will be the most appropriate managing approach to purchase these items?

  • A. Enhance supply continuity
  • B. Build partnership with suppliers
  • C. Drive down cost based on market competition
  • D. Simplify procurement process

Answer: D

Those items make up small portion of spend and the supply risk is low. So it is tactical item according to Kraljic portfolio matrix. Procurement should bundle these items into larger contracts, simplify procurement process.
LO 2, AC 2.1

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?

  • A. Applying a precise performance framework
  • B. Using an outcome focused specification
  • C. Establishing transparent selection criteria
  • D. Using an output focused specification

Answer: D

The buying organisation is keen to encourage innovation so they should use the outcome or output based specification. In an outcome-based specification, umbrella statements like 'good quality', 'ambient temperature', 'convenient way' are often used. This may confuse the suppliers, and it's hard to check the solution that supplier offers. On the other hand, ouput-based specifications often include measurable requirements. For example, a specification for air conditioning system states that the system should maintain the room temperature at 19-24 degrees Celsius. Therefore, output specification is more appropriate in this case.
LO 3, AC 3.1


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