Commercial Negotiation (L4M5) Free Practice Test

Question 1

Hammad Alsuwaidi is a procurement professional leading a negotiation for a vehicle rental contract. Hammad has a clear goal to negotiate a two-year contract in exchange for a minimum of a 20% discount. During the negotiation, Hammad presents to the supplier the facts, figures, and justification for a 20% discount. Which of the persuasion methods below has Hammad chosen?

A. Visionary

B. Pull

C. Collaborative

D. Push

Correct Answer: D

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Question 2

Mike is a junior buyer who has been working for a manufacturing organisation for two years, specializing in purchasing research. Over this time, he has built good relationships within his team and with other departments. Which of the following sources of power is Mike most likely to possess?

A. Reward

B. Position

C. Referent

D. Coercive

Correct Answer: C

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Question 3

A buyer is approaching a negotiation where the company is in a low-power negotiating position in relation to the supplier. How can the buyer improve leverage and power with the supplier?
* Consolidate the expenditure from across the organisation to increase the size and value of the requirement
* Understand the supplier's costs and margins prior to the negotiation to demonstrate that you know what it costs to produce the product
* Take a distributive approach to the negotiation and refuse to make concessions
* Limit communication and information sharing with the supplier so as not to give anything away

A. 1 and 4

B. 1 and 2

C. 2 and 3

D. 3 and 4

Correct Answer: B

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Question 4

Professional buyer is planning for the next negotiation of a simple one-off contract. This negotiation is typified by which of the following? Select TWO that apply.

A. Arm's-length approach

B. Pricing is the most important criterion

C. Vendor ratings will be used

D. Total cost of ownership is the most important criterion

E. Continuous dialogue with supplier

Correct Answer: A,B

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Question 5

An integrative negotiation style involves ...

A. Maintaining a distant (arm's length) relationship with a supplier and the avoidance of information sharing

B. A competitive approach with a focus on winning at all costs

C. Creating mutually beneficial outcomes for all parties and collaborative problem solving with a supplier

D. The buyer demanding concessions without offering anything in return

Correct Answer: C

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Question 6

An oil refinery plant imports much of its crude oil from overseas. A procurement manager in the refinery suggests that fixing the crude oil contract price for 36 months would be beneficial for the company. Would this be a right thing to do?

A. Yes, the supplier would bear the risk when the material price increased

B. Yes, financial budgeting task would be a lot easier with fixed pricing arrangement

C. No, fixed price should be only applied to contracts that last 60 months or longer

D. No, the refinery would not be able to reap the benefits from falling commodity price and currency rates

Correct Answer: D

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Question 7

Langham Industries is seeking to expand its operations globally. The CEO has asked the procurement department to engage in a macroeconomic analysis for its potential new supply chain to meet organisational objectives and outcomes. Which of the following would be a source of macroeconomic data?

A. Published market indices

B. Attending trade conferences

C. Competitor analysis

D. Online supplier forums

Correct Answer: A

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Question 8

According to Fiona Dent and Mike Brent, which of the following are characteristics of Push approach? Select TWO that apply.

A. Inspirational

B. Directive

C. Persuasion

D. Collaborative

E. Seeking commitment

Correct Answer: B,C

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Question 9

In a detailed cost breakdown, a company has a salary cost of 9%, raw materials cost 51% and overheads cost
24%. Which of the following represents the mark-up of that company?

A. Approximately 84%

B. Approximately 16%

C. Approximately 19%

D. Approximately 116%

Correct Answer: C

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Question 10

Different types of relationships impact negotiations. Which source of leverage would most support the buyer?

A. Personality power

B. Powerful colleagues

C. Legitimate power

D. Friends power

Correct Answer: C

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Question 11

What are the potential sources of conflict between buyer and supplier? Select TWO.

A. Planning scheduled visits to the supplier site

B. Scheduling agreed supplier delivery dates

C. Persistent late payment of the supplier's invoices

D. Requesting early supplier involvement

E. Unequal sharing of gains, risks and costs with the supplier

Correct Answer: C,E

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Question 12

In a commercial negotiation, a procurement professional believe that the larger the order quantity from buyer, the lower the supplier's average costs. Is this assumption true?

A. No, because the supplier may need to invest in new facility to meet buyer's demand

B. Yes, because larger order quantity will bring a considerable profit to supplier

C. No, because supplier's average costs will rise as the buyer's demand increases

D. Yes, because larger order quantity will always enable the supplier to reach its economy of scale

Correct Answer: A

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Question 13

A buyer has lost trust in a supplier but wishes to repair the relationship. What is the appropriate first step?

A. Amending KPIs so the supplier can achieve them

B. Acknowledgement by the supplier of the need to improve

C. Reduction in prices for the remainder of the contract

D. An offer of a hospitality package for the buyer

Correct Answer: B

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Question 14

A building firm has been awarded a contract to construct an office block. Which is a direct cost?

A. Cost of insurance

B. Cost of materials

C. Cost of legal fees

D. Cost of office space

Correct Answer: B

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Question 15

As a buyer for a large stationery company you have been notified of an upcoming price increase from your provider for paper. When you check the contract you realise that it expired 30 days ago so you are no longer in contract. You realise the supplier can now charge what they like.
You call the supplier and attempt to negotiate over the phone but are unsuccessful. What would be the best thing to do?

A. Try to bargain with the supplier offering a further contract

B. Threaten the supplier that you will cancel all contracts unless they retract the price increase

C. Cancel the contract immediately without attempting any negotiations

D. Accept the price increase as it appears reasonable

Correct Answer: A

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CIPS Commercial Negotiation (L4M5) Free Practice Test