CORE ISM Supply Management Core Exam Free Practice Exam Questions (2025 Updated)

Supplier Request for Price Increase: Despite a low survey rating and stable market prices, the supplier requests a price increase.

Engaging the Supplier: Reviewing survey results and discussing them ensures that the supplier understands the buyer’s concerns and expectations.

Economic Factors: Discussing economic factors provides a clearer picture of whether the price increase is justified.

Collaborative Approach: This method fosters a collaborative relationship and seeks to address underlying issues before making pricing decisions.

References

ISM. (n.d.). Managing Supplier Performance Reviews.

CIPS. (n.d.). Effective Supplier Relationship Management.

When only two suppliers respond to an RFQ and their quotes are much higher than expected, it is likely that the specifications were too narrow. Narrow specifications can limit the number of suppliers who are capable of meeting the requirements, reducing competition and driving up prices. Reviewing and potentially broadening the specifications can attract more suppliers and result in more competitive pricing.

References

ISM (Institute for Supply Management). Effective RFQ Process Management.

CIPS (Chartered Institute of Procurement & Supply). Developing Specifications and Requirements.

The Sarbanes-Oxley Act is critical for a supply manager conducting an internal audit of the procurement department in a U.S. publicly listed company. This act mandates strict reforms to improve financial disclosures and prevent accounting fraud. It includes provisions for enhanced financial reporting, internal controls, and auditor independence. Familiarity with the Sarbanes-Oxley Act ensures that the procurement processes comply with these stringent regulations, enhancing transparency and accountability.

References

The Sarbanes-Oxley Act of 2002

SEC (Securities and Exchange Commission) guidelines

Compliance Week articles on SOX compliance

The new accounting system implemented by the company's accounting department excludes some important indirect procurement data, leading to incomplete reports. The best course of action is to notify senior management about the potential understatement of the company's debts and assets. This ensures transparency and allows senior management to take necessary steps to address the issue, such as integrating the data from the other system or adjusting their decision-making processes accordingly.

References

Financial Accounting Standards Board (FASB). Reporting standards and guidelines.

COSO (Committee of Sponsoring Organizations of the Treadway Commission). Internal Control-Integrated Framework.

When a supply manager conducts due diligence from cost, cultural, and service perspectives to weigh the benefits and risks of outsourcing, they are primarily engaging in analytical problem solving. This involves:

Project management: Overseeing projects and ensuring they are completed on time and within budget, which is not the primary focus here.

Technical knowledge: Understanding specific technical aspects, which may be part of the analysis but not the primary skill.

Analytical problem solving: Evaluating different facets such as cost, culture, and service to make informed decisions about outsourcing.

Functional interaction: Collaborating across different functions, which is necessary but not the core skill in this context.

Thus, the skills being employed are best described as analytical problem solving.

References:

Supply chain management literature on due diligence and risk analysis.

Analytical methods in decision-making.

Legal protections for inventions, processes, or manufacturing methods are categorized into different types of patents:

Design patents cover new, original, and ornamental designs for an article of manufacture.

Copyrights protect original works of authorship, such as literature, music, and art.

Utility patents cover new inventions or discoveries of processes, machines, or methods of manufacturing.

Plant patents cover new and distinct varieties of plants that are asexually reproduced.

A utility patent is the appropriate legal protection for an invention, the discovery of a process, or a machine or method of manufacturing.

References:

U.S. Patent and Trademark Office (USPTO) guidelines on patents.

World Intellectual Property Organization (WIPO) resources on intellectual property rights.

PQR, Inc.'s CEO has directed supply management to provide wing flap inventory at the lowest cost while meeting the goal of multinational market expansion. The options given are:

Option A suggests purchasing refurbished parts from a non-certified repair shop with an extended warranty. While this is the lowest cost option, using non-certified parts can compromise quality and regulatory compliance, which is critical in the aerospace industry.

Option B involves manufacturing the parts internally, which is the most expensive option at $11,000 per part.

Option D proposes purchasing materials from an outside manufacturer at $10,000 per part, which is still more expensive than repairing internally.

Option C, acquiring resale parts and repairing them internally, costs $9,000 per part. This option ensures the parts meet PQR's quality standards and regulatory requirements, as PQR can control the repair process. It balances cost efficiency and quality, making it the best course of action to meet the CEO's directive.

References:

Cost-benefit analysis in supply chain management.

Aerospace industry standards and regulations on part certification.

The commodity manager likely failed to seek or consider stakeholder input, leading to reluctance from various locations. Effective spend consolidation requires understanding and addressing the specific needs and concerns of all stakeholders involved, particularly regarding quality and delivery requirements. Without this, the proposed changes might not align with the operational realities and expectations of the locations, causing resistance. References: Stakeholder management principles, change management in procurement, spend analysis techniques.

Identify Stakeholder Needs: Understanding the specific performance issues as identified by the stakeholder.

Collaborative Measurement Development: Working with the stakeholder to develop specific, measurable, achievable, relevant, and time-bound (SMART) performance metrics.

Contract Amendment: Including these agreed-upon performance metrics in the contract ensures that the supplier is contractually obligated to meet these standards.

Monitor and Review: Regularly reviewing these performance metrics to ensure continuous improvement and compliance by the supplier.

References

Supplier Performance Management Literature

Contract Management Best Practices

Service Level Agreement Guidelines

The business unit conducts discussions that include category overviews, contracting executive summaries, local content spending plans, sourcing timelines, and cost management/value creation. These elements collectively describe a strategic approach to managing a specific category of spend.

Commodity segmentation refers to dividing products or services into categories based on similar characteristics.

Contracting plan outlines the approach for negotiating and establishing contracts.

Spend analysis involves examining historical spending to identify patterns and opportunities for cost savings.

Category action plan is a comprehensive approach that includes all aspects of managing a category, from market analysis to implementation strategies.

Given the scope and elements involved in the discussions described, they align best with a category action plan which encompasses category overviews, contracting summaries, and strategic planning for sourcing and cost management.

References:

Institute for Supply Management (ISM) guidelines on category management.

CIPS (Chartered Institute of Procurement & Supply) literature on category management best practices.

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

Identify Issues: Clearly define the communication problems and their impact on the business relationship.

Create a Structured Agenda: Developing a detailed agenda helps in focusing the discussions and ensuring all critical issues are addressed.

Demonstrate Value: Showing the suppliers the tangible benefits of regular business reviews can help in gaining their cooperation.

Continuous Improvement: Regularly scheduled meetings with a clear agenda can lead to improved communication and performance over time.

References

Supplier Relationship Management Guidelines

Business Communication Best Practices

Performance Improvement Literature

The situation represents a failure of control activities. Control activities are the policies and procedures that ensure management directives are carried out effectively. In this case, the lack of separation of duties and inadequate oversight allowed the supply manager to perform multiple conflicting roles (placing orders, receiving materials, and paying invoices) without proper checks and balances, leading to discrepancies and potential fraud.

References

Committee of Sponsoring Organizations of the Treadway Commission (COSO) Internal Control Framework

Internal Auditing: Assurance & Advisory Services by Urton Anderson, Michael Head, and Chris Bailey

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.

Importance of Clarity: Discussions about responsibilities and costs should be held at the outset of a business relationship to ensure clarity and avoid disputes later.

Contractual Agreements: Clear agreements on cost responsibilities, especially in the event of the relationship ending, should be documented in the initial contract.

Prevention of Disputes: Addressing these issues early helps in preventing misunderstandings and legal disputes.

Best Practices: It is a best practice in supply management to establish all terms and conditions, including those related to ending the relationship, during the contract negotiation phase.

References

ISM Professional Series: Contracting and Negotiations

CIPS Contract Management Guide

Developing relationships with a small number of suppliers can provide several advantages, but the best reason in a supply management context is:

To identify innovation opportunities: While important, this can be achieved with both few and many suppliers.

To obtain pricing improvements: Focusing on fewer suppliers often results in better negotiation leverage and volume discounts, leading to pricing improvements.

To decrease internal cultural barriers: This is less directly related to supplier relationship management.

To improve sourcing opportunities: This can be done with multiple suppliers as well.

Thus, the best reason to develop relationships with a small number of suppliers is to obtain pricing improvements.

References:

Supply chain management textbooks on supplier relationship management.

Articles on the benefits of strategic supplier partnerships.

A category strategy involves analyzing and managing specific categories of products or services to achieve better pricing, quality, and supplier relationships. By standardizing products, reducing the number of suppliers, and combining volumes, the company can leverage its purchasing power to negotiate better terms and conditions. This approach is comprehensive and strategic, focusing on optimizing procurement and supply chain management for specific categories.

References

CIPS (Chartered Institute of Procurement & Supply). Category Management in Procurement.

ISM (Institute for Supply Management). Strategic Sourcing and Category Management.

When facing issues with payment terms, especially after efforts to make amends, the best approach is to negotiate a reasonable compromise. This maintains the relationship and ensures continued supply. By discussing and agreeing on a plan to return to the original net 30 terms, both parties can address past concerns and establish a clear path forward. This approach balances enforcement of contract terms with practical relationship management.References:

Negotiation Genius: How to Overcome Obstacles and Achieve Brilliant Results at the Bargaining Table and Beyond by Deepak Malhotra and Max H. Bazerman.

CIPS guidelines on supplier relationship management and contract negotiation.

In situations where a consultant performing audit services also engages in other non-audit work for the company, a conflict of interest may arise, compromising the integrity and objectivity of the audit. It is crucial to address this issue transparently with the CEO, explaining the potential conflict and recommending alternative solutions, such as engaging a different consultant or firm for the audit. This approach ensures compliance with ethical standards and maintains the credibility of the audit process.References:

IFAC (International Federation of Accountants) Code of Ethics for Professional Accountants.

ISM (Institute for Supply Management) guidelines on professional services procurement.