Updated Jan-2026 Test Engine to Practice Test for L4M2 Exam Questions and Answers!
Defining Business Needs Certification Sample Questions and Practice Exam
NEW QUESTION # 114
Which of the following is a challenge of making a business case for straight re-buys?
- A. Research of procurement process
- B. Terms and conditions
- C. Identifying suitable suppliers
- D. Effective inventory control
Answer: D
Explanation:
For straight re-buy, the specifications for the products are known. Generally, there will be an existing contract with supplier in place. The business need is challenged annually, only on the annual demand. So effective inventory control will help procurement successfully manage straight re-buy.
Reference: CIPS study guide page 7
LO 1, AC 1.1
NEW QUESTION # 115
Which of the following is an useful tool for value engineering?
- A. Kraljic Portfolio Matrix
- B. Kano model
- C. Star-burst method
- D. SAMOA
Answer: B
Explanation:
Value Engineering (VE) is concerned with new products. It is applied during product development. The focus is on reducing costs, improving function or both, by way of teamwork-based product evaluation and analysis.
This takes place before any capital is invested in tooling, plant or equipment.
This is very significant, because according to many reports, up to 80% of a product's costs (throughout the rest of its life-cycle), are locked in at the design development stage. This is under-standable when you consider the design of any product determines many factors, such as tooling, plant and equipment, labour and skills, training costs, materials, shipping, installation, maintenance, as well as decommissioning and recycle costs.
The Kano model is a theory for product development and customer satisfaction developed in the 1980s by Professor Noriaki Kano, which classifies customer preferences into five categories. Both Kano model and Value Engineering aims at optimising new product, so they can be combined to-gether. CIPS L4M2 study guide consider Kano model is a tool of Value Engineering Example of Kano model (source: Wikipedia) Reference: CIPS study guide page 171-172 LO 3, AC 3.4
NEW QUESTION # 116
A procurement manager decided to use a conformance specification in a request for quotation (RFQ) for the manufacturing of a specialist item designed by their company. The company does not have the capability to manufacture the item in-house, but requires the item to be made to their detailed specification. Was this the correct thing to do?
- A. Yes, as it means that the company will be able to get the most cost-effective price for the item from the chosen supplier
- B. No, as it means that the chosen supplier will not be able to use their expertise and knowledge to manufacture the item
- C. No, as the item will be of non-standard construction and will not be able to be used by other competitors
- D. Yes, as it means that the company will get exactly what it has specified and meets its specific requirements
Answer: D
Explanation:
Detailed Explanation:Conformance specifications are appropriate when the buyer has precise requirements that must be met. This ensures the final product aligns perfectly with the company's needs, even if it limits supplier flexibility. Reference: CIPS Level 4, Conformance Specification in Procurement.
NEW QUESTION # 117
Which of the following are typical environmental considerations throughout the contract life cycle? Select the TWO that apply.
- A. Modern slavery
- B. Inequality
- C. Pollution control
- D. Health and safety
- E. Waste management
Answer: C,E
Explanation:
All procurement has some level of impact on the environment that needs to be minimised to ensure sustainable procurement practices.
The greatest opportunity to influence environmental outcomes is by selecting products and services with the least ongoing environmental impacts, such as use of water, electricity and fuel, waste/disposal management, and impact on human health over the life of the product or service.
Lifecycle stages that impact on the environment:
Diagram Description automatically generated
Most goods and services will have an element of environment impact in a number of areas. The five main impact areas are listed in the following table.
Graphical user interface, text, application, email Description automatically generated
Source: Buying for Victoria
NEW QUESTION # 118
A company department is writing a business case to justify the purchase of an expensive piece of capital equipment. Which of the following should be included in the business case?
* Terms and conditions of contract
* Tender evaluation criteria
* Degree of added value
* Financial plan
- A. 1 and 2 only
- B. 1 and 4 only
- C. 2 and 3 only
- D. 3 and 4 only
Answer: D
NEW QUESTION # 119
Which of the following is an environmental criterion that can be included when drafting a specification for new machinery?
- A. The emissions produced by the equipment
- B. The home country of the supplier
- C. The brand name of the preferred machinery
- D. The location of the manufacturing plant
Answer: A
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2 - Sustainable Specification Writing) Environmental criteria address resource use, pollution, waste, and emissions.
For machinery, specifying maximum emission limits or energy efficiency ratings ensures sustainability compliance.
Brand, location, or supplier nationality are not environmental factors.
Relevant L4M2 references:
* "Environmental sustainability criteria in technical specifications"
* "Life cycle environmental performance"
NEW QUESTION # 120
Product development consists of various stages, including planning and analysis, design develop-ment, pre-production, production and maintenance. At which stages the opportunities for cost re-duction will be the greatest?
1. Planning stage
2. Pre-design stage
3. Detail design stage
4. Production stage
5. Logistics support stage
- A. 1 and 2 only
- B. 1 and 4 only
- C. 2 and 5 only
- D. 2 and 3 only
Answer: A
Explanation:
Writing a specification and then procuring and using the product or service has a number of stages. The further on in the process you are, the less potential there is for cost reductions. Therefore, opportunities for cost reduction will be greatest in the two first stages: planning stage and pre-design stage.
LO 3, AC 3.1
NEW QUESTION # 121
A procurement manager is seeking to control costs for his organisation. His predecessor constantly spent more money than budgeted, so he has decided to start this budget from scratch and ignore the previous periods.
Which type of budget is this?
- A. Zero-based budget
- B. Rolling budget
- C. Fixed budget
- D. Incremental budget
Answer: A
NEW QUESTION # 122
Which of the following is an advantage of competitive benchmarking over other types of bench-marking?
- A. Cost effectiveness
- B. Limited access to competitor's data
- C. Similarity among processes
- D. Different corporate culture
Answer: C
Explanation:
Competitive benchmarking
Competitive benchmarking is a direct competitor-to-competitor comparison of a product, service, process, or method. This form of benchmarking provides an opportunity to know yourself and your competition better; combine forces against another common competitor. An example of competitive benchmarking within the Department of Defense, might include contrasting Army and Air Force supply systems for Joint initiatives.
Within the private sector, two or more American car companies might benchmark for mutual benefit against common international competitor; or, rival chemical companies benchmark for environmental compliance.
Benefits
- Comparing like processes
- Know your competition better
- Possible partnership
- Useful for planning and setting goals
- Similar regulatory issues
Challenges
- Difficult legal issues
- Relatively low performance improvement
- Threatening
- Limited by trade secrets
- May provide misleading information
- May not get best-in-class comparisons
- Competitors could capitalize on your weaknesses
Source: USN Benchmarking Handbook
NEW QUESTION # 123
A large sports organisation requires some additional racing equipment to be built. It should match exactly the pre-determined technical specifications and requires exact compatibility. Which of the following specifications would be most appropriate?
- A. Product specification
- B. Performance specification
- C. Outcome specification
- D. Conformance specification
Answer: D
NEW QUESTION # 124
Homecare Direct is a supplier of healthcare devices that has developed a new innovative product. Three buying organisations want to place orders, but feel the price is too high as the product is new. What action could the buying organisations take to increase their bargaining power?
- A. The buyers should consolidate their requirements negotiate and purchase together
- B. The buyers should request a special discount for the first purchaser
- C. The buyers should ask the supplier for exclusivity to one of the buying organisations
- D. Each buyer should negotiate and purchase their requirements separately
Answer: A
NEW QUESTION # 125
Lucy, a junior procurement analyst, has been asked to assess the competitive forces in the garden furniture market. XYZ Ltd is the largest producer of garden furniture in the country. It produces 70% of all the garden furniture manufactured, while the second largest manufacturer produces less than 5% of the garden furniture for the country. Which power does XYZ Ltd possess?
- A. Buyer bargaining power
- B. Purchasing power
- C. Substitute power
- D. Supplier bargaining power
Answer: D
NEW QUESTION # 126
Which of the following are typically reasons why an organisation implements value analysis? Select TWO that apply:
- A. To determine the value of each component used
- B. To shape and manage supply market
- C. To decide whether there will be sufficient surplus funds to reinvest in the business
- D. To find cost reduction opportunities by optimising the components used
- E. To provide an outline business case for the specification
Answer: A
Explanation:
Value analysis is a systematic review of the production, purchasing and product design processes to reduce overall product costs. This can be accomplished through a variety of activities, including the following:
- Designing products to use lower-tolerance parts that are less expensive
- Switching to lower-cost components
- Standardizing parts across product platforms in order to achieve volume discounts
- Altering production processes to minimize the amount of production cycle time, thereby reducing labor costs
- Introducing automation to strip labor costs out of the production process
- Altering product packaging to lower its cost while still protecting the product The process is not a wholesale attack on costs. Costs are only reduced when the result will not im-pact the perceived level of quality experienced by customers, or the level of customer satisfaction.
Reference: CIPS study guide page 160-163
LO 3, AC 3.4
NEW QUESTION # 127
Company A sells a product for $100. The total unit variable costs are $60. Fixed costs as in its ac-count are
$20,000. How many products does the company have to sell to achieve break-even point?
- A. 0
- B. 1
- C. 2
- D. 3
Answer: B
Explanation:
Break even point = Fixed costs/(Price-variable cost). In this case, break even point = 20,000/(100-60) = 500
NEW QUESTION # 128
Which of the following are potential advantages of using a product performance specification?
* It reduces the need for the buyer to produce a detailed design
* It can widen the potential supply base
* The buyer can specify the product's actual design in detail
* Products are provided using the buyer's methodology
- A. 1 and 2
- B. 2 and 3
- C. 1 and 4
- D. 3 and 4
Answer: A
Explanation:
Detailed Explanation:
* 1 (Reduces design need): Performance specifications focus on outcomes rather than detailed designs, saving buyer resources.
* 2 (Wider supply base): Allowing suppliers to propose their own solutions can attract a broader range of suppliers.Options 3 and 4 align with conformance specifications, not performance-based ones.
Reference: CIPS Level 4, Specification Writing.
NEW QUESTION # 129
Which of the following methods will enable a company to eliminate waste, lost time and lost material from its processes?
- A. Lean principles
- B. Agile principles
- C. Tendering process for routine items
- D. Over specification
Answer: A
Explanation:
Lean design is about maximising the value that a customer receives and at the same time minimis-ing waste in delivering that value.
For an organisation to be 'lean' it must have had all non-essential resources removed (ie. anything that does not add value, see below). This is efficient and cost effective, in that the value/supply chain can theoretically do exactly what is needed of it and no more, but requires sound forecasting and planning of demand and supply. It is most suitable for industries with stable product specifications, long lead times and few impulse purchases.
Organisations which are 'agile' react as quickly as is practicable to provide a cost effective response to customer demand. This is based on flexibility in design, supply, production and distribution. It is most appropriate for products such as fast fashion and foodstuffs which must be on display and available when wanted by the customer.
Reference:
- CIPS study guide page 153-156
- Agile Supply (cips.org)
LO 3, AC 3.3
NEW QUESTION # 130
How can a procurement department meet the business needs when purchasing leverage items?
- A. Developing efficient order processes such as e-procurement
- B. Developing effective contracts such as call-off contracts
- C. Developing buying power such as competitive tendering
- D. Developing long-term relationships such as partnerships
Answer: C
NEW QUESTION # 131
Which of the following activities are considered as primary activities of an organization according to Porter's value chain? Select TWO that apply:
- A. Picking and delivery components
- B. Maintenance
- C. Trainees recruitment
- D. Assembly design
- E. Sourcing transportation services
Answer: A,B
Explanation:
Primary activities consist of inbound logistics, operations, outbound logistics, sales & marketing, service.
Second activities consist of firm infrastructure, human resource management, technology development and procurement The following graph illustrate the value chain (Source: Smartsheet) Graphical user interface, diagram Description automatically generated
Picking and delivery components is inbound logistics.
Maintenance is an example of operations activity.
Sourcing transportation services is an activity of procurement
Assembly design is an activity in research and development (Technology) Recruiting is an activity of human resource management
NEW QUESTION # 132
Robert is a senior buyer at MMC Construction Ltd. His company is doing multiple development projects in the country, which increases procurement workload significantly. Meanwhile, most of the tasks are handled manually, which causes bottlenecks in the workflows. The procurement team is overwhelmed by the workload and complains from other departments. From previous experience, Robert knows that electronic system may help his procurement team. He writes a business case to submit to the senior management, in which he insists on the possible productivity improvement by adopting e-system in procurement. Is Robert's action reasonable?
- A. Yes, productivity improvement is a mandatory element in every business case
- B. Yes, his reason may appeal the senior management
- C. No, there's no need to make a business case for new purchase
- D. No, adopting e-system may make procurement department jobless
Answer: B
Explanation:
Composing a compelling business case requires the proposer to write in the language of the approvers.
Generally, approvers are business executives or important shareholders whose major interest is the profitability of the firm. Business case proposer may embed the following contents:
- Return on investment: according to Investopedia, Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment's cost. A business case would seem more attractive if the proposal is expected to have high ROI.
- Time to market: Time-to-market (TTM) refers to the time from which a company initially con-ceives a product or service idea to the point when the actual product or service is accessible to buyers in the market (Afonso et al., 2008). The speed at which companies can introduce products into the market is critical for sustaining competitive advantage, and the reduction of product development cycle time has become a strategic objective for many technology-driven firms.
- Customer satisfaction: Keeping existing customer to stay in the business can affect greatly on the profit margin of a firm. A new proposal that finds the way to innovate while keeping the current customers satisfied may gain the interest of senior management.
- Improving productivity: Productivity is the measure of how efficient and effective a firm is. Im-proving the productivity means that with the same or lesser input, better output is generated. In-creasing productivity also improves the profitability of a company.
- Risk management: Any business activity contains inherent risks. For example, for a mining company to be truly responsible, it must keep all of its workers safe, healthy and motivated, meet the expectations of the local community and government for the region in which it is operating, ensure it impacts on the environment positively if at all, as well as achieve the financial objectives set by its investors for both the short and long term. Managing risks well improves the production throughput and maintains customer satisfaction.
In the scenario, Robert is trying to convince the senior management to adopt e-procurement system by insisting on potential productivity improvement. This is the right approach. A business plan should engage and please senior management and directors. An appealing business case tells them how important things to the business (such as productivity, return on investment, customer satisfaction or costs) are affected by the plan.
NEW QUESTION # 133
Which of the following is an advantage of competitive benchmarking over other types of bench-marking?
- A. Cost effectiveness
- B. Limited access to competitor's data
- C. Similarity among processes
- D. Different corporate culture
Answer: C
Explanation:
Competitive benchmarking
Competitive benchmarking is a direct competitor-to-competitor comparison of a product, service, process, or method. This form of benchmarking provides an opportunity to know yourself and your competition better; combine forces against another common competitor. An example of competitive benchmarking within the Department of Defense, might include contrasting Army and Air Force supply systems for Joint initiatives. Within the private sector, two or more American car companies might benchmark for mutual benefit against common international competitor; or, rival chemical companies benchmark for environmental compliance.
Benefits
- Comparing like processes
- Know your competition better
- Possible partnership
- Useful for planning and setting goals
- Similar regulatory issues
Challenges
- Difficult legal issues
- Relatively low performance improvement
- Threatening
- Limited by trade secrets
- May provide misleading information
- May not get best-in-class comparisons
- Competitors could capitalize on your weaknesses
Source: USN Benchmarking Handbook
Reference:
LO 1, AC 1.3
NEW QUESTION # 134
In 2016, ANA Airlines had to cancel some of its flight. The airline said it had discovered the cracks to the jet engine turbine blades. What should ANA procurement team do next to solve this problem?
- A. Assess the risks
- B. Collect data to identify the root cause
- C. Define the ideal solution
- D. Generate options addressing the issue
- E. Analyse the situation and draw conclusion
Answer: B
Explanation:
Cracks on the jet engine is a closed-end problem. A typical problem solving process has 8 steps:
Step 1: Define the Problem
- What is the problem?
- How did you discover the problem?
- When did the problem start and how long has this problem been going on?
- Is there enough data available to contain the problem and prevent it from getting passed to the next process step? If yes, contain the problem.
Step 2: Clarify the Problem
- What data is available or needed to help clarify, or fully understand the problem?
- Is it a top priority to resolve the problem at this point in time?
- Are additional resources required to clarify the problem? If yes, elevate the problem to your leader to help locate the right resources and form a team.
- Consider a Lean Event (Do-it, Burst, RPI, Project).
- Ensure the problem is contained and does not get passed to the next process step.
Step 3: Define the Goals
- What is your end goal or desired future state?
- What will you accomplish if you fix this problem?
- What is the desired timeline for solving this problem?
Step 4: Identify Root Cause of the Problem
- Identify possible causes of the problem.
- Prioritize possible root causes of the problem.
- What information or data is there to validate the root cause?
Step 5: Develop Action Plan
- Generate a list of actions required to address the root cause and prevent problem from getting to others.
- Assign an owner and timeline to each action.
- Status actions to ensure completion.
Step 6: Execute Action Plan
- Implement action plan to address the root cause.
- Verify actions are completed.
Step 7: Evaluate the Results
- Monitor and Collect Data.
- Did you meet your goals defined in step 3? If not, repeate th 8-Step Process.
- Were there any unforeseen consequences?
- If problem is resolved, remove activities that were added previously to contain the problem.
Step 8: Continuously Improve
- Look for additional opportunities to implement solution.
- Ensure problem will not come back and communicate lessons learned.
- If needed, repeat the 8-Step Problem Solving Process to drive further improvements.
ANA has already known what is going on, the next step they should adopt is collecting more infor-mation on the problem. If the airline is hurry to the solution, it may choose 'Generate options ad-dressing the issue'. The crack on turbine blade can be welded, or the airline replaces a new blade. However, jumping to solution without knowing the root cause does not completely solve the prob-lem. The root cause is unaddressed, then it may occur in the future. Therefore, the airline should still collect information to find the root cause, then remove it.
NEW QUESTION # 135
A company is building a new two-storey office block and will need to purchase new desks and chairs. There will not be much space available. What should be included in the specification for these desks and chairs?
- A. A list of inputs
- B. Key performance indicators
- C. A brand name
- D. Technical drawings
Answer: D
NEW QUESTION # 136
Which of the following is the core of value analysis process?
- A. Be creative
- B. Carry out functional analysis
- C. Gather information
- D. Evaluate
- E. Develop
Answer: B
Explanation:
Value Analysis (VA) is concerned with existing products. It involves a current product being ana-lysed and evaluated by a team, to reduce costs, improve product function or both. Value Analysis exercises use a plan which step-by-step, methodically evaluates the product in a range of areas. These include costs, function, alternative components and design aspects such as ease of manufac-ture and assembly.
According to the Value Methodology standard, there are 6 phases to a Value Analysis:
- Information
- Function Analysis
- Creative
- Evaluation
- Development
- Presentation
1. Information
In this first phase, the team attempts to understand why the project exists and who or what it is to produce. They obtain project data, present the original design or product concepts, and understand the project scope. Schedule, costs, budget, risk, and other non-monetary issues are studied until the team is comfortable with the concept of the project, what it is to produce, and who its end users are.
This step also includes things like site visits and meetings with the project team, if required. Project documents like plans, drawings, specifications, and reports are obtained and the value engineering team becomes familiar with them.
2. Function Analysis
This step represents the meat and potatoes (core) of the value analysis. The team attempts to determine the functions the project serves. Functions come in two forms:
- Primary functions are those that represent the reason for the project's existence, for example, a building project might have adequate plumbing as a primary function.
- Secondary functions are those that the project serves without being core to the project. For example, a building project might have as a secondary function maintaining the view of the neighboring building.
The functions are described in verb/noun pairs, such as "supply water to all suites," or "Maintain view of adjacent park." For a project like this, the team should come up with 10 - 15 functions. You might be surprised how many secondary functions exist for most projects. Subject matter experts would be a great resource, but in their absence an appropriate level of brainstorming and analysis are necessary.
The team should also identify value-mismatched functions to focus the improvements on. For ex-ample, maybe a large obstruction is preventing the view of the adjacent park from too many suites resulting in a potential mismatch of the cost vs. functional benefit. This is investigated in the next step.
3. Creative
This phase represents the generation of improvement ideas. The team develops alternative ways that the project can perform the functions that have been identified. At this step, the functions are looked at individually and each one gets a list of alternative ways to perform the function. There is no judging between the importance of the various functions.
4. Evaluation
At this stage, a priority is given to each project improvement idea. The ideas are discussed and potential costs are determined. Once the risk-reward profile of each idea is itemized, the team has determined which ideas are worth implementing into the project or feature.
A few years ago, there was a pedestrian bridge built near my home which was originally designed for emergency vehicles. Although this type of design is standard practice for the bridges of this type, the value engineering team identified that emergency vehicle passage was not needed (verb/noun pair = 'maintain passage for emergency vehicles'). Also, a second major outcome of this value analysis was to change the design to an aesthetic, curved bridge because it was in a prominent location. The redesign of the bridge cost some money but this was more than made up by the cost of the bridge construction. Thus, the value analysis paid for itself about 10 times over in the reduced construction cost, and the bridge was significantly more aesthetic.
5. Development
Once the value improvement options have been whittled down to the ones that make sense, the value engineering team develop the options to the point of passing them back to the original project team. They must be clearly written and explained so that the project owner and stakeholders can understand how it benefits the project and act on it. Any potential negative factors are identified. Potential costs and cost savings are itemized.
6. Presentation
This last phase represents the presentation of the alternatives to the stakeholders. Often value engineering represents a change in the normal practices that people are used to, an "out of the box thinking." Thus the best salesperson on the team is often the best one to do the presentation.
Some typical products of a value engineering analysis are a briefing document, risk analy-sis, present worth analysis, advantages vs. disadvantages, etc.
Reference:
LO 3, AC 3.4
NEW QUESTION # 137
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