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CIPS
CIPS Level 4 Diploma in Procurement and Supply
L4M5
Commercial Negotiation Questions and Answers

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Viewing questions 41-50 out of questions

Questions # 41:

The bargaining power of buyers is likely to be high in relation to suppliers in which of the following situations?

Options:

The buyer spend is a low proportion of the supplier's revenue

The buyer does not have the option to make as an alternative to buy

The buyer demand is urgent and cannot be postponed

The buyer is large in size relative to the supplier

Answer

Explanation

The bargaining power of buyers increases when the buyer is large relative to the supplier. A large buyer can leverage its size to negotiate more favorable terms due to its significant impact on the supplier's business. CIPS notes that a buyer’s size and purchasing volume are key factors that enhance its negotiating power in buyer-supplier relationships.

Questions # 42:

When might a buyer decide to use a distributive approach to a negotiation with a supplier?

Options:

When they are dependent on that supplier in the future

When there are various suppliers in the market producing a similar product

When procuring an item that is not strategic to the organisation

When a working relationship is important in the future

Answer

Explanation

A distributive approach is appropriate when multiple suppliers offer similar products, as this competitive environment allows the buyer to focus on maximizing their position rather than building long-term partnerships. CIPS suggests that a distributive or competitive approach is best used in non-critical purchases or when supplier dependency is low, as is the case here.

Questions # 43:

Which of the following is potentially a major source of conflict?

Options:

Power imbalance

Information gathering

Shared goals and values

Teamwork

Answer

Explanation

[Reference: CIPS L4M5 Study Guide, Section 1.3 - Sources of Conflict in Negotiation, , , , ]

Questions # 44:

Which of the following is an example of non-verbal communication?

Options:

1 and 3 only (Interview and Eye contact)

2 and 4 only (Word-of-mouth communication and Body language)

3 and 4 only (Eye contact and Body language)

2 and 3 only (Word-of-mouth communication and Eye contact)

Answer

Explanation

[Reference: CIPS L4M5 Study Guide, Section 3.2 - The Negotiation Process, , , , ]

Questions # 45:

Which of the following are intangible values created by trust in business relationships? Select TWO that apply.

Options:

Higher revenues

Positive feedbacks from customers

More focus on core business

Increasing response time to request

Frequent conflict escalation

Answer

B, C

Explanation

Trust may create value as following:

LO 1, AC 1.4

Questions # 46:

Which of the following is a source of information on microeconomic factors?

Options:

Analysts published in the mainstream and financial media

Data published by the financial markets and commodity markets and exchanges

The marketing and corporate communications of suppliers

Published economic indices such as the Retail Price Index (RPI)

Answer

Explanation

[Reference: CIPS L4M5 Study Guide, Section 2.3 - Market Factors and Analysis, , , , ]

Questions # 47:

Where a market consists of a large producer of a product with high market power, it is known as:

Options:

A monopolistic structure

An oligopoly structure

A monopoly structure

A monopsony structure

Answer

Explanation

[Reference: CIPS L4M5 Study Guide, Section 2.3 - Market Factors and Analysis, , , , ]

Questions # 48:

The only procurement risk inherent in a distributive negotiation approach is the potential loss in the outcome. Is this statement TRUE?

Options:

Yes, because in any commercial negotiation there is always a winner and a loser

Yes, and that is why procurement must seek to engage with suppliers that have less bargaining power

No, both negotiating parties are always committed to ensuring that gains are distributed equally between them

No, there is a chance of reaching an impasse among other outcomes to such negotiations

Answer

Explanation

Distributive negotiation carries several risks beyond justlosing out on value. These includedamaging supplier relationships,eroding trust, andreaching an impasse, where neither party can agree. This could result in delayed projects, increased costs, or supplier withdrawal.

“Distributive negotiation can lead to a breakdown in communication, impasses, and long-term relationship damage. The win-lose mindset can prevent collaborative problem-solving.”

(L4M5 Commercial Negotiation, 2nd edition, Section 3.5 - Risks of Distributive Approaches)

Questions # 49:

A buying organisation with a low spend and the reputation for paying late might be viewed by a supplier as which of the following?

Options:

Develop

Nuisance

Core

Exploit

Answer

Explanation

To answer this question, you should know The seller's perspective as in 'How to Negotiate Professionally':

In the scenario, the buyer's spend is low, while they seem unattractive to seller (as they tend to pay late). So the buyer is classified as Nuisance in seller's perspective.

Questions # 50:

An experienced procurement professional is developing strategies for forthcoming negotiations with her key supplier. To avoid negotiation deadlocks, she identifies the reasons why negotiations could fail. Which of the following are most likely to be reasons for negotiation failures? Select TWO that apply.

Options:

Underlying interests of TOP are overlooked

MIL objectives are well established

Both parties focus on common interests

Buyer helps to create a co-operative atmosphere

Unachievable objectives were set up

Answer

A, E

Explanation

It has been said that most negotiations are won (or lost) at the preparation stage. Success in a negotiation cannot be claimed unless you can refer back to your objectives and show how you have achieve them. In broad terms, negotiation plans/strategies involve 4 key activities:

1. Developing and prioritising your objectives and limits

2. Seeking to understand TOP's objectives

3. Developing concession plans

4. Planning the resources and logistics required and agreeing team roles.

Questions to gain an understanding of why a negotiation failed

Did we collect and make effective use of all information available when preparing for the negotiation?

Did we set objectives for the negotiation that were stretching and achievable and established MIL objectives?

Did we determine a strategy for the negotiation?

Did the other party understand our needs correctly?

Were we aware of the underlying interests of the other party?

Were our proposals convincing enough for acceptance by the other party?

Did we explore different variables in the negotiation?