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CIPS L4M2 exam is designed to test the knowledge and skills required for defining business needs. L4M2 exam covers a range of topics related to business analysis, including understanding and analyzing business requirements, developing business cases, and identifying and evaluating potential solutions.
NEW QUESTION # 179
Which of the following would positively affect a buyer's company cash flow? Select TWO that apply.
- A. Payment of dividends to the company's shareholders
- B. A supplier reduces payment terms to payment on receipt
- C. A customer agrees to pay the buyer's company upon purchase
- D. The buyer's company offers sales discounts and promotions
- E. The bank grants a loan to the buyer's company
Answer: C,E
Explanation:
Comprehensive and Detailed Explanation (from CIPS L4M2 - Financial Management in Procurement) Positive cash flow arises when money flows into the business:
* A. Bank loan # immediate inflow of cash.
* D. Customer pays upon purchase # quick revenue collection, improving liquidity.
The other options either delay or reduce available cash (outflows).
Relevant L4M2 references:
* "Cash flow and working capital in procurement decision-making"
* "Financial metrics in business case justification"
NEW QUESTION # 180
Which of the following events would increase the number of suppliers in a particular market?
- A. Requirement for all companies to have 10,000 or more employees
- B. De-regulation of a previously government-run industry
- C. Introduction of minimum wage regulations
- D. High and increasing levels of investment required to enter the market
Answer: B
Explanation:
Detailed Explanation:
De-regulation removes barriers to entry, encouraging new suppliers to enter the market. Other factors, like high investment or stringent requirements, limit supplier participation. Reference: CIPS Level 4, Market Entry and Supply Chain Factors.
NEW QUESTION # 181
A procurement manager is discussing with other stakeholders about the scope and the implementation of the upcoming construction project. A stakeholder argues that the construction projects are often risky as the overall scope of the work can't be accurately estimated from the beginning. Furthermore, the project spans over a long period, the costs of materials can fluctuate widely. The procurement manager suggests that the pricing structure should be able to cover the supplier's costs plus 10% markup on total costs. This arrangement is known as...?
- A. Cost-plus award fee
- B. Cost-plus Fixed percentage
- C. Cost-plus fixed-fee
- D. Cost-plus incentive fee contracts
Answer: B
Explanation:
As you can see from the scenario, the procurement manager is suggesting to use cost plus pricing arrangement.
A cost-plus contract is an agreement to reimburse a company for expenses incurred plus a specific amount of profit, usually stated as a percentage of the contract's full price. These type of contracts are primarily used in construction where the buyer assumes some of the risk but also provides a degree of flexibility to the contractor.
Cost-plus contracts can be separated into four categories. They each allow for the reimbursement of costs as well as an additional amount for profit:
1. Cost-plus award fee contracts allow the contractor to be awarded a fee usually for good per-formance.
2. Cost-plus fixed-fee contracts cover both direct and indirect costs, in addition to a fixed fee.
3. Cost-plus incentive fee contracts happen when the contractor is given a fee if his or her perfor-mance meets or exceeds expectations.
4. Cost-plus percent-of-cost contracts allow the amount of reimbursement to rise if the contrac-tor's costs rise.
In the scenario, the procurement manager suggests a pricing structure that covers supplier's costs and adds
10% markup. This is cost-plus fixed-percentage.
Reference:
- Cost-Plus Contract Definition (investopedia.com)
- CIPS study guide page 30-36
LO 1, AC 1.2
NEW QUESTION # 182
Daytona Ltd is developing a new product which is more environmental friendly. Though the objectives are set, the project team has no idea on which functions will be customers' favourites. Which of the following will help them decide the 'should-have' functions of the new product?
- A. Thomas-Kilmann model
- B. Kano model
- C. Taguchi method
- D. Six Sigma
Answer: B
Explanation:
The Kano model is useful in gaining a thorough understanding of a customer's needs. You can translate and transform the resulting verbatims using the voice of the customer table that, subse-quently, becomes an excellent input as the whatsin a quality function deployment (QFD) House of Quality.
The model involves two dimensions:
Achievement (the horizontal axis), which goes from the supplier didn't do it at all to the supplier did it very well.
Satisfaction (the vertical axis), which goes from total dissatisfaction with the product or service to total satisfaction with the product or service.
Dr. Noriaki Kano isolated and identified three levels of customer expectations: that is, what it takes to positively impact customer satisfaction. The figure below portrays the three levels of need: expected, normal, and exciting.
The Thomas-Kilmann Conflict Mode Instrument (TKI) is a conflict style inventory, which is a tool developed to measure an individual's response to conflict situations.
Genichi Taguchi, a Japanese engineer, proposed several approaches to experimental designs that are sometimes called "Taguchi Methods." These methods utilize two-, three-, and mixed-level fractional factorial designs. Large screening designs seem to be particularly favored by Taguchi adherents.
Six Sigma is a method that provides organizations tools to improve the capability of their business processes.
This increase in performance and decrease in process variation helps lead to defect re-duction and improvement in profits, employee morale, and quality of products or services.
Source:
- CIPS study guide page 171-172
- WHAT IS THE KANO MODEL?
LO 3, AC 3.4
NEW QUESTION # 183
Which of the following statements is the best definition of 'value engineering?
- A. Producing good value products right first time.
- B. Analysing perceived value after the product is available for sale
- C. Building value into a new product from design stage onwards
- D. Value achieved by an engineering department
Answer: C
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.
LO 3, AC 3.4
NEW QUESTION # 184
SET Group are a start-up company trying to estimate the direct costs of materials for a project. The organisation has limited procurement records available. Would using general industry averages as a benchmark provide an accurate estimation of the project costs?
- A. No, the organisation will not have access to industry benchmarks as they are a new organisation
- B. Yes, cost predictions do not need to be accurate as they are just an initial guess
- C. Yes, industry benchmarks are always kept up to date to consider real-time market conditions
- D. No, industry benchmarks do not consider specific specifications, quality requirements, or real-time market conditions
Answer: D
NEW QUESTION # 185
Over the life of a product, which of the following would be considered non-value-adding costs?
* Rework costs
* Production costs
* Maintenance costs
* Waste disposal costs
- A. 2 and 3
- B. 1 and 4
- C. 1 and 2
- D. 3 and 4
Answer: B
NEW QUESTION # 186
According to Porter's value chain, which of the following activities is categorised as support activity?
- A. Storage of raw materials
- B. Supervising the production line
- C. Product warranties and special services
- D. Develop digital SRM technology to manage suppliers better
- E. Distribution of products from factory to retailer
Answer: D
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 Graphical user interface, diagram Description automatically generated
Support activities (also known as secondary activities) include Firm infrastructure, Human resource management, Technology development and Procurement. Developing digital SRM technology to manage suppliers better is Technology development.
LO 1, AC 1.2
NEW QUESTION # 187
Which of the following may allow suppliers free to choose the materials, manufacturing process or delivery process?
- A. Conformance specification
- B. Design specification
- C. Performance specification
- D. Technical specifications
Answer: C
Explanation:
The Performance Specifications define what the system being designed must do, and not how it must do it. In this step a list of needs and wants should be created. The needs are customer requirements, while the wants are engineering desires. If a buyer adopts performance specification, the supplier will be free to choose how to make and deliver the product.
A technical specification document outlines how you're going to address a technical problem by designing and building a solution for it.
A design specification is a detailed document providing a list of points regarding a product or pro-cess. For example, the design specification could include required dimensions, environmental fac-tors, ergonomic factors, aesthetic factors, maintenance that will be needed, etc. It may also give specific examples of how the design should be executed, helping others work properly (a guideline for what the person should do).
With conformance specification the buyer says what they want and how they want it and the supplier has to meet this
NEW QUESTION # 188
Buyers in the same industry with the same understanding of relative value and price may still make different decisions about whether to switch. Which of the following factors may prompt a buying organization to incline toward substitute products?
1. There is potential for backward integration
2. Access to financial resources
3. The switching cost is high
4. The substitute fits organisation's strategy
- A. 2 and 4 only
- B. 1 and 4 only
- C. 3 and 4 only
- D. 1 and 2 only
Answer: A
Explanation:
The threat of substitution is a function of three factors:
* The relative value/ price of a substitute compared to an industry's product
* The cost of switching to the substitute
* The buyer's propensity to switch
Buyers with different circumstances and in different industries do not all have equal propensities to substitute when faced with a comparable economic motivation. Differences in their circumstances lead buyers to respond to a given relative value to price (RVP) and switching cost differently. While such differences might be treated as factors that modify RVP or switching costs, it is more helpful in practice to isolate them.
Resources. Substitution often involves up-front investments of capital and other resources. Access to such resources will differ from one buyer to another.
Risk Profile. Buyers often have very different risk profiles, the result of such things as their past history, age and income, ownership structure, background and orientation of management, and nature of competition in their industry. Buyers prone to risk taking are more likely to substitute than buyers that are risk-averse.
Technological Orientation. Buyers experienced with technological change may be less concerned with some kinds of substitution risks, while extremely aware of others that a less technologically sophisticated buyer would be oblivious to.
Previous Substitutions. The second substitution may be easier for a buyer than the first, unless the first substitution has been a failure. The buyer's uncertainties over undertaking a substitution may have diminished if a past substitution has been successful, or risen if a past substitution has led to difficulties. In the soft drink industry, this seems to have worked to the benefit of aspartame.
Intensity of Rivalry. Buyers under intense competitive pressure and searching for competitive ad-vantage will tend to substitute more quickly to gain a given advantage than those that are not.
Generic Strategy. The RVP of a substitute will have different significance depending on the com-petitive advantage that industrial, commercial, or institutional buyers are seeking or the value of time and particular performance needs of the household buyer. A substitute that offers a cost saving will tend to be of more interest to a cost leader than a differentiator, for example.
Many of these factors that shape the buyer's propensity to substitute will be a function of the particular decision maker who is involved in the purchase decision.
Porter, Michael E.. Competitive Advantage: Creating and Sustaining Superior Performance (p. 278-289). Free Press. Kindle Edition.
Reference: CIPS study guide page 95-96
LO 2, AC 2.2
NEW QUESTION # 189
To improve the productivity, Plantation Ltd is planning to purchase a tractor, which it has never bought before. The project must be quick to catch up with the next growing season. Leanne, a jun-ior procurement staff at the company, assumes that she could skip market analysis stage to save time. Is this assumption reasonable?
- A. Yes, the company has extensive experience in purchasing tractor
- B. No, market analysis will inform the company of the pricing as well as latest technology trends
- C. Yes, Leanne just needs to purchase the tractor from her friend's company
- D. No, the company assesses supplier's performance solely based on market analysis
Answer: B
Explanation:
Market analysis is a stage in CIPS Procurement and Supply Cycle. This stage informs the purchaser about the number of suppliers, the average pricing, and product trends. Even urgent purchase should undergo market analysis. Without undertaking this stage, the buying organisation may not purchase the right product, or they may purchase at higher price.
Reference:
LO 2, AC 2.1
NEW QUESTION # 190
When devising a business case for purchasing a new copier, Maria analyses its whole-life costs as following:
Though cost generating activities are identified, she has not categorised the costs. What is the total value of copier's end of life costs?
- A. $150
- B. $300
- C. $450
- D. $75
Answer: A
Explanation:
Life cycle costing is a key asset management tool that takes into account the whole of life implications of planning, acquiring, operating, maintaining and disposing of an asset.
The process is an evaluation method that considers all ownership and management costs. These include;
- Concept and definition;
- Design and development;
- Manufacturing and installation;
- Maintenance;
- Support services; and
- Retirement, remediation and disposal costs.
End of life costs often comprise of decommissioning, removing and disposal costs. In the copier scenario, the end of life costs equal to removal cost, which is $150.
Reference:
- Life Cycle Cost Guidelines (dlgsc.wa.gov.au)
- CIPS study guide page 36-40
LO 1, AC 1.2
NEW QUESTION # 191
An organisation's procurement team is in the best position to make the following contribution to the specification development process, to ...
- A. Ensure that the views of the suppliers are given priority over those of other stakeholders
- B. Provide the supply market perspectives, in terms of the potential suppliers and alternative solutions
- C. Argue in favour of using conformance specifications, instead of performance specifications
- D. Provide advice that the economic order quantity is the most important factor in the drafting of specifications
Answer: B
Explanation:
Detailed Explanation:
Procurement teams bring valuable market insights, helping stakeholders understand supplier capabilities, potential risks, and alternative solutions. This knowledge ensures that specifications are both realistic and aligned with market conditions. Reference: CIPS Level 4, Specification Development and Supplier Collaboration.
NEW QUESTION # 192
Which of the following is an useful tool for value engineering?
- A. Star-burst method
- B. SAMOA
- C. Kano model
- D. Kraljic Portfolio Matrix
Answer: C
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)
NEW QUESTION # 193
An automotive manufacturer is sourcing rubber components from Company A. The specification given to the supplier state that the component should be 1 meter long, without mentioning the tolerance. Enthusiast with the opportunity, engineers at Company A work hard to cut the components with tolerance at only +/- 1mm.
The head and tail of the component is then joined together to form a circular band. After that it is stretched over another component. To fit this purpose, the rubber component can be at any length from 80cm to 110cm.
This is an example of...?
- A. Waiting
- B. Over processing
- C. Defects
- D. Unnecessary motion
Answer: B
Explanation:
This questions is intended to ask students about types of waste in Lean principles.
Lean was born out of manufacturing practices but in recent time has transformed the world of knowledge work and management. It encourages the practice of continuous improvement and is based on the fundamental idea of respect for people. Womack and Jones defined the five principles of Lean manufacturing in their book "The Machine That Changed the World". The five principles are considered a recipe for improving workplace efficiency and include: 1) defining value, 2) mapping the value stream, 3) creating flow,
4) using a pull system, and 5) pursuing perfection.
Lean principles aim to eliminate waste in processes. The eight wastes of Lean principles are:
- Defects
- Over-production
- Waiting
- Not using talent
- Transport and handling
- Inventory
- Motion waste
- Excess processing
In the scenario, the component is processed more than necessary. The engineers try to make them as accurate as possible with very little tolerance. In fact, the component does not need to be that precise. This excesses buyer's requirements and incurs costs for both buyer and supplier. The scenario is an example of over processing (or excess processing).
Overprocessing is one of the seven wastes of lean manufacturing (or 7 mudas); Overprocessing is adding more value to a product than the customer actually requires such as painting areas that will never be seen or be exposed to corrosion.
Overprocessing as one of the seven wastes is caused by having unclear standards and specifications, many operators will try to do the best job possible and will not always be aware of what truly adds value to the product or even the end use. They will therefore often expend time polishing and finishing components that do not require it.
NEW QUESTION # 194
Which of the following areas is specified by ISO/IEC 27001 family?
- A. The dimensions and associated tolerances for a series of housings for piston seals
- B. Evaluation and assessment of mutual agreed customer food safety requirements
- C. The requirements for an environmental management system
- D. The requirements for an information security management system
Answer: D
Explanation:
ISO/IEC 27001 is widely known, providing requirements for an information security management system (ISMS), though there are more than a dozen standards in the ISO/IEC 27000 family. Using them enables organizations of any kind to manage the security of assets such as financial infor-mation, intellectual property, employee details or information entrusted by third parties.
LO 3, AC 3.1
NEW QUESTION # 195
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
Explanation:
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'.
NEW QUESTION # 196
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