Free Practice Questions for CIPS L4M5 Exam

Professional buyers, when planning or engaging in negotiation with suppliers, should always be aware of where the intended and actual relationship with this supplier is positioned on the 'spectrum' or 'continuum' of commercial relationships. The relationship spectrum describes the range of commercial relationships between a buyer and supplier based on richness of communication, longevity and mutual dependence.

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In the question, the contract is simple one-off (or spot buy), which means the relationship will likely to be more transactional. In such relationship, price is the most important criteria and buyer may adopt arm's-length approach.

The question requires more detailed answer, it is an example of probing question.

Probing questions are typically follow-up questions, and aim to elicit more detailed information on the back of the answer elicited from the open questions. Probing question are also useful to check that the supplier fully understand their offering, as well as your needs, can also be used to communicate to the suppliers that you know this category well.

LO 3, AC 3.3

At the proposing phase either side may start making tentative proposals regarding their offering. In the case of negotiation where TOP has already submitted a tender or proposal, this stage may provide an opportunity for them to make proposals to improve on their initial offers in general or in areas highlighted by the buying side in advance.

The word 'if' is very useful at this stage and allows you to test tentative proposals without committing yourself. Skilled negotiators use language very carefully. The questions with 'if' are hypothetical ones.

LO 3, AC 3.1

Microeconomic data specific to industries, suppliers, or products can often be found in commodity markets, trade exchanges, and financial databases. These provide detailed insights on supply, demand, pricing, and trends.

Mark-upis calculated as:

Mark-up %=(ProfitCost)×100\text{Mark-up \%} = \left( \frac{\text{Profit}}{\text{Cost}} \right) \times 100Mark-up %=(CostProfit​)×100

In this case:

Profit = $240 - $160 = $80

Cost = $160

Mark-up = (80 / 160) × 100 =50%

“Understanding mark-up percentages helps in assessing supplier pricing behaviour and negotiating realistic margins.”

(L4M5 Commercial Negotiation, 2nd edition, Section 2.1 - Pricing Models and Profit Margins)

The question requires student to detect factors of cultural differences. Problems may occur on the international scene with such things as the importance of extending courtesy between cultures, the importance of timescales, the use of negotiating ploys, the sense of ‘fair play', the use and interpretation of body language, the role of women in negotiations (or indeed, in business in general), the importance of status, the role of conflict, standards of dress and deportment and the readiness to ignore or uphold contract terms and conditions.

LO 3, AC 3.3

Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following:

Materials and services bought-in: In steel manufacturer, raw materials are iron ores, scrap metal, coals, etc

Labour or wages: money paid to staff for the work involved in producing the product.

Other expenses: other charges incurred that can be specifically attributed to a particular product, batch or service

There are several pricing strategies used by suppliers:

Cost-plus pricing – Total variable + Fixed cost + profit

Premium pricing – based on branding. Supplier determines to charge a very high price, not connected with cost structures, usually based on its reputation and/or the perception that the product/service is of

a superior quality. This strategy typically found in the early part of the product life cycle/when demand exceeds supply.

Penetration pricing - Supplier attempts to enter a new market or extend its share in an established one. It is characterised by price reductions to increase volume, followed by steady price increases; may

even be loss leading at start (no profit made)

Marginal cost pricing – covers only variable cost

Market pricing – suppliers prices in line with what the market is willing to pay

Tradeables—alternative offers or concessions—are typically introduced during thebargainingstage of the negotiation. This is when both parties discuss and exchange proposals to reach a mutually acceptable agreement.