L4M2 DEFINING BUSINESS NEED

Questions: Chapter 1

1 What is the fourth step in the RAQSCI model?

A Supply

B Sustainability

C Service

D Standards

2 A straight re-buy means purchasing the same item as previously:

A from the same supplier and at the same price

B from the same supplier but possibly at a different (agreed) price

C possibly from a different supplier but at the same price

D possibly from a different supplier, and possibly at a different (agreed) price.

3 A competitive bidding process in which suppliers are invited to submit tenders for a
procurement contract is most likely to be used for:

A a straight re-buy

B a modified re-buy

C a new purchase

D renewal of an existing service agreement.

4 The need to protect the source of supply is particularly important for:

A strategic and bottleneck items

B strategic and non-critical items

C bottleneck and leverage items

D leverage and strategic items.

5 For which of the following tasks does the procurement function have an important role in
developing a business case for procurement? Select TWO that apply.

A Technical negotiations

B Assessing regulatory compliance

C Supplier selection

D Supply risk assessment

E Quantifying financial benefits

Questions: Chapter 2

6 From which of the following sources might primary data about conditions in a supply market
be obtained? Select TWO that apply.

A Online reports by research organisations

B Answers to RFIs

C Supplier websites and price lists

D Product price indices for an industry

E Government statistics

7 A company purchases protective goggles for employees in its production department. The
cost of these goggles is:

A a direct cost of production units

B an indirect cost of production

C a fixed production cost

D a variable cost of production units.

8 Costs in a manufacturing company may be expressed as the total of:

A direct costs, indirect costs and profit

B direct costs, indirect costs and overheads

C materials costs, labour costs and overheads

D materials costs, labour costs and other expenses.

9 An estimate of the cost of an activity should begin with:

A the budget allowance

B the indirect costs

C the direct costs

D the variable costs.

10 A business case for the purchase of a particular item of capital equipment, rather than any
alternative option, should be made by comparing their:

A direct and indirect costs

B whole life costs

C target costs

D purchase costs.

Questions: Chapter 3

11 When using cost benefit analysis to justify a business case, it can be difficult to compare
expected benefits with costs because:

A the costs and benefits occur over different timescales

B the analysis ignores risk

C costs are quantitative and not qualitative

D important benefits may be non-financial.

12 A formal business case recommendation in favour of a particular course of action should:

A explain how the outcome will be innovative

B give equal weight to all criteria relevant to the recommendation

C consider alternative options

D consider environmental issues.

13 A practical difficulty with competitive benchmarking is often:

A deciding what performance feature to benchmark

B obtaining data to establish the benchmark

C choosing which competitor to use as the benchmark

D recognising the competitor’s superiority.

14 Which of the following criteria may be used to assess the suitability of an externally provided
service for meeting the organisation’s needs? Select TWO that apply.

A Speed of response

B Just in time delivery

C Benchmarks

D Weighted scores

E Skills

15 A business case should recommend a course of action only if it:

A satisfies all business needs

B sets a new benchmark

C minimises costs or maximises benefits

D provides a suitable balance between different needs of the business.

Questions: Chapter 4

16 Which of the following are purposes for which budgets are prepared? Select TWO that
apply.

A Co-ordinate operations

B Revise forecasts

C Set targets

D Select suppliers

E Record costs and revenues

17 Why might there be a difference between incurring material costs and paying for them?

A There might be errors in recording costs

B Costs might not have been budgeted

C Purchased materials are held in store for a time before use

D Suppliers usually allow a period of credit

18 What might be a limitation in the use of budgets? Select TWO that apply.

A They do not cover the entire organisation

B Estimates of revenues and costs may be unreliable

C They do not identify the managers responsible for budget performance

D They focus on the long term and not the shorter term

E Plans can get out of date quickly

19 Which of the following may be a cause of an adverse material price variance? Select TWO
that apply.

A Competitive tendering for purchases

B Taking advantage of quantity discounts

C Opportunistic spot purchasing

D Supply shortages for a key material

E Buying better quality materials than budgeted for

Questions: Chapter 5

20 Which one of the following has been a major disruptive influence for manufacturers of
household products such as cookers and washing machines?

A Renewable energy

B Mobile phone technology

C The Internet of Things

D Just in time procurement

21 Which one of the following is an essential requirement for manufacturers of fast-moving

consumer goods to compete successfully in their markets?

A Agility

B Ethical standards

C Sustainability

D Digitisation

22 Which of the following are distinctive features of the building construction industry? Select
TWO that apply.

A Fixed contract prices

B Subcontracting

C Total quality management

D Competitive tendering

E Conformance specifications

23 Which one of the following is a distinguishing feature of procurement in a retail

organisation?

A Competitive pricing

B The need for design skills

C The need for consumer market awareness

D Large numbers of suppliers

24 Which of the following are distinctive characteristics of the arable farming industry? Select
TWO that apply.

A Low capital investment

B Global markets

C Seasonal supply

D Seasonal demand

E Environmental concerns

Questions: Chapter 6

25 Which of the following factors help to determine the degree of competitiveness within an
industry? Select TWO that apply.

A Nature of the industry

B Size of the market

C Market concentration

D Age of the market

E Switching costs

26 Why might a supplier in a market be able to charge a higher price for its product than its
competitors?

A It differentiates its products.

B It benefits from economies of scale.

C Profitability in the market is high.

D There are available substitutes for its product.

27 A company manufactures health care equipment. It has to pay high prices to its specialised
suppliers for product components, because available supply is limited. Costs of components
are a high proportion of its total costs. The company has a single customer, the state health
service, and there are several rival competitors who sell similar products to the same
customer. Does this mean that the company’s product margins are likely to be low?

A No, because a public sector buyer will pay high prices for quality products.

B No, because the bargaining power of suppliers and buyers cancel each other out.

C Yes, because the company may be at risk of a takeover by a competitor.

D Yes, because supply costs are high and the monopoly buyer has the bargaining
strength to secure low prices.

28 Why might the cost for a manufacturer of switching from buying one component to buying a
substitute component be high, when it is not a close substitute? Select TWO that apply.

A Loss of supplier goodwill

B High staff retraining costs

C Cost of changing production processes

D The timescale for switching

E The availability of the substitute

29 Which one of the following creates a high barrier to entry into a market for a new
competitor?

A Access to distribution channels

B Limited economies of scale

C Limited number of competitors

D Standardisation of the product or service

Questions: Chapter 7

30 Direct materials costs are:

A costs of materials

B costs that increase with the level of activity

C costs that are attributable in full to an item of output

D costs that are charged to a department or function.

31 For which one of the following purposes might the procurement function in a large company
with several business units develop a spending map?

A To estimate suppliers’ direct costs

B To allocate responsibilities for procurement activities

C To identify the geographical spread of suppliers

D To compare prices charged for similar products by different suppliers to different

parts of the business

32 Which of the following might be used as a source of information about labour costs for a
supplier of an outsourced service?

A Technical estimate

B Job advertisements

C Service level agreements

D Procurement records
33 A supplier is known to have a high level of costs in its overall operating cost structure. The
supplier is justifying a recent increase in the price it is charging for one of its products,
stating that its profit margin on the product is very low. For which of the following reasons
might the procurement function in a buying organisation question this claim about profit
margins?

A Profit margin depends on the supplier’s allocation of fixed overhead costs between
products

B The supplier’s direct material costs have not increased

C Other suppliers of the same product are not increasing their prices

D The product specification has not changed, so the price should not be increased

34 What is the purpose of ‘should cost’ analysis?

A To consider whether to negotiate a lower price for a product or service from a

supplier

B To prepare a materials purchase budget

C To obtain market data about a supplier’s costs

D To compare prices of different suppliers for the same product or service

Questions: Chapter 8

35 Specifications in a purchase order define the buyer’s requirements and communicate these
to potential suppliers. Which of the following are also purposes of product specifications in a
purchase order? Select TWO that apply.

A To establish the purchase price

B To communicate with internal stakeholders

C To provide a means of evaluating quality

D To establish a product standard

E To communicate with customers

36 Why must specifications for the purchase of tailor-made (bespoke) software be performance
specifications?

A The buyer can’t specify in detail how programs should be written

B The buyer can’t specify what the programs should do

C A previous version of the software does not exist

D The performance specification is part of the offer to supply

37 Which of the following items are typically included in a conformance specification for a
product? Select TWO that apply.

A Functional capabilities

B The required outcome of the product

C The purpose of the product item

D Required health and safety levels of use

E Packaging requirements

38 Which one of the following is an advantage of using standards to specify product

requirements in a purchase order for goods?

A Standards allow the supplier the opportunity to innovate

B Standards reflect the latest technology

C Standards reflect the buyer’s exact requirements

D The use of standards shortens the order lead time

39 For which one of the following types of product or service are market grade specifications
commonly used?

A Commodities

B Consumer products

C Engineering products

D IT projects
Questions: Chapter 9

40 Which one of the following is a valid comment about a through life contract?

A It avoids the need for whole life costing.

B It secures service support for an item through its operational life.

C It is most suitable for assets with a short operational life.

D It avoids the need for a product specification.

41 Which of the following items should be included in a specifications document for a through
life contract? Select TWO that apply.

A Contract period

B Buyer’s responsibilities

C Service levels

D Dispute resolution procedures

E Pricing arrangements

42 Which of the following items should be included in a scope document for a through life
contract? Select TWO that apply.

A Deliverables

B Pricing arrangements

C Environmental specifications

D Detailed user requirements

E Roles and responsibilities

43 Which of the following items should be included as a term or condition in a through life
contract?

A Details of alpha tests

B Details of beta tests

C Alternative suppliers

D Change control procedures

44 How might the scope document for a through life contract specify services that the
supplier/contractor might supply that would be negotiated and priced separately if required
by the buyer?

A Exclusions

B Additions to scope

C Technical specifications

D Reporting requirements

Questions: Chapter 10

45 Which one of the following might be a consequence of inadequate specifications for a

procurement contract?

A The contract will be legally unenforceable

B The supplier will be liable to the buyer for the error in the specifications

C The buyer will be liable to the supplier for the error in the specifications

D The buyer will waste money on something that it does not want

46 Which of the following are possible examples of under-specification by a buyer in a

procurement contract? Select TWO that apply.

A Failure to specify a required delivery date

B Failure to specify the price

C Failure to word the specification clearly

D Failure to specify dispute resolution procedures

E Failure to identify subcontractors

47 What might be the consequences for the buyer of over-specification of requirements in an
invitation to tender?

A Removes the need for key performance indicators

B Paying an extra cost for no added value

C Wasted expenditure in putting things right

D High operating costs with the purchased item

48 In which of the following ways might the risk of poor specifications in a procurement
contract be reduced for the buyer?

A Agree a dispute resolution procedure with the supplier

B Use conformance specifications rather than performance specifications

C Use templates for drawing up specifications

D Do not allow the involvement of internal customers in the procurement process

49 Which of the following measures may be used to monitor the quality of preparing
specifications for procurement contracts? Select TWO that apply.

A Use only experienced staff to prepare specifications

B Use only pre-approved suppliers when inviting quotations

C Keep a record of inadequate specifications

D Train staff in the preparation of specifications

E Obtain feedback from internal customers on materials quality

Questions: Chapter 11

50 Which of the following are possible causes of stock proliferation? Select TWO that apply.

A Adding to a company’s product range

B Variations in product quality

C Decentralisation of procurement

D An increase in inventory levels

E Differing preferences among buyers

51 Which of the following is the most appropriate definition of a product’s ‘value’ for
customers?

A Difference between purchase price and production cost

B Combination of use value and esteem value

C Convenience value

D Product design quality

52 Which of the following types of product are most likely to be selected for a value analysis
exercise?

A Products with a low market price

B Products where the supply markets for component materials are highly competitive

C Products with a low production cost relative to market price

D Products whose design has been unchanged for a long time

53 According to the SAVE International Value Methodology Standard, what is the phase in a
value analysis exercise that should follow the information gathering phase?

A Functional analysis

B Development

C Evaluation

D Creation
54 In a value engineering exercise, a principle should be that a product should be designed to
last physically only as long as its expected useful lifetime. This is known as:

A Lifetime costing

B Planned obsolescence

C Reverse quality

D One-dimensional quality
Solutions and Feedback: Chapter 1

1 Answer C

The steps are regulatory, availability, quality, service, cost and innovation.

Reference Chapter 1 Sections 2.1–2.3

2 Answer D

A straight re-buy may be at a different price to a previous purchase, and a different supplier may be
used (probably from a shortlist of pre-approved suppliers), but there should be no need to re-
negotiate anything except perhaps the price. A modified re-buy would involve some changes to the
purchase order/contract, other than price.

Reference Chapter 1 Section 3.2

3 Answer C

A competitive bidding process with tenders is a lengthy process and can be fairly complex. It is most
likely to be used for new (and large) purchases.

Reference Chapter 1 Section 4.1

4 Answer A

Strategic and bottleneck items are both categories of purchased items where there is a
limited/restricted supply. A business case for agreeing a contract for any of these items is likely to
include the need to secure continuing supply, especially of strategic items.

Reference Chapter 1 Section 5.2

5 Answer C and D

The procurement function has expertise in supplier selection and market assessment (including
supply risk assessment). Technical negotiations and regulatory compliance are more likely to be the
responsibility of user departments.

Reference Chapter 1 Section 8.2

Solutions and Feedback: Chapter 2

6 Answer B and C

Primary data is data that is gathered directly from its source. Responses to RFIs are primary data
because they come from suppliers in response to direct questions put to them. Supplier websites
may also be a source of primary data, if they provide specific information that is being sought.

Reference Chapter 2 Sections 1.3–1.4

7 Answer B

The cost of the goggles is an indirect cost of production, because the cost cannot be attributed in full
to any specific product item. Indirect costs are also called overheads.

Reference Chapter 2 Sections 3.1 and 3.4

8 Answer D

Materials costs and labour costs consist of both direct and indirect costs so total costs are not
materials costs plus labour costs plus overheads, because this double counts indirect materials and
labour costs. Indirect costs and overheads are different terms for the same costs.

Reference Chapter 2 Section 2.1

9 Answer C

If the cost estimate is required to include overhead costs, these can added when the direct costs
have been estimated.

Reference Chapter 2 Section 4.1

10 Answer B

Capital equipment items are used over a number of years, and a comparison of the cost of
alternative options should be based on their cost over their entire expected useful life.

Reference Chapter 2 Sections 5.3–5.4

Solutions and Feedback: Chapter 3

11 Answer D

It is difficult to compare financial costs with non-financial benefits. The comparison will be based on
judgement and opinion.

Reference Chapter 3 Sections 2.3 and 3.1

12 Answer C

A recommendation may be based partly on innovation or environmental issues, but this is not
necessary in all cases. Decision criteria should not be given equal weight. However, a formal business
case proposal should always consider alternative options.

Reference Chapter 3 Sections 4 and 5.1

13 Answer B

It is usually fairly easy to identify the competitor that is ‘best in class’ and which aspect of the
competitor’s performance should be the benchmark for achievement. However, it can be difficult to
obtain reliable data about the competitor to establish the benchmark.

Reference Chapter 3 Section 7.5

14 Answer A and E

An organisation’s needs in the delivery of a service by an external service provider may be speed of
response (to any request for service) and the required skills or experience of the individuals
delivering the service.

Reference Chapter 3 Section 5.1

15 Answer D

A business decision will not satisfy all the requirements of a business, and some ‘needs’ may conflict
with each other (eg price versus quality, or cost versus speed).

Reference Chapter 3 Section 1.3

Solutions and Feedback: Chapter 4

16 Answer A and C

Budgets have several purposes. One is to co-ordinate the activities of the entire organisation, and
another is to set planning targets. Budgets are formal plans, not forecasts. Financial budgets are
expressed in terms of costs and revenues, but they do not record them.

Reference Chapter 4 Section 1.2

17 Answer D

There is a time difference between when a cost is recognised and when the item of cost is paid for.
The cost of materials is incurred when the materials are used, but this is not usually the time that the
purchased materials are paid for.

Reference Chapter 4 Section 2.1

18 Answer B and E

Budgets cover an entire organisation and responsibilities for each aspect of the budget should be
clear. Operating budgets generally cover one year, but are broken down into monthly or four-weekly
control periods. They therefore focus largely on the short term. However, plans have limited value
when the estimates used to make them are unreliable, or if they get out of date quickly (so lose
relevance).

Reference Chapter 4 Section 1.3

19 Answer D and E

Supply shortages are likely to push up market prices, and better quality materials are likely to cost
more. The other reasons for a price variance listed in the question should result in favourable price
variances, not adverse variances.

Reference Chapter 4 Section 4.3

Solutions and Feedback: Chapter 5

20 Answer C

The Internet of Things has involved the re-design of household products and new production
systems to incorporate digital technology in products.

Reference Chapter 5 Section 2.4

21 Answer A

A feature of fast-moving consumer goods is short product lifecycles. Fashion goods are an example.
Manufacturers need to design new products regularly and respond quickly to changes in consumer
demand. This calls for agility (the ability to be flexible and respond quickly) in systems and processes.

Reference Chapter 5 Section 2.6

22 Answer B and D

Subcontracting is a common feature of the construction industry, more than in other industry
sectors. Competitive tendering occurs in all industries, but given the high cost of many building
projects, it is common in the construction industry.

Reference Chapter 5 Section 3.3

23 Answer C

In the retail industry, organisations must buy goods that customers want to buy, and there is a direct
link between procurement and re-selling. This means that buyers must have an understanding of the
customer markets, not just the supply market.

Reference Chapter 5 Section 4.4

24 Answer C and E

In arable farming (growing crops) supply is seasonal, with harvests at particular times of the year,
even though demand for agricultural output is not seasonal (except to the extent that supply is
restricted). There are environmental concerns with all types of farming: with arable farming
concerns include the erosion of soil and excessive use of fertilisers.

Reference Chapter 5 Section 5

Solutions and Feedback: Chapter 6

25 Answer C and E

The extent of competition will depend to some extent on the number of competitors in the market
and the market share of each competitor. Switching costs may also be a factor: when costs for
customers of switching from one supplier to another are high, competition in the market may be
relatively weak because it will be difficult to win over customers with competitive action, such as
reducing prices.

Reference Chapter 6 Sections 1.2–1.3

26 Answer A

In a competitive market, competitors will often seek to differentiate their products from those of
competitors, offering different product features and different prices. A supplier may be able to
charge high prices by differentiating its product as a top-quality product.

Reference Chapter 6 Section 4.2

27 Answer D

The company is likely to face low profit margins because of the high cost of components, and the
ability of a monopoly buyer to choose between rival suppliers, giving it strong bargaining power.

Reference Chapter 6 Section 5.2

28 Answer B and C

By switching to a different component that is not a close substitute, a manufacturer may incur high
costs in changing its production processes/procedures and in retraining staff in the new procedures.
The timescale for switching and the availability of the substitute may complicate the switching
process, but will not directly affect the switching costs.

Reference Chapter 6 Section 6.5

29 Answer A

A barrier to entry into a market for a new competitor may be difficulty in gaining access to the
channels for selling and distributing the product to customers. Existing channels of distribution may
be controlled by existing firms in the market.

Reference Chapter 6 Section 7.3

Solutions and Feedback: Chapter 7

30 Answer C

The direct costs of an item are the costs that can be attributed in full to the item. Costs are either
direct or indirect (overheads). Direct costs should not be confused with variable costs, which are
costs that (in total) rise or fall with increases or reductions in the level of operational activity. prices.

Reference Chapter 7 Section 1.2

31 Answer D

A spending map can be used for a variety of purposes. Essentially it is a database of information that
can be used to analyse spending and procurement costs in different ways, such as prices charged by
different suppliers for the same product. A spending map analyses an organisation’s own
procurement costs, not those of suppliers.

Reference Chapter 7 Section 2.1

32 Answer B

Information about wages or salaries paid to employees for different types of work can be obtained
from job advertisements, online or in other media, for example advertisements of staff recruitment
agencies.

Reference Chapter 7 Section 3.3

33 Answer A

When a large proportion of a supplier’s costs are fixed costs, and the supplier makes several
products, the profitability of a product depends on the amount of fixed overhead costs allocated to
each product. Essentially this is an arbitrary sharing out of overhead costs, and low profitability may
be attributable to a high allocation of overhead costs. It is extremely difficult to separate profit
margin and overhead cost allocation. The supplier’s claims about profit margin should therefore be
questioned.

Reference Chapter 7 Section 3.5

34 Answer A

‘Should cost’ analysis involves estimating what a supplier’s costs should be and comparing this with
the price that the supplier is charging. Where the gap seems high, it might be possible to negotiate a
lower price from the supplier.

Reference Chapter 7 Section 5.2

Solutions and Feedback: Chapter 8

35 Answer B and C

Product specifications encourage all relevant internal stakeholders (including the purchasers and
users of the supplied items) to consider what they really need. Specifications are also generally used
alongside contractual performance measures, such as key performance indicators, as a means of
evaluating the quality of items supplied. Specifications may specify a standard, but they do not
establish standards.

Reference Chapter 8 Section 1.1

36 Answer A

A buyer of bespoke software can specify what the software should be able to do, but it cannot
usually specify in detail how the program should be written.

Reference Chapter 8 Sections 1.2, 5.1

37 Answer C and E

A conformance specification should specify the purpose for which the product will be used, because
this puts a requirement on the supplier to ensure that the product is fit for purpose. Packaging
requirements are often included in conformance specifications.

Reference Chapter 8 Sections 2.2, 4.1

38 Answer D

Standards avoid the need to prepare specifications ‘from scratch’ and so shorten the time needed to
prepare order specifications. However, standard specifications might not meet the buyer’s exact
requirements.

Reference Chapter 8 Section 6.3

39 Answer A

Commodities, such as oil, are commonly graded, and buyers can therefore specify their
requirements by specifying the grade of commodity that they want.

Reference Chapter 8 Section 9

Solutions and Feedback: Chapter 9

40 Answer B

A through life contract covers the purchase and installation of an asset, maintenance and repairs
over the asset’s life, and (if required) decommissioning and disposal at the end of the asset’s life. It is
most suitable for assets with a long expected operational life. It does not avoid the need for whole
life costing or a product specification.

Reference Chapter 9 Sections 1.1–1.3

41 Answer A and C

A specifications document sets out the buyer’s detailed specifications for what the contractor is
required to deliver, including levels of service. It should also specify the time period (term) for the
contract. A buyer of bespoke software can specify what the software should be able to do, but it
cannot specify in detail how the program should be written.

Reference Chapter 9 Section 4.1

42 Answer A and E

A scope document sets out the what the through life contract should cover (its scope). This includes
what is required from the supplier (deliverables) and roles and responsibilities of the buyer and the
contractor. Detailed specifications are set out in a separate specifications document.

Reference Chapter 9 Sections 2.2 and 3.1

43 Answer D

The contract should include a term or condition relating to the required procedures in the event of
any change in the buyer’s requirements. The contract may include a specific requirement for testing
by the supplier or the buyer, but will not go into details.

Reference Chapter 9 Section 6.1

44 Answer B

The scope document sets out what the contract should cover (its scope), what is excluded
(exclusions) and what could be provided but would have to be negotiated and priced separately
(additions to scope).

Reference Chapter 9 Section 2.2

Solutions and Feedback: Chapter 10

45 Answer D

Inadequate specifications do not create a legal liability for either the buyer or the supplier, and if the
buyer makes an order which the supplier accepts, it is legally enforceable even if it is not what the
buyer wants. A consequence however is that the buyer will fail to order properly or fully what it
wants, and as a consequence is likely to waste its money.

Reference Chapter 10 Section 1.1

46 Answer A and D

A failure to specify a required delivery date and failure to specify dispute resolution procedures
could lead to disputes or disagreements between the buyer and the supplier. Prices and the identity
of subcontractors are not included in specifications. Lack of clarity in wording can lead to
misunderstandings and disagreements, but is not under-specification, but poor specification.

Reference Chapter 10 Section 2.4

47 Answer B

If a buyer asks for something that it does not need or want, it will pay a higher price for the
purchased item without getting any extra value.

Reference Chapter 10 Sections 2.5 and 3.2

48 Answer C

Using templates as a framework for preparing specifications reduces the risk of omitting items from
the specifications or inadequate wording. Involvement by internal customers in the procurement
process should help to improve specifications.

Reference Chapter 10 Section 5

49 Answer C and E

Monitoring involves checking what has happened or is happening and taking measures to deal with
any problems that are identified. To do this, a record should be kept of any known problems with
specifications that have been prepared, and feedback can be obtained from internal customers, to
assess whether purchased items have met their requirements. Using experienced staff to prepare
specifications and training staff are preventative measures, not monitoring measures.

Reference Chapter 10 Section 6.1

Solutions and Feedback: Chapter 11

50 Answer C and E

Stock proliferation occurs when an organisation buys and uses more stores items than necessary.
Stock proliferation can be dealt with by means of a standardisation exercise. Proliferation occurs
when buyers are able to make differing choices about the supplier and the exact specifications of
purchased items. This can happen when procurement is decentralised. Adding to the product range
could result in purchasing new product items, but this is not stock proliferation (which is an
unnecessary increase in the range of items purchased.)

Reference Chapter 11 Section 2.2

51 Answer B

For a customer, the value of a product is the benefit (value) they obtain from using it (and its various
functions) plus the esteem associated with the product (eg the esteem associated with a high-price
brand). Together use value and esteem value determine how much customers are willing to pay for
a product. Value for customers therefore differs from value for product manufacturers (or service
providers).

Reference Chapter 11 Section 3.2

52 Answer D

When the design of a product has not been changed for a long time, there is a fairly high probability
that some product features no longer provide value for the customer. This will create opportunities
to design the product with non-value adding features removed. This should reduce production costs
without reducing value for the customer.

Reference Chapter 11 Section 5.1

53 Answer A

Having gathered information about a product, the next phase in a value analysis exercise should be
to analyse the various functions of the product and its design. Having done this, it is then possible to
go on to assess the value created by those functions.

Reference Chapter 11 Section 5.3

54 Answer B

If a product is designed so that it outlasts its useful life, the product design will be unnecessarily
expensive. Obsolescence should therefore be built into product design. Reverse quality and one-
dimensional quality are categories (in the Kano model) of customer reactions to features of a
product or service.

Reference Chapter 11 Section 7.2