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CIPS Level 4 Diploma in Procurement and Supply L4M5 Exam and Certification Test Engine
CIPS L4M5 Commercial Negotiation exam is one of the valuable certifications for professionals in procurement and supply chain management. L4M5 exam content provides insight into various negotiation strategies and techniques that can be used in specific procurement scenarios. It is essential that candidates invest ample time in thorough preparation and studying to pass the exam successfully. Upon completion, the certification will provide procurement professionals with the necessary skills required to negotiate effectively while maintaining ethical business practices, thereby enhancing their careers in the field.
The L4M5 Commercial Negotiation Certification Exam offered by CIPS is an excellent opportunity for procurement and supply chain professionals looking to enhance their negotiation skills and develop a strategic approach to negotiating commercial contracts. Commercial Negotiation certification is globally recognized and can help individuals advance in their careers while ensuring that organizations have the necessary skills to negotiate effectively and get the best deals for their organization.
NEW QUESTION # 210
In a commercial negotiation, a procurement professional negotiates on his company's behalf. The power of buying organisation is the only factor that influences the behaviours of the other party. Is this assumption true?
- A. No, because power of supplier is the only factor that influences the other party
- B. Yes, because the outcomes of negotiation are attributable to the buying organisation
- C. No, because personal power of negotiators also attributes to the outcomes
- D. Yes, because buyer's brand, reputation and purchasing spend largely determine the outcomes
Answer: C
Explanation:
:
The assumption is false, because when a procurement professional negotiates on behalf of his employer, he brings the power of his organisation (its brand, reputation and purchasing spend) as well his own personal power (that which is embedded within him) to the negotiation.
From a negotiation perspective, both organisational and personal power have the ability to influence the behaviours of other or the cause of event. This power is clearly core to negotiation, and of enormous important in seeking to achieve the objectives.
NEW QUESTION # 211
Neville is a senior procurement specialist in a automaker. He has good relationship with his team mates and other departments because of his amazing purchasing skills and kindness. Which of the following sources of power is Neville likely to possess?
- A. Reward
- B. Coercive
- C. Referent
- D. Legitimate
Answer: C
Explanation:
:
In 1959, French and Raven described five bases of power:
1. Legitimate - This comes from the belief that a person has the formal right to make demands, and to expect others to be compliant and obedient.
2. Reward - This results from one person's ability to compensate another for compliance.
3. Expert - This is based on a person's high levels of skill and knowledge.
4. Referent - This is the result of a person's perceived attractiveness, worthiness and right to others' respect.
5. Coercive - This comes from the belief that a person can punish others for noncompliance.
Six years later, Raven added an extra power base:
6. Informational - This results from a person's ability to control the information that others need to accomplish something.
In the scenario, Neville attracts and keeps good relationship with his colleagues not because of neither position nor reward nor coercion. He has good skills and kindness, which increase his charisma. His source of power is referent power.
NEW QUESTION # 212
Buyers should have the ability to analyse the costs of their purchases not only for determining their impact to their organisation's cost but also for the purpose of reducing them during commercial negotiations to contribute to the profitability of their organisation. One way of analysing costs is to classify them into direct and indirect costs.
Which ONE of the following is an explanation of 'direct costs'?
- A. Costs that are only related to manufacturing firms where raw materials are directly converted into specific product units
- B. Costs of materials, labour and other expenses that are directly identified with manufacturedunits of a product
- C. Costs of labour and expenses incurred directly whether or not the production fluctuates owing to demand or downtime
- D. Costs that are connected with materials and labour excluding expenses used directly in manufacturing products
Answer: B
Explanation:
Direct costs are expenses that can be clearly attributed to the production of specific goods. These typically include raw materials, direct labor, and other costs tied directly to the manufacturing process. They are variable with production volume and help procurement teams analyze pricing more effectively during negotiations.
Reference: L4M5 Commercial Negotiation 2nd edition (CORE), Section 2.1 - Direct and Indirect Costs
NEW QUESTION # 213
Which of the following is a source of power in organisational relationships?
- A. Given power
- B. Tactical power
- C. Intruded power
- D. Referent power
Answer: D
Explanation:
Reference: CIPS L4M5 Study Guide, Section 1.3 - Sources of Power in Negotiation
NEW QUESTION # 214
A public agency opens a tendering process for a road building project that lasts approximately 1 year. They post theirrequirements on public journal and receive some interests. After conducting due diligence process and selecting the lowest bidder, the project commences. However, the supplier complains that price of material increases because of a shortage of supply, thenthey demands an 5% uptick in contract value. The agency investigates the increment and sees that there is indeed a fluctuation in prices of supplier's input. They are likely to accept the proposal, but they are also concerned that supplier may demand more. To avoid making another concession with the supplier, which of the following should be a priority action of the agency?
- A. Document a contract variationthat only allows another concession if some specific conditions arise
- B. Postpone the decision making until the budget is ready
- C. Disapprove supplier's demands until they finish the project
- D. Seek approval from higher authority
Answer: A
Explanation:
Explanation
The agency (buyer) has made a concession about the price. Possibly the supplier will request another concession (the salami tactics). To avoid this to be happened, the agency should only allow a concession as an exception, make sure that the concession is documented and only permitted against some exceptional circumstances, and seek agreement to this from the supplier.
LO 3, AC 3.2
NEW QUESTION # 215
Effective listening is important in integrative negotiations. Is this statement correct?
- A. No, as effective listening is important only in a distributive negotiation
- B. Yes, as it means the supplier's attempts at negotiation can be stopped quickly with reasoning
- C. No, as what the other party has to say is not important
- D. Yes, as it allows issues to be shared and understood between all parties
Answer: D
Explanation:
Effective listening is crucial in integrative negotiations because it promotes understanding and collaboration.
By actively listening, parties can identify shared interests and address concerns, which supports the goal of reaching mutually beneficial solutions. This is a key component in CIPS guidelines on successful integrative negotiation practices.
NEW QUESTION # 216
When engaging in commercial negotiations, it is important to bear in mind that the suppliers need to make a reasonable profit to maintain continuity of supply. It is therefore necessary for the buyer to have a clear understanding of the break-even analysis concept which relates to cost, volume, and profit.
What is 'contribution' in relation to break-even analysis?
- A. The gains from sales revenue that the supplier is willing to contribute in a profit-sharing contractual arrangement
- B. The gains from sales revenue which the supplier retains as reserves to contribute to future development projects
- C. The gains that the supplier receives when the sales revenue exceeds fixed costs
- D. The gains that the supplier receives when the sales revenue exceeds variable costs
Answer: D
Explanation:
Inbreak-even analysis,contributionrefers to the amount from sales revenue that exceedsvariable costs, which then contributes to coveringfixed costsand ultimately generating profit. Understanding this concept enables buyers to better analyze supplier pricing and negotiate more effectively. For example, if a product is priced significantly above its variable cost, there may be room fordiscounts or added value, as the supplier is still contributing toward fixed costs.
Reference: L4M5 Commercial Negotiation 2nd edition (CORE), Section 2.1 - Cost Analysis and Pricing Decisions
NEW QUESTION # 217
Which of the following is most likely to be a reason why a supplier charges its customer higher price after it has reached the break-even point?
- A. Supplier may need to open new facilities to meet increasing customer's demand
- B. Supplier may have high fixed cost - variable cost ratio
- C. Supplier may want to encourage buyer's demand
- D. The supplier may have reached economy of scale
Answer: A
Explanation:
'Supplier may want to encourage buyer's demand': the buyer tends to prefer lower price, if supplier wants to encourage its customers to buy more, it needs to offer discount at bulk amount. So this option is not acceptable.
'Supplier may have high fixed cost - variable cost ratio': Supplier with high fixed cost needs high volumes to break even, but once achieved, it may be able to offer significant discounts for bulk orders
'The supplier may have reached economy of scale': when economy of scale is reached, cost per unit will be minimal which often leads to more favourable price.
'Supplier may need to open new facilities to meet increasing customer's demand': Increasing customer's demands may excess supplier's current capacity. Therefore, supplier may need to extend its capacity by investing more in facilities. To cover these fixed cost investment, supplier may charge higher price.
LO 2, AC 2.1
NEW QUESTION # 218
Which of the following is an example of non-verbal communication?
- A. 3 and 4 only (Eye contact and Body language)
- B. 2 and 4 only (Word-of-mouth communication and Body language)
- C. 1 and 3 only (Interview and Eye contact)
- D. 2 and 3 only (Word-of-mouth communication and Eye contact)
Answer: A
Explanation:
Reference: CIPS L4M5 Study Guide, Section 3.2 - The Negotiation Process
NEW QUESTION # 219
Which of the following are most likely to be fundamentals of Fisher & Ury's principled negotiation?
1. Depersonalise the argument
2. Focuson positions
3. Generate creative options
4. Using subjective criteria
- A. 2 and 4 only
- B. 1 and 4 only
- C. 1 and 3 only
- D. 2 and 3 only
Answer: C
Explanation:
Explanation
Principled negotiation is based on four fundamentals: people, interest, options andcriteria:
Diagram Description automatically generated
1st Principle: separate the people from the problem: Negotiator should depersonalise the situation and accepting that the subject matter of the negotiation. This can be difficult for untrained negotiators, but this is a key skill to develop
2ndprinciple: focus on interests, not positions: It is important in principled negotiations not to focus on their parties' positions (what are expressed during negotiations), but on the interests (underlying needs) behind them
3rd principle: invent options for mutual gains: this principle aims to help the parties find a solution that both would benefit from. The more options - or tradeables - that can be brought to the table the better.
4th principle: insist on using objective criteria: is about making sure that the negotiation stays focused on outcomes based on objective criteria and that it is productive.
LO 1, AC 1.2
NEW QUESTION # 220
According to Fiona Dent and Mike Brent, which of the following are characteristics of Push approach? Select TWO that apply.
- A. Collaborative
- B. Persuasion
- C. Inspirational
- D. Seeking commitment
- E. Directive
Answer: B,E
Explanation:
:
According to the book 'Influencing: Skills and techniques for business success' by Fiona Dent and Mike Brent, there are two major influencing styles. Push tends to be directive. It tells, and is clear and resolute, but needs to be employed in situations where firmness is required because of difficulties that exist or weakness is evident. Pull is more participatory and collaborative. It seeks to incorporate everyone's perspective. It can appear wishy-washy if not skilfully employed. That approach should be followed which is most likely to secure commitment and not mere compliance.
The two divisions can be further divided into four style categories: directive; persuasive reasoning; collaborative - team oriented, people oriented to inspire them with a vision. The directive style relies on your expertise and reputation being respected by others, and where there really does seem to be one answer. It is
"I" driven whereas persuasive reasoning is more "we" and issue driven. Directive styles can make the user appear as "a bull in a china shop"; persuasive reasoning can be portrayed as tough guy.
Collaborative influencing takes the "we" element further and seeks to mobilise everyone's ideas in a journey of discovery. It may have the flavour of "I'm your best friend", which may not go down too well. Visioning style is concerned to stir people's emotions in support of achieving an objective. This last one has been used by demagogues to stir people's hearts and minds for evil purposes as well as good.
A useful table offers the benefits, problems, words and body language associated with each style along with advice on when to use and when to avoid each. Cases and exercises illustrate these styles.
Empathy comes in for extended treatment with the definition of "standing in the other's shoes". This does not necessarily happen just intuitively, and therefore before a specific influencing effort there should be an intense effort to think about the other person or persons and to sense what it might feel like to be them - their hopes, fears, concerns, what turns them on, what turns them off, where are they coming from.
NEW QUESTION # 221
Which of the following are common forms of collaborating approach in Thomas-Kilmann conflict resolution model? Select THREE that apply.
- A. Yielding to another's point of view
- B. Trying to find a creative solution to current problem
- C. Exploring a disagreement to learn from each other's insights
- D. Trying to win at any cost
- E. Seeking a quick middle-ground position
- F. Resolving some conditions that would otherwise have them competing for resources
Answer: B,C,F
Explanation:
Collaborating is both assertive and cooperative. When collaborating, an individual attempts to work with the other person to find a solution that fully satisfies the concerns of both. It involves digging into an issue to identify theunderlying concerns of the two individuals and to find an alternative that meets both sets of concerns. Collaborating between two persons might take the form of exploring a disagreement to learn from each other's insights, resolving some condition that would otherwise have them competing for resources, or confronting and trying to find a creative solution to an interpersonal problem.
NEW QUESTION # 222
Which of the following are rules of attentive listening? Select TWO that apply.
- A. Only focus on verbal cues
- B. Listen deliberately
- C. React to the person who is speaking
- D. Prepare for what to say next
- E. Do not interrupt when the other party is speaking
Answer: B,E
Explanation:
Hearing is passive but listening is active, and some people need to learn to be a good, attentive listener. The following rules of attentive listening will help you to become a successful negotiator:
* Be motivated to listen
* Be alert to non-verbal cues
* Do not interrupt the other party when they are speaking
* Fight off distractions
* Write everything down
* Listen with a goal in mind
* Give the other party your undivided attention
* React to the message, not the person
LO 3, AC 3.3
NEW QUESTION # 223
Which of the following are internal factors when a supplier is making its pricing decision?
- A. 1 and 4 only (Price elasticity of demand and The stage in the product life cycle)
- B. 1 and 2 only (Price elasticity of demand and Environmental legislation)
- C. 2 and 3 only (Environmental legislation and Risk management)
- D. 3 and 4 only (Risk management and The stage in the product life cycle)
Answer: D
NEW QUESTION # 224
There are no commitments in hypothetical questions. Is this statement true?
- A. No, because the party who makes hypothetical questions cannot withdraw their proposals
- B. No, because hypothetical questions are made explicitly to the other party
- C. Yes, because hypothetical questions generate a specific response
- D. Yes, because hypothetical questions only mention possible situations
Answer: D
Explanation:
There are four types of questions that can be used in a commercial negotiation:
Hypothetical questions, where you ask about a possible situation or abstract concept, are very useful at the testing and proposal phases. Hypothetical question does not state any commitment as it is only about 'if something happens, then ...'. This type of question can be useful at giving suggestion.
Text Description automatically generated
LO 3, AC 3.3
NEW QUESTION # 225
A new manager has been appointed with responsibility for an organisation's category which has major impact on organisational cost base and there are little competitions in the supply market. They have an objective to improve supplier cost structures over time. Which of the following should they carry out first?
- A. Purchase price cost analysis
- B. Competitive rivalry analysis
- C. STEEPLE analysis
- D. Volume concentration
Answer: A
Explanation:
:
The objective of the buyer here is to improve supplier cost structures over time, which requires them to have insight into supplier's current cost information. Purchase price cost analysis (PPCA) can help here. PPCA is a method for gathering, analysing and using price and cost information in a systematic way. The process allows the identification of future savings and opportunities to improve current costs.
STEEPLE analysis is used to analyse the macro environment that may have impact on an organisation.
Competitive rivalry is a part of Porter's Five Forces which is a tool for strategy making.
Volume concentration is a way to increase the purchasing quantities in order for a buying organisation to improve its leverage in negotiation.
NEW QUESTION # 226
An oil refinery plant imports much of its crude oil from overseas. A procurement manager in the refinery suggests that fixing the crude oil contract price for 36 monthswould be beneficial for the company. Would this be a right thing to do?
- A. No, fixed price should be only applied to contracts that last 60 months or longer
- B. No, the refinery would not be able to reap the benefits from falling commodity price and currency rates
- C. Yes, the supplier would bear the risk when the material price increased
- D. Yes, financial budgeting task would be a lot easier with fixed pricing arrangement
Answer: B
Explanation:
Explanation
Fixed price contract is the contract in which the price is static throughout the contract period. A fixed-price contract may give certainty to budget and simplify contract management. However, it may lead to other problems since it requires bidders to estimate and bear the financial risks associated with price escalations. If the estimates are too high or events do not materialize, the buyer will pay a steep price that may affect the economy and efficiency of the contract. In the worst case, it may mean that the bid price is then above budget and may lead to a reduction in the requirements or rebidding. If the estimates are too low, it may appear as an abnormally low bid and disrupt contract execution.
On the other hand, price adjustment provisions include formulas designed to address problems, and can protect both theborrower and contractors from price fluctuations. Price adjustment formulas allow contractors to offer more realistic prices at the time of bidding. Despite concerns that they may lead to budget uncertainties, price adjustment formulas will estimate the actual cost implications that will be encountered. They use indexes that can be used for cost projection.
According to Asia Development Bank (ADB), any contract with a delivery or completion period beyond 18 months should contain an appropriate price adjustment clause.
In the scenario, the crude oil contract is planned to last 36 months. This period is pretty long with a fluctuating commodity. Therefore, the company should use price adjustment agreement.
NEW QUESTION # 227
All of the following shift the supply of watches to the right except...?
- A. An increase in the price of watches
- B. A decrease in the wage of workers employed to manufacture watches
- C. Manufacturers' expectation of higher watch prices in the future
- D. An advance in the technology used to manufacture watches
Answer: A
Explanation:
A supply curve will slope upward from left to right showing more supply at higher prices, as illustrated in the graph below:
A picture containing chart Description automatically generated
A movement along the supply curve will be brought about by a change in price, but a shift of the whole curve will be caused by a determinant other than price:
- The physical feasibility and time and energy required to produce the products
- Technology and innovation
- The objectives of the producers and their future expectations
- Prices of other goods and services
- Government's policies
LO 2, AC 2.2
NEW QUESTION # 228
Commercial negotiations on price cover various aspects, including pricing arrangements. A buyer may negotiate a fixed-price agreement. Why is a fixed-price agreement advantageous to the buyer?
- A. Suppliers always seek price agreements that include cost-sharing incentives
- B. Suppliers calculate prices using fixed costs, which the buyer must counteract by pushing for a fixed- price agreement
- C. The buyer will not need to monitor the supplier's costs relating to the contract
- D. The buyer will benefit from any savings the supplier makes from efficient cost management of the contract
Answer: C
Explanation:
In fixed-price agreements, cost-overrun risk is transferred to the supplier, giving the buyer price certainty and reducing the need for ongoing cost scrutiny. Monitoring focuses on delivery to specification and timing, not on the supplier's internal cost build-up (unlike cost-plus).
Reference: CIPS L4M5 (2nd ed.), LO 2.2 - Pricing arrangements and risk allocation (fixed-price vs cost-plus).
NEW QUESTION # 229
Buying organisation may increase its leverage with suppliers by concentrating spend. Which of the following are most likely to be forms of supplier spend consolidation? Select THREE that apply.
- A. Forming purchasing consortia
- B. Volume separation
- C. Paying supplier on time
- D. Volume consolidation across categories
- E. Volume redistribution
- F. Simplify procurement process
Answer: A,D,E
Explanation:
:
Buying organisation may increase its leverage with suppliers by concentrating spend. Supplier spend consolidation can take many forms as outlined below:
Vendor base reduction: straightforward reduction of number of suppliers in any category Volume pooling: pooling cross organisational requirement until your order volume is high enough to attract new bidders/additional discounts Volume redistribution: making recommendations following spend analysis to move from one supplier to another Volume consolidation across categories: certain purchase requirements may be common across a number of categories Standardisation and harmonisation of specifications: analysis of specifications and standards for a high spend purchased input, may show that there is a little difference between them and that the specification can be standardised or at least harmonised across the group or across national, regional or global operations.
Forming purchasing consortia: buyers may decide to come together and combine their purchase volumes to attract better deals.
NEW QUESTION # 230
Under EU public procurement directives, which of the following are procedures in which there is no commercial negotiation allowed?
- A. Open Procedure
- B. Innovation Partnerships
- C. Restricted Procedure
- D. Competitive Procedure with Negotiation
- E. Competitive Dialogue
Answer: A,C
Explanation:
Explanation
Under the European Union public procurement directives, all public sector bodies must abide by certain rules when they procure goods and services over a threshold value. Theserules are codified under 5 procurement procedures:
1. Open Procedure
2. Restricted Procedure
3. Competitive Dialogue
4. Competitive Procedure with Negotiation
5. Innovation Partnerships.
Under normal circumstances, there is no commercialnegotiation allowed under the two most commonly used procedure, Open and Restricted. Under these procedures, the prices and terms and conditions of contract should be decided via reference only to the tenderers' responses to the buyer's requests for tenders, and not through 'post-tender negotiation'. Under the other procedure, negotiation within the rules is permitted.
Interested learners can read more about these procedures here.
LO 1, AC 1.1
NEW QUESTION # 231
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