Absolute Free L6M8 Exam Practice for Comprehensive Preparation 

A bread manufacturer requires flour to be delivered to the manufacturing plant on a daily basis. It is important for the bread manufacturer that the quality of the flour meets certain criteria or it cannot be used, and this will impact on the number of loaves that can be produced per day. The manager of the bread manufacturer stated in the contract a qualative target for amount of defects which ties the price they pay to an agreed level of performance. What form of supplier incentive is this?

Mohammed has recently been hired as the new CEO of ABC Ltd, a large manufacturing organisation. The organisation has struggled in recent years due to the highly competitive nature of the marketplace and Mohammed has been brought in to radically change the organisation’s approach to procurement and supply chain management.

Traditionally the organisation has dictated its requirements to suppliers with stringent penalty clauses for non-compliance. Mohammed is keen to change this approach and leverage the knowledge of suppliers to ABC’s advantage.

XYZ is the main supplier to ABC Ltd and Mohammed has set up a meeting to discuss the relationship and contract currently in place. He wishes the relationship to be win-win and wishes to share ideas on potential efficiencies that can be gained for both organisations. He will propose a new mechanism for monitoring the performance of the contract based on four key parameters; cost, customer satisfaction, innovation and operational processes.

XYZ provides raw materials such as iron and steel and Mohammed is keen to gain an understanding of the environmental impact of the extraction, transportation and usage of these materials, the findings of which will impact the company’s mission statement, which will be re-written next year.

In terms of other suppliers, where spend is minimal and risk is low, Mohammed plans to introduce Standard Operating Procedures for the procurement of supplies and is looking into various tools which will save the procurement team time and money.

What type of analysis will Mohammed complete following his meeting with XYZ Ltd?

Below are details of five companies who all have different types of relationships with their suppliers. For each company, select the corresponding relationship type and the main relationship- influencing KPI monitored by the company.

Company 1: The relationship is characterised by high levels of conflict, but is one in which there is mutual respect for each other’s ideas and innovative solutions are often formed from the conflict. This KPI is measured by the level of information sharing between the buyer and supplier and the level of reliability of both parties.

Company 2: There is a low level of co-operation between Company 2 and its main supplier. The contract is not expected to last much longer due to conflicts that cannot be resolved amicably. There is a low level of dependency on the supplier and a number of alternative providers in the marketplace.

Company 3: The relationship is characterised by a win-win approach and both parties consider themselves equal. The relationship is measured based on its openness, honesty and levels of information sharing, particularly in the disclosure of sensitive information.

Company 4: Company 4 works well with their supplier and there is little conflict. The relationship is important due to the high value of the contract and the two parties work together to meet the same goals. The KPI measures the exchanges and levels of collaboration between the parties.

Company 5: The supplier does not place much importance on the relationship with Company 5 due to the low value of the contract. Company 5 is worried that the supplier is not willing to invest in the contract and therefore are measuring the loyalty of the supplier as a KPI.

Complete the table below with the correct relationship type and relationship influencing KPI: nice, creative, marginal, hostile, partnership arm’s length, power, trust, co-operation, communication, commitment, transparency.