CLT Purchasing & Procurement 2 — Questions and Answers
Question 1: What is Economic Order Quantity (EOQ)?
- The maximum amount of inventory a warehouse can hold
- The formula that determines the optimal order size to minimize total inventory costs (Correct answer)
- The quantity of goods that must be reordered immediately upon depletion
- The average daily usage rate of an inventory item
Correct answer: The formula that determines the optimal order size to minimize total inventory costs
EOQ is the optimal order quantity that minimizes the combined total of ordering costs and inventory holding costs, balancing these two competing factors.
Question 2: What is a Request for Proposal (RFP) in procurement?
- A document used to authorize payment to a vendor
- A formal internal request for a budget increase
- A document soliciting detailed proposals from suppliers for goods or services (Correct answer)
- A shipping document accompanying outbound freight
Correct answer: A document soliciting detailed proposals from suppliers for goods or services
An RFP is a formal document sent to potential suppliers requesting detailed proposals including price, approach, and qualifications for fulfilling a specific requirement.
Question 3: What does 'sole source' procurement mean?
- Purchasing from multiple vendors simultaneously to reduce risk
- A bidding process limited to only two competing suppliers
- Purchasing from one vendor without competitive bidding when no alternatives are available or justified (Correct answer)
- Importing goods exclusively from a single country of origin
Correct answer: Purchasing from one vendor without competitive bidding when no alternatives are available or justified
Sole source procurement occurs when a purchase is made from a single supplier without competitive bidding, typically due to unique capabilities, proprietary products, or urgent need.
Question 4: What is a 'three-way match' in procurement and accounts payable?
- Matching three suppliers' quotes before selecting a vendor
- Verifying that the purchase order, receiving report, and invoice all agree before authorizing payment (Correct answer)
- A triple inventory count performed during receiving
- Comparing shipping documents from three different carriers
Correct answer: Verifying that the purchase order, receiving report, and invoice all agree before authorizing payment
The three-way match is an internal control that verifies the purchase order, receiving report, and supplier invoice all correspond before authorizing payment.
Question 5: What is a vendor scorecard primarily used for in procurement?
- Tracking the number of bids submitted by vendors
- Recording purchase order numbers for audit purposes
- Measuring and monitoring supplier performance over time using quantifiable metrics (Correct answer)
- Calculating total annual spend with each vendor
Correct answer: Measuring and monitoring supplier performance over time using quantifiable metrics
A vendor scorecard tracks key performance indicators (KPIs) such as on-time delivery rate, quality defect rates, and responsiveness to systematically evaluate suppliers.
Question 6: What is safety stock in the context of procurement and inventory management?
- Protective equipment required in the warehouse during receiving
- Extra inventory held to protect against stockouts caused by demand variability or supply delays (Correct answer)
- The minimum order quantity required by a supplier contract
- Insurance purchased to cover damaged incoming shipments
Correct answer: Extra inventory held to protect against stockouts caused by demand variability or supply delays
Safety stock is buffer inventory maintained above the average demand level to protect against unexpected demand spikes or supplier delivery delays.
Question 7: What is a Preferred Vendor List (PVL)?
- A list of suppliers that have been disqualified from future bidding
- A catalog of all products purchased during the past fiscal year
- A pre-approved list of suppliers that have met qualification criteria and are authorized for purchasing (Correct answer)
- A list of emergency backup suppliers for critical components
Correct answer: A pre-approved list of suppliers that have met qualification criteria and are authorized for purchasing
A Preferred Vendor List contains suppliers that have been vetted and approved based on criteria such as quality, pricing, reliability, and financial stability.
CLT Purchasing & Procurement 2
What is Economic Order Quantity (EOQ)?