CPM CPM Risk Management and Mitigation 1 — Questions and Answers
Question 1: What is 'supply chain risk' in the context of purchasing management?
- The risk that a buyer will exceed their purchasing budget
- The potential for disruptions to the flow of goods, services, or information across the supply chain (Correct answer)
- The chance that a supplier will lower their prices unexpectedly
- The risk of ordering too much inventory
Correct answer: The potential for disruptions to the flow of goods, services, or information across the supply chain
Supply chain risk encompasses any threat — from natural disasters to supplier failures — that could disrupt the procurement and delivery of goods or services.
Question 2: Which risk mitigation strategy involves using multiple suppliers for a critical component instead of relying on one?
- Single sourcing
- Dual or multi-sourcing (Correct answer)
- Sole sourcing
- Preferred supplier program
Correct answer: Dual or multi-sourcing
Multi-sourcing spreads procurement across several suppliers so that if one fails, others can continue meeting demand.
Question 3: What is a 'force majeure' clause in a purchasing contract?
- A clause that sets maximum price escalation limits
- A provision that excuses a party from performance obligations due to extraordinary events beyond their control (Correct answer)
- A requirement that the supplier maintain specific insurance coverage
- A penalty clause for late deliveries
Correct answer: A provision that excuses a party from performance obligations due to extraordinary events beyond their control
Force majeure clauses protect contracting parties from liability when unforeseeable events such as natural disasters or wars prevent contract fulfillment.
Question 4: What does a risk matrix help purchasing managers do?
- Calculate total cost of ownership for a supplier
- Evaluate and prioritize risks by assessing their likelihood and potential impact (Correct answer)
- Determine optimal order quantities for high-risk items
- Select preferred suppliers based on geographic risk
Correct answer: Evaluate and prioritize risks by assessing their likelihood and potential impact
A risk matrix plots identified risks by probability and impact, helping managers prioritize which risks require the most urgent mitigation.
Question 5: What is 'country risk' in international purchasing?
- The risk of currency exchange rate fluctuation only
- The potential negative impact on procurement from a supplier's country's political, economic, or regulatory instability (Correct answer)
- The risk that a foreign supplier will copy proprietary designs
- Import tariff changes that increase total cost
Correct answer: The potential negative impact on procurement from a supplier's country's political, economic, or regulatory instability
Country risk includes political instability, regulatory changes, economic volatility, and infrastructure issues in a supplier's country that could disrupt supply.
Question 6: Which of the following is an example of a 'financial risk' associated with a key supplier?
- Supplier's factory located in a flood zone
- Supplier filing for bankruptcy and being unable to fulfill orders (Correct answer)
- Supplier using outdated manufacturing equipment
- Supplier being acquired by a competitor
Correct answer: Supplier filing for bankruptcy and being unable to fulfill orders
A supplier's financial insolvency directly threatens their ability to deliver, making it a critical financial risk in supply chain management.
CPM CPM Risk Management and Mitigation 1
What is 'supply chain risk' in the context of purchasing management?