CPSM CPSM Risk Management & Compliance 1 — Questions and Answers
Question 1: In supply chain risk management, a 'single-source' supplier strategy primarily creates which type of risk?
- Demand risk
- Supply continuity risk (Correct answer)
- Currency risk
- Quality risk only
Correct answer: Supply continuity risk
Relying on a single supplier creates supply continuity risk because any disruption at that supplier—whether due to natural disaster, financial failure, or capacity constraints—directly halts the buyer's supply.
Question 2: Which risk mitigation strategy involves transferring supply risk to a third party through insurance or contractual penalties?
- Risk avoidance
- Risk acceptance
- Risk transfer (Correct answer)
- Risk reduction
Correct answer: Risk transfer
Risk transfer shifts the financial consequence of a risk event to another party, such as through supplier liability clauses, performance bonds, or supply chain insurance policies.
Question 3: A supply manager is assessing a supplier's financial health. Which metric best indicates a supplier's short-term liquidity?
- Debt-to-equity ratio
- Current ratio (Correct answer)
- Return on assets
- Gross margin
Correct answer: Current ratio
The current ratio (current assets ÷ current liabilities) measures a supplier's ability to meet short-term obligations, making it the primary indicator of near-term financial viability.
Question 4: What is the primary purpose of the US Foreign Corrupt Practices Act (FCPA) in supply management?
- To regulate import tariffs on foreign goods
- To prohibit US companies from bribing foreign government officials to obtain business (Correct answer)
- To mandate disclosure of foreign supplier ownership
- To restrict technology exports to certain countries
Correct answer: To prohibit US companies from bribing foreign government officials to obtain business
The FCPA prohibits US persons and companies from paying bribes to foreign officials to obtain or retain business, making compliance a critical part of global supplier due diligence.
Question 5: In supply chain risk management, a 'business continuity plan' (BCP) is best described as:
- A financial reserve for unexpected costs
- A documented strategy to maintain critical operations during and after a disruptive event (Correct answer)
- An insurance policy against supply chain failures
- A supplier qualification checklist
Correct answer: A documented strategy to maintain critical operations during and after a disruptive event
A BCP outlines procedures and resources required to continue essential supply chain functions during disruptions such as natural disasters, cyberattacks, or key supplier failures.
Question 6: What does the Conflict Minerals rule under the US Dodd-Frank Act require of supply managers?
- Prohibition of all mineral imports from Africa
- Due diligence to determine if products contain tin, tantalum, tungsten, or gold sourced from conflict regions (Correct answer)
- Mandatory sourcing from US domestic mineral suppliers
- Annual audit of all tier-1 suppliers for mineral use
Correct answer: Due diligence to determine if products contain tin, tantalum, tungsten, or gold sourced from conflict regions
Section 1502 of Dodd-Frank requires SEC-reporting companies to conduct due diligence on whether their products contain 3TG minerals (tin, tantalum, tungsten, gold) sourced from DRC conflict regions.
CPSM CPSM Risk Management & Compliance 1
In supply chain risk management, a 'single-source' supplier strategy primarily creates which type of risk?