Which of the following are most likely to be characteristics of a perfectly competitive market? Select TWO that apply

• A.In a competitive market, both buyers and sellers areprice givers
• B.Firms can freely enter or exit the market
• C.In a perfectly competitive market, each seller has a large impact on the market price A perfectly competitive market consists of products that are all slightly different from one another
• D.There are many buyers and sellers in the market

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JCB is a large manufacturer of heavy machinery. The CPO is going to a negotiation with a Chinese supplier about procuring some major components. He is wondering about balance of power in the negotiation. Which of the following micro factors are most likely to shift the balance of power towards the buying organisation in this commercial negotiation? Select TWO that apply

• A.Buyers purchase in small volumes
• B.Suppliers are more concentrated than buyer
• C.Eruption of epidemic in supply market
• D.JCB's switching costs are low
• E.These components are highly standardised

Correct Answer: D,E

Explanation
There are many factors that can influence the balance of power in a negotiation. These factors are classified into 3 levels:
- Macro level: STEEPLE framework: social, technological, economic, environment, political, legal and ethical
- Micro level: Porter's five forces:

Diagram Description automatically generated
- One-to-one buyer-supplier dynamics.
The question asks about the micro factors that increases buyer's bargaining power. Among 5 answers, only 2 are likely to increase buyer'spower:
- JCB's switching costs are low: Buyer may easily switch its suppliers anytime
- These components are highly standardised: The products are not different any more, buyer may choose to buy from any supplier available.
Other answers cannot be correctbecause:
- Suppliers are more concentrated than buyer: Suppliers are forming oligopoly market, their bargaining power tend to be greater.
- Eruption of epidemic in supply market: this is a macro factor. Eruption of epidemic may cause factories closed and disruptions on supply chain.
- Buyers purchase in small volumes: Buyer will be seen as less potential to suppliers. Buying organisation may have difficulties to deal better price with suppliers.
LO 1, AC 1.3

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Which of the following are signs indicating that the trust between buyer and supplier has improved? Select TWO that apply.

• A.Cost overruns
• B.Decreasing percentage of missed delivery overtime
• C.Transparent decision makingprocess
• D.Less frequent communication on business requests
  Duplication of effort

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In a detailed cost breakdown, a company has a salary cost of 9%, raw materials cost 51% and overheads cost
24%. Which of the following represents themark-up of that company?

• A.Approximately 84%
• B.Approximately 19%
• C.Approximately 116%
• D.Approximately 16%

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When is the best time in procurement process in which procurement should get involved so that the cost-saving opportunities are the greatest?

• A.Market consult stage
• B.Post-contract stage
• C.Specification stage
• D.Post-tender stage

Correct Answer: C

Explanation
The earlier procurement get involved in the procurement processes, the better. If procurement are involved in design at the specification stage they can feed in prices and costs to designer so they know the likely budget implication of choices made. Sending in a procurement team to negotiate at or close to the end ofthe procurement process effectively ties their hands and limits their negotiation leverage. This is illustrated in the graph below:
Chart Description automatically generated

LO 2, AC 2.1

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