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Chapter 2–The Purchasing Process
Student: ___________________________________________________________________________
1. Enterprises are relying increasingly on external suppliers to provide only materials and products, not
information technology, services, and design activities.
True False
2. The objectives of a world-class purchasing organization do not need to move far beyond the traditional belief
that purchasing’s primary role is to obtain goods and services in response to internal needs.
True False
3. Organizations are constantly looking for people who have developed the skills necessary to deal with the
narrow variety of tasks faced by purchasing.
True False
4. If a supplier’s components are defective and causing problems for manufacturing, then purchasing must work
closely with the supplier to improve its quality.
True False
5. Purchasing can only negatively affect the long-term growth, revenue, and operating outcomes and plans of
internal customers.
True False
6. The authority to review material specifications (and for services, a statement of work) is within purchasing’s
span of control, although internal stakeholders sometimes dispute this right.
True False
7. The right to evaluate and select suppliers means that sales representatives are not allowed to talk with
nonpurchasing personnel.
True False
8. Contract management should be used to trigger proactive sourcing events only after a contract expires.
True False
9. When creating a forecast for a needed product or service, internal customers may not always be able to
express exactly what it is they will need at a single point in time.
True False
10. For routine, off-the-shelf items, the purchase requisition may contain all the information that purchasing
requires.
True False
11. When purchasing works directly with internal customers to anticipate future requirements, such as during
new product development or physician councils in a health care setting, purchasing is being reactive.
True False
12. Buyers use competitive bidding when price is a dominant criteria and the required item (or service) has
straightforward material specifications.
True False
13. The process that buyers use to select suppliers does not vary widely depending on the required item and the
relationship that a buyer has with its suppliers.
True False
14. For standard items, the negotiation process is an efficient method to purchase relatively straightforward
requirements.
True False
15. If the requested item is complex or requires an untested or new production process, purchasing can include
additional information or attachments on its RFQ to assist the supplier, which may include detailed blueprints,
samples, or technical drawings.
True False
16. In drafting a purchase order, purchasing must take great care when wording such an agreement because it is
a legally binding document.
True False
17. Almost all firms establish blanket purchase orders with their suppliers.
True False
18. Buyers use material purchase releases to order items covered by blanket purchase orders.
True False
19. The responsibility for concealed damage is often simple and easy to detect.
True False
20. Material discrepancies usually result from incorrect quantity shipments.
True False
21. The buyer may assume that the purchasing cycle ends with the receipt of an ordered item or the selection of
a supplier.
True False
22. Managing the purchase of a semifinished component is not a critical purchasing responsibility because
components rarely affect product quality and cost.
True False
23. Historically, most organizations have paid minimal attention to MRO items.
True False
24. The way that MRO items are typically dispersed throughout an organization makes monitoring MRO
inventory relatively simple.
True False
25. Capital equipment purchasing involves buying assets intended for use less than one year.
True False
26. It is common and preferred practice for suppliers to arrange shipment to a purchaser and simply include the
transportation cost as part of the purchase cost.
True False
27. Most companies spend too much time and too many resources managing the ordering of goods and services,
particularly lower-value items.
True False
28. The dollar value of the items covered by procurement cards is relatively high.
True False
29. The ____ is used to identify user requirements, evaluate the user needs effectively and efficiently, identify
suppliers who can meet that need, develop agreements with those suppliers, develop the ordering mechanism,
ensure payment occurs promptly, ascertain that the need was effectively met, and drive continuous
improvement.
A. demand management process
B. backdoor buying process
C. materials budgeting process
D. forecasting process
E. purchasing process
30. All of the following are objectives of a world-class purchasing organization except ____.
A. ensure that all hard copies of purchase orders and other paper documents are filed correctly in a secure area
B. develop integrated purchasing strategies that support organizational goals and objectives
C. manage the sourcing process efficiently and effectively
D. develop supply base management
E. supply continuity
31. In a practice known as ____, internal users may try to negotiate contracts themselves.
A. strategic sourcing
B. spend management
C. backdoor buying
D. outsourcing
E. internal sourcing
32. One of the most important objectives of the purchasing function involves the selection, development, and
maintenance of supply and is sometimes described as ____.
A. supply base management
B. maverick spend
C. customer service
D. procure-to-pay
E. backdoor buying
33. Which of the following is not one of the objectives in developing supply base management.
A. Selecting suppliers that are competitive.
B. Identifying new suppliers that have the potential for excellent performance and developing closer
relationships with these suppliers.
C. Improving existing suppliers.
D. Developing new suppliers that are not competitive.
E. Ensuring timely and accurate payment of supplier invoices.
34. Effective supply market intelligence involves all of the following except ____.
A. monitoring supply markets and trends
B. ensuring that purchasing does not exceed its annual budget
C. identifying critical materials and services
D. developing supply options and contingency plans
E. supporting the organization’s need for a diverse and globally competitive supply base
35. ____ is the process of collecting historical data by commodity, relative to demand from lines of business,
with the exception of personnel expenses, occupancy, and corporate spend.
A. Demand management
B. Supply analysis
C. Category management
D. Contract management
E. Spend analysis
36. ____ is the process of using rate and unit consumption levels to forecast and estimate future consumption in
an internal functional customer and providing guidance and input on how to optimize usage and educating the
user on the tradeoffs.
A. Specification management
B. Demand management
C. Category management
D. Supply market intelligence
E. Cost management
37. ____ is the process of developing external industry intelligence and analysis, internal demand, supply base
capabilities and operational risks, and a strategy to approach that marketplace with the organization’s needs to
match it with what suppliers can offer.
A. Spend analysis
B. Cost management
C. Contract management
D. Category management
E. Procure-to-pay
38. ____ is a situation that occurs when sellers contact and attempt to sell directly to end users (purchasing’s
internal customers).
A. Insourcing
B. Bidding
C. Maverick buying and selling
D. Direct sourcing
E. Outsourcing
39. ____ involves a process of unbundling the price paid and other components of price over the life cycle of a
product or service, to deliver a target cost and a unit rate to determine if it is priced competitively in the
marketplace.
A. Cost management
B. Procure-to-pay
C. Supplier relationship management
D. Category management
E. Spend management
40. ____ is the end-to-end process of managing a supplier through the entire sourcing life cycle.
A. P2P
B. CRM
C. Outsourcing
D. Negotiation
E. SRM
41. Which of the following is not one of the characteristics of a mature, well-developed supply strategy?
A. Repeatable and well-defined process for building strategy and governance.
B. Clear alignment with executive vision and internal user-specific business goals.
C. Established goals and metrics for short-term project plans, as well as a definite five-year plan
D. Established communication plan to inform senior management and all lines of business updated and
reviewed quarterly against defined goals and objectives.
E. Required use of an online catalog.
42. All of the following are benefits of electronically generating and transmitting purchasing-related documents
except ____.
A. a reduction in the need to ensure higher levels of quality from suppliers
B. a virtual elimination of paperwork and paperwork handling
C. improved communication both within the company and with suppliers
D. a reduction in errors
E. a reduction in the time spent in by purchasing personnel on processing orders and invoices and more time
spent on strategic value-adding purchasing activities
43. The purchasing cycle begins with the ____.
A. selection of an appropriate supplier
B. issuance of a purchase order
C. receipt of a supplier’s acknowledgement
D. identification of a need or requirement
E. determination of who can authorize the purchase
44. In the ____ approach, purchasing must work with the end user to quickly identify a supplier to provide
products on short notice at the lowest possible cost with an acceptable level of quality and delivery time.
A. spot buy
B. long term agreement
C. P2P
D. e-procurement
E. None of these choices.
45. Which of the following is not one of the generally accepted ways that internal customers should
communicate their needs to purchasing?
A. Purchase requisitions from internal users.
B. Chance meeting in the company cafeteria.
C. Forecasts and customer orders.
D. Material requirements identified during new product development.
E. Routine reordering systems.
46. All of the following are required elements in a purchase requisition except ____.
A. quantity and date required
B. estimated unit cost
C. operating account to be charged
D. authorized signature
E. identification and approval of a supplier by the end user
47. When marketing wants to purchase an advertising media campaign, the ____ should specify the work that is
to be completed, when it is needed, and what type of service provider is required,
A. reorder point
B. acknowledgement
C. traveling purchase requisition
D. statement of work
E. forecast
48. In a ____, when inventory is depleted to a given level, the system notifies the material control department or
the buyer to issue a request to a supplier for inventory replenishment.
A. reorder point system
B. traveling purchase requisition system
C. customer service system
D. forecasting system
E. just-in-time system
49. A ____ involves the physical checking of inventory to verify that system records match actual on-hand
inventory levels.
A. reorder point system
B. stock check
C. just-in-time system
D. forecasting system
E. p-card system
50. ____ is used when a product or service is proprietary or when there is a perceived advantage to using a
particular supplier’s products or services.
A. Description by market grade
B. Description by industry standard
C. Description by specification
D. Description by performance characteristics
E. Description by brand
51. ____ is appropriate where the requirements are well understood and there is common agreement between
supply chain partners about what certain terms mean.
A. Description by market grade
B. Description by brand
C. Description by performance characteristics
D. Use of prototypes
E. Description by specification
52. ____ can cover such characteristics as the materials used, the manufacturing or service steps required, and
even the physical dimensions of the product.
A. Description by market grade
B. Description by specification
C. Description by brand
D. Description by industry standard
E. Description by performance characteristics
53. ____ focuses attention on the outcomes the customer wants, not on the precise configuration of the product
or service.
A. Description by industry standard
B. Description by brand
C. Description by specification
D. Description by performance characteristics
E. Description by market grade
54. A/An ____ has demonstrated its performance capabilities through previous purchase contracts and receives
preference during the supplier selection process.
A. internal supplier
B. new supplier
C. capable supplier
D. final supplier
E. preferred supplier
55. All of the following are conditions under which competitive bidding is effective except ____.
A. the buyer has a preferred supplier for the item
B. volume is high enough
C. the marketplace is competitive
D. the specifications or requirements are clear to the seller
E. adequate time is available for suppliers to evaluate the RFQ
56. Which of the following is not one of the conditions under which negotiation is effective?
A. When the purchase requires agreement about a wide range of performance factors.
B. When the buyer requires early supplier involvement.
C. When the specifications or requirements are clear to the seller.
D. When the supplier cannot determine risks and costs.
E. When the supplier requires a long period of time to develop and produce the item.
57. Which of the following is not an appropriate performance criterion to be used when evaluating suppliers?
A. Ability to develop process and product technology.
B. Commitment to quality.
C. Management capability and commitment.
D. Cost performance.
E. Commitment to effective marketing and promotion.
58. Good reasons for allowing other departments to view purchase orders and incoming receipts does not
include which of the following?
A. The accounting department gains visibility to future accounts payable obligations.
B. The requestor can refer to the purchase order number when inquiring into the status of an order.
C. Receiving has a record of the order to match against the receipt of the material.
D. Traffic becomes aware of inbound delivery requirements and can make arrangements with carriers or use the
company’s own vehicles to schedule material delivery.
E. There is never a good reason for purchasing to allow other departments access to purchase orders and
incoming receipts due to the confidential nature of the price and delivery terms.
59. A/An ____ is an open order, usually effective for one year, covering repeated purchases of an item or family
of items.
A. outstanding order
B. pending order
C. blanket purchase order
D. completed order
E. order acceptance
60. When using negotiating a ____, it is necessary to include a/an ____ that allows a buyer to terminate the
contract in the event of persistently poor quality, delivery problems, and the like.
A. spot buy contract….evergreen clause
B. RFP….RFQ
C. purchase order….purchase agreement
D. blanket purchase order….escape clause
E. online catalog….RFP
61. In a ____, the price stated in the agreement does not change, regardless of fluctuations in general overall
economic conditions, industry competition, levels of supply, market prices, or other environmental changes.
A. blanket purchase order
B. RFQ
C. cost-based contract
D. material purchase release
E. fixed-price contract
62. In a ____, the supplier is reimbursed all of their actual costs plus some agreed on operational margin and
overhead amount.
A. RFP
B. cost-based contract
C. material purchase release
D. fixed-price contract
E. reverse auction
63. The ____, which the supplier provides, details the contents of a shipment.
A. material packing slip
B. purchase requisition
C. bill of lading
D. electronic funds transfer
E. request for quotation
64. Transportation carriers use a/an ____ to record the quantity of goods delivered to a facility.
A. electronic transfer of funds
B. material packing slip
C. receiving discrepancy report
D. bill of lading
E. purchase order
65. The ____ helps protect the carrier against wrongful allegations that the carrier somehow damaged, lost, or
otherwise tampered with a shipment.
A. bill of lading
B. material packing slip
C. receiving discrepancy report
D. material purchase release
E. blanket purchase order
66. Which of the following is false regarding concealed damage?
A. A user may discover concealed damages after opening a shipping container.
B. Responsibility for concealed damage is often difficult to establish.
C. The carrier may blame the supplier or maintain that the damage occurred after delivery of the material.
D. The supplier may maintain total innocence and implicate the carrier.
E. The bill of lading protects the carrier against charges of concealed damage.
67. A ____ details any shipping or receiving discrepancies noted by the receiving department.
A. receiving discrepancy report
B. bill of lading
C. material packing slip
D. change notice
E. RFP
68. The ____ purchase category includes such items are petroleum, coal, lumber, and metals such as copper and
zinc.
A. semifinished products and components
B. finished products
C. MRO items
D. raw materials
E. capital equipment
69. A key characteristic of a/an ____ is a lack of processing by the supplier into a newly formed product.
A. component
B. semifinished product
C. finished good
D. MRO item
E. raw material
70. Suppliers are more often being paid through a/an ____, which is the automatic transfer of payment from the
buyer’s bank account to the supplier’s bank account.
A. RFQ
B. EFT
C. MRO
D. PO
E. None of these choices.
71. ____ include anything that does not go directly into an organization’s product.
A. MRO items
B. Raw materials
C. Production support items
D. Service
E. Components
72. ____ include(s) the materials required to pack and ship final products, such as pallets, boxes, master
shipping containers, tape, bags, wrapping, inserts, and other packaging material.
A. Raw materials
B. Production support items
C. Semifinished products
D. Components
E. Work-in-process inventory
73. Which of the following is not a feature that separates capital equipment purchases from other purchases?
A. Capital equipment purchases do not occur with regular frequency.
B. Capital equipment investment requires large sums of money.
C. For accounting purposes, most capital equipment is not depreciable over the life of the item.
D. Buyers can rarely switch suppliers in the middle of a large-scale project or dispose of capital equipment after
delivery because of dissatisfaction.
E. Capital equipment is highly sensitive to general economic conditions.
74. All the following are expected growth areas in e-commerce except ____.
A. transmitting purchase orders to suppliers
B. submitting requests for quotes to suppliers
C. placing orders with suppliers
D. making electronic funds transfers to suppliers
E. submitting written check requests to accounts payable
75. Once a purchaser and a supplier reach agreement on a longer-term purchase contract, material releasing
responsibility should shift to ____.
A. marketing
B. purchasing
C. the supplier
D. user groups
E. accounts payable
76. While similar in concept, blanket purchase orders are typically used more often for ____ purchases, while
longer-term purchase agreements are used for ____ purchases.
A. unique….routine
B. lower-value….higher-value
C. complex….simple
D. higher-value….lower-value
E. There are no differences in the types of products or amounts purchased in either method.
77. Which of the following is not an advantage of online ordering systems?
A. Immediate visibility to backordered items.
B. Longer order cycle time from input to delivery.
C. Faster order input time.
D. Reduced ordering errors.
E. Ability to batch multiple items from multiple users on a single online order.
Chapter 2–The Purchasing Process Key
1. Enterprises are relying increasingly on external suppliers to provide only materials and products, not
information technology, services, and design activities.
FALSE
2. The objectives of a world-class purchasing organization do not need to move far beyond the traditional belief
that purchasing’s primary role is to obtain goods and services in response to internal needs.
FALSE
3. Organizations are constantly looking for people who have developed the skills necessary to deal with the
narrow variety of tasks faced by purchasing.
FALSE
4. If a supplier’s components are defective and causing problems for manufacturing, then purchasing must work
closely with the supplier to improve its quality.
TRUE
5. Purchasing can only negatively affect the long-term growth, revenue, and operating outcomes and plans of
internal customers.
FALSE
6. The authority to review material specifications (and for services, a statement of work) is within purchasing’s
span of control, although internal stakeholders sometimes dispute this right.
TRUE
7. The right to evaluate and select suppliers means that sales representatives are not allowed to talk with
nonpurchasing personnel.
FALSE
8. Contract management should be used to trigg
