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CIPS L4M5 Exam Syllabus Topics:

Topic 1
  • Organisational power: comparing the relative power of purchasers and suppliers
  • Explain how the balance of power in commercial negotiations can affect outcomes
Topic 2
  • Team management and the influence of stakeholders in negotiations
  • Definitions of commercial negotiation
Topic 3
  • Understand key approaches in the negotiation of commercial agreements with external organisations
  • Sources of conflict that can arise in the work of procurement and supply
Topic 4
  • Analyse how to assess the process and outcomes of negotiations to inform future practice
  • Protecting relationships after the negotiation
Topic 5
  • Costing methods such as absorption, marginal or variable and activity based costing
  • Know how to prepare for negotiations with external organisations
Topic 6
  • Identify the different types of relationships that impact on commercial negotiations
  • Pragmatic and principled styles of negotiation
Topic 7
  • Analyse the application of commercial negotiations in the work of procurement and supply
  • Negotiation in relation to the stages of the sourcing process

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CIPS Commercial Negotiation Sample Questions (Q10-Q15):

Commercial negotiation ends at the award of a contract. Is this statement true?

  • A. Yes, because there are no rooms for negotiation after the contract is awarded
  • B. No, because improvements can be achieved through post-award negotiation
  • C. Yes, because the supplier will comply with legally binding obligations
  • D. No, because real commercial negotiation begins after the contract is awarded

Answer: B

Negotiation doesn't end after the contract is awarded. The needs for negotiation can arise in anypost-award stages. For example, at supplier development and relationship management stage, improvement in supplier capability, capacity, and product/service range can be negotiated. Negotiations with long-term strategic critical suppliers should be carriedout in a partnering style, with a win-win starting point assumed.
In some sectors such as transport, utilities and infrastructure, tenderers may 'bid low' or even make a loss to win major contracts with a view to negotiating lucrative changes, variationsand 'add-ons' over the life of the contract when the supplier is bedded in and the buyer is in the weaker position to push back or challenge. Even in less complex contract, it is very likely that there will be a need to negotiate with that supplier again after the awarding of the contract.
LO 1, AC 1.1

IHL has beensupplying to XYZ Ltd for months. XYZ Ltd procurement manager Diana realises that the IHL's input prices are dropping and this is a good time to re-negotiate the price of the contract. She invites IHL representative to XYZ headquarter to make a bargain on the current price. At the opening stage of the negotiation, Diana requests a 10% reduction in price with an increase in volume purchased.
Is Diana's action appropriate in the opening phase?

  • A. Yes, because Diana's proposal is a fair trade for both parties
  • B. No, because Diana has put the markers down too soon
  • C. Yes, because the negotiation should be done as quick as possible
  • D. No, because Diana should state exactly the increasing quantity

Answer: B

The opening stage of the negotiation coversthe very first few minutes when the parties meet and greet each other and are seated in the negotiation room in preparation for the main event.
Typical behaviours at the opening stage: 'dos' and 'don'ts'
Be punctual and well presented (welcome theirarrival)
Break the ice with small talks
Start the conditioning process
Check authority
Check agenda
Consider using visual aid to set out key objectives or make key points
Use strong, pushy, cold or tough style at the opening
Put down marker at thisstage
Criticise other organisations/TOP's previous contacts/third parties.
In this scenario, Diana has made her proposal right at the opening stage. This is an example of 'don'ts'. Good negotiators are very careful about 'red lines'. If she puts such barrier up too early, the supplier may not try to look for more creative solutions later in the negotiation.

A supplier's mark-up on all products is 25%. Supplier's profit margin is...?

  • A. 15%
  • B. 20%
  • C. 30%
  • D. 75%

Answer: B

Table Description automatically generated with medium confidence

Text Description automatically generated with low confidence

LO 2, AC 2.1

A procurement professional is negotiating with a supplier on cleaning service. She realises that there are huge cost-saving opportunities if the supplier agrees to reduce its mark-up and unnecessary employee benefits.
Supplier's mark-up and employee benefits are examples of which of the following?

  • A. Spend cube
  • B. Spend tree
  • C. Addressable spend
  • D. Spend waterfall

Answer: C

A key consideration when seeking to negotiate prices is to establish what proportion of the spend is addressable by procurement action such as negotiation. Addressability of spend is influenceable through negotiations or application of other saving effort or leverage with suppliers.
LO 2, AC 2.1

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

Answer: A,D

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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