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CIPS L4M5 Exam - Topic 1 Question 57 Discussion

In a commercial negotiation, a procurement professional believe that the larger the order quantity from buyer, the lower the supplier's average costs. Is this assumption true?
B) No, because the supplier may need to invest in new facility to meet buyer's demand and D) Yes, because larger order quantity will always enable the supplier to reach its economy of scale
A) No, because supplier's average costs will rise as the buyer's demand increases
C) Yes, because larger order quantity will bring a considerable profit to supplier

CIPS L4M5 Exam - Topic 1 Question 57 Discussion

Actual exam question for CIPS's L4M5 exam
Question #: 57
Topic #: 1
[All L4M5 Questions]

In a commercial negotiation, a procurement professional believe that the larger the order quantity from buyer, the lower the supplier's average costs. Is this assumption true?

Show Suggested Answer Hide Answer
Suggested Answer: B, D

A perfectly competitive market is one with the following features:

- There are many firms producing identical or very similar (homogeneous) goods or services

- There are no barriers to entry to the market or exit from the market - anyone can enter or leave easily

- Both producers and customers have perfect knowledge of the market place, prices, costs of production and influences on demand and supply

Under these conditions, the price and quantity will always tend toward equilibrium as any producer that sets a price above equilibrium will not sell anything at all, and any producer that sets a price below a equilibrium will obtain 100% market share in theory. The demand curve is perfectly elastic, which means that it will be horizontal. In a perfectly competitive market, it is difficult to increase profits through pricing, and suppliers instead must focus on their cost structure. As these conditions imply, there are few if any examples of perfectly competitive market.

LO 2, AC 2.2


by Elbert at Apr 22, 2024, 09:24 PM

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Tonette
9 months ago
Larger orders can be profitable, but it depends on the supplier's capacity.
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Verona
9 months ago
Really? I’m surprised that larger orders could lead to higher costs too.
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Asha
10 months ago
Definitely agree with the idea of economies of scale!
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Carlene
10 months ago
Not always! Sometimes suppliers need to invest more to ramp up production.
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Skye
10 months ago
I think larger orders usually lower costs due to economies of scale.
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Casie
10 months ago
I’m uncertain about this one; I feel like there are factors like investment in facilities that could complicate the assumption.
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Lorriane
11 months ago
I lean towards option D because larger orders usually help suppliers reduce their average costs, but I could be wrong.
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Shawna
11 months ago
I practiced a similar question, and I feel like the supplier's costs could increase if they need to expand their operations.
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Dottie
11 months ago
I think I remember something about economies of scale, but I'm not sure if it applies in every situation.
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Nieves
11 months ago
I'm pretty confident on this one. The assumption that larger order quantities lead to lower supplier costs is generally true, as long as the supplier has the capacity to meet the increased demand.
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Kris
11 months ago
Okay, I think I've got a handle on this. The key is understanding how larger order quantities can enable suppliers to achieve economies of scale and reduce their average costs.
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Lisha
11 months ago
Hmm, I'm a bit confused on this one. I'll need to review my notes on supplier cost structures and how order quantity can impact them.
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Arlette
11 months ago
This seems like a tricky one. I'll need to think through the economics of supplier costs and economies of scale to figure out the right answer.
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Ben
11 months ago
The burndown chart shows the work remaining is decreasing at a slower rate than expected, so I think the answer is A - the Developers are doing less than they anticipated.
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Lovetta
11 months ago
This seems like a straightforward question about setting the firming time fence. I think the key is to understand the requirements - we need to firm the planned orders within the current month.
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Chau
11 months ago
Hmm, I'm a bit unsure about this one. I know a security policy covers what's being secured and who needs to follow it, but I'm not sure about the other parts. I'll have to think this through carefully.
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Lavonda
11 months ago
Wait, aren't ALL of these trying to sound tricky? I need to read each option carefully and not rush.
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Antione
1 year ago
Hah, the supplier's pet hamster eats all the profits? Now that would be a wild answer choice. But in all seriousness, I think D is the way to go here.
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Amos
1 year ago
This question is a real head-scratcher. I'm just hoping I don't get a 'trick' answer like 'the supplier's pet hamster eats all the profits' or something.
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Xuan
1 year ago
I agree with option B, investing in new facilities can increase costs
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Lashunda
1 year ago
C) Yes, because larger order quantity will bring a considerable profit to supplier
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Susana
1 year ago
B) No, because the supplier may need to invest in new facility to meet buyer's demand
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Louann
1 year ago
A) No, because supplier's average costs will rise as the buyer's demand increases
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Josphine
1 year ago
Profit is not the same as lower average costs. Just because the supplier makes more money doesn't mean their costs per unit go down. I'm going with B.
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Laurel
1 year ago
That's true, but the supplier may still need to invest in new facilities to meet the increased demand. So, I still think B is the best choice.
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Keneth
1 year ago
But wouldn't larger order quantity help the supplier reach economy of scale? I think D could also be a valid option.
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Erasmo
1 year ago
I agree with you, profit doesn't necessarily mean lower costs. B is the correct answer.
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Carey
1 year ago
I think the correct answer is D. Larger order quantities will allow the supplier to take advantage of economies of scale, which should lower their average costs.
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Lelia
1 year ago
That's true, investing in new facilities could actually increase their average costs.
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Audria
1 year ago
But what if the supplier needs to invest in new facilities to meet the demand?
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Anika
1 year ago
I agree, larger orders can help suppliers reach economies of scale.
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Jerry
1 year ago
I agree with Harley, the supplier may need to invest in new facilities to meet the demand.
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Elinore
1 year ago
Hmm, I'm not sure about this one. The supplier's average costs could actually rise if they need to invest in new facilities to meet the larger demand. But I guess it depends on the specific circumstances.
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Simona
1 year ago
D) Yes, because larger order quantity will always enable the supplier to reach its economy of scale
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Joaquin
1 year ago
Hmm, that makes sense. It's important to consider the additional costs that may come with meeting a larger order quantity.
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Sabrina
1 year ago
B) No, because the supplier may need to invest in new facility to meet buyer's demand
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Lauran
1 year ago
A) No, because supplier's average costs will rise as the buyer's demand increases
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Harley
1 year ago
I disagree, the supplier's costs may actually rise with higher demand.
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Fabiola
1 year ago
I think the assumption is true.
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