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CIPS L4M5 (Commercial Negotiation) Exam is an important exam for procurement professionals looking to enhance their negotiation skills. L4M5 exam is designed to assess the candidate's competency in commercial negotiation, which is a crucial skill for procurement professionals in today's business environment. L4M5 exam covers a wide range of topics related to commercial negotiation, such as planning, preparation, communication, and problem-solving.
CIPS L4M5 (Commercial Negotiation) exam is a globally recognized certification offered by the Chartered Institute of Procurement and Supply (CIPS). L4M5 exam is designed to test the knowledge and skills of procurement and supply chain professionals in the art of commercial negotiation. L4M5 exam focuses on equipping candidates with the necessary skills and knowledge to negotiate effectively with suppliers and other stakeholders to achieve favorable outcomes.
NEW QUESTION # 15
To buying organisation, savings can be achieved from different saving levers or tactics. Which of the following are means that deliver savings through optimising specifications?
- A. Budget linkages
- B. Compare total cost of ownership
- C. Value engineering
- D. Volume pooling
- E. Part substitution
Answer: C,E
Explanation:
:
If driving greater value and efficiency from your supply base is your end, you should remember that there are many ways to do this without seeking to negotiate lower prices. Below are 7 types of saving levers:
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NEW QUESTION # 16
Leitax is a consumer electronics firm with headquarters in the US and with a global sales presence. The company maintains seven to nine models in its product portfolio, each of which has multiple SKUs. Product life ranges from fifteen to nine months and is getting shorter. The demand planning and master planning processes at the company were ill-defined. Data relevant to forecasting were usually inaccurate, incomplete, or unavailable and the lack of objectives and monitoring mechanisms for the demand planning process meant that process improvement could not be managed. Support for supply management was equally ill-defined, as master production schedules were sporadic and unreliable and suppliers had learned to mistrust them. Leitax's newly appointedSupply chain director, Jessica realises that the "buy-in" of different functional groups was critical to the improvement of demand planning. She invites relevant stakeholders to a meeting so that they can express their opinions openly. What tactic is Jessica using?
- A. Consultation
- B. Coalition
- C. Persuasion
- D. Pressure
Answer: B
Explanation:
There are nine commonly used influence tactic:
1. Rational persuasion includes using facts, data, and logical arguments to try to convince others that your point ofview is the best alternative. This is the most commonly applied influence tactic.
2. Legitimating
3. Personal appeals
4. Exchange
5. Ingratiation
6. Pressure refers to exerting undue influence on someone to do what you want or else something undesirable will occur.
7. Coalitions refer to a group of individuals working together toward a common goal to influence others.
8. Inspirational appeals
9. Consultation refers to the influence agent's asking others for help in directly influencing or planning to influence another person or group.
In the scenario, there is a problem with demand forecasting and supply chain planning in Leitax. The new Supply chain director invites the stakeholders to a meeting to find the solution. She is using coalition tactics.
NEW QUESTION # 17
In airline industry, suppliers prefer to adopt dynamic pricing in order to constantly monitor and change their fares inresponse to market conditions. Dynamics pricing is based on which costing method?
- A. Marginal costing
- B. Absorption costing
- C. Activity-based costing
- D. Cost plus costing
Answer: A
Explanation:
Dynamic pricing is the practice of dynamically calculating the price of a product or service in order to incorporate real-time market conditions, input costs, and/or competitive perspectives. Dynamic pricing which is based on marginal costing, is used by airlines and many other organisations.
Marginal cost is the cost of producing an additional unit of output. Marginal Costing is a costing technique wherein the marginal cost, i.e. variable cost is charged to units of cost, while the fixed cost for the period is completely written off against the contribution.
NEW QUESTION # 18
XYZ Ltd is importing goods from overseas. They prefer to pay their supplier in their own currency. Which of the following is a true statement?
- A. XYZ is able to pay less if their currency depreciates
- B. XYZ has an advantage in negotiating discounts if their currency appreciates
- C. Supplier will receive less if XYZ's currency appreciates
- D. XYZ has to pay more if their currency depreciates
Answer: B
Explanation:
The effect of a change of relative exchange rates will be determined by which currency you pay your supplier in.
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LO 2, AC 2.2
NEW QUESTION # 19
Lina Rawlins is a senior buyer working for a medical equipment company. Lina is in charge of the company's largest supplier account, Great Barrington Gas (GBG), a medical equipment supplier. Recently GBG's performance has declined, which has led to an increasing number of rejected items. Lina is aware of the seriousness of this, given the nature of the item, and has asked GBG to attend an urgent meeting. In the meeting, Lina asked the GBG representative "Can you tell me exactly what you are doing to ensure quality?" What type of question is Lina asking?
- A. Probing
- B. Reflective
- C. Leading
- D. Hypothetical
Answer: A
NEW QUESTION # 20
Which of the following are typical characteristics of activity-based costing (ABC) method? Select TWO that apply.
- A. Variable and all related overhead expenses are specifically assigned to a business activity
- B. ABC provides the information required to take action and realise improvements
- C. Limited understanding of true costs incurred
- D. ABC has tended to over cost products on long runs and under cost those on short runs
- E. Costs are allocated based on volume
Answer: A,B
Explanation:
Activity-based costing is an alternative approach to traditional absorption costing. The characteristics of these two methods are illustrated in the graph below:
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NEW QUESTION # 21
According to Mendelow's Matrix, how should stakeholders with high interest but low power be managed?
- A. Keep satisfied
- B. Keep informed
- C. Key player
- D. Minimal effort
Answer: B
Explanation:
Mendelow's Matrix categorises stakeholders by power and interest. High-interest, low-power stakeholders must be kept informed, as they care about outcomes but lack direct influence. Keeping them informed builds trust and reduces resistance. By contrast, high power/interest stakeholders are key players, while low power
/low interest require minimal effort. This tool ensures negotiation strategies align with stakeholder dynamics, preventing overlooked risks or conflicts.
Reference: CIPS L4M5 (2nd ed.), LO 3.1 - Stakeholder mapping using Mendelow's Matrix.
NEW QUESTION # 22
Which characteristics are likely to feature in a partnership relationship in purchasing?
* Close collaboration between supplier and buyer
* Focus is on price and delivery only
* Sharing of information
* One-off commercial transactions
- A. 2 and 4 only
- B. 2 and 5 only
- C. 1 and 3 only
- D. 1 and 2 only
Answer: C
Explanation:
Partnership relationshipsare strategic and long-term. They emphasizetrust, collaboration, and information sharing. Unlike transactional relationships, they go beyond price and delivery to focus on joint value creation.
"Collaborative partnerships involve open information sharing and mutual support. These relationships are built on joint objectives, trust, and commitment to long-term success." (L4M5 Commercial Negotiation, 2nd edition, Section 1.2 - Types of Supplier Relationships)
NEW QUESTION # 23
Where there are high levels of commitment to relationships between both the buyer and supplier, this is seen as collaborative and beneficial to negotiations. Is this statement correct?
- A. Yes, characteristics include arm's length transactions and minimal communication
- B. No, collaboration does not require commitments from either side
- C. Yes, characteristics include risk management and strategic planning
- D. No, this can be classified as adversarial
Answer: C
Explanation:
A collaborative relationship is characterized by mutual commitment, which enhances risk management and strategic planning between buyer and supplier. High levels of trust and commitment enable both parties to work closely to achieve shared objectives, creating a beneficial negotiation environment. This approach aligns with CIPS's principles of collaborative procurement relationships.
NEW QUESTION # 24
Which of the following are effective approaches when procurement professionals negotiate with monopoly suppliers?
1. Delaying payment with monopoly suppliers as long as possible to increase bargaining power
2. Setting up stronger BATNA
3. Engaging in the negotiation with a distributive approach
4. Eliminating requirements in the specification that prioritises monopoly suppliers
- A. 2 and 4 only
- B. 1 and 4 only
- C. 2 and 3 only
- D. 3 and 4 only
Answer: A
Explanation:
In most commercial negotiations with monopolistic organisations, one can expect that in general they will have far greater bargaining power - you will need them more than they need you. There BATNA isstronger in the short run, but over time their power can be challenged effectively.
Ways of dealing with monopoly suppliers include the following:
Making yourself an attractive buyer
Seeking out alternatives / substitutes in a private or public manner
Designing out the requirement that forces you to go to the monopoly suppliers, or seek to make the product, or threaten to make it yourself if feasible Lobbying government or campaigning, as part of an industry or trade body, for a reduction in barriers to entry that support the monopoly
NEW QUESTION # 25
XYZ Ltd is importing goods from overseas. They prefer to pay their supplier in their own currency. Which of the following is a true statement?
- A. XYZ is able to pay less if their currency depreciates
- B. XYZ has an advantage in negotiating discounts if their currency appreciates
- C. Supplier will receive less if XYZ's currency appreciates
- D. XYZ has to pay more if their currency depreciates
Answer: B
Explanation:
The effect of a change of relative exchange rates will be determined by which currency you pay your supplier in.
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LO 2, AC 2.2
NEW QUESTION # 26
When considering a new supply source for a product, a procurement professional will review the suppliers' quotations before a supplier negotiation. Which of the following is a direct cost associated with the product within a potential supplier's quotation?
- A. Wages for the supplier's sales department
- B. Metal used in the product
- C. Insurance for production machinery
- D. Rent for the supplier's premises
Answer: B
Explanation:
Direct costs are those costs that can be directly attributed to the production of specific goods or services. They typically include raw materials and labor directly involved in production. Metal used in the product is a raw material that becomes part of the final product, making it a direct cost.
Reference: L4M5 Commercial Negotiation 2nd edition (CORE), Section 2.1 - Types of Costs and Prices
NEW QUESTION # 27
In what circumstances is the bargaining power of suppliers likely to be high, in relation to buyer power?
Select the THREE that apply:
- A. The number of suppliers is limited
- B. The demand is not urgent
- C. The supplier has highly specialized machinery
- D. The buying firm is large in comparison to the supplier
- E. The product the buyer requires is undifferentiated
- F. The volume required is low
Answer: A,C,F
Explanation:
Reference: CIPS L4M5 Study Guide, Section 2.3 - Market Factors and Analysis
NEW QUESTION # 28
Which of the following are signs indicating that TOP is using coercive power in commercial negotiation?
Select TWO that apply.
- A. Demonstrating fairness and respect
- B. Positive references
- C. Withdrawal of benefits
- D. Use of guilt
- E. Technical expertise
Answer: C,D
Explanation:
:
Coercive power comes from the belief that a person can punish other for non-compliance, and can be considered as the flip side of reward power. Coercive power rests in the individual's ability to change other people's behaviour through threat, intimidation, use of guilt, ability to embarrass or shame, or withdrawal of benefits,...
NEW QUESTION # 29
Ma Bell was the sole provider of landline telephone service to most of the US in 1980s. This is an example of...?
- A. Monopolistic competition
- B. Monopsony
- C. Monopoly
- D. Perfect competition
Answer: C
Explanation:
A monopoly exists when only one company can supply an essential product or service in a given region because of significant barriers to entry for any competitor. The barriers can be legal, regulatory, economic, or geographic. Ma Bell case is an example of monopoly. The company was broken up in 1982.
A monopsony is a market structure in which a single buyer substantially controls the market as the major purchaser of goods and services offered by many would-be sellers.
Pure or perfect competition is a theoretical market structure in which the following criteria are met:
- All firms sell an identical product (the product is a "commodity" or "homogeneous").
- All firms are price takers (they cannot influence the market price of their product).
- Market share has no influence on prices.
- Buyers have complete or "perfect" information-in the past, present and future-about the product being sold and the prices charged by each firm.
- Resources for such a labor are perfectly mobile.
- Firms can enter or exit the market without cost.
Monopolistic competition characterizes an industry in which many firms offer products or services that are similar, but not perfect substitutes. Barriers to entry and exit in a monopolistic competitive industry are low, and the decisions of any one firm do not directly affect those of its competitors. Monopolistic competition is closely related to the business strategy of brand differentiation Reference: CIPS study guide page 105-110 LO 2, AC 2.2
NEW QUESTION # 30
Which of the following are most likely to be abilities of a person with high emotional intelligence? Select TWO that apply.
- A. Controlling one's own emotions
- B. Complex idea comprehension
- C. Perceiving how others feel
- D. Reasoning and problem solving Abstract thinking
Answer: A,C
Explanation:
Emotional Quotient is the set of skills that enables us to make our way in a complex world - the personal, social and survival aspects of overall intelligence, the elusive common sense and sensitivity that are essential to effective daily functioning. It has to do with the ability to read the political and social environment, and landscape them; to intuitively grasp what others want and need; what strengths and weaknesses are; to remain unruffled by stress; and to be engaging. The kind of person others want to be around and follow.
EQ seeks to measure emotional intelligence and is centred on abilities such as the following:
- Identifying emotions
- Evaluating how others feel
- Controlling one's own emotions
- Perceiving how others feel
- Using emotions to facilitate social communication
- Relating to others
On the other hand, cognitive ability is defined as a general mental capability involving reasoning, problem solving, planning, abstract thinking, complex idea comprehension, and learning from experience (Gottfredson,
1997).
LO 3, AC 3.3
NEW QUESTION # 31
Which of the following are intangible values created by trust in business relationships? Select TWO that apply.
- A. Increasing response time to request
- B. Frequent conflict escalation
- C. More focus oncore business
- D. Positive feedbacks from customers
- E. Higher revenues
Answer: C,D
Explanation:
Explanation
Trust may create value as following:
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LO 1, AC 1.4
NEW QUESTION # 32
What are the potential sources of conflict between the buyer and supplier? Select TWO that apply.
- A. Persistent late payment of the supplier's invoices
- B. Unequal sharing of gains, risks, and costs with the supplier
- C. Scheduling agreed supplier delivery dates
- D. Requesting early supplier involvement
- E. Planning scheduled visits to the supplier site
Answer: A,B
Explanation:
Persistent late payment of the supplier's invoices (A) and Unequal sharing of gains, risks, and costs with the supplier (B) are potential sources of conflict as they create dissatisfaction and imbalance in the relationship.
According to CIPS materials:
Late payments (A) can strain the supplier's cash flow, affecting their operational stability and leading to mistrust in the buyer.
Unequal sharing of gains, risks, and costs (B) can result in one party feeling exploited or unfairly treated, which undermines the collaborative spirit essential for long-term partnerships.
In contrast, requesting early supplier involvement, planning visits, or setting delivery dates are typically part of constructive relationship management practices and do not inherently lead to conflict.
NEW QUESTION # 33
Representatives from South African Department of Health is negotiating the price of hospital drugs with US pharmaceutical companies. Which of the following are most likely to be macro factors that influence the outcomes of the negotiation? Select TWO that apply.
- A. Digitalisation of medicine
- B. Forward integration
- C. Regulations on health and safety Switching costs of buyer
- D. Order quantity
Answer: A,C
Explanation:
All one-to-one commercial negotiations between a specific purchaser and a specific supplier take place within an industrial market and a larger business environment characterised by multiple forces which both parties typically have little control over. STEEPLE framework highlights the 6 main external influences on a business:
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Particularly, pharmaceutical industry is a heavily regulated sector, therefore, legal and regulatory matters in the industry is highly important. Otherwise, technological trends also permeate into pharmaceutical companies, technologies like digitalisation may transform the balance of power in such negotiation.
LO 1, AC 1.3
NEW QUESTION # 34
"A negotiation ends once the meeting finishes." Is this statement true?
- A. Yes, provided the meeting results in a win-win outcome
- B. Yes, because both parties have the emotional intelligence to proceed
- C. No, terms should continue after the meeting until signed by the supplier only
- D. No, best practice includes reflection after the meeting as part of the process
Answer: D
Explanation:
Negotiations do not end at the meeting; they continue through reflection, documentation, and post-negotiation review. Best practice involves assessing whether objectives were met, capturing lessons learned, and ensuring written confirmation of terms. Without this, misunderstandings or missed improvements can occur. Reflection allows organisations to continuously strengthen negotiation strategies and build learning cycles.
Reference: CIPS L4M5 (2nd ed.), LO 2.2 - Post-negotiation review and reflection as part of the negotiation process.
NEW QUESTION # 35
Which type of question should be used to receive affirmation on statement?
- A. Leading
- B. Open
- C. Closed
- D. Narrow
Answer: C
Explanation:
Different questioning styles can be used to elicit desired responses:
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NEW QUESTION # 36
According to Dr. Mari Sako, which of the following is potentially the weakest trust to be built?
- A. Competence trust
- B. Contractual trust
- C. Goodwill trust
- D. Charitable trust
Answer: B
Explanation:
Trust is the expectation that the other party will behave in a predictable and mutually acceptable way. In inter-firm relationships, the presence and absence of trust can affect the level of cost in a relationship. The existence of trust is taught to lower the transaction cost in a relationship. Dr. Mari Sako identified taxonomy of
3 types of trust in commercial relationship, whichis very useful from the perspective of procurement.
Contractual trust: Trust based on the contract with TOP. This is potentially the weakest source of trust if there is nothing else to base the trust on, but it is the quickest to establish.
Competence trust: Trust based on TOP's professional qualifications or proven or certified technical capability or experience.
Goodwill trust: Trust based on knowing TOP has your interest at heart and will not behave opportunistically.
This is potentially the strongest type of trust, but it takes the longest time to build.
Otherwise, trust also has legal meaning. A trust is a legal document that can be created during a person's lifetime and survive the person's death. A trust can also be created by a will and formed afterdeath. Charitable trusts are trusts which benefit a particular charity or the public in general.
NEW QUESTION # 37
During a negotiation, the supplier requests for payment term shortened to 45 days from 60 days. Seeing that this proposal lies within the concession plan, the procurement manager asks for 5% discount in return. Is that right thing to do?
- A. Yes, the procurement manager should keep that 5% for himself because that amount is a fair compensation for his effort
- B. No, it is unethical to exploit the weakness of the other party
- C. Yes, since procurement manager has his own cost savings target to achieve and he should make use of supplier's financial status
- D. No, procurement should insist the payment term remains 60 days
Answer: C
Explanation:
When preparing for a negotiation, negotiator should establish a list of tradeables and a concession plan. Good negotiators never give anything away that has not already been planned as part of the bargaining mix in the concession planning stage.
In the above scenario, the procurement manager has planned his own concession, so he can trade with supplier. The answer should be "Yes, since procurement manager has his own cost savings target to achieve and he should make use of supplier's financial status" LO 2, AC 2.3
NEW QUESTION # 38
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?
- A. Yes, because larger order quantity will bring a considerable profit to supplier
- B. No, because supplier's average costs will rise as the buyer's demand increases
- C. No, because the supplier may need to invest in new facility to meet buyer's demand
- D. Yes, because larger order quantity will always enable the supplier to reach its economy of scale
Answer: C
Explanation:
:
In some markets, suppliers experience peaks and troughs in demand and so buyers can increase their leverage through developing an understanding of how busy their vendor are at particular time during the year or business cycle and targetting at quieter period. Similarly, if a buyer can develop an understanding of supplier capacity and to what extent have they covered their fixed cost, they may be able to target suppliers when their average costs are likely to be lowest. Vendor's average costs will be higher at low and high capacity utilisation.
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NEW QUESTION # 39
Which of the following is the purpose of using stakeholder support level scale?
- A. To identify key stakeholders
- B. To identify stakeholder level of influence and interest and plot them on stakeholder map
- C. To estimate the gap and the progress towards desired levels of support
- D. To identify stakeholder's needs and expectations
Answer: C
Explanation:
In order to estimate the gap and the progress towards desired level of support, a stakeholder support scale can be used by the procurement internally. The support level scale measures stakeholder commitment. Current support level for the procurement/negotiation objectives should be gained from engagement with key stakeholders. The following is an example of stakeholder support level scale:
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LO 1, AC 1.1
NEW QUESTION # 40
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