CIPS L4m5 Commercial Negotiation · Free Practice Question Medium
Question 6
Understanding supplier's mark-up and margin can provide procurement professional a comprehensive insight into supplier's net profits. Is this statement true?
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A
Yes, because these are two indicators of supplier's future prospect
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B
No, because mark-up and margin inform little about supplier's net profit
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C
No, because margin is enough to tell procurement about supplier's profitability
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D
Yes, because supplier's mark-up and margin are two most valuable sources of information to procurement
Reveal correct answer
Correct answer: B
Explanation
Mark-up and margin allow supplier to make gross profit. Remember that every supplier operates under different cost structures and some are set up to be most profitable at a particular level of volume, so it is dangerous to assume all suppliers can survive on a lower margin if their volume increases. Intelligent buyers understand that mark-up and margin may define gross profits, but they tell you very little about a supplier's net profits.
LO 2, AC 2.1
Discussion
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