Chapter 3Purchasing Policy and Procedures

TRUE/FALSE
1. Although policies are usually documented in writing, unwritten or informal policies can also exist.
ANS: T

PTS: 1

2. Once written, policies do not have to be periodically reviewed for clarity and conformance.
ANS: F

PTS: 1

3. Policies defining the role of purchasing often serve as a general or broad policy statement from which
more detailed or specific policies evolve.
ANS: T

PTS: 1

4. The organization's policy on contacts and visits to suppliers should address not only purchasing
personnel but also other departments or functions that visitor contact suppliers.
ANS: T

PTS: 1

5. Buyers do not need to consider a supplier's ability to comply with environmental regulations as a
condition for selection.
ANS: F

PTS: 1

6. Although there is a trend toward less reliance on competitive bids and more on negotiated longer-term
agreements, many contracts are still awarded through the competitive bid process.
ANS: T

PTS: 1

7. Routine items available from many different sources are seldom purchased through competitive
bidding.
ANS: F

PTS: 1

8. Organizations do not need to be cautious about liabilities associated with accepting and using ideas
provided by suppliers interested in doing business with a purchaser.
ANS: F

PTS: 1

9. For companies that routinely use or produce hazardous materials, the law requires a policy that
outlines in detail the legal requirements and conditions for the handling of toxic waste.
ANS: T

PTS: 1

10. A procedure is ineffective if it specifies too many steps to carry out or presents unnecessary detail.
ANS: T

PTS: 1

2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

11. It is only the supervisor's responsibility, and not the employee's, to ensure that the purchasing
employee is familiar with and follows the procedures covering legal contracts.
ANS: F

PTS: 1

MULTIPLE CHOICE
1. ____ refer(s) to the set of purposes, principles, and rules of action that guide an organization.
a. Government regulations
b. Procedures
c. Guidelines
d. Work rules
e. Policy
ANS: E

PTS: 1

2. ____ refer(s) to standard operating procedures along with any rules and regulations.
a. Union contracts
b. Rules of action
c. Government regulations
d. Policy
e. OSHA rules
ANS: B

PTS: 1

3. Which of the following is not an advantage of written and implied policies?

a. Policies are a means for executive management to communicate its leadership and views.
b. Policies provide a framework for consistent decision making and action.
c. Policies are easy to communicate throughout an organization.
d. Policies help ensure that personnel act in a manner consistent with executive or functional
management's expectations.
e. An effective policy defines the rules and procedures that apply to all employees.
ANS: C

PTS: 1

4. Which of the following is not a disadvantage of written and implied policies?

a. Personnel only follow policies to ingratiate themselves with executive management.
b. Employees may view policies as a substitute for effective management.
c. Policies are not a set of how-to instructions designed to provide specific answers for every
business decision.
d. Policy development can restrict innovation and flexibility.
e. Policies are often difficult to communicate throughout large organizations.
ANS: A

PTS: 1

2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

5. All of the following are characteristics of effective policies except ____.

a. action-oriented
b. relevant
c. concise
d. highly detailed and written.
e. timely and current
ANS: D

PTS: 1

6. Policies to define the role of purchasing do all of the following except ____.
a. detail the authority of purchasing to delegate certain tasks or assignments to other
departments
b. describe the areas where purchasing authority does or does not exist
c. outline the overall authority of purchasing as granted by the executive committee while
describing the limits to that authority
d. exclude the purchasing function from any responsibility for purchasing such things as real
estate, medical insurance policies, or other areas where purchasing may not have direct
expertise
e. define appropriate buyer-supplier relationships
ANS: E

PTS: 1

7. Which of the following is not a policy defining the conduct of purchasing personnel?
a. Mileage reimbursement policy.
b. Ethics policy.
c. Reciprocity policy.
d. Policy on contacts and visits to suppliers.
e. Policies on former employees representing suppliers.
ANS: A

PTS: 1

8. ____ occurs when suppliers are pressured to purchase the buyer's products or services as a condition of
securing a purchase contract.
a. Negotiation
b. Competitive bidding
c. Reciprocity
d. Irregular business dealing
e. None of these choices.
ANS: C

PTS: 1

9. Examples of irregular dealings with suppliers include all of the following except ____.
a. accepting bribes from suppliers
b. accepting business lunches before a contract is negotiated
c. accepting late bids
d. owning a stake in a supplier's company
e. cronyism
ANS: B

PTS: 1

2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

10. All of the following are examples of problem factors that confront minority suppliers except ____.
a. lack of access to capital
b. large firms' efforts to optimize their supply bases
c. inability to attract
d. preference for bidding on government contracts
e. minority suppliers' relatively small size
ANS: D

PTS: 1

11. Which of the following is not a best practice for inclusion in any minority supplier development
initiative?
a. Ensure that all minority suppliers are located nearby the organization's facilities.
b. Mandate Tier-I suppliers to have a Tier-II diversity spend goal and incorporate the terms in
the contracts.
c. Include minority suppliers in all RFQs without exception.
d. Tie the goals and objectives of the supplier diversity program to supply chain management
strategies and supply chain job functions.
e. Incorporate all corporate functions in which suppliers are selected and procurement
commitments are made.
ANS: A

PTS: 1

12. Which of the following is not one of the principles that support positive buyer-supplier relationships?
a. Treating suppliers fairly and with integrity.
b. Providing prompt payment to suppliers.
c. Encouraging suppliers to submit innovative ideas with joint sharing of benefits.
d. Establishing a fair process to award purchase contracts.
e. Providing engineering and manufacturing technical assistance.
ANS: E

PTS: 1

13. All of the following are examples of elements that must be part of an environmental management
system required by the ISO 14000 certification process except ____.
a. create an environmental policy
b. set appropriate environmental goals and objectives
c. provide evidence of financial stability
d. help design and implement a program aimed at achieving environmental goals and
objectives
e. monitor and measure the effectiveness of general environmental management activities
within the firm
ANS: C

PTS: 1

2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

14.
Which of the following is not an example of typical charge-back costs associated with
supplier responsibility for defective material shipments?
a. Sales, general, and administrative costs.
b. Cost of material rework.
c. Repackaging costs for return shipment.
d. Return shipping costs.
e. Costs associated with lost or delayed production.
ANS: A

PTS: 1

15. A/An ____ is an operating instruction detailing functional duties or tasks.

a. policy
b. procedure
c. work rule
d. guideline
e. policy manual
ANS: B

PTS: 1

16. Which of the following is not true concerning the purposes of a procedure manual?
a. The manual outlines the broad set of purposes, principles, and rules of action that guide an
organization.
b. The manual serves as a reference guide for purchasing personnel and is especially valuable
to new employees who require explanation about how to accomplish different activities or
assignments.
c. For experienced personnel, the manual provides clarification or simply reinforces
knowledge about different topics.
d. The manual provides consistency and order by documenting the steps and activities
required to perform a task.
e. The manual may specify industry best practices to follow that are identified through
benchmarking comparisons with leading firms.
ANS: A

PTS: 1

17. All of the following are examples of topics discussed in legal contract procedures except ____.
a. basic contract principles
b. execution and administration of agreements
c. compliance with contract terms and performance assessment
d. legal definitions
e. how to conduct a supplier evaluation
ANS: E

PTS: 1

2012 Cengage Learning. All Rights Reserved. This edition is intended for use outside of the U.S. only, with content that may be different
from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.