L4M5 Exam Dumps - Commercial Negotiation

Indirect costs are those cost that are not directly attributable to production. Examples of indirect costs including the following:

Indirect labour: This covers every person in the factory who does not directly perform a production operation such as managers, supervisors, engineers, store personnel, clerks, maintenance staff, porters, canteen staff, security and cleaners etc.

Expenses: Included in this element is every fixed and variable expenses incurred in operating the factory, such as rent, rates, utilities, insurance, depreciation, maintenance, air conditioning and the various types of energy generation required by a clothing factory.

Indirect materials: Also known as consumables, this element contains all the materials not directly connected to the makeup of a garment. Some of the typical items involved are office materials, spare parts, marker paper, maintenance materials, chalk & pins.

Direct costs are those costs of a product/service directly attributable/traceable to its production. Examples of direct costs including the following:

Direct Materials: Direct materials are all the materials and trimmings which go into the construction and finish of the garment. Typically, these materials would include cloth, lining, fusible, zips pads, tapes, labels, tickets, hangers and packaging materials.

Direct Labour: This cover the cost of all the labor directly involved in producing the garment and could include cutting, fusing, regular sewing, special machine operations, pressing, finishing, inspection and packing. Labor of all types and grade has a direct overhead which include holiday pay, sick pay, fringe benefits etc and the statutory payments made by the employer for each employee. This is usually expressed as a percentage of salary and when this percentage is added to the employee’s wage, it becomes the basis for calculating direct labor costs.

The following graph shows the factors that shift the supply curve to the left and to the right.

Using threats is generally inappropriate in strategic supplier negotiations where a long-term, trust-based relationship is required (C). Threatening tactics can damage the relationship and may result in resistance from the supplier. CIPS advocates for collaborative approaches in strategic relationships to foster mutual trust and achieve sustainable agreements.

In the scenario, to exchange cost cutting, the purchasing manager promises to 'reward' supplier shorter payment period. This is an example of reward power, which results from one person's ability to

compensate or reward another for compliance.

The reward does not need to be money, but could be introduction to other buyers in the group, positive references, agreement to trial new product, quicker payment or indeed any other variable that the buyer

knows is attractive and valued by the supplier.

Published market indices are a source of macroeconomic data, as they reflect broader economic trends and provide insights into the overall market environment, which is essential for globalexpansion planning. Macroeconomic analysis focuses on high-level economic indicators, as recommended in CIPS’s guidelines on sourcing macroeconomic data.

Direct costs are those directly attributable to the production of a unit — such as raw materials, components, and direct labour. Here, the metal used is a clear direct cost, as it varies with production output. Rent, insurance, and sales wages are indirect (overhead) costs, which must be allocated across products. Understanding this distinction is vital in negotiations, since direct costs are easier to challenge for efficiency gains, while indirect allocations may be arbitrary. Buyers with clear knowledge of cost breakdowns can negotiate more effectively, avoiding inflated pricing.