Supply Chain Management and Purchasing Principles — 2019

KNEC Diploma in Supply Chain Management, Module I. Original examination questions with explained model answers for revision.

November 2019

Paper codes: 2903/101, 2907/302
Time: 3 hours
Instructions: Answer any FIVE questions. All questions carry equal marks. Answer the questions in English.

Question 1(a) — 10 marks

You have been hired as a Purchasing officer in charge of processing purchase orders in a manufacturing company. Outline five duties you will be expected to perform in your new position.

Model answer

  1. Check that purchase requisitions are complete, authorised and supported by the required specifications.
  2. Obtain and compare offers from suitable suppliers according to the purchasing procedure.
  3. Prepare accurate purchase orders showing items, quantities, prices and delivery terms.
  4. Obtain the required approval and send orders to the selected suppliers.
  5. Follow up delivery and maintain order records, coordinating discrepancies with stores and accounts.

Question 1(b) — 10 marks

Explain five disadvantages to an organisation of using the Simple Average Method when determining the quantity of goods to buy.

Model answer

  1. Equal weighting: older demand figures count as much as recent ones, even when current consumption differs.
  2. Ignored trends: the average can lag behind a sustained rise or fall in demand.
  3. Ignored seasonality: one average may not match the requirements of a peak or low season.
  4. Sensitivity to unusual values: exceptional orders or shutdowns can distort the forecast.
  5. Dependence on historical data: a new item or a major market change may leave no reliable past pattern to average.

Question 2(a) — 10 marks

Availability of goods in the market is often dictated by certain market conditions. Explain five such conditions.

Model answer

  1. Demand levels: a sudden increase in purchases may exhaust available stock before suppliers can replenish it.
  2. Production capacity: limited plant capacity or input shortages restrict the quantities producers can offer.
  3. Seasonal conditions: harvests, weather and seasonal production can cause periods of abundant or scarce supply.
  4. Market prices and expected returns: suppliers may expand output when expected prices cover costs, or reduce supply when production is unprofitable.
  5. Trade and distribution conditions: import restrictions, transport disruption or difficulty obtaining foreign currency can prevent goods from reaching the market.

Question 2(b) — 10 marks

Explain five circumstances under which an organisation may find it appropriate to use the quotation method when sourcing for goods.

Model answer

  1. The requirement is readily available: suppliers already stock the goods and can give straightforward prices.
  2. Specifications are clear: standard items can be described precisely, making quotations comparable.
  3. The purchase is relatively small: a full tender process may be disproportionate where the applicable procedure permits quotations.
  4. Several capable suppliers exist: competition can be obtained by requesting offers from an adequate number of suitable firms.
  5. A quick decision is needed: quotations can provide prices and terms more promptly than a lengthy tender exercise, within the organisation’s authorised procedure.

Question 3(a) — 10 marks

Organisations are expected to lay down procedures to be followed when purchasing goods. Explain five advantages to such organisations of following the procedures.

Model answer

  1. Authorisation: approval steps ensure that purchases are necessary and made by staff with the required authority.
  2. Cost control: budget checks and comparison of offers help avoid excessive expenditure.
  3. Consistency: staff apply the same recognised steps, reducing arbitrary decisions and confusion.
  4. Accountability: purchase documents provide evidence of requests, approvals, orders and receipts.
  5. Fewer errors and disputes: checks on specifications, quantities and terms reduce incorrect orders and misunderstandings with suppliers.

Question 3(b) — 10 marks

An inspection team at Sema Limited has recommended that goods delivered by a supplier be returned to him. As a member of the inspection team, explain five reasons that may have influenced the team to make such recommendation.

Model answer

  1. Wrong specification: the delivered model, dimensions or material differs from the approved order.
  2. Defective quality: inspection reveals faults that make the goods unsuitable for their intended use.
  3. Transit damage: breakage, contamination or other damage prevents satisfactory acceptance.
  4. Unacceptable shelf life: goods are expired or have less remaining life than the agreed requirement.
  5. Unauthorised goods: the consignment contains substitutions, duplicates or excess items the company did not agree to purchase.

Question 4(a) — 10 marks

Some organisations use the cheque method when making payments to suppliers. Outline five reasons that may justify the use of this payment method.

Model answer

  1. It avoids carrying large amounts of cash to suppliers.
  2. It provides a bank record that assists accounting and reconciliation.
  3. Named-payee and crossing arrangements can improve control over who receives payment.
  4. Required signatures provide an authorisation check before payment is issued.
  5. The supplier may accept or request a cheque under the agreed payment terms.

Question 4(b) — 10 marks

ABC Limited recently created a stock control department in its organisational structure. Explain five ways in which the department may enhance efficiency in the distribution operations of the company.

Model answer

  1. Maintaining availability: reorder controls replenish goods before shortages interrupt customer deliveries.
  2. Providing accurate records: reliable balances show what can be promised to customers and reduce picking errors.
  3. Reducing excess stock: suitable stock levels free storage space and reduce unnecessary handling.
  4. Controlling deterioration: monitoring age and condition supports appropriate rotation and prevents dispatch of unusable goods.
  5. Coordinating dispatch priorities: information on reservations and stock movements helps distribution fulfil orders in the required sequence.

Question 5(a) — 10 marks

Explain five factors that a purchasing officer should consider when determining the time to place orders to suppliers.

Model answer

  1. Rate of consumption: rapidly used items reach replenishment levels sooner than slow-moving items.
  2. Current usable stock: the officer must account for stock on hand, reservations and outstanding orders.
  3. Supplier lead time: orders must allow enough time for processing, production, transport and receipt.
  4. Demand timing: production schedules, seasonal peaks and known customer orders determine when materials must be available.
  5. Safety allowance: uncertain demand or delivery requires a suitable buffer to reduce the risk of shortage.

Question 5(b) — 10 marks

Explain five types of information that the Research and Development (R & D) department may provide to the purchasing department in order to enhance efficiency in their operations.

Model answer

  1. Material specifications: dimensions, composition and required properties help buyers source suitable inputs.
  2. Alternative materials: research findings identify substitutes that can meet the required function at lower cost or with better availability.
  3. Quality and test requirements: technical acceptance criteria help buyers evaluate supplier offers and delivered goods.
  4. Product-development plans: information on new designs or planned changes allows purchasing to arrange supplies before production begins.
  5. Manufacturing and compatibility information: process limitations and component interfaces help avoid buying materials that cannot be used effectively.

Question 6(a) — 10 marks

Some organisations handle hazardous materials in their operations. Outline five types of such materials.

Model answer

  1. Flammable materials, such as petrol or solvents.
  2. Explosive materials.
  3. Toxic or poisonous materials.
  4. Corrosive materials, such as strong acids or alkalis.
  5. Radioactive materials.

Question 6(b) — 10 marks

Lulu Enterprises intends to use the Electronic Funds Transfer (EFT) method when making payment to suppliers. Explain five measures that the organisation should take to ensure effective use of this method.

Model answer

  1. Verify payment details: independently confirm the supplier’s account and investigate requests to change bank details before transferring funds.
  2. Separate responsibilities: different authorised staff should prepare and approve payments, reducing error and misuse.
  3. Secure system access: strong authentication and controlled permissions restrict payment activity to approved users.
  4. Train staff: users should understand payment procedures, fraud indicators and how to correct or report errors.
  5. Reconcile transactions: compare bank confirmations with invoices and accounting records promptly to identify failed, duplicate or incorrect payments.

Question 7(a) — 10 marks

Explain five circumstances under which a purchasing organisation may find it appropriate to inspect goods at the supplier’s premises prior to delivery.

Model answer

  1. Specialised testing is needed: the supplier may have equipment required to demonstrate performance before shipment.
  2. Goods are customised: inspection during or after manufacture can confirm that unique requirements have been met.
  3. The purchase is high value: early checking reduces the risk of paying freight for expensive unacceptable equipment.
  4. The supplier is new or has poor quality history: additional checks provide assurance before goods are dispatched.
  5. Returning goods would be costly or difficult: inspection at origin can prevent avoidable transport and replacement delays.

Question 7(b) — 10 marks

The tender method of sourcing may expose an organisation to unethical practices by officers involved. Explain five indicators of such unethical practices.

Model answer

These are indicators requiring examination of evidence, not proof that any particular officer has acted improperly.

  1. Tailored specifications: requirements unnecessarily favour a particular supplier rather than the organisation’s actual need.
  2. Disclosure of confidential information: an officer gives one bidder competitors’ prices or unpublished evaluation information.
  3. Undeclared conflicts of interest: an officer participates in decisions involving a business in which they have a personal interest.
  4. Improper inducements: gifts, payments or favours are solicited or accepted to influence a tender decision.
  5. Manipulated evaluation records: scores, dates or documents are altered to support a preferred bidder contrary to the stated criteria.
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