Supply Chain Management and Purchasing Principles — Undated

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

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Time: 3 hours
Instructions: Answer any FIVE questions. All questions carry equal marks. Answer the questions in English.

Question 1(a) — 10 marks

Explain the role of the supply chain management function in an organisation.

Model answer

  1. Obtaining requirements: it sources materials and services that meet the organisation’s quality, quantity and timing needs.
  2. Controlling total cost: it coordinates buying, storage and movement to reduce avoidable expenditure while maintaining required service.
  3. Maintaining availability: stock and replenishment plans help prevent interruptions to production and customer service.
  4. Managing supplier relationships: evaluation, negotiation and performance review help secure reliable supply.
  5. Coordinating flows: it shares information and aligns purchasing, production and distribution so goods move efficiently from suppliers to users.

Question 1(b) — 10 marks

One of the responsibilities of a supply chain manager is to come up with a criteria to be used when selecting a mode of transport to be used by the organisation. Highlight the factors you would consider when discharging this responsibility.

Model answer

  1. The total transport and associated loading, storage and handling cost.
  2. The required delivery speed and reliability.
  3. The nature, volume and weight of the goods, including special handling needs.
  4. Distance, route accessibility and availability of suitable terminals.
  5. Cargo security and the risk of damage, loss or deterioration.

Question 2(a) — 10 marks

Outline five reasons that may influence an organisation to train its purchasing staff on specifications of materials.

Model answer

  1. To improve staff understanding of technical and user requirements.
  2. To reduce ambiguous or incomplete descriptions in purchase documents.
  3. To avoid buying unsuitable materials or unnecessary expensive features.
  4. To support objective comparison of supplier offers.
  5. To improve inspection, communication with suppliers and resolution of specification discrepancies.

Question 2(b) — 10 marks

Explain the factors that a supplier may consider when fixing prices of materials.

Model answer

  1. Cost of supply: production, procurement, distribution and overhead costs establish what must be recovered for a sustainable offer.
  2. Desired profit: the supplier adds a margin consistent with its commercial objectives and risk.
  3. Competitors’ prices: available alternatives limit the price buyers are willing to accept.
  4. Demand conditions: strong demand or limited availability may support a higher price, while weak demand may require reductions.
  5. Offer terms: quantity, credit period, delivery, warranty and included services affect the cost and value of the transaction.

Question 3(a) — 10 marks

Outline the disadvantages to an organisation of using the Fixed Order Point System when replenishing stock.

Model answer

  1. It requires frequent or continuous monitoring of stock balances.
  2. Accurate transaction records and suitable systems can be costly to maintain.
  3. Each item needs a suitable reorder level and replenishment quantity.
  4. Sudden changes in demand or lead time can make an existing reorder point unsuitable.
  5. Orders for different items arise at different times, limiting the convenience of combining purchases and deliveries.

Question 3(b) — 10 marks

Explain the circumstances under which an organisation may inspect goods delivered by a supplier.

Model answer

  1. A new supplier is used: inspection helps establish whether the supplier can meet the required quality.
  2. Previous defects have occurred: closer checks are justified when supplier performance has been unreliable.
  3. Goods are critical or high value: defects would cause substantial loss, safety risk or interruption, making verification important.
  4. Damage is suspected: broken seals or damaged packaging require checks on the contents before acceptance.
  5. The contract requires acceptance tests: inspection demonstrates whether agreed dimensions, quantities and performance have been achieved.

Question 4(a) — 10 marks

Explain five aspects that should be considered by a supply chain officer when evaluating a potential supplier in an organisation.

Model answer

  1. Technical capability: assess equipment, skills and processes needed to meet the specification.
  2. Capacity and delivery reliability: establish whether the supplier can provide the required quantity within the required time.
  3. Quality performance: review controls, samples and relevant past results to assess consistency.
  4. Financial stability: a supplier must have sufficient resources to fulfil the order and sustain operations.
  5. Commercial value and support: compare total cost, payment terms, warranty and responsiveness to problems.

Question 4(b) — 10 marks

Outline the benefits that may accrue to an organisation from outsourcing its transport function.

Model answer

  1. Avoiding large investment in vehicles and transport facilities.
  2. Access to specialist transport expertise and suitable equipment.
  3. Greater flexibility to obtain capacity when demand changes.
  4. Reduced responsibility for vehicle maintenance, drivers and fleet administration.
  5. More management attention available for the organisation’s main operations.

Question 5(a) — 10 marks

Purchase order should be authorised before being sent to a supplier. Outline the objectives of such authorization.

Model answer

  1. Confirming that the goods or services are needed.
  2. Verifying that expenditure is within the approved budget.
  3. Ensuring that specifications, quantities, prices and terms have been checked.
  4. Confirming that supplier selection followed the required procedure.
  5. Establishing accountability and preventing unauthorised commitments.

Question 5(b) — 10 marks

Explain the ways in which a purchasing officer may establish that the supplier’s quoted delivery time is realistic.

Model answer

  1. Check stock availability: establish whether the required items are ready for dispatch or must be manufactured.
  2. Review production capacity: compare the order with the supplier’s workload, resources and promised production schedule.
  3. Examine past performance: delivery records and references show whether similar promises have been met.
  4. Verify input availability: confirm that essential materials or components can be obtained in time.
  5. Assess logistics: allow for packing, transport schedules, clearance and final delivery rather than considering manufacturing time alone.

Question 6(a) — 10 marks

As a supply chain officer, you have been assigned the duty of making records for goods received from suppliers. Highlight the types of information you would enter in a Goods Received Note (GRN).

Model answer

  1. GRN number, date of receipt and receiving location.
  2. Supplier identity and purchase-order or delivery-note references.
  3. Item description, code and unit of measure.
  4. Quantities ordered, delivered and accepted, with any shortages or damage recorded.
  5. Names or signatures of the receiving and checking staff.

Question 6(b) — 10 marks

Explain the challenges that an organisation may experience when obtaining its requirements from a monopoly supply.

Model answer

  1. High prices: limited alternatives reduce competitive pressure on the supplier to offer economical terms.
  2. Weak bargaining power: the buyer may have little influence over credit, delivery or warranty conditions.
  3. Supply dependence: failure at the sole supplier can interrupt operations because replacement sources are unavailable.
  4. Limited choice: the supplier’s range or specification may not fully match the buyer’s preferred requirements.
  5. Reduced service incentive: without competition, the supplier may be slow to address complaints or improve quality and delivery.

Question 7(a) — 10 marks

Electronic Funds Transfer (EFT) method is increasingly being used to make payments in supply chain operations. Explain the benefits that may accrue to a purchasing organisation from using this method.

Model answer

  1. Faster settlement: electronic instructions can reach the supplier’s bank more quickly than physically delivering payment documents.
  2. Lower cash-handling risk: staff do not need to carry large sums of cash to suppliers.
  3. Better records: electronic confirmations help trace payments and reconcile bank and accounting records.
  4. Convenient remote payment: suppliers can be paid without a physical visit to their premises.
  5. Lower administration: batch processing and authorised system integration can reduce manual preparation and duplication.

Question 7(b) — 10 marks

Explain the ways in which an organisation may enhance relationship between its supply chain and the production functions.

Model answer

  1. Joint planning: agree production quantities and material delivery schedules so purchasing responds to actual needs.
  2. Clear communication: share changes in demand, stock availability and supplier delays promptly.
  3. Joint specification work: purchasing and production agree suitable quality and technical requirements before sourcing.
  4. Shared objectives: evaluate both functions using measures such as availability, quality and total cost rather than conflicting departmental targets.
  5. Regular problem-solving: cross-functional reviews identify the causes of shortages, defects and delays and agree corrective actions.
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