Purchasing Management — 2021

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

July 2021

Paper codes: 2903/201
Time: Not shown in supplied scan
Instructions: Not shown in supplied scan

Question 1(a) — 10 marks

Explain five ways in which a supply chain manager may enhance efficiency of the purchasing function in an organization.

Model answer

  1. Plan demand: consolidate accurate requirements early to avoid emergency buying and repetitive orders.
  2. Standardise procedures: clear responsibilities, specifications and approval routes reduce errors and delays.
  3. Develop staff: improve market analysis, negotiation, contract and digital purchasing skills.
  4. Improve supplier performance: select capable sources and monitor delivery, quality and responsiveness.
  5. Use information systems: integrate requisitions, orders, inventory and payment records to reduce manual work and improve control.

Question 1(b) — 10 marks

Explain five challenges that the Kenya Bureau of Standards (KEBS) may face in its quality assurance efforts in the country.

Model answer

  1. Wide market coverage: numerous producers, importers and outlets make consistent surveillance difficult.
  2. Resource constraints: insufficient testing facilities, inspectors and funds can delay checks.
  3. Counterfeiting: fake certification marks and disguised substandard goods complicate enforcement.
  4. Technical change: new products require updated standards, equipment and specialist expertise.
  5. Weak cooperation: non-compliant traders, incomplete records or poor coordination between agencies can obstruct effective action.

Question 2(a) — 10 marks

Explain five ways in which engineering and design function may enhance efficiency of the purchasing function in an organization.

Model answer

  1. Prepare technical specifications: describe required performance, dimensions and tolerances clearly.
  2. Standardise components: reduce unnecessary variety and increase purchasing economies.
  3. Evaluate alternatives: identify technically suitable substitutes and support make-or-buy decisions.
  4. Assess supplier capability: help determine whether a supplier can manufacture to the required standard.
  5. Resolve quality problems: analyse defects and approve necessary design or process improvements with procurement and suppliers.

Question 2(b) — 10 marks

Explain five factors that a supply chain manager may consider when determining the right source of materials for an organization.

Model answer

  1. Quality capability: ability to meet the required specifications consistently.
  2. Total cost: competitive price together with transport, maintenance, financing and disposal costs.
  3. Delivery reliability: capacity to supply the right quantities at the agreed time and place.
  4. Financial and operational capacity: resources, facilities and solvency sufficient to complete the order.
  5. Integrity and past performance: ethical conduct, references, compliance and a dependable service record.

Question 3(a) — 10 marks

ABC Limited has been acquiring its material requirements from a monopoly market. Outline five challenges the company may face from such a practice.

Model answer

  1. High prices because the buyer has few competing sources.
  2. Limited bargaining power over payment, delivery and service terms.
  3. Dependence on a single supplier, increasing exposure to disruption.
  4. Restricted choice of product features and quality levels.
  5. Weak competitive pressure on the supplier to innovate or respond promptly to complaints.

Question 3(b) — 10 marks

Explain five benefits that may accrue to an organization from entering into a cost reimbursement contract with a supplier.

Model answer

  1. Early commencement: work can start before every uncertain requirement is fully defined.
  2. Flexibility: necessary changes can be accommodated without repeatedly renegotiating a rigid fixed price.
  3. Reduced risk premium: the supplier need not include a large contingency for all uncertain costs.
  4. Cost visibility: agreed records and audit rights allow the buyer to examine actual allowable costs.
  5. Suitability for innovative work: research or complex development can proceed where outcomes and effort cannot be estimated confidently.

Question 4(a) — 10 marks

Describe the process that a supply chain manager may follow when tendering for materials.

Model answer

  1. Define and approve the need: agree specifications, quantities, budget and the procurement approach.
  2. Prepare and issue tender documents: state requirements, contract terms, eligibility and evaluation criteria and invite offers.
  3. Receive and open bids: protect submissions until the deadline and record opening according to the applicable procedure.
  4. Evaluate and approve the award: apply the disclosed criteria, confirm the preferred bidder’s capability and obtain required approvals.
  5. Notify, contract and monitor: communicate the outcome, complete the valid contract process and manage delivery, inspection and payment.

Question 4(b) — 10 marks

Explain five reasons that may make it necessary for a supply chain manager to negotiate with suppliers.

Model answer

  1. Improve price: discuss cost drivers, discounts and total acquisition cost.
  2. Clarify requirements: resolve uncertainties in specifications, quantities or service expectations.
  3. Agree delivery: coordinate schedules and responsibilities to match operational needs.
  4. Allocate risks: settle warranty, liability, security and remedies for poor performance.
  5. Resolve disagreement: address changed conditions or disputed terms while preserving a workable relationship.

Question 5(a) — 10 marks

The management of Somac Limited is in the process of appointing a team to hold negotiations with its suppliers. Outline five qualities that the members of such a team should possess.

Model answer

  1. Relevant commercial and technical knowledge of the purchase.
  2. Honesty, confidentiality and freedom from undisclosed conflicts of interest.
  3. Clear communication and active listening ability.
  4. Analytical ability to evaluate offers, costs and alternatives.
  5. Teamwork, patience and emotional self-control under pressure.

Question 5(b) — 10 marks

Explain five benefits that may accrue to an organization from adhering to purchasing ethical code of conduct.

Model answer

  1. Clear conduct standards: the code tells practitioners how to handle gifts, confidentiality, conflicts of interest and supplier dealings.
  2. Consistent decisions: common rules reduce arbitrary treatment of bidders and guide difficult ethical choices.
  3. Public confidence: demonstrable integrity strengthens trust in procurement professionals and their institutions.
  4. Accountability: stated standards provide a basis for investigating misconduct and imposing appropriate discipline.
  5. Professional independence: the code helps officers resist improper pressure from suppliers, managers and political actors.

Question 6(a) — 10 marks

Explain five measures that a supply chain manager may take to maintain a good relationship with suppliers.

Model answer

  1. Clear communication: provide accurate specifications, forecasts and early notice of changes.
  2. Prompt payment: honour agreed payment dates and resolve invoice queries without unnecessary delay.
  3. Fair dealing: apply objective criteria and avoid arbitrary changes or improper demands.
  4. Joint reviews: discuss quality, delivery and cost performance and agree practical corrective actions.
  5. Collaboration: share suitable information and work together on innovation, cost reduction and continuity of supply.

Question 6(b) — 10 marks

Sawala Limited has adopted the project approach in organizing its purchasing department. Outline five advantages of such an approach.

Model answer

  1. Dedicated attention to the project’s procurement requirements.
  2. Faster decisions through a focused team with clear project responsibility.
  3. Better integration of purchasing with engineering, finance and project scheduling.
  4. Clear accountability for procurement cost, quality and delivery milestones.
  5. Flexibility to assemble the specialised skills needed for the particular project.

Question 7(a) — 10 marks

Explain five reasons that may justify investment in supplier development by an organization.

Model answer

  1. Reduce defects: stronger supplier processes improve input quality and reduce rework.
  2. Improve delivery: better planning and capacity reduce shortages and production interruptions.
  3. Lower total cost: joint waste reduction creates savings beyond simple price bargaining.
  4. Secure supply: developing reliable capacity reduces dependence on weak or scarce sources.
  5. Support innovation: capable suppliers contribute design ideas, new materials and improved technology.

Question 7(b) — 10 marks

Explain five circumstances under which adoption of absorption costing technique may be appropriate in an organization.

Model answer

  1. Full production-cost measurement: the organisation needs unit costs including variable and allocated fixed manufacturing overheads.
  2. External inventory reporting: production inventories must include an appropriate share of manufacturing overhead.
  3. Long-run pricing: managers need to assess whether sales cover all production resources over time.
  4. Stable normal-capacity allocation: a reasonable overhead absorption base exists for allocating shared factory costs.
  5. Profit comparison with inventory changes: management needs statements that match manufacturing costs with the goods sold, while monitoring the effect of deferred fixed overhead in stock.

November 2021

Paper codes: 2903/201
Time: Not shown in supplied scan
Instructions: Not shown in supplied scan

Question 1(a) — 10 marks

Lima Limited is in the process of choosing an investment appraisal technique for the projects it intends to undertake. Explain five factors that the organization may consider in the choice of the technique.

Model answer

  1. Time value of money: long-lived projects require methods that properly recognise when cash flows occur.
  2. Risk and uncertainty: the method should support realistic sensitivity analysis of uncertain cash flows and required returns.
  3. Decision objective: value-maximising organisations normally emphasise discounted measures such as net present value, while liquidity concerns may also require payback.
  4. Information and expertise: available forecasts, cost-of-capital estimates and staff capability affect what can be applied reliably.
  5. Project characteristics and resources: size, duration, mutually exclusive alternatives and capital limits influence the comparisons needed.

Question 1(b) — 10 marks

Explain five disadvantages to an organization of using the decentralized purchasing structure in the supply chain management operations.

Model answer

  1. Loss of volume discounts: separate branches may buy small quantities instead of pooling demand.
  2. Duplication of work: each unit maintains purchasing staff, records and supplier-search activities.
  3. Inconsistent standards: different branches may order incompatible materials or accept different quality levels.
  4. Weaker control: management may find it harder to monitor authority, ethics and overall expenditure.
  5. Fragmented supplier relationships: competing orders and inconsistent terms reduce bargaining power and coordination.

Question 2(a) — 10 marks

Outline five measures that an organization may take to enhance quality assurance in its purchasing operations.

Model answer

  1. Use clear specifications: agree measurable performance and acceptance requirements with user departments before sourcing.
  2. Qualify suppliers: assess technical capability, quality systems and previous performance before award.
  3. Build quality into contracts: state inspection, testing, traceability, warranty and corrective-action responsibilities.
  4. Verify performance: inspect risk-sensitive deliveries and review defects, complaints and supplier process evidence.
  5. Improve continuously: investigate root causes with suppliers, implement corrective actions and monitor whether defects recur.

Question 2(b) — 10 marks

The cost of production incurred by a supplier may vary from time to time. Explain five factors that may cause such variation.

Model answer

  1. Input prices: changes in material, energy and purchased-service prices alter production cost.
  2. Labour cost and productivity: wage rates and output per labour hour change the cost per unit.
  3. Output volume: fixed costs spread over different numbers of units cause changes in average cost.
  4. Technology and efficiency: improved machinery or reduced waste can lower resource use, while breakdowns increase it.
  5. Product and process requirements: design changes, quality tolerances and production complexity affect the effort and materials needed.

Question 3(a) — 10 marks

Outline five characteristics of a perfect supply market structure.

Model answer

  1. Many buyers and sellers, each too small to determine the market price.
  2. Homogeneous products that buyers regard as identical.
  3. Free entry into and exit from the market.
  4. Complete information about prices and product conditions.
  5. Firms act as price takers at the prevailing market price.

Question 3(b) — 10 marks

Explain five behaviours that a purchasing officer is expected to exhibit during the opening phase of a negotiation with a supplier.

Model answer

  1. Establish rapport: greet participants courteously and create a professional atmosphere.
  2. Clarify authority and roles: introduce team members and confirm who can commit each party.
  3. Agree the agenda: establish the issues, sequence, time available and ground rules.
  4. State objectives clearly: outline the buyer’s needs without prematurely revealing confidential limits.
  5. Listen respectfully: invite the supplier’s initial position and ask questions to confirm understanding.

Question 4(a) — 10 marks

Outline five ways in which a purchasing organization may develop its suppliers.

Model answer

  1. Training: help suppliers improve quality control, planning, costing or delivery-management skills.
  2. Technical assistance: share appropriate specifications, production expertise and problem-solving support.
  3. Joint improvement projects: work together to remove defect causes, waste and delivery bottlenecks.
  4. Financial or commercial support: where justified, provide fair payment terms, demand visibility or other approved support for capability investment.
  5. Performance feedback: use regular reviews and measurable targets to guide and monitor supplier improvement.

Question 4(b) — 10 marks

The supplies management professional body in the country has developed a code of ethics for the purchasing professionals. Explain five purposes that such a code may serve.

Model answer

  1. Clear conduct standards: the code tells practitioners how to handle gifts, confidentiality, conflicts of interest and supplier dealings.
  2. Consistent decisions: common rules reduce arbitrary treatment of bidders and guide difficult ethical choices.
  3. Public confidence: demonstrable integrity strengthens trust in procurement professionals and their institutions.
  4. Accountability: stated standards provide a basis for investigating misconduct and imposing appropriate discipline.
  5. Professional independence: the code helps officers resist improper pressure from suppliers, managers and political actors.

Question 5(a) — 10 marks

A certain organization has been experiencing delays in the inspection of goods delivered by its suppliers. Outline five likely causes of such delays.

Model answer

  1. Insufficient trained inspection staff.
  2. Missing, unclear or inconsistent specifications and acceptance criteria.
  3. Inadequate testing equipment or laboratory capacity.
  4. Poor scheduling, congestion or late notification of incoming deliveries.
  5. Incomplete delivery records, samples or certificates required for verification.

Question 5(b) — 10 marks

Explain five factors that may influence an organization to change the design of its purchasing structure.

Model answer

  1. Organisation size: purchasing volume and the number of employees influence the need for specialist roles and management layers.
  2. Geographical spread: distant branches may require local authority to respond quickly.
  3. Nature of purchases: technical complexity, value and supply risk affect the expertise and control needed.
  4. Organisational strategy: cost leadership, innovation or project work may require different coordination arrangements.
  5. Staff capability and systems: competent buyers and reliable information systems permit greater delegation and effective coordination.

Question 6(a) — 10 marks

Explain five requirements that an offer should fulfil in a purchase contract.

Model answer

  1. Definite terms: the proposed subject matter and essential obligations must be sufficiently clear.
  2. Communication: the offer must be brought to the intended offeree’s attention.
  3. Intention to be bound: it must show willingness to contract on acceptance, rather than merely invite negotiations.
  4. Distinction from an invitation to treat: a request for quotations or display of goods is not automatically a binding offer.
  5. Continuing validity: acceptance must occur before the offer expires, is effectively revoked or is otherwise terminated.

Question 6(b) — 10 marks

Outline five circumstances which may favour the use of the integration negotiation approach in purchasing contracts.

Model answer

The paper uses “integration negotiation”; the answer addresses integrative, or mutually beneficial, negotiation.

  1. Both parties expect a continuing relationship.
  2. Several issues allow trade-offs with different values to each party.
  3. Parties have complementary interests and potential gains from cooperation.
  4. Sufficient trust and information sharing exist for joint problem solving.
  5. Time and authority are available to develop a mutually beneficial agreement.

Question 7(a) — 10 marks

Outline five ethical behaviours that a purchasing manager should observe when dealing with suppliers.

Model answer

  1. Treat suppliers fairly using objective criteria.
  2. Disclose and manage conflicts of interest.
  3. Refuse bribes, kickbacks and improper gifts.
  4. Protect confidential commercial information.
  5. Honour lawful commitments and communicate honestly.

Question 7(b) — 10 marks

Outline five measures that a purchasing organization may take to ensure suppliers deliver goods to the right place.

Model answer

  1. State the complete delivery address and delivery point in the purchase order.
  2. Provide named contacts, telephone details and receiving hours.
  3. Supply clear routing, site-access and unloading instructions where needed.
  4. Require an order acknowledgement confirming the destination.
  5. Track and confirm delivery arrangements before dispatch and promptly correct any address discrepancy.
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