Purchasing Management — 2020

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

July 2020

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 the adoption of Total Quality Management (TQM) technique may enhance the efficiency of the purchasing function.

Model answer

  1. Prevention: quality planning reduces defective supplies and the cost of correcting failures.
  2. Customer focus: user requirements guide specifications so purchases are fit for purpose.
  3. Supplier partnership: joint improvement reduces recurring delivery and quality problems.
  4. Employee participation: staff contribute practical ideas for removing waste and bottlenecks.
  5. Continuous measurement: quality and process data support corrective action and ongoing improvement.

Question 1(b) — 10 marks

Explain five factors that a supply chain manager may take into consideration when determining the purchasing structure to adopt.

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 2(a) — 10 marks

Explain five benefits that may accrue to an organisation from acquiring its materials for production from a supplier that is certified by International Standards Organisation (ISO).

Model answer

  1. Greater confidence that the supplier operates a documented and audited management system.
  2. More consistent processes and clearer handling of non-conformities.
  3. Easier supplier comparison using recognised management-system requirements.
  4. Better traceability and records to support audits and corrective action.
  5. Reduced assessment effort where credible, relevant certification supplements the buyer’s own checks.

Question 2(b) — 10 marks

A supply chain manager is in the process of evaluating suppliers in the organisation. Outline the criteria that may be used in this evaluation.

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

Explain five circumstances under which an organisation may enter into a fixed price contract with a supplier.

Model answer

  1. Clear specifications: the scope and required quality are sufficiently defined to price the work.
  2. Predictable costs: materials and labour costs can be estimated with reasonable confidence.
  3. Limited expected changes: the buyer does not anticipate frequent design or quantity revisions.
  4. Budget certainty: management needs a firm agreed purchase amount.
  5. Supplier capability: a competent supplier is willing and able to bear the agreed cost risk at a competitive price.

Question 3(b) — 10 marks

Outline five types of information which should be contained in an invitation to tender document.

Model answer

  1. Identity of the procuring organisation and a clear description of the requirement.
  2. Specifications, quantities, scope and delivery or completion requirements.
  3. Eligibility, qualification and evidence required from bidders.
  4. Submission method, address, deadline, validity period and tender-opening arrangements.
  5. Evaluation criteria, contract terms, pricing instructions and contact details for clarification.

Question 4(a) — 10 marks

Outline five circumstances under which a cost-plus pricing strategy may be appropriate to an organisation.

Model answer

  1. Costs can be measured and allocated with reasonable reliability.
  2. The work is customised and no directly comparable market price exists.
  3. The scope is uncertain, so a fixed price would require a large risk premium.
  4. The buyer accepts audited allowable costs and an agreed margin or fee.
  5. The organisation seeks a practical starting price that recovers cost, while checking whether demand and competition support that price.

Question 4(b) — 10 marks

The supply chain manager at Namok enterprises has adopted a win-win negotiation style with a supplier. Outline five characteristics of such a negotiation style.

Model answer

  1. Focuses on underlying interests rather than rigid positions.
  2. Seeks mutual gain instead of one party’s victory at the other’s expense.
  3. Uses open, honest exchange of relevant information.
  4. Creates alternative solutions and trades across issues.
  5. Protects the long-term relationship through fair, workable commitments.

Question 5(a) — 10 marks

Explain five factors that may contribute to unethical behaviour by the supply chain management staff in an organisation.

Model answer

  1. Weak internal controls: an officer able to request, award and approve payment without review has greater opportunity for abuse.
  2. Personal financial pressure or greed: private gain may be placed ahead of professional responsibilities.
  3. Improper influence: pressure from managers, political actors or suppliers can bias specifications and awards.
  4. Low accountability: poor monitoring and inconsistent sanctions make misconduct appear unlikely to have consequences.
  5. Unethical workplace culture: tolerated gifts, favouritism and collusion can normalise behaviour that violates professional standards.

Question 5(b) — 10 marks

Explain five supplier development activities that may be undertaken by an organization.

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 6(a) — 10 marks

Explain five purchasing ethics that a buyer should observe in order to maintain a good relationship 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 6(b) — 10 marks

Explain five reasons that may make it necessary for an organisation to conduct supplier debriefing.

Model answer

  1. Improve future bids: feedback helps suppliers understand where their offers failed to meet requirements.
  2. Promote transparency: explaining the evaluation gives tenderers confidence that the process followed stated criteria.
  3. Reduce misunderstandings: factual clarification can prevent avoidable disputes and unsupported complaints.
  4. Preserve relationships: respectful feedback encourages capable suppliers to bid again.
  5. Improve buyer performance: questions and feedback can reveal unclear specifications or weaknesses in the tender process.

Question 7(a) — 10 marks

Tawal Kenya Limited uses exponential smoothing technique in forecasting its material requirements. Outline five advantages of using such a technique.

Model answer

  1. Simple to calculate and automate.
  2. Requires little data storage because the previous forecast and latest observation are sufficient for basic updating.
  3. Gives greater weight to recent observations than to older data.
  4. The smoothing constant can be adjusted to balance responsiveness and stability.
  5. Provides a regular, consistent method for updating short-term forecasts as new demand becomes available.

Question 7(b) — 10 marks

Damco Limited acquires its production materials from an oligopoly market. Outline five characteristics of such a market structure.

Model answer

  1. A few large sellers dominate supply.
  2. Significant entry barriers protect established firms.
  3. Sellers are interdependent and consider rivals’ likely reactions.
  4. Products may be homogeneous or differentiated.
  5. Non-price competition, strategic pricing and possible collusion can influence market behaviour.
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