Purchasing Management — 2024

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

November 2024

Paper codes: 2903/201
Time: 3 hours
Instructions: Answer any FIVE questions. All questions carry equal marks. Answer the questions in English.

Question 1(a) — 10 marks

Explain five reasons that make it necessary to establish a purchasing department in an organization.

Model answer

  1. Specialist expertise: trained buyers can analyse markets, negotiate terms and choose capable suppliers.
  2. Continuity of supply: coordinated planning secures the materials needed to keep operations running.
  3. Cost control: consolidated requirements and disciplined evaluation help obtain value for money.
  4. Quality assurance: the department works with users and suppliers to specify and obtain suitable materials.
  5. Accountability: defined purchasing authority, records and controls reduce unauthorised buying and enable performance review.

Question 1(b) — 10 marks

Some organizations prefer adopting a flat organisational structure in the purchasing department. Outline five reasons that may account for this preference.

Model answer

  1. Faster decisions: fewer approval layers let buyers respond promptly to material requirements.
  2. Lower administrative cost: fewer supervisory positions reduce management overheads.
  3. Better communication: direct contact between buyers and managers reduces message distortion.
  4. Greater employee responsibility: delegated authority encourages initiative and ownership of purchasing results.
  5. Easier teamwork: limited hierarchy supports cooperation between procurement, finance, users and suppliers.

Question 2(a) — 10 marks

Explain five ways in which an organisation may enhance buyer supplier relationship.

Model answer

  1. Communicate clearly: share specifications, forecasts and delivery changes early so suppliers can plan effectively.
  2. Honour commitments: pay agreed invoices promptly and apply contract terms consistently.
  3. Monitor jointly: review quality, delivery and cost results with suppliers and agree realistic corrective actions.
  4. Collaborate on improvement: exchange technical knowledge and develop solutions that benefit both parties.
  5. Resolve disputes fairly: investigate problems objectively and maintain respectful dialogue instead of using arbitrary penalties.

Question 2(b) — 10 marks

Explain five challenges that an organisation may face when acquiring its materials requirements from a perfectly competitive supply market.

Model answer

  1. Limited differentiation: standardised offerings make it difficult to obtain specialised products or customised service.
  2. High search workload: many small suppliers must be screened and compared before a reliable source is chosen.
  3. Limited economies of scale at individual suppliers: fragmented production can constrain very large orders.
  4. Weak scope for exclusive arrangements: suppliers sell similar products to many buyers, limiting dedicated capacity and preferential service.
  5. Assumptions may not hold in practice: incomplete information, entry costs and transport differences can prevent the expected uniform market price.

Question 3(a) — 10 marks

Quality assurance is a systematic process of ensuring that purchased goods and services meet expected quality standards. Describe five components that constitute such a process.

Model answer

  1. Quality planning: translate user needs into measurable specifications and acceptance criteria.
  2. Supplier qualification: assess whether potential sources have the processes and capability to meet those requirements.
  3. Process control: agree preventive procedures and monitor how suppliers produce or deliver the requirement.
  4. Verification: inspect, test or audit outputs and records to confirm conformity before acceptance.
  5. Corrective action and improvement: investigate non-conformities, remove their causes and check that changes remain effective.

Question 3(b) — 10 marks

Explain five circumstances under which it would be appropriate for an organization to adopt the contract purchasing system.

Model answer

  1. Recurrent demand: frequently required materials can be covered by a continuing agreement rather than separately negotiated orders.
  2. Predictable specifications: stable quality requirements permit clear contractual standards and call-off arrangements.
  3. Need for supply assurance: an agreement can reserve capacity for important operational materials.
  4. Scope for negotiated savings: an established volume or period allows improved prices, service and payment terms.
  5. Reliable supplier availability: a capable supplier can meet the agreed schedule and the organisation can monitor contract performance.

Question 4(a) — 10 marks

Sakama Limited uses the historical data method to forecast demand for materials requirements. Explain five limitations of using this method.

Model answer

  1. Structural changes: past consumption may not represent new products, technologies or customer behaviour.
  2. Poor records: incomplete or inaccurate historical data produce misleading forecasts.
  3. Exceptional events: unusual shortages, strikes or promotions can distort the apparent normal pattern.
  4. Limited foresight: historical figures do not directly explain future competitor actions or sudden economic changes.
  5. New-item problem: materials with little or no consumption history cannot be forecast reliably using past data alone.

Question 4(b) — 10 marks

Outline five skills that a procurement contract negotiator should possess in order to be effective in their duties.

Model answer

  1. Clear communication: explain requirements and proposals accurately and check that the other party understands.
  2. Active listening: identify the supplier’s concerns and interests before proposing concessions.
  3. Persuasion: support proposals with evidence of cost, quality and mutual benefit.
  4. Emotional control: remain patient and professional when discussions become difficult.
  5. Relationship building: show respect and reliability so agreement can be reached without destroying future cooperation.

Question 5(a) — 10 marks

Explain five reasons why it was important to establish a code of ethics for supply chain practioners in Kenya.

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(b) — 10 marks

Describe five best practices for quality assurance in an organisations procurement process.

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 6(a) — 10 marks

Explain five benefits that may accrue to an organization from adopting quality circles in its procurement quality assurance process.

Model answer

  1. Practical solutions: employees who handle purchasing and materials can identify the real causes of recurring defects.
  2. Higher participation: involvement gives staff ownership of quality improvements and increases motivation.
  3. Better cooperation: regular group discussion strengthens communication between employees and departments.
  4. Lower operating costs: small preventive improvements reduce waste, rework, delays and supplier complaints.
  5. Skill development: members practise problem analysis, teamwork and presentation while exchanging experience.

Question 6(b) — 10 marks

The purchasing manager at Wote Limited has decided to use the open tendering method in the procurement process. Explain five factors that may have influenced the decision to use such a method.

Model answer

  1. Broad competition is feasible: several capable suppliers exist and can bid against the same clear requirements.
  2. Transparency is essential: public advertisement and published evaluation criteria allow the award to be scrutinised.
  3. Value is significant: competitive offers can justify the cost of a formal tender process.
  4. Requirements are well specified: bidders can price comparable goods, works or services without prolonged negotiations.
  5. Sufficient time is available: the organisation can allow advertising, bid preparation, evaluation and approvals without creating an emergency.

Question 7(a) — 10 marks

The procurement staff at Deke Limited have been accused of being involved in unethical practices in the procurement process. Outline five such practices.

Model answer

  1. Accepting bribes, kickbacks or improper gifts in return for favourable purchasing decisions.
  2. Awarding business where an undisclosed personal or family conflict of interest exists.
  3. Disclosing confidential bid information to a preferred supplier.
  4. Colluding with suppliers to inflate prices, rig bids or restrict genuine competition.
  5. Falsifying requisitions, inspection reports, invoices or other procurement records to conceal irregular transactions.

Question 7(b) — 10 marks

Explain five measures that an organisation may put in place to ensure successful implementation of supplier development programmes.

Model answer

  1. Assess needs first: use performance evidence to identify the supplier’s actual capacity, quality or delivery weaknesses.
  2. Set joint targets: agree specific improvements, responsibilities, resources and completion dates with the supplier.
  3. Provide suitable support: offer training, technical advice or process assistance matched to the identified gaps.
  4. Secure commitment: management support and fair commercial arrangements encourage the supplier to invest in improvement.
  5. Review progress: measure results regularly, resolve barriers and adjust the programme using evidence of sustained performance.
Next