International Purchasing — 2022

KNEC Diploma in Supply Chain Management, Module III. Original examination questions with explained answers for revision. Answers are independently prepared for study and are not an official KNEC marking scheme.

July 2022

Paper codes: 2903/304; 3305
Time: Not shown in supplied scan
Instructions: Cover instructions not included in supplied scan.

Question 1(a) — 10 marks

Successfull international purchasing requires adequate planning. Explain five requirements for effective international purchasing.

Answer

  1. Accurate demand forecasts establish the quantities and delivery dates genuinely required.
  2. Clear specifications state the required quality, performance and acceptance criteria.
  3. Reliable supplier information supports assessment of capacity, competence and commercial stability.
  4. Adequate finance and an agreed payment method allow purchase and delivery obligations to be met.
  5. A coordinated logistics and compliance plan covers lead times, transport, insurance and import documentation.

Question 1(b) — 10 marks

International purchasing involves a lot of documentation. Explain five roles played by efficient documentation in international purchasing.

Answer

  1. Records the agreed goods, prices and obligations so the transaction can be controlled.
  2. Supports customs clearance by providing information on value, origin and classification.
  3. Provides evidence required for documentary payment and financial approval.
  4. Identifies and traces packages through carriers, agents and receiving stores.
  5. Supports insurance claims, disputes and audit through a consistent transaction record.

Question 2(a) — 10 marks

Some organizations adopt single sourcing strategy in international purchasing. Explain five benefits of this strategy.

Answer

  1. Concentrated volume can improve price negotiations and quantity discounts.
  2. A stable relationship encourages joint planning and supplier investment in the buyer’s requirements.
  3. Fewer supplier interfaces reduce administration and coordination costs.
  4. Consistent materials and processes can simplify quality control and compatibility.
  5. Sharing forecasts and technical information can improve responsiveness and product development.

Question 2(b) — 10 marks

Letter of credit is a common method of payment in international purchasing. Explain five benefits of this method of payment.

Answer

  1. Payment assurance: a complying documentary presentation creates a bank payment undertaking rather than relying solely on the buyer.
  2. Buyer control: required shipping and inspection documents help demonstrate that agreed dispatch conditions were met.
  3. Reduced counterparty uncertainty: banks verify documents under agreed credit terms, supporting trade between unfamiliar parties.
  4. Financing access: an acceptable credit may help the exporter obtain pre-shipment or receivables finance.
  5. Agreed timing: shipment, presentation and payment deadlines give both parties a clearer transaction schedule.

Question 3(a) — 10 marks

Explain five ways in which price fluctuations in international commodity market could be managed by buyers.

Answer

  1. Negotiate fixed-price forward supply contracts for known requirements where counterparties can reliably perform.
  2. Use appropriately controlled futures or options hedges where suitable markets and expertise exist.
  3. Diversify qualified sources and contract periods to reduce reliance on one price exposure.
  4. Build justified buffer stocks when storage and financing costs are lower than the expected disruption exposure.
  5. Use transparent price-adjustment formulas and monitor commodity information so budgets and purchases respond promptly.

Question 3(b) — 10 marks

Highlight five documents which would be required to support payments to international suppliers.

Answer

  1. Commercial invoice states the supplier’s price and amount due.
  2. Bill of lading or air waybill provides evidence of shipment.
  3. Packing list identifies the contents, quantities and package details.
  4. Inspection or acceptance certificate supports verification of contractual quality.
  5. Purchase order or signed contract authorises the purchase and provides the agreed payment terms.

Question 4(a) — 10 marks

Explain five roles played by Organisations of International Standards (ISO) in international purchasing.

Answer

  1. Develops voluntary international standards through technical consensus.
  2. Provides common technical terminology and requirements that support cross-border specification.
  3. Promotes compatibility and interoperability by standardising relevant product and process characteristics.
  4. Publishes management-system standards that organisations can use to improve consistent processes.
  5. Supports international cooperation among national standards bodies, reducing unnecessary technical differences; ISO itself does not certify individual suppliers.

Question 4(b) — 10 marks

Outsourcing is increasingly emerging as a viable option in international purchasing. Explain five advantages of outsourcing some aspects of international purchasing in this regard.

Answer

  1. Specialist knowledge: experienced agents understand documentation, customs processes and overseas supplier markets.
  2. Lower operating overheads: the buyer avoids maintaining every international purchasing capability internally.
  3. Faster processing: established systems and contacts can shorten sourcing, shipment and clearance cycles.
  4. Capacity flexibility: external providers can handle temporary peaks without permanent staffing commitments.
  5. Management focus: internal staff can concentrate on supplier strategy and core production while monitoring the provider’s performance.

Question 5(a) — 12 marks

Identifying suitable and competent suppliers is one of the challenges faced by buyers in international purchasing. Explain six ways in which the buyer may overcome this challenge.

Answer

  1. Search verified trade directories and recognised industry associations for relevant suppliers.
  2. Use trade fairs and business missions to inspect offerings and meet supplier representatives.
  3. Obtain referrals from credible customers and check actual delivery experience.
  4. Use commercial representatives or reputable sourcing agents with local market knowledge.
  5. Prequalify candidates using capacity, financial, quality and compliance evidence.
  6. Audit promising suppliers and test samples or trial orders before committing major volumes.

Question 5(b) — 8 marks

Describe the steps involved in the quality assurance process in international purchasing.

Answer

  1. Define measurable quality requirements, applicable standards and acceptance tests before sourcing.
  2. Assess and approve suppliers capable of meeting those requirements consistently.
  3. Agree the quality plan, inspection responsibilities and required certificates, then monitor production and shipment.
  4. Inspect or test delivered items, record results, resolve nonconformities and use feedback to improve later orders.

Question 6(a) — 12 marks

Explain six factors which would be considered in the selection of appropriate mode of transport to use in international purchasing.

Answer

  1. Delivery urgency determines whether the speed of air transport justifies its cost.
  2. Product characteristics, including perishability and fragility, determine handling and transit requirements.
  3. Weight, volume and shipment size influence capacity and unit freight cost.
  4. Total logistics cost includes freight, insurance, handling, inventory and inland delivery.
  5. Route availability and infrastructure determine which modes can physically serve the origin and destination.
  6. Reliability and security determine exposure to delays, theft and damage during transit.

Question 6(b) — 8 marks

Explain four challenges that may be faced in international purchasing from globalization.

Answer

  1. More intense global competition can pressure local suppliers and complicate sustainable sourcing choices.
  2. Interconnected supply chains transmit distant disruptions quickly to the buyer.
  3. Greater supplier dispersion makes labour, environmental and quality oversight more difficult.
  4. Cultural, legal and currency differences increase the complexity of coordinating cross-border purchases.

Question 7(a) — 10 marks

International tendering is often used as a sourcing strategy in international purchasing. Describe five steps involved in using this method in international purchasing.

Answer

  1. Prepare an approved requirement, budget, specifications and clear evaluation criteria.
  2. Advertise or invite eligible international suppliers and issue consistent tender documents.
  3. Receive and open bids under the stated deadline and controlled procedure.
  4. Evaluate responsive bids against the published technical and commercial criteria and verify supplier capacity.
  5. Approve and communicate the award, conclude the contract and establish delivery and performance monitoring.

Question 7(b) — 10 marks

Explain the criteria that would be used in evaluating the competence of potential suppliers in international purchasing.

Answer

  1. Technical capability: equipment, skills and experience must match the specification.
  2. Production capacity: available resources must support the required quantities and delivery schedule.
  3. Quality performance: systems, sample results and defect history indicate consistency.
  4. Financial stability: adequate working capital supports purchasing, production and continued operations.
  5. Delivery and service record: references and logistics arrangements indicate dependable fulfilment and problem resolution.

November 2022

Paper codes: 2903/304; 3305
Time: Not shown in supplied scan
Instructions: Cover instructions not included in supplied scan.

Question 1(a) — 12 marks

Explain six challenges likely to be encountered in international purchasing.

Answer

  1. Exchange-rate movements can increase the local-currency cost between ordering and payment.
  2. Different laws, languages and commercial customs can cause misunderstanding and compliance difficulties.
  3. Long transport distances and border procedures can increase lead times and disrupt deliveries.
  4. Verifying an unfamiliar supplier’s capacity and delivered quality is more difficult and costly.
  5. Political restrictions, import controls or instability can interrupt supply despite an agreed purchase contract.
  6. Communication across languages and time zones can delay clarification and resolution of problems.

Question 1(b) — 8 marks

Explain four advantages of using Cost Insurance and Freight (CIF) terms in international purchasing.

Answer

  1. The seller arranges and pays for the agreed sea carriage to the named destination port, reducing the buyer’s booking work.
  2. The seller arranges the required minimum cargo insurance, giving the buyer a basis for a covered transit claim.
  3. An inclusive quoted price helps the buyer budget the purchase, freight and specified insurance components.
  4. An experienced exporter may obtain competitive freight arrangements; risk still transfers when goods are loaded on board at shipment, not at destination.

Question 2(a) — 10 marks

Explain five purposes served by proper quality specifications in international purchasing.

Answer

  1. Communicate exactly what performance and quality the supplier must deliver.
  2. Provide a common basis for comparing technically responsive quotations.
  3. Establish measurable inspection and acceptance criteria.
  4. Reduce supply of unsuitable substitutes and related production disruption.
  5. Support fair resolution of quality disputes by referring to agreed requirements.

Question 2(b) — 10 marks

Some foreign suppliers insist on payments in advance before delivery of the goods. Describe the steps involved in this type of payment process.

Answer

  1. Agree the goods, price, delivery commitment, currency and advance-payment conditions in the contract.
  2. Verify the supplier and obtain a genuine pro-forma invoice and any agreed advance-payment security.
  3. Obtain internal approval and arrange the required funds and authorised bank transfer details.
  4. Send the agreed advance through the approved payment channel and obtain a payment confirmation.
  5. Obtain the supplier’s receipt, monitor production and shipment, and reconcile the advance against the final invoice and received goods.

Question 3(a) — 12 marks

Negotiation is often used as a sourcing strategy in international purchasing. Explain six circumstances under which negotiation would be appropriate in international purchasing.

Answer

  1. A unique or patented item has only one feasible supplier, limiting competitive tendering.
  2. Complex technical requirements need joint clarification before a reliable final price can be agreed.
  3. Urgent requirements may make a full tender timetable impracticable under the applicable procurement rules.
  4. A long-term supply partnership requires agreement on schedules, improvements and risk sharing.
  5. Initial competitive offers are commercially unacceptable and permitted negotiations could improve value.
  6. Existing contract variations or changed market conditions require a documented adjustment to agreed obligations.

Question 3(b) — 8 marks

Payments in international purchasing often encounters fluctuations in currency exchange rates. Explain four ways in which buyers can deal with situation.

Answer

  1. Fix a future exchange rate through an approved forward exchange contract.
  2. Purchase a suitable currency option to limit adverse movements where appropriate.
  3. Match receipts and payments in the same currency to reduce net exposure.
  4. Negotiate home-currency invoicing or a clear exchange-adjustment formula that allocates currency risk.

Question 4(a) — 10 marks

Governments are key players in international purchasing. Explain five ways in which government policy interventions could adversely affect international purchasing.

Answer

  1. Higher import tariffs increase landed acquisition costs.
  2. Quotas or import bans restrict the quantities and categories available to buyers.
  3. Foreign-exchange controls can delay access to currency and payment transfers.
  4. Complex licensing and border procedures increase administration and clearance time.
  5. Sudden changes in product or local-content requirements may make existing sourcing arrangements noncompliant.

Question 4(b) — 10 marks

Technology is increasingly emerging as a useful tool in international commercial transactions. Explain five ways in which the use of Information Communication Technology could enhance efficiency in international purchasing.

Answer

  1. Electronic sourcing platforms make supplier identification and bid comparison faster.
  2. Instant communication helps clarify specifications and negotiate across distances.
  3. Electronic document exchange reduces re-entry errors and document movement time.
  4. Shipment tracking provides early warning of delays and improves receiving plans.
  5. Integrated order and payment records support approvals, performance analysis and audit.

Question 5(a) — 10 marks

Explain five ways in which international purchasing differs from domestic purchasing.

Answer

  1. International purchases cross national borders, while domestic purchases occur within one country.
  2. International transactions commonly expose buyers to foreign currencies, unlike many domestic transactions.
  3. Cross-border purchases require additional customs, origin and shipping documentation.
  4. International purchases involve several legal and regulatory environments rather than principally one domestic framework.
  5. Longer transport distances and additional intermediaries usually make international lead times and logistics coordination more complex.

Question 5(b) — 10 marks

Explain five elements which would constitute a valid international purchasing contract.

Answer

  1. Offer and acceptance: parties must reach a definite agreement on sufficiently certain terms.
  2. Consideration: each party provides an agreed exchange of value where required by the governing law.
  3. Capacity and authority: parties and their signatories must be legally able and authorised to contract.
  4. Genuine consent: agreement must not be undermined by fraud, coercion or another legally vitiating factor.
  5. Lawful purpose and required form: the transaction must be legal and meet applicable formalities under its governing law.

Question 6(a) — 12 marks

Negotiations involving foreign suppliers require proper preparations. Explain six aspects which the buyer should cover when preparing to negotiate with foreign suppliers.

Answer

  1. Define essential requirements and measurable negotiation objectives.
  2. Research the supplier’s capacity, financial position and likely bargaining interests.
  3. Analyse market prices and total landed cost to establish a defensible price range.
  4. Decide the negotiation team’s roles, approval limits and concession strategy.
  5. Prepare positions on currency, payment, delivery, quality and allocation of risks.
  6. Arrange relevant documents, agenda, language support and a credible alternative if agreement is not reached.

Question 6(b) — 8 marks

Explain four approaches that could be used in settling disputes arising from international purchasing transactions.

Answer

  1. Negotiation allows the parties to seek a settlement directly using the contract and transaction evidence.
  2. Mediation uses an impartial facilitator to help the parties reach a voluntary settlement.
  3. Arbitration refers the dispute to an agreed tribunal for an award under the arbitration arrangement.
  4. Litigation asks a competent court to determine the parties’ rights and remedies.

Question 7(a) — 10 marks

Explain five services which may be provided by the Ministry of Trade and Commerce to facilitate international purchasing in a country.

Answer

  1. Provides market and trade information to help firms identify sourcing opportunities.
  2. Facilitates trade fairs and business missions that introduce buyers and suppliers.
  3. Supports negotiation and implementation of trade cooperation arrangements.
  4. Coordinates trade facilitation and helps businesses understand applicable trade procedures.
  5. Provides commercial representation and guidance on resolving administrative trade obstacles.

Question 7(b) — 10 marks

Explain five risks a buyer is likely to encounter for using payments in advance method in international purchasing.

Answer

  1. Non-delivery: the seller may fail after receiving funds, leaving the buyer without the goods.
  2. Poor quality: money may already be paid before the buyer can inspect and reject unsuitable items.
  3. Late delivery: the buyer loses some commercial leverage after making full payment.
  4. Fraud: false suppliers or diverted banking details may cause unrecoverable payment loss.
  5. Cash-flow exposure: working capital is tied up during production and transit without the goods being available for use.
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