International Purchasing — 2020

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 2020

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

Question 1(a) — 10 marks

Explain five legal challenges a purchasing officer is likely to encounter in an international purchasing project.

Answer

  1. Different contract laws can create uncertainty about the parties’ enforceable obligations.
  2. Import licences, restrictions and customs requirements may prevent or delay entry of goods.
  3. Disagreement on governing law and dispute forum can make claims costly to pursue.
  4. Intellectual-property restrictions may limit the lawful use or importation of particular products.
  5. Differences in product safety, environmental and other mandatory standards can require additional compliance work.

Question 1(b) — 10 marks

Outline five limitations of using technical specifications in international purchasing.

Answer

  1. Preparing detailed accurate requirements can require costly specialist expertise.
  2. Excessively rigid specifications may exclude innovative or better-value alternatives.
  3. Differences in units, standards or translation can cause supplier misunderstanding.
  4. Incorrect or outdated requirements can result in technically compliant but unsuitable goods.
  5. Complex inspection may be needed to verify every specified characteristic, increasing cost and delay.

Question 2(a) — 10 marks

Many firms in the manufacturing sector have embraced international purchasing. Provide justifications for this trend.

Answer

  1. Foreign producers may supply materials unavailable locally in the required grade.
  2. International price competition can reduce total acquisition cost.
  3. Specialist technology and equipment may improve manufacturing capability.
  4. Access to greater supplier capacity can support expansion and large orders.
  5. Diversified international sources can reduce exposure to a single domestic supplier or local shortage.

Question 2(b) — 10 marks

International purchasing undertakings are likely to face economic risks. Outline five ways of dealing with such risks.

Answer

  1. Use approved currency hedges or currency-matching arrangements for identifiable exchange exposure.
  2. Diversify sources and routes to reduce dependence on one economy or supply market.
  3. Agree transparent pricing and adjustment provisions to manage inflation and commodity-price changes.
  4. Use suitable payment security and credit checks to reduce supplier and banking exposure.
  5. Monitor economic conditions and maintain realistic contingencies for finance, stock and delivery disruptions.

Question 3(a) — 10 marks

Explain five advantages to an organisation which adopts green purchasing strategy in its international purchasing.

Answer

  1. Lower resource consumption can reduce energy, material and waste costs over the product’s life.
  2. Safer materials can reduce environmental and occupational-health exposure.
  3. More responsible sourcing can improve reputation with customers and commercial partners.
  4. Environmental requirements help reduce the risk of noncompliance and costly remedial work.
  5. Demand for efficient recyclable products can encourage innovation and reduce disposal burdens.

Question 3(b) — 10 marks

Explain the limitations that a firm would encounter from using counter trade strategy in international purchasing.

Answer

  1. Finding a supplier willing to accept the firm’s goods can be difficult.
  2. Agreeing fair values and quality for both sides of the exchange can prolong negotiation.
  3. The firm may receive goods that are difficult to use or resell.
  4. Extra transport, storage and intermediary arrangements increase transaction costs.
  5. Linked obligations make the transaction inflexible and expose each purchase to failure of the reciprocal sale.

Question 4(a) — 10 marks

Explain five measures that a purchasing organisation can put in place to deal with unethical conduct by its staff in international purchasing ventures.

Answer

  1. Publish a clear code covering gifts, bribery, conflicts of interest and confidentiality.
  2. Train staff using relevant examples so prohibited conduct and reporting duties are understood.
  3. Separate requisition, evaluation, approval, receipt and payment responsibilities to reduce unchecked control.
  4. Audit transactions and provide a protected reporting channel for suspected misconduct.
  5. Investigate fairly and apply consistent disciplinary or legal action where wrongdoing is established.

Question 4(b) — 10 marks

Explain five challenges facing the Kenya Bureau of Standards (KEBS) in certifying quality of imports in the country.

Answer

  1. Large import volumes can exceed available inspection and testing capacity.
  2. Limited specialist staff or laboratory equipment can delay assessment of complex products.
  3. Counterfeit certificates and misleading documentation make verification more difficult.
  4. Rapid product and technology changes require updated technical knowledge and testing methods.
  5. Coordination across ports, customs, overseas assessment bodies and other agencies can be slow or inconsistent.

Question 5(a) — 10 marks

Explain five ways in which the supplier monopoly can be acquired in the international commodity market.

Answer

  1. Exclusive control of a scarce raw-material source can prevent rivals from obtaining essential inputs.
  2. Patent or other lawful exclusive rights can temporarily restrict competing production of a protected product.
  3. Acquisition or merger of major competitors can concentrate market supply.
  4. Exclusive access to distribution or production infrastructure can make entry difficult for rivals.
  5. Strong economies of scale and very high entry costs can leave one supplier commercially dominant; restrictive conduct remains subject to applicable competition rules.

Question 5(b) — 10 marks

Outline five demerits of adopting cryptocurrencies in settling international purchasing contracts payments.

Answer

  1. Price volatility can change the real value of payment before it is converted.
  2. Limited acceptance may prevent suppliers and service providers from using the same settlement method.
  3. Theft, lost credentials or payment-address errors can cause difficult-to-recover losses.
  4. Regulatory and accounting uncertainty can complicate lawful reporting and transaction approval.
  5. Irreversible transfers and weak dispute remedies can reduce protection when the supplier fails to perform.

Question 6(a) — 10 marks

Describe the role of the IMF in promoting international purchasing activities.

Answer

  1. Provides balance-of-payments support that can help member countries address external-financing difficulties.
  2. Monitors economic and exchange-rate developments and advises on policies supporting stability.
  3. Encourages international monetary cooperation and more orderly exchange arrangements.
  4. Provides technical assistance on public finance, monetary policy and related economic institutions.
  5. Supports confidence and economic adjustment that can help restore conditions for legitimate trade and payments; it does not normally finance individual purchase orders.

Question 6(b) — 10 marks

One of the documents used for conveyance in international purchasing is a bill of lading. Outline the contents of a bill of lading.

Answer

  1. Names of the shipper, consignee and any notify party identify the relevant cargo interests.
  2. Carrier and vessel details identify who undertakes the carriage.
  3. Ports of loading and discharge identify the agreed sea movement.
  4. Description, package count, weight and shipping marks identify the cargo received.
  5. Shipment date, bill number, freight notation and carrier signature record key terms and evidence of issue.

Question 7(a) — 10 marks

Explain five adverse effects to a purchasing organisation of not sourcing internationally.

Answer

  1. The organisation may lack specialist materials or equipment unavailable locally.
  2. Restricted supplier choice can weaken competition and bargaining power.
  3. Limited domestic capacity can expose the buyer to shortages during demand growth.
  4. Higher local input prices may reduce the organisation’s cost competitiveness.
  5. Reduced exposure to international technology and product developments can slow innovation.

Question 7(b) — 10 marks

One of the global market trends is emphasis on quality. Explain five dimensions of quality that a purchasing organisation should pursue when purchasing a capital equipment for use.

Answer

  1. Performance: the equipment must achieve its required output, accuracy and operating capacity.
  2. Reliability: it should operate consistently with a low frequency of breakdowns.
  3. Durability: useful operating life should justify its acquisition and replacement cost.
  4. Conformance: the supplied equipment must meet agreed technical and safety requirements.
  5. Serviceability: maintenance, repairs, spare parts and technical support should be accessible and timely.
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