International Purchasing — Undated

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.

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Question 1(a) — 10 marks

Highlight the advantages of adopting global sourcing strategy in an organisation.

Answer

  1. Wider supplier choice improves access to competitive prices and services.
  2. Specialist materials and technologies become available beyond the local market.
  3. Additional capacity helps meet large or expanding requirements.
  4. Geographic diversification reduces dependence on one domestic supply source.
  5. Exposure to international practices supports innovation and purchasing improvement.

Question 1(b) — 10 marks

Explain the importance of trading blocs in international purchasing.

Answer

  1. Preferential access can reduce applicable tariffs for eligible goods traded between members.
  2. Larger integrated markets increase the range of potential suppliers and customers.
  3. Cooperation can simplify customs procedures and improve movement of goods.
  4. Common or mutually recognised requirements can reduce duplicated compliance effort.
  5. Joint infrastructure and policy coordination can improve regional logistics and commercial predictability.

Question 2(a) — 10 marks

Outline five types of players that are involved in international purchasing.

Answer

  1. Importers or buying organisations define requirements and place international orders.
  2. Exporters or overseas manufacturers supply the contracted goods.
  3. Banks and trade-finance providers facilitate payment and agreed financial security.
  4. Carriers, freight forwarders and clearing agents arrange transport and border processing.
  5. Governments and regulatory agencies enforce customs, safety and other trade requirements.

Question 2(b) — 10 marks

Explain the benefits of using a brand name to specify materials when purchasing from overseas market.

Answer

  1. A recognised brand can communicate an established product identity clearly.
  2. Previous user experience helps predict relevant performance and suitability.
  3. Standard branded models can simplify compatibility and replacement decisions.
  4. Established support networks may improve access to warranties, spares and service.
  5. Less detailed drafting may reduce specification time, while equivalent-product rules can preserve competition where required.

Question 3(a) — 10 marks

The supply chain manager of Kaki Limited is in the process of negotiating a supply contract with an overseas supplier. Highlight the aspects that would form the basis of the negotiations.

Answer

  1. Product specification, quality and quantity define what is to be supplied.
  2. Price, currency and discounts determine the financial bargain.
  3. Delivery schedule, named place and logistics responsibilities determine fulfilment.
  4. Payment method, credit period and any security allocate settlement risk.
  5. Warranty, remedies, governing law and dispute procedure determine how performance problems are handled.

Question 3(b) — 10 marks

Explain the legal considerations that a buyer may take into account when selecting a supplier from the international market.

Answer

  1. Verify that the supplier is legally established and authorised to enter the proposed transaction.
  2. Check whether import, export or restricted-party controls allow the proposed trade.
  3. Confirm that supplied goods meet applicable product, safety and environmental requirements.
  4. Check intellectual-property rights and the supplier’s authority to sell or license the goods.
  5. Assess contract enforceability, governing law and the practical availability of dispute remedies.

Question 4(a) — 8 marks

Jatim Limited intends to transport materials purchased from overseas market by sea. Explain four Incoterms that may be used through this mode of transport.

Answer

  1. FAS: the seller delivers alongside the vessel at the named shipment port; the buyer arranges main carriage.
  2. FOB: the seller delivers the goods on board the vessel at the named shipment port, where risk transfers.
  3. CFR: the seller pays freight to the named destination port, but risk transfers when goods are loaded on board at shipment.
  4. CIF: the seller pays freight and arranges the required minimum insurance to the destination port; risk still transfers on board at shipment.

Question 4(b) — 12 marks

Explain the risks that may be associated with the use of letters of credit in international purchasing.

Answer

  1. Documentary fraud can produce apparently compliant documents without genuine or conforming goods.
  2. Banks examine documents rather than the physical goods, so documentary compliance does not guarantee product quality.
  3. Discrepancies or missed deadlines can prevent payment and disrupt release of documents.
  4. Issuing-bank failure or country transfer restrictions can prevent expected settlement.
  5. Ambiguous or impractical credit terms can create disputes and costly amendments.
  6. Exchange-rate changes and bank fees can increase the total cost during the credit period.

Question 5(a) — 10 marks

Highlight the role of a country’s chambers of commerce in promoting international purchasing.

Answer

  1. Provides commercial information and directories to help locate potential partners.
  2. Organises trade fairs and networking events connecting buyers and suppliers.
  3. Represents business concerns in trade-policy discussions.
  4. Provides relevant trade-document services, such as origin certification where authorised.
  5. Offers training and commercial dispute-support services that improve international trading capability.

Question 5(b) — 10 marks

Maridadi Limited has been experiencing recurring disputes with suppliers. Explain the mechanisms that the company may use to resolve the disputes.

Answer

  1. Negotiation: the parties exchange evidence and seek an agreed settlement directly, preserving the commercial relationship.
  2. Mediation: an impartial facilitator helps the parties find a voluntary solution without imposing a decision.
  3. Conciliation: a neutral third party may investigate and propose settlement terms for the parties to accept.
  4. Arbitration: an agreed tribunal considers the dispute and issues an award under the applicable arbitration arrangement.
  5. Litigation: the competent court determines the dispute where agreement or other dispute procedures do not resolve it.

Question 6(a) — 10 marks

Explain the benefits that may accrue to an organisation from adopting the forward buying strategy in its purchasing operations.

Answer

  1. Agreed future quantities can protect supply against an anticipated shortage.
  2. Fixing a price in advance can protect against an expected price increase.
  3. Predictable supply commitments improve production and delivery planning.
  4. Consolidating requirements may support volume discounts and favourable terms.
  5. Fewer emergency orders can reduce expediting costs, provided forecasts and carrying costs justify the commitment.

Question 6(b) — 10 marks

Explain the measures that an organisation may take to cope with the challenge of currency fluctuations in international purchasing.

Answer

  1. Agree a forward exchange contract to fix the exchange rate for a known future foreign-currency payment.
  2. Use a currency option, where available, to limit adverse movements while retaining favourable exchange opportunities.
  3. Match foreign-currency receipts against payments so only the net exposure needs conversion.
  4. Negotiate a home-currency price or a clearly defined exchange-adjustment clause, agreeing who bears the risk.
  5. Monitor exposures and arrange payment timing or partial hedges within an approved treasury policy rather than speculate.

Question 7(a) — 10 marks

Deka Limited has opted for the open account method of payment to its overseas suppliers. Highlight the advantages of this option.

Answer

  1. The buyer receives goods before payment, improving working-capital availability.
  2. The credit period can allow inspection and identification of discrepancies before settlement.
  3. Simpler documentation can reduce banking fees compared with a documentary credit.
  4. Payment can be coordinated with operating receipts and agreed credit terms.
  5. A trusted relationship can make recurring purchases faster by avoiding repeated credit-opening procedures.

Question 7(b) — 10 marks

Outline the types of information contained in a packing list in the international purchasing process.

Answer

  1. Shipper and consignee details identify the parties linked to the shipment.
  2. Package numbers and shipping marks identify individual cases, pallets or containers.
  3. Description and quantity show the contents of each package.
  4. Gross weight, net weight and dimensions support handling and freight planning.
  5. Order, invoice and shipment references link the packing list to the corresponding commercial and transport records.
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