International Purchasing — 2024

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 2024

Paper codes: 2903/304; 3305
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 factors that may have contributed to the growth of global sourcing approach in the procurement process.

Answer

  1. Improved transport links make distant suppliers accessible at more competitive delivery costs.
  2. Digital communication and e-procurement make supplier discovery, comparison and ordering faster across borders.
  3. Trade cooperation and reduced barriers can widen the range of economically accessible markets.
  4. Pressure to reduce total acquisition costs encourages buyers to compare international production advantages.
  5. Demand for specialist technology and quality inputs encourages sourcing beyond the domestic supplier base.

Question 1(b) — 10 marks

Some organisations prefer using the International Standards when specifying material requirements in international purchasing. Explain five reasons that may account for this preference.

Answer

  1. Common language: recognised standards make technical requirements easier for buyers and foreign suppliers to interpret consistently.
  2. Objective evaluation: measurable requirements allow bids and samples to be compared on the same basis.
  3. Quality consistency: agreed tests and tolerances help maintain repeatable performance across deliveries.
  4. Lower specification effort: existing standards reduce the need to draft every technical detail from scratch.
  5. Wider sourcing: standard requirements can be met by several qualified suppliers, improving competition and interchangeability.

Question 2(a) — 10 marks

Samadi Limited intends to adapt the counter trade sourcing strategy in its international purchasing operations. Explain five advantages of adopting such a strategy.

Answer

  1. Foreign-exchange conservation: part or all of the purchase is settled with goods rather than scarce convertible currency.
  2. Market access: reciprocal arrangements may open markets that ordinary cash sales cannot easily enter.
  3. Disposal of output: goods accepted in exchange create an additional outlet for the company’s products.
  4. Continued supply: purchases can proceed where currency shortages would otherwise prevent an ordinary transaction.
  5. Commercial relationships: mutual buying commitments may support longer-term cooperation and more predictable business.

Question 2(b) — 10 marks

Explain five challenges that an organisation may face during international contract negotiations.

Answer

  1. Language differences may distort technical terms and require competent translation.
  2. Different legal systems make agreement on governing law, jurisdiction and enforceable terms difficult.
  3. Cultural differences affect bargaining styles, communication and expectations about commitments.
  4. Exchange-rate uncertainty makes prices and payment currencies difficult to settle fairly.
  5. Distance, time zones and travel costs slow meetings, verification and exchange of documents.

Question 3(a) — 10 marks

Outline five types of information that should be included in a commercial invoice.

Answer

  1. Names and addresses of the seller and buyer identify the contracting parties.
  2. Invoice number, invoice date and purchase-order reference identify the transaction.
  3. Description, quantity and relevant product identifiers identify the goods being charged.
  4. Unit prices, discounts, total amount and currency state the financial claim.
  5. Agreed delivery terms, payment terms and relevant shipment details explain settlement and delivery obligations.

Question 3(b) — 10 marks

Explain five roles that the government is expected to play in promoting international purchasing activities.

Answer

  1. Provide reliable ports, roads and communications so imports move efficiently to users.
  2. Negotiate trade cooperation and predictable market access to reduce unnecessary obstacles.
  3. Operate clear customs and licensing procedures that allow legitimate consignments to be cleared promptly.
  4. Supply trade information and commercial representation to help firms identify credible foreign partners.
  5. Support stable economic and financial conditions that facilitate legitimate cross-border settlement.

Question 4(a) — 10 marks

Diko Limited recently decided to be purchasing its material requirements from an international markets. Explain five challenges that the company may face as a result of this decision.

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.

Question 4(b) — 10 marks

Explain the importance of a bill of lading in international purchasing.

Answer

  1. Receipt for cargo: it records that the carrier received the stated goods for carriage, subject to its qualifications.
  2. Evidence of carriage: it records the carriage terms and identifies the relevant shipment.
  3. Control of delivery: a negotiable original may function as a document of title and must be handled securely.
  4. Documentary payment: the bill may be required under a letter of credit or documentary collection.
  5. Claims and clearance: shipment details and recorded condition help trace cargo, arrange clearance and support loss or damage claims.

Question 5(a) — 10 marks

Explain five ethical issues that may be encountered by organisations involved in international purchasing.

Answer

  1. Bribery: staff or agents may seek improper payments to influence awards or clearance.
  2. Conflicts of interest: a buyer may favour a supplier because of an undisclosed personal benefit.
  3. Misrepresentation: suppliers or buyers may falsify quality, origin, quantity or shipping documentation.
  4. Labour abuse: a supplier may use unsafe working conditions or exploitative labour practices.
  5. Environmental harm: purchases may encourage prohibited dumping, pollution or unsustainable extraction.

Question 5(b) — 10 marks

Kipodo limited outsources all its international purchasing activities. Explain five benefits that may accrue to the organisation from such a practice.

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 6(a) — 10 marks

Explain five challenge that a Kenyan organisation may face when purchasing its material requirements from a supplier within the East Africa Cooperation (EAC) economic block.

Answer

  1. Border paperwork and inconsistent application of procedures can still delay regional consignments.
  2. Road congestion and unreliable transport links increase delivery time and handling costs.
  3. Different product requirements or disputed certificates may require additional checks.
  4. Currency movements and banking charges complicate payment even within the region.
  5. Limited supplier capacity or regional disruptions can prevent agreed quantities being supplied on time.

Question 6(b) — 10 marks

Outline five advantages of using a letter of credit to make payment in international purchasing.

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 7(a) — 10 marks

Explain five factors that may load to delays in setting payment claims due to foreign suppliers.

Answer

  1. Invoice discrepancies, such as a wrong price or quantity, require reconciliation before approval.
  2. Missing shipping, inspection or acceptance documents prevent verification of the supplier’s claim.
  3. Foreign-currency shortages or exchange-control requirements can delay conversion and transfer.
  4. Slow internal approval procedures or insufficient available funds postpone payment authorisation.
  5. Banking errors, incorrect account details and required compliance checks can hold up international transfers.

Question 7(b) — 10 marks

Explain five reasons that make it necessary to include International Commercial Terms (INCOTERMS) in contractual commitment with foreign suppliers.

Answer

  1. Delivery clarity: a named rule and place identify the seller’s delivery obligation and the point of risk transfer.
  2. Cost allocation: the rule divides relevant carriage, handling and other delivery costs between buyer and seller.
  3. Customs responsibilities: the parties can identify who undertakes export or import formalities under the chosen rule.
  4. Logistics planning: the allocation of carriage and, for applicable rules, insurance obligations helps arrange shipment.
  5. Fewer disputes: internationally understood terminology reduces ambiguous delivery promises; payment and ownership still need separate contract clauses.

November 2024

Paper codes: 2903/304; 3305
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 measures that an organisation may put in place to enhance efficiency in international sourcing operations.

Answer

  1. Plan demand and sourcing early so long lead times do not create emergency purchases.
  2. Prequalify suppliers using capacity, quality and delivery evidence to reduce unreliable awards.
  3. Use integrated electronic records to track orders, documents, shipments and payment approvals.
  4. Agree clear specifications and delivery terms so suppliers can execute orders correctly the first time.
  5. Monitor lead time, quality and total landed cost, then address recurring delays with responsible suppliers and agents.

Question 1(b) — 10 marks

Some organisations prefer to use the arbitration method of solving disputes in international purchasing. Explain five reasons that may account for this preference.

Answer

  1. Neutrality: parties can agree a neutral seat and tribunal rather than use one party’s domestic court.
  2. Expertise: arbitrators can be selected for relevant commercial or technical knowledge.
  3. Procedural flexibility: agreed rules can suit the transaction and the parties’ circumstances.
  4. Privacy: proceedings can be more private than ordinary court hearings, subject to applicable rules and agreement.
  5. Enforceable outcome: an award may be recognised across borders under applicable enforcement arrangements, although enforcement is not automatic.

Question 2(a) — 10 marks

Explain five disadvantages of an organisation adopting the reciprocal trading strategy in sourcing for materials requirements from foreign suppliers.

Answer

  1. Restricted supplier choice may prevent selection of the best quality or lowest total-cost offer.
  2. Reciprocal obligations may force purchases that exceed genuine operational requirements.
  3. Valuing exchanged goods is difficult where prices, quality or currencies differ.
  4. Complex negotiations and documentation increase administrative and transaction costs.
  5. Dependence on the reciprocal partner may weaken competitive pressure and interrupt supply if that partner fails.

Question 2(b) — 10 marks

Explain five challenges that a purchasing organisation may face when operating in international commodity market.

Answer

  1. World prices can change rapidly because of weather, production shocks and speculative activity.
  2. Currency movements can alter the buyer’s effective acquisition cost.
  3. Quality grades and contract specifications require specialist interpretation and inspection.
  4. Shipment delays or shortages may occur when commodity supplies are concentrated in a few countries.
  5. Counterparty and settlement risks arise when a seller or intermediary cannot perform its commitments.

Question 3(a) — 10 marks

Sakawa Limited has just received an Invoice from a foreign supplier. Explain five factors that the organisation may consider before making payment to such a supplier.

Answer

  1. Match quantities and prices against the approved purchase order and contract.
  2. Confirm receipt and acceptance of goods, or satisfaction of the agreed advance or documentary payment condition.
  3. Check supporting shipping, inspection and commercial documents for consistency.
  4. Verify the due date, payment currency, bank charges and any agreed discount.
  5. Independently verify authorised bank details and payment approval to reduce diversion and duplicate-payment risk.

Question 3(b) — 10 marks

Outline five roles that the World Trade Organisation (WTO) is expected to play in promoting purchasing operations.

Answer

  1. Provides a framework for negotiating international trade agreements and reducing agreed barriers.
  2. Administers trade agreements so members have common rules for cross-border commerce.
  3. Offers a dispute-settlement framework for trade disagreements between member governments.
  4. Reviews members’ trade policies to improve transparency and predictability.
  5. Provides technical assistance and training to help developing members participate in the trading system.

Question 4(a) — 10 marks

Explain five reasons that make it necessary for an organisation to purchase its material requirements from international market.

Answer

  1. Some required materials or technologies are unavailable from domestic suppliers.
  2. Overseas producers may offer lower total landed costs because of scale or production advantages.
  3. Specialist suppliers may provide higher or more consistent technical quality.
  4. Additional sources reduce dependence on a limited domestic supplier base.
  5. International markets may supply larger quantities or a wider product range than local capacity permits.

Question 4(b) — 10 marks

Pipo Limited has been contracting with ISO certified suppliers in the International market. Explain five benefits that may accrue to the organisation from such a practice.

Answer

  1. A certified relevant management system gives evidence of documented and externally assessed working processes.
  2. More consistent process control can reduce defects and variation in supplied items.
  3. Traceable records make corrective action and investigation of delivery problems easier.
  4. Common management-system language can simplify supplier evaluation and communication.
  5. Continual-improvement practices can support better performance over time; certification does not itself guarantee every product’s quality.

Question 5(a) — 10 marks

Explain five challenges that an organisation may face when entering into international purchase contracts.

Answer

  1. Different legal systems complicate agreement on governing law and dispute jurisdiction.
  2. Language and terminology differences can produce ambiguous obligations.
  3. Exchange-rate and payment risks make price and settlement arrangements difficult to allocate.
  4. Distance makes verification of supplier capacity and authenticity more expensive.
  5. Trade restrictions and changing import requirements can affect the feasibility of contractual delivery.

Question 5(b) — 10 marks

Outline five advantages of using overseas agents when undertaking International purchasing.

Answer

  1. Local market knowledge helps identify credible suppliers and realistic prices.
  2. Language and cultural knowledge improves communication and negotiation.
  3. Nearby representation allows faster inspections and follow-up of production problems.
  4. Existing logistics and administrative contacts may speed shipment arrangements.
  5. Reduced need for frequent overseas travel saves the buyer time and operating costs.

Question 6(a) — 12 marks

Describe six steps that are followed when paying for goods using a letter of credit.

Answer

  1. Buyer and seller agree the sales contract, credit type and required documents.
  2. The buyer applies to its issuing bank and arranges the required credit facility or security.
  3. The issuing bank issues the credit through an advising bank for notification to the seller.
  4. The seller checks the credit, ships conforming goods and obtains the stipulated documents.
  5. The seller presents documents within the credit deadlines; banks examine them for compliance.
  6. For a complying presentation, payment or the promised deferred-payment undertaking follows the credit terms, and the buyer obtains documents for delivery.

Question 6(b) — 8 marks

Explain four benefits that a Kenyan organisation may derive from buying its material requirements from a supplier within the COMESA economic block.

Answer

  1. Eligible originating goods may receive preferential tariff treatment under the applicable regional arrangements.
  2. Regional supplier choice can improve competition and access to required materials.
  3. Regional cooperation can simplify trade procedures and reduce avoidable administrative barriers.
  4. Shorter regional supply routes may reduce lead times and transport costs compared with distant sources.

Question 7(a) — 10 marks

Explain five factors that an organisation may consider when determining the payment method to use in International purchasing.

Answer

  1. Supplier reliability and the history of the relationship determine acceptable counterparty exposure.
  2. Country, banking and transfer risks affect the security of settlement.
  3. Order value and the organisation’s cash-flow position determine the financing burden.
  4. Bank fees and documentary costs affect the total transaction cost.
  5. Bargaining power, contract terms and the need for shipment evidence influence the balance of protection for both parties.

Question 7(b) — 10 marks

Outline five roles that intermediaries play in international purchasing.

Answer

  1. Identify and introduce potential suppliers or buyers in foreign markets.
  2. Facilitate negotiations by providing local language and commercial knowledge.
  3. Arrange freight, consolidation, insurance or other agreed logistics services.
  4. Prepare and process relevant customs and shipping documents.
  5. Provide market intelligence and follow up delivery or quality problems on the buyer’s behalf.
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