Purchasing and Supply Strategy — 2021

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 2021

Paper codes: 2903/301; 3307
Time: Not shown in supplied scan
Instructions: Cover instructions not included in supplied scan.

Question 1(a) — 10 marks

Outline five circumstances that may make it necessary for an organisation to formulate a new purchasing strategy.

Answer

  1. Corporate objectives or business activities have changed materially.
  2. Existing sourcing arrangements fail to meet cost, quality or service targets.
  3. New technology creates better purchasing or production options.
  4. Supplier-market changes create shortages, concentration or new opportunities.
  5. New legal requirements, risks or stakeholder expectations make the current strategy unsuitable.

Question 1(b) — 10 marks

Outline five objectives of Strategic supply chain management in an organisation.

Answer

  1. Ensure reliable availability of required materials and services.
  2. Minimise total supply cost while meeting quality and service requirements.
  3. Develop capable suppliers and constructive long-term relationships.
  4. Manage supply risks and support continuity, ethics and applicable compliance.
  5. Align supply-chain capability and innovation with corporate growth and customer objectives.

Question 2(a) — 10 marks

Explain five indicators of operational purchasing performance in an organisation.

Answer

  1. Cost measures compare total landed or purchasing process costs with appropriate budgets or benchmarks.
  2. Delivery measures track on-time receipt and supplier lead time against commitments.
  3. Quality measures track defects, rejection rates and conformity to specifications.
  4. Inventory measures track turnover, stock availability and obsolete or slow-moving balances.
  5. Service measures track user satisfaction, order fulfilment and response to purchasing requests.

Question 2(b) — 10 marks

TPT Limited is considering adopting outsourcing strategy in its operations. Advise the Management on five activities that the company may not outsource.

Answer

  1. Core activities that create the company’s distinctive competitive advantage should normally remain under strong internal control.
  2. Final corporate strategy and major policy decisions require accountable internal ownership.
  3. Statutory or fiduciary responsibilities cannot be transferred merely by appointing an external provider.
  4. Activities involving highly sensitive intellectual property may be retained where safeguards cannot adequately control exposure.
  5. Critical safety, continuity or quality decisions may remain internal where supplier dependence would create unacceptable risk.

Question 3(a) — 10 marks

Kaka has been incorporated in the top management team as a purchasing and supply expert by his company. Explain the skills that he will be expected to possess in such a capacity.

Answer

  1. Strategic and conceptual skills connect supply decisions with corporate direction and interdependent business functions.
  2. Analytical and financial skills support total-cost appraisal, risk assessment and evidence-based decisions.
  3. Negotiation and relationship skills help secure value and cooperation from suppliers and internal stakeholders.
  4. Leadership and communication skills align teams around priorities and manage change.
  5. Technical purchasing and market knowledge supports sound decisions on sourcing, contracts, quality and logistics.

Question 3(b) — 10 marks

Outline five ways in which a buying firm may enhance a positive relationship with its suppliers.

Answer

  1. Provide clear specifications and realistic forecasts to support supplier planning.
  2. Pay accurate approved claims within the agreed terms.
  3. Communicate promptly about changes, problems and performance expectations.
  4. Treat suppliers fairly and resolve disputes using agreed evidence and procedures.
  5. Cooperate on suitable improvement activities and recognise dependable performance.

Question 4(a) — 10 marks

Setting performance standard is part of strategic evaluation and control process in purchasing and supply. Outline five activities carried out in this process.

Answer

  1. Set relevant measurable standards linked to supply objectives.
  2. Collect reliable data on actual performance.
  3. Compare actual results with agreed targets.
  4. Analyse material deviations and identify their causes.
  5. Implement corrective action and review whether performance improves.

Question 4(b) — 10 marks

Explain five merits that a buying organization may derive from adopting a team organizational structure in its operations.

Answer

  1. Different specialists contribute a broader range of information and practical experience.
  2. Joint discussion exposes weak assumptions and improves the quality of proposals.
  3. Participation builds ownership and reduces resistance during implementation.
  4. Cross-functional involvement aligns purchasing policy with finance, operations and user needs.
  5. Shared problem-solving improves communication and understanding between departments.

Question 5(a) — 10 marks

Outline five reasons that may make it necessary for an organisation to conduct purchasing performance audits.

Answer

  1. Shows whether cost, quality, delivery and service objectives are being achieved.
  2. Identifies inefficiencies, waste and recurrent causes of poor performance.
  3. Provides evidence for corrective action and resource allocation.
  4. Supports accountability for suppliers, employees and responsible managers.
  5. Supplies benchmarks and lessons that improve future plans and purchasing decisions.

Question 5(b) — 10 marks

Outline five strategies that may be adopted at corporate level of a buying organization to enhance its growth.

Answer

  1. Market penetration increases sales of existing offerings in current markets.
  2. Market development takes existing offerings into new geographic or customer markets.
  3. Product development adds new or improved offerings for existing customers.
  4. Diversification enters new products or businesses to create additional growth sources.
  5. Integration, merger or acquisition expands control of supply, distribution or related businesses where justified.

Question 6(a) — 10 marks

Explain five measures that a supply organization may put in place in order to improve the quality of its products.

Answer

  1. Define clear customer requirements and measurable product specifications.
  2. Select capable suppliers and verify the quality of incoming materials.
  3. Train employees and standardise reliable production methods.
  4. Monitor process and product quality and investigate defects at their causes.
  5. Use customer feedback and continual improvement to prevent recurring failures.

Question 6(b) — 10 marks

Outline five demerits of adopting a vertical organizational structure in a purchasing firm.

Answer

  1. Several approval levels can slow purchasing decisions.
  2. Messages may become distorted as they pass through many reporting layers.
  3. Additional management levels increase administrative costs.
  4. Employees may have limited autonomy and become less responsive to users.
  5. Departmental and hierarchical barriers can weaken cooperation and innovation.

Question 7(a) — 10 marks

Mamba Limited deals with a critical material provided by few suppliers. With regard to the porters five forces model, outline five strategic decisions that the company may make to address the situation.

Answer

  1. Develop or qualify alternative suppliers to reduce the existing suppliers’ bargaining power.
  2. Investigate technically acceptable substitute materials or processes.
  3. Build a justified long-term agreement that secures capacity and clear performance commitments.
  4. Consolidate suitable demand or collaborate lawfully with other buyers to improve bargaining strength.
  5. Evaluate backward integration or supplier development where internal capability and economics support greater supply control.

Question 7(b) — 10 marks

Explain five factors that may be considered when formulating purchasing and supply policies in an organization.

Answer

  1. Corporate objectives determine the quality, cost, growth and service results purchasing must support.
  2. Characteristics and criticality of purchased items determine suitable sourcing and stock arrangements.
  3. Supplier-market capacity, competition and bargaining power affect available options.
  4. Financial, technological and staffing resources determine what the organisation can implement.
  5. Legal requirements, demand uncertainty and other environmental risks affect feasible choices.

November 2021

Paper codes: 2903/301; 3307
Time: Not shown in supplied scan
Instructions: Cover instructions not included in supplied scan.

Question 1(a) — 10 marks

Chunga Limited has decided to adopt the strategic management approach in its procurement operations. Outline five reasons that may have influenced the company to make such a decision.

Answer

  1. Aligns sourcing, inventory and logistics decisions with the organisation’s long-term objectives.
  2. Anticipates supply-market threats and prepares alternatives before disruption occurs.
  3. Directs scarce resources to purchasing priorities with the greatest organisational value.
  4. Coordinates departments and suppliers around agreed quality, cost and delivery requirements.
  5. Establishes measurable goals and review arrangements that support continual improvement.

Question 1(b) — 10 marks

You have been included in a team tasked to develop a strategic plan for a certain purchasing organization. Highlight five activities that the team will be expected to carryout at the strategy development stage.

Answer

  1. Review corporate mission and objectives to define purchasing’s required contribution.
  2. Analyse internal capabilities and the external supplier-market environment.
  3. Establish clear supply-chain objectives and performance priorities.
  4. Generate and evaluate feasible strategic options for sourcing, inventory and logistics.
  5. Select a coherent strategy and specify the resources, responsibilities and broad implementation arrangements.

Question 2(a) — 10 marks

Anga Enterprises completed the development of its supply chain management policies. Explain five benefits that may accrue to the enterprise from developing such policies.

Answer

  1. Clarifies approved purchasing principles and expected conduct for staff.
  2. Promotes consistent decisions across departments and locations.
  3. Defines authority and responsibility, reducing unauthorised actions.
  4. Reduces repeated routine decisions by providing guidance for recurring situations.
  5. Supports training, accountability and compliance reviews through an agreed reference.

Question 2(b) — 10 marks

ABC Limited intends to adopt the functional organizational structure for its supply chain management function. Explain five factors that the company may consider in this regard.

Answer

  1. Organisational size and geographic spread determine the coordination required.
  2. Nature and volume of purchases determine the specialist tasks to be organised.
  3. Corporate strategy and the desired degree of central control influence authority arrangements.
  4. Staff skills and management capacity determine feasible delegation and supervision.
  5. Available finance, technology and communication systems influence the cost and practicality of the structure.

Question 3(a) — 10 marks

A certain organization has adopted the lean supply chain strategy in its operations. Describe five operational features of this strategy.

Answer

  1. Waste elimination removes activities that consume resources without adding customer value.
  2. Smooth process flow reduces waiting, unnecessary movement and repeated handling.
  3. Demand-based replenishment limits excess production and inventory.
  4. Quality at source prevents defects rather than relying solely on final inspection.
  5. Continual improvement and close supplier coordination improve reliability and efficiency.

Question 3(b) — 10 marks

Explain five factors that may account for the failure of an organization to evaluate the performance of its supply chain management function.

Answer

  1. The organisation may lack clear objectives and relevant performance standards.
  2. Poor records and fragmented systems may prevent reliable measurement.
  3. Staff may lack analytical skills, time or measurement resources.
  4. Management may give evaluation low priority or fail to assign responsibility.
  5. Fear of criticism or resistance to accountability may discourage reporting and review.

Question 4(a) — 10 marks

Mrs. Sapa, the supply chain manager at Kombek Limited intends to evaluate the performance of the strategies in her department. Highlight five aspects that she should cover when carrying out the task.

Answer

  1. Achievement of agreed cost and value-for-money targets.
  2. Quality conformity and the level of rejected or defective supplies.
  3. Delivery reliability, lead times and continuity of required supply.
  4. Inventory utilisation, availability and exposure to obsolete stock.
  5. Contribution to user satisfaction, risk control and the organisation’s wider strategic objectives.

Question 4(b) — 10 marks

Explain five measures that a supplies manager should take to enhance effective implementation of the supply policy manual in an organization.

Answer

  1. Obtain clear management approval and communicate the policy’s purpose and authority.
  2. Provide accessible controlled copies and explain relevant provisions to users.
  3. Train staff and suppliers where new procedures affect their responsibilities.
  4. Allocate adequate resources and define responsibility for implementation and support.
  5. Monitor compliance, resolve practical problems and review the manual when evidence justifies changes.

Question 5(a) — 10 marks

Dindo Limited has decided to adopt agile strategies in its supply chain management function. Explain five advantages to the company of adopting such strategies.

Answer

  1. Responds faster to changing customer requirements and demand patterns.
  2. Adjusts sourcing and capacity more flexibly when market conditions change.
  3. Supports customised products and smaller varied orders.
  4. Uses timely information and collaboration to shorten response lead times.
  5. Improves resilience by enabling rapid alternatives when suppliers or routes are disrupted.

Question 5(b) — 10 marks

The supplies manager of XYZ Limited is reluctant to adopt decentralization of its supply chain function. Outline five reasons that may account for the reluctance.

Answer

  1. Local buying may lose the volume discounts available from consolidated demand.
  2. Different units may apply inconsistent specifications and policies.
  3. Specialist staff and systems may be duplicated at greater total cost.
  4. Organisation-wide spending and supplier performance may become harder to control.
  5. Smaller local teams may lack the expertise or bargaining power needed for complex purchases.

Question 6(a) — 10 marks

Explain five factors that an organization may consider when preparing a strategic plan for its supply chain management function.

Answer

  1. Corporate objectives determine the quality, cost, growth and service results purchasing must support.
  2. Characteristics and criticality of purchased items determine suitable sourcing and stock arrangements.
  3. Supplier-market capacity, competition and bargaining power affect available options.
  4. Financial, technological and staffing resources determine what the organisation can implement.
  5. Legal requirements, demand uncertainty and other environmental risks affect feasible choices.

Question 6(b) — 10 marks

There are certain factors which may hinder effective implementation of the consortia sourcing strategy in an organization. Highlight five such factors.

Answer

  1. Members may have incompatible specifications, quality requirements or delivery schedules.
  2. Different priorities and bargaining power can make collective decisions difficult.
  3. Members may be unwilling to share sensitive demand and commercial information.
  4. Weak governance and unclear allocation of costs or benefits can create disputes.
  5. Failure by some members to honour volume or payment commitments can undermine the consortium’s agreements.

Question 7(a) — 10 marks

Highlight five decisions that may be made at the business level in the strategic management of an organization.

Answer

  1. Choose the customer segments and markets in which the business will compete.
  2. Select a competitive approach, such as cost leadership, differentiation or focus.
  3. Define the product or service value proposition offered to target customers.
  4. Decide the capabilities and supplier relationships needed to deliver that competitive position.
  5. Set business growth, service and profitability priorities within the corporate direction.

Question 7(b) — 10 marks

Chebe Limited recently undertook a measurement exercise of the performance of its supply chain management function. Explain five ways in which the results obtained may be used in the organization.

Answer

  1. Prioritise corrective action on identified cost, quality and delivery weaknesses.
  2. Review sourcing policies, procedures and performance targets using the findings.
  3. Allocate resources or training to areas with demonstrated capability gaps.
  4. Support fair appraisal and accountability based on verified performance evidence.
  5. Monitor improvement by comparing later results with the report’s baseline and recommendations.
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