Purchasing and Supply Strategy — 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: 2903/301; 3307
Time: Not shown in supplied scan
Instructions: Cover instructions not included in supplied scan.

Question 1(a) — 10 marks

Outline five reasons that make a vision statement an important aspect in strategy formulation process in a purchasing organization.

Answer

  1. Clarifies the desired future position of the purchasing organisation.
  2. Gives staff a common direction when choosing strategic priorities.
  3. Inspires commitment by connecting daily work to a meaningful future goal.
  4. Guides resource allocation and evaluation of alternative strategies.
  5. Provides a reference for testing whether proposed objectives support the intended long-term direction.

Question 1(b) — 10 marks

Explain five ways in which strategic supply chain management may enable an organization to achieve its goals.

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 2(a) — 10 marks

Explain five benefits that an organization may derive from measuring its purchasing performance.

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 2(b) — 10 marks

One of the ways in which purchasing function may contribute to corporate strategy is by allocating purchases to qualified suppliers. Outline five ways in which such allocation may enhance an organization’s competitiveness.

Answer

  1. Capable suppliers provide consistent quality, reducing failures and customer complaints.
  2. Reliable delivery supports production continuity and dependable customer service.
  3. Competitive total costs improve margins or allow more attractive market prices.
  4. Supplier expertise and innovation can improve products and operating methods.
  5. Verified capacity and sound relationships reduce disruption risk and support business growth.

Question 3(a) — 10 marks

John is an employee in the middle management level of a buying organization. Outline five activities which he is expected to perform in such a capacity.

Answer

  1. Translate supply strategy into departmental procurement plans and medium-term budgets.
  2. Select and negotiate supply contracts within approved sourcing policy.
  3. Set inventory parameters and delivery programmes for expected operating demand.
  4. Allocate departmental people and resources to the agreed purchasing work.
  5. Review supplier and purchasing performance and coordinate corrective action with operating teams.

Question 3(b) — 10 marks

In the recent past, the Kenyan government has put emphasis on the need to award business contracts to qualified minority suppliers. Explain five ways in which a public organization may support such suppliers.

Answer

  1. Provide clear information on relevant opportunities and qualification requirements.
  2. Offer lawful training and guidance on tender preparation and procurement procedures.
  3. Use appropriate lot sizes and proportionate requirements where permitted to improve access.
  4. Apply the applicable reserved or preference arrangements fairly and transparently.
  5. Pay verified approved invoices promptly and provide constructive performance feedback to support sustainable participation.

Question 4(a) — 10 marks

Outline five features of a product at cash cow portfolio, according to Boston Consulting Group (BCG).

Answer

  1. It has a high relative market share compared with its main competitor.
  2. It operates in a low-growth or mature market.
  3. Its established position commonly generates strong operating cash inflows.
  4. It usually needs less growth investment than a star business in a rapidly expanding market.
  5. Its surplus cash can support other portfolio activities while management protects efficiency and market position.

Question 4(b) — 10 marks

Explain five factors that a purchasing organization may consider before adopting a particular organizational structure.

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 5(a) — 10 marks

Outline five types of information that should be included in a purchasing management audit report.

Answer

  1. Audit objectives, scope, period and the standards used explain what was examined.
  2. Methods and evidence sources explain how the findings were established.
  3. Findings identify compliance, control and performance strengths or weaknesses.
  4. Conclusions assess the significance and causes of the findings.
  5. Recommendations and agreed actions identify responsible officers and follow-up dates.

Question 5(b) — 10 marks

Outline five circumstances under which an organization may decide to adopt backward integration strategy in its operations.

Answer

  1. Existing suppliers are unreliable and supply interruption threatens core operations.
  2. Suppliers possess excessive bargaining power and impose unattractive commercial terms.
  3. Control of input quality or proprietary technology is strategically important.
  4. Internal manufacture is economically justified at the expected scale and demand.
  5. The organisation has adequate finance, technical capability and access to resources to operate the upstream activity successfully.

Question 6(a) — 10 marks

Explain five factors that may be considered when developing purchasing and supply strategies.

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

Outline five features of a horizontal organizational structure in a purchasing firm.

Answer

  1. There are relatively few hierarchical reporting levels.
  2. Managers commonly supervise a wider span of employees.
  3. Communication between colleagues and functions is more direct.
  4. Teams and employees have greater delegated decision responsibility.
  5. Cross-functional cooperation is emphasised over repeated referral through many vertical layers.

Question 7(a) — 10 marks

Explain five benefits that an organization may derive from scanning its environment before formulating a purchasing strategy.

Answer

  1. Identifies supply opportunities, such as new technologies and capable alternative suppliers.
  2. Detects threats, including shortages, new restrictions and changing supplier power.
  3. Provides evidence for realistic cost, demand and lead-time assumptions.
  4. Helps match strategy to the organisation’s strengths and resource limitations.
  5. Enables earlier adaptation and contingency planning when market conditions change.

Question 7(b) — 10 marks

As a supply chain practitioner, outline five ethical practices that may be portrayed by the purchasing staff in an organisation.

Answer

  1. Reject bribery and improper gifts that could influence purchasing decisions.
  2. Disclose and manage personal conflicts of interest.
  3. Treat suppliers fairly using agreed and transparent evaluation criteria.
  4. Protect confidential commercial information from unauthorised disclosure.
  5. Maintain accurate records and act honestly in orders, receipts, negotiations and payments.
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