Purchasing and Supply Strategy — 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.

March/April 2024

Paper codes: 2903/301; 3307
Time: 3 hours
Instructions: Answer any FIVE questions. All questions carry equal marks. Answer the questions in English.

Question 1(a) — 10 marks

Dindo Company intends to adopt the Strategic Management approach in its purchasing and supply operations. Explain FIVE reasons that may account for this 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

Explain FIVE factors that an organization may consider when analysing the supply market environment using the FIVE forces model.

Answer

  1. Supplier power: few suppliers, scarce inputs and high switching costs can increase sellers’ bargaining strength.
  2. Buyer power: purchasing volume, alternatives and price sensitivity affect customers’ ability to influence terms.
  3. Competitive rivalry: numerous capable competitors and slow market growth can intensify price and service competition.
  4. Threat of entry: capital requirements, regulation and access to technology determine how easily new suppliers enter.
  5. Threat of substitutes: alternative materials or technologies can meet the same need and limit existing suppliers’ power.

Question 2(a) — 10 marks

Highlight FIVE factors that a procurement manager may consider when determining the purchasing and supply strategy to adopt 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.

Question 2(b) — 10 marks

Describe FIVE features of a centralised supply chain management function.

Answer

  1. Major purchasing authority is concentrated in a central department.
  2. Requirements from different units are consolidated for common sourcing decisions.
  3. Standard policies, procedures and specifications guide the organisation’s purchases.
  4. Specialist buyers manage supplier relationships and commercial negotiations for several units.
  5. Central records, reporting and approval systems provide organisation-wide control and visibility.

Question 3(a) — 10 marks

A consultant has been hired by Bombo Company to develop the supply chain management policy. Describe the steps that the consultant should follow when carrying out the task.

Answer

  1. Define the policy’s objectives and scope with management and relevant users.
  2. Review existing practices, corporate strategy, applicable requirements and performance problems.
  3. Consult stakeholders and draft clear principles, responsibilities and decision rules.
  4. Validate the draft for practicality and consistency, revise it and obtain authorised approval.
  5. Communicate the approved policy, train users and establish implementation and review arrangements.

Question 3(b) — 10 marks

Highlight FIVE reasons that make it necessary for an organization to evaluate the performance of its supply chain management function.

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 4(a) — 10 marks

Describe FIVE supply chain activities that are carried out at the tactical level of management in an organization.

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 4(b) — 10 marks

Highlight FIVE ways in which the implementation of supply chain management strategy contributes to the corporate strategy in an organization.

Answer

  1. Reliable supply supports planned production and customer-service commitments.
  2. Lower total acquisition and logistics costs support profitability and cost competitiveness.
  3. Appropriate supplier quality supports product differentiation and customer trust.
  4. Supplier innovation and early involvement support new product and growth objectives.
  5. Managed sourcing risks and ethical practices protect business continuity and organisational reputation.

Question 5(a) — 10 marks

Explain FIVE advantages of using the supply chain management policy manual in an organization.

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 5(b) — 10 marks

Explain FIVE circumstances under which an organization may find it appropriate to adopt the outsourcing strategy in supply chain management operations.

Answer

  1. Specialist expertise is required but is unavailable or uneconomical to maintain internally.
  2. A competent provider can deliver lower total cost at the required quality and service level.
  3. Temporary demand peaks exceed internal capacity.
  4. Management needs to focus internal resources on strategically important core activities.
  5. The activity requires substantial technology or infrastructure investment that a reliable external provider can supply more efficiently.

Question 6(a) — 10 marks

Outline FIVE disadvantages of using internal staff to audit the supply chain management function in an organization.

Answer

  1. Internal staff may lack independence when reviewing colleagues or their own previous work.
  2. Personal relationships and fear of conflict may weaken objectivity.
  3. Specialist audit skills may be inadequate for complex purchasing or technical issues.
  4. Operational duties may limit the time and resources available for the audit.
  5. Management influence, incomplete records or collusion can restrict the evidence examined.

Question 6(b) — 10 marks

Describe FIVE features of an efficient organization structure of the supply chain management department.

Answer

  1. Clear authority and responsibility show who makes and implements each decision.
  2. Appropriate specialisation assigns work to staff with relevant competence.
  3. Effective communication links purchasing, stores, logistics and user departments.
  4. Suitable delegation and manageable supervision allow timely decisions without losing accountability.
  5. Flexibility allows the department to adapt to changing volume, technology and supply-market conditions.

Question 7(a) — 10 marks

The supply chain management strategy adopted at Chong Company has failed to achieve its objectives. Explain FIVE factors that may account for this failure.

Answer

  1. Unrealistic objectives or weak analysis may make the strategy unsuitable from the start.
  2. Inadequate finance, skills or systems may prevent planned activities being completed.
  3. Poor communication and resistance can undermine staff and supplier commitment.
  4. Unclear responsibilities and weak leadership can leave implementation uncoordinated.
  5. Inadequate monitoring or major environmental change can allow the strategy to drift away from its objectives.

Question 7(b) — 10 marks

Outline FIVE sources of information that may be used in the development of a supply chain management policy manual.

Answer

  1. Corporate strategies, existing policies and management directives establish the organisation’s priorities.
  2. Applicable legislation, regulations and contractual obligations establish mandatory requirements.
  3. Purchasing records, audit findings and performance reports identify actual operating problems.
  4. Consultation with users, finance, suppliers and supply-chain staff provides practical requirements.
  5. Professional guidance, standards and appropriate benchmarking provide examples of sound purchasing practice.

November 2024

Paper codes: 2903/301; 3307
Time: 3 hours
Instructions: Answer any FIVE questions. All questions carry equal marks. Answer the questions in English.

Question 1(a) — 10 marks

A proposal to adopt the strategic supply chain management approach in pimpo company has been rejected by the top management. Explain five reasons that may have led to the rejection of the proposal.

Answer

  1. Management may regard strategic planning as costly and time-consuming.
  2. Limited staff expertise or reliable market information can make the approach difficult to apply.
  3. Immediate operating pressures may crowd out attention to long-term issues.
  4. Resistance to new responsibilities and loss of personal discretion can discourage adoption.
  5. Uncertainty about future conditions or previous unsuccessful plans can reduce confidence in the proposed benefits.

Question 1(b) — 10 marks

Explain five negative effects of failing to develop a strategic plan in supply chain operations.

Answer

  1. Purchasing may follow short-term emergencies rather than support corporate priorities.
  2. Unanticipated supply risks can cause shortages and production disruption.
  3. Resources may be committed to low-value activities or duplicated purchases.
  4. Departments and suppliers may work to inconsistent objectives and schedules.
  5. Lack of agreed targets makes performance evaluation and corrective action more difficult.

Question 2(a) — 10 marks

PESTEL is one of the tools that a procurement manager may use to analyse the market environment. Explain-five aspects that should be covered using this tool.

Answer

The question asks for five aspects. The sixth PESTEL dimension is Legal: laws and regulations affecting purchasing, competition, employment and product compliance.

  1. Political: government stability, trade policy and public priorities affect supply-market access.
  2. Economic: inflation, interest rates and exchange rates affect prices and purchasing power.
  3. Social: demographic, cultural and ethical expectations influence demand and acceptable sourcing practices.
  4. Technological: new production methods and digital systems change capability, costs and supplier options.
  5. Environmental: resource scarcity, climate exposure and waste impacts affect supply continuity and sustainability.

Question 2(b) — 10 marks

Pepe company intends to review its supply chain management policy. Explain five reasons that may justify the review of the policy.

Answer

  1. Changes in legislation or regulatory requirements may make existing provisions outdated.
  2. New corporate objectives or organisational structures may require different purchasing rules.
  3. Audit findings and performance problems may reveal gaps or ambiguity.
  4. New technology and sourcing methods may make previous procedures inefficient.
  5. Changed supplier markets, risks or stakeholder needs may require revised controls and responsibilities.

Question 3(a) — 10 marks

Explain five reasons why an organization may opt for a decentralized system in its supply chain management function.

Answer

  1. Local units can respond quickly to urgent and location-specific requirements.
  2. Buyers close to users better understand local technical and service needs.
  3. Geographic dispersion can make central coordination slow and expensive.
  4. Unit managers gain ownership and accountability for their purchasing results.
  5. Local sourcing knowledge can identify suitable nearby suppliers and reduce delivery time.

Question 3(b) — 10 marks

Outline five types of information that auditors may include in the report after a procurement audit process.

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 4(a) — 10 marks

Fondo company has been experiencing challenges in implementing its supply chain management strategy. Outline five such challenges.

Answer

  1. Unrealistic objectives or weak analysis may make the strategy unsuitable from the start.
  2. Inadequate finance, skills or systems may prevent planned activities being completed.
  3. Poor communication and resistance can undermine staff and supplier commitment.
  4. Unclear responsibilities and weak leadership can leave implementation uncoordinated.
  5. Inadequate monitoring or major environmental change can allow the strategy to drift away from its objectives.

Question 4(b) — 10 marks

Explain five benefits that an organization may derive from adopting the strategic management approach in the supply chain management function.

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 5(a) — 10 marks

Describe five roles that a buyer plays in the implementation of supplier development strategy.

Answer

  1. Assess the supplier’s actual performance and agree priority capability gaps.
  2. Provide technical assistance or training in the required production and quality methods.
  3. Share appropriate demand forecasts and specifications to improve capacity planning.
  4. Cooperate on process improvement, value analysis and reduction of recurrent defects.
  5. Agree measurable improvement targets, review progress and provide suitable commercial support where justified.

Question 5(b) — 10 marks

Explain five limitations of using unwritten supply chain policies in an organization.

Answer

  1. Different employees may interpret the policy inconsistently.
  2. New staff lack a reliable reference for training and routine decisions.
  3. Important guidance may be forgotten or lost when experienced employees leave.
  4. Accountability is difficult where the approved requirement cannot be demonstrated clearly.
  5. Reviewing and communicating changes becomes harder without a controlled written version.

Question 6(a) — 10 marks

Cheche company intends to design the internal structure for its purchasing department. Explain five factors that may be considered when carrying out this task.

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 6(b) — 10 marks

A performance audit report of the procurement function at Limba company has been submitted to the management. Explain five ways in which the management may use the report.

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.

Question 7(a) — 10 marks

Milolo manufacturing firm has established the stock control section in its supply chain management department. Outline five functions of this section of the department.

Answer

  1. Maintains accurate stock records for receipts, issues and balances.
  2. Sets or reviews reorder levels and replenishment quantities using demand and lead-time information.
  3. Monitors availability and coordinates replenishment to prevent avoidable stockouts.
  4. Conducts stock counts and investigates differences between records and physical balances.
  5. Identifies slow-moving, damaged and obsolete items and recommends appropriate action.

Question 7(b) — 10 marks

The management of Quako enterprise has suspended the implementation of its recently developed procurement policy. Explain five reasons that may account for the action.

Answer

  1. The policy may conflict with applicable requirements or corporate objectives.
  2. Required finance, systems or trained staff may not yet be available.
  3. Consultation may reveal impractical procedures or material omissions requiring correction.
  4. Major environmental changes may invalidate the policy’s underlying assumptions.
  5. Weak acceptance or unclear authority may require further communication and approval before implementation resumes.
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