CAT 1

Shupavu purchasing supply chain practices

Shupavu bakery chain is experiencing difficulties managing its inventory. Frequent stockouts of key ingredients like flour and butter are causing production delays and lost sales. The last quarter, they missed production targets by 30% and had reduced revenue amounting to Ksh 5 Million. Additionally, the purchasing department struggles to negotiate effectively with suppliers, leading to higher costs. The suppliers have been increasing flour prices every so often citing raw material costs.

CAT ONE QUESTIONS (25 Marks)

1. Identify and discuss three purchasing and supplies principles that Shupavu bakery is neglecting? (6 Marks)Answer:
   1. Inventory Management: Shupavu is neglecting proper inventory management, leading to frequent stockouts of key ingredients. Effective inventory management ensures that the right amount of stock is maintained to meet production needs without excessive overstocking or stockouts.
   2. Supplier Relationship Management: Shupavu is struggling with negotiating effectively with suppliers, indicating poor supplier relationship management. Building strong relationships with suppliers can lead to better terms, reliable supply, and potential cost savings.
   3. Cost Control: The inability to manage the increasing costs of raw materials suggests a lack of effective cost control mechanisms. Effective purchasing practices should include strategies to manage and mitigate cost increases, such as long-term contracts or alternative sourcing strategies.
2. Apply three relevant purchasing and supplies solutions that can resolve the problem that Shupavu has above? (6 Marks)Answer:
   1. Implement Just-In-Time (JIT) Inventory System: By adopting a JIT inventory system, Shupavu can reduce the amount of stock held and decrease the likelihood of stockouts while maintaining sufficient levels to meet production needs.
   2. Strengthen Supplier Partnerships: Developing closer partnerships with key suppliers through collaborative planning and long-term agreements can improve negotiation power and secure more stable pricing and supply.
   3. Diversify Supplier Base: Sourcing from multiple suppliers can reduce dependency on a single supplier and mitigate the risk of price increases and supply disruptions.
3. Examine three means through which effective negotiation addresses the issues faced by Shupavu. (6 Marks)Answer:
   1. Volume Discounts: Negotiating bulk purchase agreements can secure lower prices for key ingredients, reducing overall costs.
   2. Long-Term Contracts: Establishing long-term contracts with suppliers can lock in prices for a specified period, protecting against market fluctuations.
   3. Collaborative Problem Solving: Engaging suppliers in joint problem-solving sessions can lead to innovative solutions for cost reduction and supply chain efficiencies.
4. Describe the role early supplier involvement plays in Shupavu’s successful procurement strategy? (7 Marks)Answer:Early Supplier Involvement (ESI) plays a crucial role in Shupavu’s procurement strategy by integrating suppliers into the early stages of product development and planning. This collaboration can:
   • Improve Product Design: Suppliers can provide valuable insights into material selection and process improvements, leading to higher quality and cost-effective products.
   • Reduce Lead Times: Early involvement helps in better planning and scheduling, reducing lead times and ensuring timely delivery of key ingredients.
   • Enhance Innovation: Leveraging suppliers’ expertise and innovations can lead to the development of new products and processes that differentiate Shupavu in the market.
   • Cost Savings: Identifying cost-saving opportunities early in the procurement process, such as alternative materials or more efficient manufacturing techniques.
   • Risk Mitigation: Anticipating and addressing potential supply chain risks early, reducing the impact on production and revenue.

GUIDELINES

A. Handle this as you would any other physical sit-in CAT. B. Submit on the day of CAT 2 (Physical – 11th July EASA, 18th Bazaar). Must be handwritten. C. Pages guidance: Min 6 – Max 8 foolscaps – single written. Should you opt to write back to back on foolscap; about 3-4 pages back and front are adequate. Imagine the context of a physical CAT to determine length. D. Take your time to do it very well individually. Only submit your original work.