CAT 2

QUESTION ONE

Explain five roles that the procurement department executes in achieving organizational competitive edge. (5 Marks)

Answer:

1. Cost Management: The procurement department helps in reducing costs by negotiating better terms with suppliers, obtaining bulk discounts, and ensuring that the organization gets the best value for its money. This cost efficiency can translate into competitive pricing for the organization’s products or services.
2. Quality Assurance: Ensuring that the materials and services procured meet the required quality standards is critical. By maintaining high-quality inputs, the procurement department helps the organization deliver superior products and services, thus gaining a competitive advantage.
3. Supply Chain Efficiency: The procurement department works to streamline the supply chain by optimizing supplier relationships and logistics. Efficient supply chain management leads to reduced lead times, lower inventory costs, and a more responsive production process.
4. Risk Management: By diversifying the supplier base and establishing contingency plans, the procurement department mitigates risks associated with supply disruptions, price volatility, and geopolitical factors. This resilience ensures uninterrupted operations and protects the organization’s market position.
5. Innovation Facilitation: Collaborating with innovative suppliers and sourcing new materials or technologies can drive product development and improvement. The procurement department can thus support the organization in bringing innovative products to market faster than competitors.

QUESTION TWO

Write short notes on how the following terms apply in purchasing and supplies making clear illustrations:

a. Outsourcing (5 Marks)

Answer: Outsourcing: Outsourcing involves contracting out certain business functions or processes to third-party providers instead of performing them in-house. This strategy is used to reduce costs, access specialized expertise, and focus on core business activities. For instance, a manufacturing company may outsource its IT services to a specialized tech firm to benefit from their expertise and technology without the need to maintain an in-house IT department. This can lead to cost savings, improved service quality, and the ability to allocate more resources to core manufacturing operations.

b. Supplier Development (5 Marks)

Answer: Supplier Development: Supplier development is the process of working collaboratively with suppliers to improve their performance and capabilities. This can involve providing technical assistance, training, sharing best practices, and investing in the supplier’s infrastructure. For example, an automotive company may work closely with its parts suppliers to improve their manufacturing processes, ensuring consistent quality and timely delivery. By developing strong, capable suppliers, the organization can enhance its supply chain reliability, reduce costs, and ensure the quality of its final products.

BBM 222 EASA CAT: Time 40 Minutes

QUESTION ONE

Describe three techniques that can be used to achieve effective inventory management. (6 Marks)

Answer:

1. Just-In-Time (JIT) Inventory System: JIT is an inventory strategy where materials are ordered and received just as they are needed in the production process. This minimizes the amount of inventory held in storage, reducing carrying costs and reducing the risk of obsolescence. For example, a car manufacturer orders parts to arrive exactly when they are needed on the assembly line.
2. Economic Order Quantity (EOQ): EOQ is a formula used to determine the optimal order quantity that minimizes the total costs of ordering and holding inventory. It takes into account the demand rate, ordering costs, and holding costs to calculate the most cost-effective quantity to order. For instance, a retail store calculates EOQ to determine how many units of a product to order each time to balance ordering and storage costs.
3. ABC Analysis: ABC Analysis categorizes inventory into three classes (A, B, and C) based on their importance and value. ‘A’ items are the most valuable and require tight control, ‘B’ items are of moderate value, and ‘C’ items are the least valuable. This method helps focus resources and management attention on the most critical inventory. For example, an electronics company uses ABC analysis to prioritize the management of high-value components like processors and screens.

QUESTION TWO

Write short notes on how the following terms are in purchasing and supplies. Give clear illustrations.

a. MRP Systems (4 Marks)

Answer: Material Requirements Planning (MRP) Systems: MRP systems are software-based solutions used to manage manufacturing processes by calculating the materials and components needed to produce a product. They help in planning production schedules, ordering raw materials, and maintaining optimal inventory levels. MRP systems use data from the bill of materials, inventory records, and the master production schedule to determine the required quantities and timing for each material. For instance, a furniture manufacturer uses an MRP system to ensure that all necessary wood, screws, and varnish are available in the right quantities when production is scheduled to start.

b. Supplier Appraisal (5 Marks)

Answer: Supplier Appraisal: Supplier appraisal is the process of evaluating and approving potential suppliers through various criteria to ensure they can meet the organization’s requirements. This involves assessing their financial stability, production capacity, quality management systems, delivery performance, and overall reliability. The goal is to select suppliers who can provide high-quality products or services at competitive prices and within the required timeframes. For example, a pharmaceutical company appraises suppliers by inspecting their manufacturing facilities, reviewing their quality control processes, and assessing their ability to consistently supply raw materials needed for drug production.