PSM 205: INTRODUCTION TO PURCHASING & SUPPLY CHAIN 1.

SECTION A.
Answer ALL 50 questions

1. The Purchasing ………………….of an organization involves the acquisition of supplies or

inputs (raw materials, components, goods and services) to the organization’s activities
(conversion, consumption or resale).
a) Department or unit
b) Purpose
c) Function
d) None of the above

2. Purchasing --------------- may be carried out by individuals and teams in other

departments (such as finance or production) or as part of a larger, more intergrated
cross- functional.
a) Department or unit
b) Purpose
c) Function
d) None of the above

3. It may be defined simply as the act (or process) of providing something or making
something available, often in response to buyer’s or customers’ requirements.
a) Supply
b) Purchasing
c) Procurement
d) Supply Chain Management

1
 4. It has been defined as the "design, planning, execution, control, and monitoring of
supply chain activities with the objective of creating net value, building a competitive
infrastructure, leveraging worldwide logistics, synchronizing supply with demand and
measuring performance globally.
a) Supply
b) Purchasing
c) Procurement
d) Supply Chain Management

5. It may be defined as the process of obtaining goods or services in anyway including

purchasing, hiring, leasing and borrowing.
a) Supply
b) Purchasing
c) Procurement
d) Supply Chain Management

Use the following options to answer Questions 6-13

a. Quality b. Time
c. Quantity d. Price
6. Obtaining goods in sufficient ………………..to meet demand and maintain service levels
while minimizing excess stock holding by Demand forecasting etc.
7. Securing delivery of goods at the right ………………. to meet demand, but not so early as
to incur unnecessary inventory costs by Demand management, Supplier cost analysis etc
8. Securing all of the above at a ……………. which reasonable ,fair, competitive and
affordable, Ideally, minimizing procurement costs in order to maximize profit by
Supplier cost analysis etc
9. Obtaining goods which are of satisfactory …………… and fit for their purpose.
10. If ----------not achieved production machinery may be damaged

2
11. If ----------not achieved excess stock may be ordered and /or held tying up capital in idle
stock, wasting storage space etc
12. If ----------not achieved goods may be too early causing undue risks and costs of holding
inventory
13. If ----------not achieved, there will be less profit to motivate shareholders and reinvest in
the business
14. These are materials which have undergone no transformation or minimal
transformation, and they serve as the basic materials for a production process.
a) Components
b) Finished or trade product
c) Raw materials
d) Supplementary materials

15. These are materials which are not absorbed physically into the end product. They are
used or consumed during the production process
a) Components
b) Finished or trade product
c) Raw materials
d) Supplementary materials

16. These are manufactured goods which will not undergo additional physical changes, but
will be incorporated in a system with which there are is a functional relationship by
joining it with other
a) Components
b) Finished or trade product
c) Raw materials
d) Supplementary materials

3
17. These encompass all products which are purchased to be sold, after negligible added
value, either together with other finished product and/or manufactured products
a) Components
b) Finished or trade product
c) Raw materials
d) Supplementary materials

18. The buyer may already have a preferred supplier and perhaps a standing purchase
agreement or call- off contract enabling stock replenishment orders without further
investigation or negotiation. This type of purchasing is known as
a) Modified re-buy
b) Straight re- buy
c) New Purchase
d) None of the above

19. Modification of the requirement may represent an opportunity to revisit specifications

or contracts, in order to seek to meet business needs more efficiently or effectively. This
type of purchasing is known as
a) Modified re-buy
b) Straight re- buy
c) New Purchase
d) None of the above

20. The following are advantages of Decentralized Purchasing  except

a) Materials can be purchased by each department locally as and when required.
b) Materials are purchased in right quantity of right quality for each department easily.
c) Heavy investment is required initially.
d) Purchase orders can be placed quickly

4
21. The following are disadvantages of Decentralized Purchasing  except
a) Organization losses the benefit of a bulk purchase
b) Specialized knowledge may be lacking in purchasing staff.
c) There is a chance of over and under-purchasing of materials.
d) There is a proper co-operation and co-ordination among various departments

22. Michael Porter’s Value Chain Model, Primary value activities are grouped into ----- areas
a) four
b) five
c) eight.
d) ten

23. These are activities concerned with receiving, storing and disseminating inputs:
materials handling, warehousing, inventory control etc
a) Inbound logistics
b) Operations.
c) Servicing.
d) Sales and marketing

24. They are responsible for communication with the customers to provide a means by
which they can purchase the product; market research, new product development,
advertising and promotion, pricing and so on
a) Inbound logistics
b) Operations.
c) Servicing.
d) Sales and marketing

5
 25. Buyers can obtained prices from Suppliers except
a) Standard price list or price schedule available
b) Prices may be quoted on request.
c) Prices may be arrived at through negotiation
d) Prices may be arrived at through fighting

Determine whether the following statements (Questions 26- 35)

a) True
b) False
c) Incomplete
d) Irrelevant

26. Price is what a buyer charges for a package of benefits to a seller

27. Cost is what the buying organization pays to acquire the goods or services purchased
28. Primary data are data collected especially for a particular purpose, directly from the
relevant source
29. The buyer’s database of market data forms part of both primary and secondary data.
30. Internal factors in Supplier pricing decisions, Prices charged by competitors: the need to
stay competitive to win business- while avoiding potentially damaging price wars
31. Internal factors in Supplier pricing decisions, Costs of production and Sales which must
be matched by sales revenue in order to earn profits
32. The number of suppliers in the market and the possibility of substitute products, is one
of the factors in buyer’s price decision.
33. The prices paid by competitors is Not one of the factors in buyer’s price decision
34. The prices paid by competitors is one of the factors in buyer’s price decision
35. The spouse of suppliers fix prices

6
 36. Both buyers and suppliers seeks to makes a profit for a number of reasons
a) Profit means that the business has covered its costs and is not ‘bleeding’ money in losses
b) Profit belongs to the owners or shareholders of the business as a return on their
investment
c) Profits which are not paid to shareholders are available for reinvestment in the
development of the business
d) All of the above
37. ---------------simply seeks to determine whether the price offered is a fair and appropriate
price for the goods
a) Price analysis
b) cost analysis
c) Fixed cost analysis
d) Variable cost analysis
38. At what point, can Suppliers may be asked to include cost breakdowns with their price
quotations
a) Price analysis
b) cost analysis
c) Fixed cost analysis
d) Variable cost analysis
39. Expenditure which cannot be directly identified with the output of any particular production
item, but is associated with keeping business processes up and running is known as
a) Direct cost
b) Overheads
c) Profit
d) All of the above
40. If an organization is paying rent on a factory, or paying employees a salary( not based on
output), it will have to pay the same amount for a given period, whether the operating or not,
and however much it is producing. This type of cost is called a
a) Variable cost

7
 b) Fixed cost
c) Proft
d) All of the above

41. If an organization uses raw materials to produce textbooks, say at a cost of Gh¢ 0.40 per
textbook, production of 10,000 textbooks costs it Gh¢ 4,000 but production of 20,000
textbooks costs it Gh¢ 8,000. This type of cost is called a
a) Variable cost
b) Fixed cost
c) Proft
d) All of the above
42. In production, materials used in manufacturing are often classified as
a) Raw materials
b) Components and assemblies
c) Work in progress
d) All of the above

Use the following options to answer Questions 43-45

a. External stakeholder b. Internal stakeholder
c. Connected stakeholder d. CSR
43. ------------have direct legal, contractual or commercial dealings with the organization.
44.-------------are members of the organization
45-------------- do not have direct contractual or commercial dealings with the organization but
have an interest in or are affected by its activities.
46. The following costs are associated with stock procurement except
a. the cost of storage space
b. the cost of insurance
c. the cost of tied up in stock
d. none of the above

8
47. The following are some of the considerations in capital procurement except
a. total costs over life of asset
b. Space / access requirements
c. Ability to minimize stockholding
d. Post contract maintenance service

48. 47. The following are some of the considerations in MRO purchases except
a. Availability
b. Cost
c. Ability to minimize stockholding
d. Post contract maintenance service

49. The following are some of the advantages of using Electronic systems in the procurement
process except
a. Offering wider access to knowledge and information, especially from global sources
b. Facilitating 24- hour, 7 day, global business
c. Everybody at all can operate
d. Supporting paperless communication

50. His main interest as a stakeholder of organization is to make profit, survival and growth of
the organization.
a. sales and marketing
b. Technical
c. Directors/Manager
d. Storage and distribution

9
SECTION B
Answer any (2) two questions

1. a. Distinguish between Purchasing and Supply.

b. Distinguish between Direct and Indirect Procurement
c. List three(3) advantages of keeping stock as an organization
d. List three(3) considerations in purchasing of Capital Equipment

2. a. Distinguish between Price and Cost.

b. Explain any four (4) methods where suppliers can communicate prices to buyers
c. Explain any four (4) factors in Buyer’s decisions in price

3. a. Define the following categories of Stakeholder – Internal Stakeholder, Connected Stake

holder and External Stakeholder.

b. what is profit?

c. List three (3) reasons why both buyers and suppliers seeks to makes a profit.

10
SECTION A.
Marking scheme.
1. C
2. A
3. A
4. D
5. C.
6. C.
7. B.

8. D.
9. A.
10. A.
11. C.
12. B
13. D
14. C.
15. D
16. A.
17. B.
18. B.
19. A.
20. C.
21. C.
22. B.
23. A.
24. D.
25. D.

26. B.

11
 27. A.
28. A.
29. B.
30. B.
31. A.
32. A.
33. B.
34. A.
35. D.
36. D.
37. A.
38. B.
39. B
40. B.
41. A.
42. D
43. C.
44. B
45. A
46. D
47. C
48. D
49. C
50. C

SECTION B

12
 1 a. Distinguish between Purchasing and Supply.
Purchasing is activity of acquiring goods or services to accomplish the goals of an organization
whilst Supply may be defined simply as the act (or process) of providing something or making
something available, often in response to buyer’s or customers’ requirements.

b. Distinguish between Direct and Indirect Procurement

Direct Procurement may take various forms: raw materials, parts and components,
subassemblies and so on. Without adequate supplies of these materials when they are needed,
production operations may be disrupted with expensive consequences whilst Indirect
Procurement - all businesses spend money on general running expenses, travel, stationery,
telecommunications and so on. The procurement of these items- Indirectly supporting the
production process

c. List three(3) advantages of Centralized Purchasing

1. Purchasing in mass to take advantage of discounts
2. Vendors typically require that the district take delivery of the items in mass
3. Save time in researching products

d. List three(3) considerations in purchasing of Capital Equipment

1. Total costs over life of asset
2. Space/ access requirements
3. Cost/availability of spare parts through the life of the equipment
4. Post contract maintenance service

2.a. Distinguish between Price and Cost.

Price is what a seller charges for a package of benefits to a buyer whilst Cost is what the
buying organization pays to acquire the goods or services purchased.

b. Explain any four (4) methods where suppliers can communicate prices to buyers

13
 Suppliers may have a standard price list or price schedule available in printed form or
posted online or published within a catalogue. This is common with standard articles
and industrial components. Discounts on list price are often available for bulk purchase
or prompt or early payment.
 Prices may be quoted on request: based on an internal price list (not seen by buyers) or
on specially prepared estimates for the proposed contract. Quotation may be included
in a sealed bid or tender by the supplier as part of a competitive bidding process.
Historical data on past quotations (and the price bases and discounts used to calculate
them) should be retained as the basis for future price estimates and comparisons
 Prices may be arrived at through negotiation between the supplier and the buyer based
on price and cost analysis.
 Prices may be determined by competition in an auction( where buyers bid for goods
offered for sale and the highest bid wins) or reverse auction( where suppliers bid to
supply bid to supply goods advertised as wanted and the lowest bid wins). Historical
data on the value of past winning bids may be available as a guide to the price of similar
goods and contracts.
 Prices may be determined by the market eg for commodities and other materials which
are traded in market exchanges: market prices are published on the exchange and in the
national press and trade journals. Historical data will help to identify trends and
fluctuations in market prices which can be used( with caution) to extrapolate future
prices
 Economic indices are published for various price data (including commodity prices) and
cost data (labour costs) indicating changes and trends in average data over time.

c. Explain any four (4) factors in Buyer’s decisions in price

 The buying organization’s relative bargaining power in the market and relationship. ( A
monopoly supplier may have power to set prices as it wishes- but if a buyer represents a

14
 large proportion of a supplier’s business, he will be in a strong position to negotiate
favourable prices)
 The number of suppliers in the market and the possibility of substitute products
( enabling the buyer to exploit competition to force prices down)
 The types of purchases: for non-critical or routine products for example , a buyer will
want to secure best price by competitive purchasing while for critical or strategic
products, he may pay more for service and security of supply
 The prices paid by competitors (if this information is available), so that the buyer keeps
his materials costs competitive.
 The total package of benefits offered for the price and whether ‘Value’ is better at a
higher price (given the need for quality, delivery, supplier relationship etc)

3.a. Define the following categories of Stakeholder – Internal Stakeholders, Connected

Stakeholders and External Stakeholders.
Internal Stakeholders- members of the organization: the directors, managers and
employees who operate within the organization’s boundaries.
Connected stakeholders have direct legal, contractual or commercial dealings with the
organization. They include: shareholders and other financiers such as banks, suppliers,
distributors, and consumers/customers.

b. what is profit?

Profit is the difference between the selling price of a product (or the total revenue earned from
selling a product) and the cost of producing the product. In other words, it is the gain or surplus
left over after the manufacturer or service provider has paid all its costs

c. List three (3) reasons why both buyers and suppliers seeks to makes a profit.
 Profit means that the business has covered its costs and is not ‘bleeding’ money in
losses. This is important for the business to survive in the long term.

15
 Profit belongs to the owners or shareholders of the business as a return on their
investment: a share of profits is paid to them in the form of a dividend on their shares.
Strong and consistent profits are therefore important to encourage shareholders to
continue to invest in the company, and to maintain the share capital of the company
through a high share price (reflecting market demand for the shares)
 Profits which are not paid to shareholders (retained profits) are available for
reinvestment in the development of the business, enabling the business to acquire
assets, meet long term borrowings, update plants and equipment and build reserves for
future contingencies- without the cost and risk of borrowing funds for these purposes

16
17