Read the statement below and answer ALL five questions that follow:

Material costs play a crucial role in determining the overall cost structure of an organization. Effective

management of material costs involves a combination of strategic sourcing, risk management, supplier

relationships, and continuous monitoring of market trends. Organizations that can adapt to fluctuations in

material costs and proactively manage their supply chains are better positioned to maintain competitiveness

and financial health.

You are managing the purchasing department of eThekwini Municipality, in KwaZulu Natal, Durban$-$South

Africa. Answer the following questions focusing on how your position will assist in creating value to the

Municipality in terms of cost reduction when buying its goods and services.

QUESTION ONE $(20$ Marks$)$

Examine the several necessary processes in the purchasing process that will assist in costs reduction at the

Municipality. Use Practical examples to support your answer.

QUESTION TWO $(20$ Marks$)$

As the purchasing manager, you are aware that sometimes your suppliers supply goods without billing for

them, necessitating your request for the invoices in order to complete the transaction.

$2\mathrm{.}1$ Critique the reasons for the municipality withholding payment of the invoice until after the goods have

arrived. Use practical examples to support your answer.

$(5$ marks$)$

$2\mathrm{.}2$ Critique the reasons of passing the invoice for payment before the receiving, inspecting, and accepting

the material. Refer to the municipality.

$(5$ marks$)$

$2\mathrm{.}3$ Use relevant literature and analyse any five benefits of Information Systems Technology to the

eThekwini Municipality Use practical examples to support your answer.

$(10$ marks$)$

QUESTION THREE $(20$ Marks$)$

Discuss the cost of inventory and explain how eThekwini Municipality can transform its inventory

management process to be proactive. Use the relevant examples to justify your answer.

QUESTION FOUR $(20$ Marks$)$

The eThekwini Municipality requests your advice on how to reduce inventory expenses for its coffee shop.

The annual demand of fresh milk $($boxes of $6$ litres$)=750$ units, delivered purchase cost $=$ R$35/$units$,$ Annual

carrying cost percentage$=25$ percent, Order cost $=$ R$50/$order$.$ The lead time is $10$ working days. Assuming

$20$ working days per month.

$4\mathrm{.}1$ Determine the Economic Order Quantity $(4$ marks$)$

$4\mathrm{.}2$ Determine the reorder point $(4$ marks$)$

$4\mathrm{.}3$ Determine the average inventory $(4$ marks$)$

$4\mathrm{.}4$ Suppose orders are placed only at review time. Find the optimal period and the optimal order quantity. $(8$ marks$)$

QUESTION FIVE $(20$ Marks$)$

Purchased goods must be transported from the various suppliers to the main office at eThekwini

Municipality.

$5\mathrm{.}1.$ Fully discuss any six factors to be considered by the eThekwini Municipality when selecting mode of

shipment, carrier and routing. Use the relevant examples to support your answer.

$(12$ marks$)$

$5\mathrm{.}2$ Assess the four reasons why the selection of the free$-$on$-$board point is important to the eThekwini

Municipality as a purchaser. Provide relevant examples to support your answer.

$(8$ marks

Formula sheet

P $=$ L x Daily demand

Where, R$=$ annual demand, C$=$ delivered purchase cost, K$=$ annual carrying cost percentage, S$=$ order cost, L$=$ The lead

time, P$=$ the reorder point, EOQ$=$ Economic Order Quantity, T$=$ the optimum order

period...

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