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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
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, DurbanSouth
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 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 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.
Critique the reasons for the municipality withholding payment of the invoice until after the goods have
arrived. Use practical examples to support your answer.
marks
Critique the reasons of passing the invoice for payment before the receiving, inspecting, and accepting
the material. Refer to the municipality.
marks
Use relevant literature and analyse any five benefits of Information Systems Technology to the
eThekwini Municipality Use practical examples to support your answer.
marks
QUESTION THREE 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 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 litres units, delivered purchase cost Runits Annual
carrying cost percentage percent, Order cost Rorder The lead time is working days. Assuming
working days per month.
Determine the Economic Order Quantity marks
Determine the reorder point marks
Determine the average inventory marks
Suppose orders are placed only at review time. Find the optimal period and the optimal order quantity. marks
QUESTION FIVE Marks
Purchased goods must be transported from the various suppliers to the main office at eThekwini
Municipality.
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.
marks
Assess the four reasons why the selection of the freeonboard point is important to the eThekwini
Municipality as a purchaser. Provide relevant examples to support your answer.
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...
E
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