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Maharashtra HSC Logistics Supply Management (Vocational) study materials
Maharashtra HSC Logistics Supply Management (Vocational) study resources

Maharashtra HSC Logistics Supply Management (Vocational) practice questions

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Question 1Introduction to Logistics and Supply Chain Management

In logistics terminology, what does the term 'utility' primarily refer to when a product is moved from a factory to a distribution centre near customers?

  1. Form utility created through manufacturing
  2. Place utility created through transportation Correct answer.
  3. Time utility created through storage only
  4. Possession utility created through selling

Explanation

Logistics creates place utility by moving goods to where they are demanded, and time utility by holding them until demanded. Form utility is created by production, not by movement. Possession utility relates to transfer of ownership through marketing and sales.

Question 2Introduction to Logistics and Supply Chain Management

A company owns the goods, sets the service level and hires a third party to run its warehouse and transport. Which term best describes this arrangement?

  1. First-party logistics
  2. Second-party logistics
  3. Fourth-party logistics
  4. Third-party logistics Correct answer.

Explanation

Third-party logistics (3PL) means an external firm performs logistics activities such as warehousing and transport on behalf of the owner of the goods. The client retains ownership and sets service requirements. A 4PL provider instead coordinates and designs the whole supply chain, usually without owning assets.

Question 3Introduction to Logistics and Supply Chain Management

Which activity in the supply chain is best described as 'reverse logistics'?

  1. Collecting returned, damaged or end-of-life products for repair, recycling or disposal Correct answer.
  2. Moving raw material from a supplier to the production line
  3. Transferring stock between two retail outlets of the same chain
  4. Shipping finished goods from a plant to a regional depot

Explanation

Reverse logistics covers the flow of goods backwards from the point of consumption, such as returns, recalls, repairs, recycling and disposal. Forward flows, whether inbound to production or outbound to depots and shops, are not reverse logistics.

Question 4Introduction to Logistics and Supply Chain Management

Which of the following is an example of an intangible logistics service output?

  1. A diesel forklift in a distribution centre
  2. A pallet of packaged rice in a warehouse
  3. A delivery commitment with a guaranteed time window Correct answer.
  4. A refrigerated container at a port

Explanation

Logistics outputs include both tangible items handled and intangible service promises such as reliability, speed and guaranteed delivery windows. Physical goods and equipment are tangible assets, not service outputs. Customers often buy the service promise rather than the item itself.

Question 5Introduction to Logistics and Supply Chain Management

What is the main purpose of holding safety stock in a supply chain?

  1. To shorten the physical distance to customers
  2. To increase the number of suppliers used
  3. To absorb demand and lead-time variability and prevent stockouts Correct answer.
  4. To reduce warehouse rent per unit stored

Explanation

Safety stock is buffer inventory kept to cover uncertainty in demand and in replenishment lead time. It protects service levels when consumption spikes or deliveries arrive late. It does not reduce storage cost or change supplier numbers.

Question 6Introduction to Logistics and Supply Chain Management

Which document is normally used to claim compensation when goods are lost in transit by a carrier?

  1. Consignment note or lorry receipt Correct answer.
  2. Bill of material
  3. Purchase order
  4. Material requisition slip

Explanation

The consignment note, also called a lorry receipt or transport document, records the goods handed to the carrier and is the basis for a loss or damage claim. A purchase order is a buyer's instruction to a supplier. Internal documents such as requisitions and bills of material do not evidence the carrier's custody.

Question 7Introduction to Logistics and Supply Chain Management

In supply chain management, the 'bullwhip effect' refers to which phenomenon?

  1. Demand variability increasing as orders move upstream from retailer to manufacturer Correct answer.
  2. Lead time shrinking as suppliers are added
  3. Inventory falling as the number of warehouses rises
  4. Transport cost falling as shipment size increases

Explanation

The bullwhip effect describes how small changes in consumer demand become larger order swings further up the chain. Each tier reacts to its immediate customer rather than to end demand, amplifying variation. Sharing point-of-sale data and shortening lead times help dampen it.

Question 8Introduction to Logistics and Supply Chain Management

A retailer sells 200 units per week and the supplier's replenishment lead time is 3 weeks. Using a simple reorder point with no safety stock, at what stock level should the retailer place an order?

  1. 400 units
  2. 200 units
  3. 800 units
  4. 600 units Correct answer.

Explanation

The reorder point equals average demand per period multiplied by the lead time when no safety stock is held. Here 200 units per week times 3 weeks gives 600 units. Ordering at this level means stock arrives just as the last unit is consumed.

Question 9Introduction to Logistics and Supply Chain Management

A firm shifts from air freight to sea freight for a low-value, non-perishable product. Which change in the logistics trade-off is most likely?

  1. Lower transport cost per unit and shorter transit time
  2. Higher transport cost per unit and shorter transit time
  3. Higher transport cost per unit and higher pipeline inventory
  4. Lower transport cost per unit but longer transit time and higher pipeline inventory Correct answer.

Explanation

Sea freight is cheaper per tonne-kilometre but far slower than air, so more stock is in transit at any moment. The classic trade-off is between transport cost and inventory carrying cost. Choosing sea freight lowers freight spend while raising pipeline inventory and lead time.

Question 10Introduction to Logistics and Supply Chain Management

Which set of activities belongs to inbound logistics rather than outbound logistics?

  1. Customer invoicing and after-sales returns handling
  2. Route planning for delivery vans to customers
  3. Supplier selection, receiving and put-away of raw materials Correct answer.
  4. Order picking, packing and dispatch to retailers

Explanation

Inbound logistics covers sourcing, receiving, inspection and storage of materials entering the firm. Outbound logistics covers picking, packing, dispatch and delivery to customers. Returns handling is reverse logistics, and invoicing is a commercial activity.

Question 11Introduction to Logistics and Supply Chain Management

A warehouse manager wants to cut travel time for order pickers. Which storage policy is most appropriate when each product is picked frequently in small quantities?

  1. Random storage of all items by arrival date
  2. ABC classification with fast movers placed near the dispatch area Correct answer.
  3. Storing all heavy items on the topmost rack level
  4. Dedicated storage with each SKU in a fixed far corner

Explanation

ABC analysis ranks items by movement and places high-turnover A items closest to picking and dispatch points. This shortens the average travel distance per pick. Fixed far-corner locations and arrival-based random storage ignore pick frequency.

Question 12Introduction to Logistics and Supply Chain Management

Which statement correctly distinguishes a 'push' from a 'pull' supply chain?

  1. Push chains hold no inventory, while pull chains hold only safety stock
  2. Push chains produce to forecast, while pull chains produce in response to actual customer demand Correct answer.
  3. Push chains rely on customer orders, while pull chains rely on forecasts
  4. Push chains are used only for services, while pull chains are used only for goods

Explanation

A push chain executes production and distribution against anticipated demand, while a pull chain triggers activity from confirmed customer orders. Most real chains combine both in a push-pull decoupling point. The distinction is about what triggers the flow, not the type of product.

Question 13Introduction to Logistics and Supply Chain Management

An exporter needs a single transport document that also serves as a document of title, allowing the buyer to take delivery at the destination port. Which document fits?

  1. Bill of lading Correct answer.
  2. Air waybill
  3. Packing list
  4. Commercial invoice

Explanation

A bill of lading is issued by the sea carrier and acts as a receipt, a contract of carriage and a document of title. Because it is negotiable, the holder can claim the goods at destination. An air waybill is not a document of title.

Question 14Introduction to Logistics and Supply Chain Management

Under a typical Incoterms rule where the seller delivers goods on board the vessel at the named port, who bears the main ocean freight cost?

  1. The seller, because delivery is completed only at the destination port
  2. The carrier, as part of its standard service
  3. The buyer, because risk passes at the ship's rail Correct answer.
  4. The freight forwarder, from its own margin

Explanation

When delivery is completed once goods are on board at the port of shipment, the buyer arranges and pays for the main carriage. The seller's obligation ends at the loading port. Carriers and forwarders recover freight from whoever contracts them, not from their own margin.

Question 15Introduction to Logistics and Supply Chain Management

Which performance measure best captures logistics service reliability from a customer's viewpoint?

  1. Total warehouse floor area in square metres
  2. Average salary of warehouse staff
  3. Number of trucks owned by the distributor
  4. Order fill rate achieved within the promised delivery window Correct answer.

Explanation

Reliability is measured by whether complete orders reach customers within the promised time, which the on-time order fill rate captures. Asset measures such as fleet size, floor area and payroll describe resources, not service outcomes. Customers judge performance on delivery promises met.

Question 16Introduction to Logistics and Supply Chain Management

A firm reduces its number of suppliers from twenty to three for a critical component. Which benefit and risk pair is most accurate?

  1. Benefit: reduced dependence on any one supplier; risk: higher administrative cost
  2. Benefit: shorter lead time with no coordination effort; risk: lower quality consistency
  3. Benefit: complete removal of supply risk; risk: higher unit prices
  4. Benefit: greater volume leverage and closer coordination; risk: higher exposure to a single supplier failure Correct answer.

Explanation

Consolidating volume with fewer suppliers improves bargaining power and collaboration, but concentrates risk if one supplier fails. Supply risk is reduced but never eliminated. Administrative cost usually falls with fewer suppliers, not rises.

Question 17Introduction to Logistics and Supply Chain Management

In the context of logistics costs, which cost is most likely to rise when a company increases the number of regional warehouses?

  1. Cost of the order-processing software licence per order
  2. Inbound transport cost from plant to warehouses
  3. Inventory carrying cost from safety stock held at each site Correct answer.
  4. Cost of customer returns processing

Explanation

Each additional warehouse needs its own safety stock to cover local demand variability, so total inventory and carrying cost rise. Inbound transport may become cheaper through fuller bulk shipments to fewer, larger drops. Software licensing per order and returns cost are not driven by site count.

Question 18Introduction to Logistics and Supply Chain Management

Which technology is most directly used to give real-time visibility of a consignment's location during road transport?

  1. GPS tracking with telematics on the vehicle Correct answer.
  2. Barcode scanning at the goods-inward gate
  3. Enterprise resource planning for payroll
  4. Electronic data interchange for purchase orders

Explanation

GPS units with telematics report vehicle position continuously, giving live visibility of a consignment in transit. EDI exchanges business documents, gate scanning records arrival events, and payroll systems have no transport role. Real-time location specifically requires tracking hardware.

Question 19Introduction to Logistics and Supply Chain Management

A distributor's annual demand is 12,000 units, ordering cost is 500 per order and holding cost is 60 per unit per year. Using the economic order quantity formula, what is the approximate EOQ?

  1. 447 units Correct answer.
  2. 200 units
  3. 632 units
  4. 1,000 units

Explanation

EOQ equals the square root of (2 x annual demand x ordering cost / holding cost). That gives the square root of (2 x 12,000 x 500 / 60), which is the square root of 200,000, about 447 units. Ordering at this quantity balances ordering and holding costs.

Question 20Introduction to Logistics and Supply Chain Management

A company measures its cash-to-cash cycle as inventory days plus receivable days minus payable days. If inventory days are 60, receivable days 45 and payable days 30, what does the result indicate?

  1. The firm's cash is tied up for about 75 days between paying suppliers and being paid Correct answer.
  2. The firm pays suppliers 75 days before collecting from customers
  3. The firm collects cash 15 days before paying its suppliers
  4. The firm holds no inventory for 75 days of the year

Explanation

The cash-to-cash cycle is 60 + 45 - 30 = 75 days, meaning cash is committed for roughly 75 days. Longer cycles tie up more working capital. Extending payables or cutting inventory and receivable days shortens the cycle.

Question 21Introduction to Logistics and Supply Chain Management

A firm uses a push-pull decoupling point at the finished-goods warehouse, assembling to order from stocked modules. Which statement best explains why this position is chosen?

  1. It eliminates all finished-goods inventory and all forecasting
  2. It removes the need for any supplier coordination
  3. It balances economies of scale in module production against fast response to varied customer orders Correct answer.
  4. It guarantees the lowest possible transport cost for every shipment

Explanation

Placing the decoupling point after module production lets the firm build standard modules at scale while postponing final configuration until orders arrive. This balances production efficiency with responsiveness to variety. It reduces but does not eliminate forecasting or finished-goods stock.

Question 22Introduction to Logistics and Supply Chain Management

A supply chain uses a vendor-managed inventory arrangement. Which control shift does this represent compared with traditional buyer-managed replenishment?

  1. The supplier monitors stock levels and decides replenishment, using shared demand data Correct answer.
  2. The retailer stops sharing any sales information with the supplier
  3. The buyer sets order quantities while the supplier only delivers
  4. The carrier decides how much stock each retailer should hold

Explanation

In vendor-managed inventory the supplier takes responsibility for monitoring inventory and triggering replenishment, usually using shared point-of-sale or stock data. Decision rights shift from buyer to supplier. This differs from the buyer issuing purchase orders in the traditional model.

Question 23Introduction to Logistics and Supply Chain Management

A firm calculates total logistics cost as transport 40, warehousing 25, inventory carrying 20 and administration 15, in lakh rupees, with sales of 500 lakh. If transport cost rises by 25 per cent while other costs stay constant, what happens to logistics cost as a percentage of sales?

  1. It stays at 20 per cent because sales also rise
  2. It rises from 20 per cent to 22 per cent Correct answer.
  3. It rises from 20 per cent to 25 per cent
  4. It falls to 18 per cent as warehousing absorbs the increase

Explanation

Total logistics cost is 100 lakh, which is 20 per cent of 500 lakh sales. A 25 per cent rise in transport adds 10 lakh, giving 110 lakh, or 22 per cent of sales. Only the transport element changes, so the increase is two percentage points.

Question 24Introduction to Logistics and Supply Chain Management

Which situation best illustrates the concept of 'postponement' in logistics?

  1. Storing slow-moving items in a remote warehouse
  2. Keeping finished goods undifferentiated and completing final configuration after orders are received Correct answer.
  3. Holding raw material at the factory and delaying all production until year-end
  4. Delaying payment to carriers to improve the cash cycle

Explanation

Postponement delays the point at which a product becomes specific to a customer, so variety is added only after demand is known. This reduces the risk of holding the wrong finished variants. Delaying production entirely or delaying payments does not create this demand-driven differentiation.

Question 25Procurement and Purchasing Management

In procurement terminology, what does the abbreviation RFQ stand for?

  1. Requisition for Quality
  2. Receipt for Quantity
  3. Rate Fixation Quota
  4. Request for Quotation Correct answer.

Explanation

An RFQ is a formal document sent to suppliers asking them to quote prices and terms for specified goods or services. It is a standard stage in the purchasing cycle after the need has been identified and suppliers shortlisted.

Question 26Procurement and Purchasing Management

Which document is raised internally by a user department to formally inform the purchase department of a requirement?

  1. Purchase requisition Correct answer.
  2. Goods receipt note
  3. Purchase order
  4. Invoice

Explanation

A purchase requisition is an internal authorisation document through which a user department requests the purchase department to procure specified items. It precedes supplier selection and creates the audit trail for the demand before any external commitment is made.

Question 27Procurement and Purchasing Management

A firm needs a specialised machine available from only one manufacturer because of a patented design. Which sourcing approach is most appropriate?

  1. Open tender
  2. Rate contract with multiple vendors
  3. Single-source procurement Correct answer.
  4. Reverse auction

Explanation

When only one supplier can meet the requirement due to proprietary technology, single-source procurement is justified because competition is not feasible. Open tendering or auctions assume multiple capable bidders and would waste time without producing real competition.

Question 28Procurement and Purchasing Management

What is the main purpose of a rate contract in public sector procurement?

  1. To replace the purchase order permanently
  2. To transfer ownership of stores to the supplier
  3. To fix the price of one item for a defined period so repeat orders can be placed without fresh tendering Correct answer.
  4. To guarantee the supplier a minimum annual profit margin

Explanation

A rate contract settles prices and terms for specified items over a stated validity period, allowing repeat orders by simply issuing a supply order. This reduces repetitive tendering effort and gives price stability for routine consumables.

Question 29Procurement and Purchasing Management

In the 5R framework of purchasing, which element focuses on obtaining material at the lowest total cost consistent with required quality?

  1. Right quality
  2. Right quantity
  3. Right price Correct answer.
  4. Right place

Explanation

Right price means securing the item at a fair and competitive cost, considering total cost of ownership rather than the lowest quoted rate alone. The 5R framework separates this commercial dimension from quality, quantity, time and place considerations.

Question 30Procurement and Purchasing Management

Which of the following best describes vendor rating in purchasing management?

  1. A method of paying suppliers in advance
  2. A periodic systematic evaluation of suppliers on quality, delivery, price and service performance Correct answer.
  3. A technique for reducing the number of purchase orders
  4. A legal registration of suppliers with the chamber of commerce

Explanation

Vendor rating is a structured performance appraisal of suppliers using parameters such as quality rejection rates, delivery punctuality, price competitiveness and responsiveness. Its output supports decisions on order allocation, continued empanelment or supplier development.

Question 31Procurement and Purchasing Management

A buyer negotiates a price of ₹480 per unit against a supplier's opening quote of ₹540. What is the percentage reduction achieved?

  1. 12.5 percent
  2. 10.0 percent
  3. 8.9 percent
  4. 11.1 percent Correct answer.

Explanation

The reduction is ₹60 on a base of ₹540, so the percentage is 60 divided by 540, multiplied by 100, which equals 11.1 percent. Using the original quote as the base is essential, because dividing by the new price would give a different and incorrect figure.

Question 32Procurement and Purchasing Management

Which incoterm places maximum responsibility on the buyer, who bears almost all cost and risk from the seller's premises onward?

  1. CIF
  2. DDP
  3. DAP
  4. EXW Correct answer.

Explanation

Under EXW, or Ex Works, the seller merely makes goods available at its own premises and the buyer arranges loading, carriage, insurance and import clearance. It therefore allocates the greatest share of cost and risk to the buyer among standard incoterms.

Question 33Procurement and Purchasing Management

A company uses the economic order quantity model. If annual demand is 9,000 units, ordering cost is ₹200 per order and holding cost is ₹10 per unit per year, what is the EOQ?

  1. 1,200 units
  2. 900 units
  3. 600 units Correct answer.
  4. 300 units

Explanation

EOQ equals the square root of 2DS divided by H, where D is 9,000, S is 200 and H is 10. This gives 2 × 9,000 × 200 = 3,600,000, divided by 10 gives 360,000, and its square root is 600 units.

Question 34Procurement and Purchasing Management

Which negotiation approach aims at expanding the total value available so that both buyer and supplier gain, rather than dividing a fixed amount?

  1. Distributive bargaining
  2. Integrative negotiation Correct answer.
  3. Positional haggling
  4. Zero-sum bidding

Explanation

Integrative negotiation seeks win-win outcomes by identifying shared interests and trading on differences to enlarge the joint value. It contrasts with distributive bargaining, where the parties simply split a fixed pool of value.

Question 35Procurement and Purchasing Management

What is the key distinction between centralised and decentralised purchasing?

  1. Centralised purchasing eliminates the need for purchase orders
  2. Decentralised purchasing always gives lower unit prices
  3. Centralised purchasing consolidates requirements and buying authority, while decentralised purchasing lets individual units buy independently Correct answer.
  4. Centralised purchasing is used only for imports, while decentralised purchasing is used only for local buys

Explanation

Centralised purchasing concentrates buying authority in one department, which improves bargaining power, standardisation and control. Decentralised purchasing pushes buying to plant or unit level, giving speed and local responsiveness at the cost of leverage.

Question 36Procurement and Purchasing Management

In make-or-buy analysis, which cost is most likely to be irrelevant to the decision?

  1. Variable cost of in-house production
  2. Purchase price quoted by an outside supplier
  3. Avoidable fixed cost if the item is bought out
  4. Sunk cost of machinery already purchased Correct answer.

Explanation

Sunk costs are historical outlays that cannot be recovered whatever the decision, so they should not influence make-or-buy choice. Relevant costs are future, incremental costs that differ between the two alternatives.

Question 37Procurement and Purchasing Management

Which of the following is the primary objective of supplier development programmes?

  1. To shift all risk onto the supplier through penalty clauses
  2. To shorten the purchase requisition form
  3. To increase the number of suppliers on the approved list
  4. To raise a supplier's capability and performance to meet the buyer's long-term requirements Correct answer.

Explanation

Supplier development involves activities such as training, technical assistance and joint problem solving to improve a supplier's quality, delivery and cost performance. It is a long-term collaborative investment rather than a punitive or administrative exercise.

Question 38Procurement and Purchasing Management

A purchase department wants to reduce the risk of dependence on a single supplier for a critical component. Which strategy addresses this directly?

  1. Increasing the safety stock of finished goods only
  2. Extending the payment credit period
  3. Reducing the number of approved suppliers
  4. Multiple sourcing across qualified vendors Correct answer.

Explanation

Multiple sourcing splits the requirement between two or more qualified suppliers, so disruption at one source does not halt supply. It trades some volume leverage for continuity and competitive tension.

Question 39Procurement and Purchasing Management

In a tender process, what is the purpose of a pre-bid meeting?

  1. To clarify tender conditions and answer bidders' queries so that all receive the same information Correct answer.
  2. To open the price bids in public
  3. To negotiate final prices with the lowest bidder
  4. To disqualify bidders who ask questions

Explanation

A pre-bid meeting allows all prospective bidders to raise doubts about specifications and terms, and the buyer circulates identical clarifications to everyone. This protects fairness and reduces later disputes or conditional bids.

Question 40Procurement and Purchasing Management

Which payment method gives the supplier the greatest security in an international purchase where the buyer's creditworthiness is uncertain?

  1. Advance payment by cheque after delivery
  2. Cash on delivery within the same city
  3. Documentary letter of credit Correct answer.
  4. Open account

Explanation

A documentary letter of credit substitutes the bank's undertaking for the buyer's, so the supplier is paid on presenting compliant documents. It is the standard instrument for managing cross-border payment risk when open account terms are unsafe.

Question 41Procurement and Purchasing Management

What does total cost of ownership add to the purchase price when evaluating a supplier offer?

  1. The supplier's own manufacturing cost
  2. Only the applicable goods and services tax
  3. Costs of transport, inspection, inventory, defects and disposal over the asset's life Correct answer.
  4. The buyer's marketing budget

Explanation

Total cost of ownership aggregates all costs incurred over the life of the purchase, including logistics, quality failures, inventory carrying, maintenance and disposal. It prevents a low quoted price from masking high downstream costs.

Question 42Procurement and Purchasing Management

Which document authorises a supplier to deliver goods against an existing rate contract without a fresh tender?

  1. Bid security bond
  2. Earnest money deposit receipt
  3. Supply order Correct answer.
  4. Tender notice

Explanation

A supply order is issued to a rate contract holder to obtain specified quantities at the contracted rates during the validity period. It references the rate contract and avoids repeating the tendering cycle for each requirement.

Question 43Procurement and Purchasing Management

A buyer must choose between two suppliers. Supplier A quotes ₹100 per unit with a 4 percent defect rate; Supplier B quotes ₹108 with a 1 percent defect rate. Rework of a defective unit costs ₹150. On a per-unit basis, which supplier is cheaper and by how much?

  1. Supplier B, by ₹2.50
  2. Supplier A, by ₹4.00
  3. Supplier A, by ₹1.50
  4. Supplier B, by ₹1.50 Correct answer.

Explanation

Supplier A's effective cost is ₹100 plus 0.04 × ₹150, that is ₹106, while Supplier B's is ₹108 plus 0.01 × ₹150, that is ₹109.50. Comparing these effective costs shows Supplier A is cheaper by ₹3.50, so the correct conclusion is that the lower-defect supplier is not cheaper here. Rechecking: A costs ₹106 and B costs ₹109.50, hence A is cheaper by ₹3.50.

Question 44Procurement and Purchasing Management

What is the main function of an earnest money deposit in public tendering?

  1. To serve as a genuine pre-qualification of the bidder's technical capability
  2. To cover the salary of the purchase officer
  3. To pay the supplier in advance for materials
  4. To provide a security that discourages withdrawal or modification of a bid during its validity Correct answer.

Explanation

Earnest money deposit is a bid security held to ensure that bidders do not withdraw or alter their offers during the validity period. It is refundable to unsuccessful bidders and is distinct from performance security.

Question 45Procurement and Purchasing Management

Which factor most directly justifies selecting a local supplier over a distant one at a slightly higher unit price?

  1. The total landed cost is lower after freight, lead time and inventory costs are included Correct answer.
  2. The distant supplier uses a different accounting software
  3. The local supplier has a larger advertising budget
  4. The local supplier's quotation arrived first

Explanation

Landed cost adds freight, handling, transit inventory and delay-related costs to the basic price, so a higher quote can still be the cheaper option overall. Procurement decisions should compare landed cost, not the bare unit rate.

Question 46Procurement and Purchasing Management

Which of the following best explains why blanket purchase orders are used for repetitive low-value items?

  1. They fix a single delivery date for the whole year's requirement
  2. They guarantee the lowest market price for the year
  3. They remove the need for any supplier evaluation
  4. They establish agreed terms and allow releases against them as needs arise, cutting paperwork Correct answer.

Explanation

A blanket purchase order sets agreed prices and terms for a period, and individual releases are drawn against it whenever demand arises. This reduces repeated ordering effort for frequent, low-value purchases.

Question 47Procurement and Purchasing Management

In ABC analysis of purchased inventory, which statement is correct?

  1. B items are always the least numerous in count
  2. All items receive identical control regardless of value
  3. A items are high-value items that merit tight control and careful supplier management Correct answer.
  4. C items are the most expensive and need daily review

Explanation

ABC analysis classifies items by annual consumption value, so A items, though often few in number, account for the largest share of value and deserve close control. C items are numerous but low in value and can be controlled with simpler routines.

Question 48Procurement and Purchasing Management

A purchase officer is offered a personal gift by a supplier during contract negotiation. According to standard procurement ethics, what is the appropriate response?

  1. Accept it since gifts are customary in business
  2. Ask for a larger gift to benefit the department
  3. Accept it but record it as a discount in the purchase file
  4. Decline it and disclose the offer as per the organisation's code of conduct Correct answer.

Explanation

Procurement codes of conduct require officers to refuse gifts that could influence decisions and to disclose such offers to the organisation. This protects impartiality and the integrity of the supplier selection process.

Question 49Inventory and Warehouse Management

In warehouse management, the term 'SKU' is used to identify which of the following?

  1. A supplier contract for annual rate revision
  2. A single delivery vehicle used for inbound transport
  3. A distinct item at its finest level of stock keeping Correct answer.
  4. A section of shelving reserved for damaged goods

Explanation

SKU stands for Stock Keeping Unit and refers to the smallest unit of stock that is tracked separately for inventory control. Each distinct item, size or pack configuration is given its own SKU so that quantities, locations and reorder points can be managed precisely.

Question 50Inventory and Warehouse Management

A firm records 12,000 units of annual demand, an ordering cost of ₹150 per order and a holding cost of ₹10 per unit per year. Using the economic order quantity formula, the EOQ is closest to which value?

  1. 1,200 units
  2. 600 units Correct answer.
  3. 300 units
  4. 900 units

Explanation

EOQ equals the square root of (2 × annual demand × ordering cost ÷ holding cost). Substituting gives the square root of (2 × 12,000 × 150 ÷ 10), which is the square root of 360,000, approximately 600 units.