2.3.2 Working with Suppliers

Question 1

Managing stock:

Answer 1

managing the materials that a business holds in the most efficient and effective way

Question 2

Stock:

Answer 2

can include materials waiting to be used in the production process, work in progress, and some can be finished tock waiting to be delivered to customers

Question 3

Bar stock graph example:

Answer 3

Question 4

Maximum stock level:

Answer 4

the most stock that a business can hold

Question 5

Re-order level:

Answer 5

• the level of stock at which new stock will be ordered by the business
• the difference between the level and the point at which stock increases is the time it takes for the stock to arrive

Question 6

Buffer stock/Minimum stock level:

Answer 6

• the lowest amount of stock the business will hold
• it is a safety net, in case of a surge in demand

Question 7

Just in Time (JIT) stock control:

Answer 7

• a stock management system where stock is delivered only when it is needed by the production system, and so no stock is kept by a business
• the business orders smaller but more frequent quantities of stock that are taken straight to the production line on the factory floor.

Question 8

What is needed for JIT stock control to work?

Answer 8

• business must have a good relationship with suppliers
• a well-organised production system
• regular demand for their products

Question 9

Advantages of JIT stock control:

Answer 9

• Removing buffer stock space (which would previously have been used for storage) means more space can be used for sales
• Smaller but more frequent deliveries mean that the products will be fresher
• A business can also have new stock delivered more frequently, e.g. perishable items such as fresh fruit and vegetables
• Businesses will no longer have large amounts ofcapitaltied up in stock that could go out of date or out of fashion
• This capital can then be reinvested or spent elsewhere
• Having less stock that could go out of date will reduce waste, saving money
• JIT reduces production costs, allowing businesses to price their products to give a morecompetitive advantage

Question 10

Disadvantages of JIT stock control:

Answer 10

• It can be hard for businesses to react to unexpected changes in demand
• Businesses are unable to usebulk-buy discountsif they only buy in small quantities
• Customers could receive a poor service if the business misjudges the amount of stock it needs and allows products to go out of stock

Question 11

Benefits of holding stock:

Answer 11

• any unpredicted surges in demand can be met
• damaged goods can be replaced
• businesses can receive discounts fir bulk buying
• limited risks of problem supplying customer demand

Question 12

Benefits of holding little or no stock control:

Answer 12

• cost saving in not having to store stock
• less chance of damaged or stolen stock
• employees can focus on tasks other than managing stock
• can reduce costs of production, which makes product pricing more competitive

Question 13

Procurement:

Answer 13

whole process of managing the ordering and receipt of goods within the business

• involves deciding what is needed, selecting suppliers, terms of payment, negotiating contracts between the business and suppliers, managing how goods are ordered and received, managing logistics

Question 14

Supplier:

Answer 14

a business or individual that provides goods/services to a business

Question 15

Importance of suppliers:

Answer 15

• for a business to meet needs and wants of customers - needs an effective supply chain
• suppliers determine many of the costs of a business
• suppliers closely link to product quality
• suppliers are an important source of finance to a business - trade credit
• for businesses that use just in time stock control - effective relationships with key suppliers increases efficiency

Question 16

What makes a good supplier?

Answer 16

• good price (value for money) on products and delivery
• flexible deliveries
• reliable deliveries
• discounts for large orders
• high-quality supplies
• availability of products (short lead times)

Question 17

Impacts of logistics and suppliers on a business:

Answer 17

• flexible suppliers can help a business meet customer needs more easily
• late deliveries holds up production
• poor quality can lead to dissatisfied customers and products being returned
• using a supplier to deliver products directly to customers can be risky if they are not reliable
• securing good contracts and supplier agreements can help a business achieves economies of scale as it grows
• the services provided by a supplier can directly influence the reputation of the business that uses its products

Question 18

5 factors important when building a relationship with the supplier:

Answer 18

• cost
• quantity
• delivery
• availability and capacity
• trust

Question 19

How is cost part of the relationship between a supplier and a business?

Answer 19

• If a business can get supplies cheaply, this keeps its variable costs low, allowing it to maintain higher profit margins
• the more products businesses buy from suppliers, the more power they have to negotiate discounts

Question 20

How is quality part of the relationship between a supplier and a business?

Answer 20

• businesses need to make good-quality products that customers want to buy, but at different price points
• is essential to maintaining good brand image + good customer relationship

Question 21

How is delivery part of the relationship between a supplier and a business?

Answer 21

• the products that are ordered have to arrive on time
• for manufacturers, late deliveries interrupt the manufacturing process, and for shops a late delivery could cause them to run out of stock
• to avoid this, some businesses fine suppliers a small percentage of the value of any late deliveries
• businesses want quick delivery with minimal lead time so suppliers often set up their businesses near their customers

Question 22

How is availability and capacity part of the relationship between a supplier and a business?

Answer 22

important for suppliers to meet an unexpected increase in demand

Question 23

How is trust part of the relationship between a supplier and a business?

Answer 23

• Trust between the business and the supplier is needed, as many businesses buy using trade credit to allow time to sell products to customers before paying their suppliers
• Businesses also need to trust their suppliers to keep designs and other information confidential