The Role of Procurement: Flashcards
What are the two main reasons for holding stock?
1) Holding completed goods allows businesses to sell to customers as soon as they buy it, this increases customer satisfaction.
2) Without supplies of raw materials and components, production cannot continue, potentially leading to expensive machinery and the workforce remaining idle.
What are two types of stock control?
1) Just-in-case.
2) Just-in-time.
What is Just-in-case?
Method of stock control that means a business stores extra stock just in case it is needed.
What is buffer stock?
The minimum amount of stock held by a business to ensure production can continue normally.
What are the advantages of Just-in-case?
1) If there is a sudden increase in demand the business will be able to supply itself.
2) Businesses will buy in bulk so will receive discounts.
3) Businesses may receive fewer orders thereby reducing costs.
What are the disadvantages of Just-in-case?
1) Buffer stock space requires more storage which can be expensive.
2) Increases waste if stock isn’t used.
3) Increases the chances of needing to sell stock at discounted prices.
4) Stock may not be as fresh if they held for a long time.
What is required to use Just-in-Time?
1) Excellent communications with suppliers as stocks must be delivered frequently to ensure production is not interrupted.
2) Businesses to trust suppliers to deliver the correct materials at the correct time.
Define procurement?
This is also called purchasing, this involves selecting a supplier establishing terms of payment and negotiating a contract.
What are the 3 main factors that influence a businesses choice of supplier?
1) The prices charged by suppliers. If supplies can be bought cheaply unit costs can be reduced and profits may be higher.
2) The quality of the suppliers product. A business may not be able to meet its customers needs if the quality of the inputs are inadequate.
3) Reliability. Reliable suppliers are essential for businesses using JIT methods of production.
What is the supply chain?
Refers to all the businesses, people and activities that take part in the production processes from the start until the product gets to the consumer.
Who specifically is part of the supply chain?
A businesses suppliers will be part of the supply chain. These suppliers may in turn have their own supplier.
What is logistics?
The movements of goods , services and information throughout the production process.
How is managing logistics effected as production is becoming more global?
Managing logistics efficiently has become more challenging.
What important trade offs do businesses face when managing their supplier?
1)Low prices: It may be tempting to procure supplies more cheaply. A lower unit cost per product would allow the business to sell products at lower prices (and potentially win more customers and market share), or to make a higher profit.
2) Lower quality: If a business uses a cheaper supplier, however, they risk receiving a lower quality product and the supplier may also be slower and less efficient at delivering products. If a businesses customers feel the product is lower, or the service is worse, they may become dissatisfied. This can lead to lost sales.
What are the advantages of an effective supply chain?
1) Costs can be kept to a minimum: Finding the most sufficient supplier is likely to result in supplies being delivered at the lowest possible cost to a business.
2) Unnecessary waste can be eliminated: The disposal of waste can increase the time and money it takes to produce a product and may also result in bad publicity. Streamlining a supply chain by reducing the amount of time or material that is wasted will result in faster production times and lower unit cost per product.
3) Customers receive the best possible products and service: Efficient supply chain management allows businesses to deliver high quality products to their customers promptly, while unit cost can help ensure the price is acceptable, these factors encourage customers to make repeat purchases.
