Unit 2 - Suppliers & Inventory (Man. of Op.)

Question 1

What is the Purchasing mix?

Answer 1

The factors that influence a business’ choice of supplier

Question 2

What are the factors in the purchasing mix?

Answer 2

-Cost of Raw materials
-Quality of Raw materials
- Quantity of Raw materials
- Lead time (delivery time)
- Location of supplier
- Reliability of supplier
- Storage space available

Question 3

Why is the cost of raw materials important?

Answer 3

• Costs need to be low to make a profit
• Low costs improve cash flow

Question 4

Why is the quality of raw materials important?

Answer 4

• What goes in goes out - no high quality product with poor quality raw materials
• Low quality materials may increase waste

Question 5

Why is the Lead time of a Supplier important?

Answer 5

• Materials may need to be used quickly (like fresh food)
• Production may need to stop if raw material aren’t on time, which is costly

Question 6

Why is the quantity of raw materials important?

Answer 6

• To stop problems with overstocking & understocking
• Correct quantities are necessary to satisfy demand from customers

Question 7

Why is the location of a supplier important?

Answer 7

• If supplier is far, lead time will probably increase
• Cost of transport should be considered

Question 8

Why is the reliability of a supplier important?

Answer 8

• Suppliers with good reputation get more business than those with poor reputation
• Unreliable suppliers can cause problems with production and satisfying customer demand

Question 9

Why is the storage space available to a business important?

Answer 9

• Raw materials may be wasted if not stored correctly
• Storage costs - like insurance - can be expensive

Question 10

What can stock include stock?

Answer 10

• Raw materials
• Products in progress
• Finished products

Question 11

What are stock levels?

Answer 11

The number of items stored by a business.

Question 12

What are some problems with too little stock?

Answer 12

• Production may stop without enough materials
• Customers may not get orders on time
• Unexpected (ad-hoc) orders can’t be met
• Machinery may not be used which can wear it down
• Need to make more orders which increases costs

Question 13

What are some problems with too much stock?

Answer 13

• Costly to store
• Higher risk of theft
• Higher risk of going out of date
• Money is wasted on stock
• May lose demand or go out of trend, meaning wasted stock

Question 14

What is maximum stock level?

Answer 14

• Highest stock level able to be stored at any one time
• Costs at minimum per unit

Question 15

What is minimum stock level?

Answer 15

• Lowest stock level able to be stored at any one time
• Dangerously low - any lower and production may stop

Question 16

What is a reorder level?

Answer 16

Quantity level where more stock should be ordered

Question 17

What is reorder quantity?

Answer 17

Quantity of stock needing to be ordered to brink stock levels up to maximum

Question 18

What is Lead time?

Answer 18

Time that passes between stock order being placed and stock arriving

Question 19

What is Just-In-Time Inventory Management?

Answer 19

-Minimal amount of stock is held
- Stock is ordered when required

Question 20

Name three advantages of Just-In-Time inventory

Answer 20

• No need for storage space
• Can respond to customers specific needs
• Can meet Ad-hoc requirements
• Lower risk of wasted unwanted stock, theft or money tied up in stock

Question 21

Name three disadvantages of Just-In-Time inventory

Answer 21

• Rely on supplier to meet requests
• Higher costs - No discounts or deals available
• High delivery costs
• Poor weather can affect delivery.