Unit 2 - Suppliers & Inventory (Man. of Op.) Flashcards
What is the Purchasing mix?
The factors that influence a business’ choice of supplier
What are the factors in the purchasing mix?
-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
Why is the cost of raw materials important?
- Costs need to be low to make a profit
- Low costs improve cash flow
Why is the quality of raw materials important?
- What goes in goes out - no high quality product with poor quality raw materials
- Low quality materials may increase waste
Why is the Lead time of a Supplier important?
- 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
Why is the quantity of raw materials important?
- To stop problems with overstocking & understocking
- Correct quantities are necessary to satisfy demand from customers
Why is the location of a supplier important?
- If supplier is far, lead time will probably increase
- Cost of transport should be considered
Why is the reliability of a supplier important?
- Suppliers with good reputation get more business than those with poor reputation
- Unreliable suppliers can cause problems with production and satisfying customer demand
Why is the storage space available to a business important?
- Raw materials may be wasted if not stored correctly
- Storage costs - like insurance - can be expensive
What can stock include stock?
- Raw materials
- Products in progress
- Finished products
What are stock levels?
The number of items stored by a business.
What are some problems with too little stock?
- 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
What are some problems with too much stock?
- 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- Higher risk of going out of date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
What is maximum stock level?
- Highest stock level able to be stored at any one time
- Costs at minimum per unit
What is minimum stock level?
- Lowest stock level able to be stored at any one time
- Dangerously low - any lower and production may stop
