Working with suppliers

• Businesses must manage their materials effectively, choosing between keeping additional stock or using just-in-time stock control
• Businesses are impacted by their relationship with suppliers
• Stock can consist of raw materials, work in progress, and finished stock waiting to be delivered
• Procurement involves getting the right supplies from the right supplier
• Effective stock control is crucial for both customers and businesses, as it ensures products are available for customers and prevents businesses from running out of stock
• However, holding too much stock can lead to high storage costs, increased waste for perishable products, and reduced income if excess stock needs to be sold at a reduced price
• Businesses must manage their materials effectively, choosing between keeping additional stock or using just-in-time stock control
• Businesses are impacted by their relationships with suppliers
• One way businesses manage stock levels is through a bar gate stock diagram:

  • Maximum stock level: largest amount of stock a business can store on site
  • Minimum stock level (buffer stock): lowest amount of stock a business can store while still operating effectively
  • Lead time: time from ordering stock to its arrival
  • Reorder level: point at which a business needs to order new stock before it falls below the minimum level
• Buffer stock ensures a business can operate for a short while during delays or spikes in demand, allowing replacement of damaged stock while meeting customer demand
• Many businesses use computer software to automatically reorder stock when it reaches a pre-set level, ensuring accurate stock levels and timely reordering
• Just-in-time (JIT) stock control is a method where the business doesn't store any raw materials, instead opting for regular deliveries that bring only what is needed before existing raw materials run out
• Buffer stock is a minimum stock level a business holds at all times to reduce the risk of running out of stock due to late deliveries
• For JIT stock control to be effective, a business needs a good relationship with its suppliers, who ideally should be local to reduce delivery costs and lead time
• Advantages of JIT stock control include:

  • Removing buffer stock space for more sales space
  • Smaller, more frequent deliveries for fresher products
  • Reduction in capital tied up in stock, leading to reinvestment opportunities
  • Reduction in waste and production costs for a competitive advantage
• Disadvantages of JIT stock control include:

  • Difficulty in reacting to unexpected changes in demand
  • Inability to benefit from bulk-buy discounts
  • Risk of poor service if the business misjudges stock needs and products go out of stock
• Businesses must manage their materials effectively, choosing between keeping additional stock or using just-in-time stock control, which is influenced by their relationships with suppliers
• Key factors for businesses to consider when building a relationship with a supplier:

  • Cost: vital consideration, cheaper supplies keep variable costs low
  • Quality: essential for all products, even budget options
  • Delivery: products must arrive on time to avoid disruptions
  • Availability and capacity: suppliers must meet unexpected order increases
  • Trust: crucial for trade credit and confidentiality
• Businesses often fine suppliers for late deliveries to ensure timely delivery and minimal lead time
• Suppliers often locate near their customers to provide quick delivery with minimal lead time
• Businesses must manage their materials effectively, choosing between keeping additional stock or using just-in-time stock control, which is influenced by their relationship with suppliers
• Procurement means getting the right supplies from the right supplier, while logistics ensures the correct products are procured and arrive when needed, impacting a business' costs, reputation, and customer satisfaction
• Costs can be kept lower if production is quick, delays can limit cash flow if products are damaged, lost, or unavailable
• The quality of raw materials or services provided by suppliers can impact a business' reputation; for example, late deliveries can harm reputation and affect the ability to deliver to customers on time
• Businesses aim for high customer satisfaction by meeting all customer needs effectively, achieved by delivering correct products to the right places at the right times, leading to repeat customers, improved sales, and profits