managing supply chains and inventory

• Supply chain

  All the activities involved in the process of producing goods or services and getting them to the consumer
• Supply chain of a product

  1. Planning for and sourcing raw materials

  2. Choosing suppliers

  3. Purchasing the materials

  4. Turning the raw materials into products

  5. Transporting, warehousing and distributing the products
• Supply chain of a service business

  1. Sourcing and managing data

  2. Providing and maintaining web services

  3. Managing the process of selling over the internet
• A business that manages the supply chain effectively will have competitive advantage because it will maximise its productivity
• Flexibility

  Ability of a business to meet a customer's requirements
• Mass customisation


  Tailoring goods to specific customer requirements
• Flexibility

  • Flexibility in terms of numbers ordered
  • Flexibility in the internal processes and decision making to respond quickly to changes in the market and the external environment
• Speed of response and dependability

  • Doing these right can result in a competitive advantage as it will lead to greater customer satisfaction
  • Relies on good communication and relationships with suppliers
• If a business has too little supply

  It will miss out on lucrative orders and future orders due to a lack of dependability
• If a business has too much supply

  It will incur the costs of holding the excess, and the business may be faced with selling the good at a reduced price
• Managing demand

  Using the marketing mix to influence demand (increasing/reducing prices, advertising, sales promotions)
• Hotels and airlines are a good example of businesses that try to match supply and demand
• Center Parcs charges higher prices during school holidays and has a capacity utilisation of 90%
• Managing the supply chain effectively

  • Enables the business to deliver goods and services to its customers more quickly
  • Improves the business's competitive position as it's more likely to get the market share if it's first to market
  • Involves monitoring the whole process and its component parts to see where it can be made more efficient
  • Requires coordinating and integrating every process in the chain
• Ways to manage supply

  1. Flexible workforce (multi-skilled, part-time, zero-hour contracts)

  2. Increased capacity

  3. Produce to order
• Produce to order

  Manufacturing and other industries only start production when an order is received
• Factors to consider when deciding whether to make to order


  • Type of product and whether it's appropriate
  • Speed at which orders can be fulfilled
  • Unit cost of keeping high levels of stock if sales aren't immediate
  • Availability of component parts and materials
• Influences on the choice of suppliers

  • Cost and credit terms
  • Location
  • Quality
  • Reliability
  • Flexibility
• Outsourcing

  Allocating an element of the supply chain process to a third party
• Benefits of outsourcing


  • Enabling a quicker response to increases in demand
  • Greater dependability for customers during periods of increased demand
  • Lower costs in cases of temporary increases in demand
• Drawbacks of outsourcing

  • Quality may suffer
  • Reliability of supplies may not be guaranteed
  • Likely to be more costly than producing in-house
• Matching supply with demand

  1. Outsourcing or sub-contracting to increase production without increasing workforce and resources

  2. Depends on cost of storage, ability to tie up capital in stock, and whether product has a use-by date
• Flexible staff resource

  Employing additional part-time staff as needed in times of peak demand
• Make to order

  Production process only starts when an order is received, allowing minimum stock levels
• Make to buy

  Anticipating demand and producing stock based on estimated demand
• Factors to consider when deciding make to order or make to buy

  • Type of product and whether it's appropriate
  • Speed at which orders need to be fulfilled
  • Price
  • Unit cost of keeping high levels of stock if sales aren't immediate
  • Availability of component parts
• Mass customisation

  Allowing different combinations of existing components to satisfy customer demand for customised products at a reasonable price
• Inventory control

  • Inventory means the value of all the materials held by a business, including raw materials, work in progress and finished goods
  • Main influences are nature of demand, nature of the product, nature of production, and opportunity cost
• Inventory control chart

  1. Buffer stock (minimum amount held to cover emergencies)

  2. Lead times (time from order placement to supply)

  3. Re-order level (when to automatically place an order)

  4. Maximum stock level (highest amount able to be held)