Unit 3.2: The Role of Procurement

procurement

the process of choosing suppliers, establishing payment terms and negotiating the contract

purchasing economies of scale

the cost advantage a business gains by buying raw materials or components in bulk

just in case production

organising procurement to ensure that production process never runs out of stock, reducing number of sales lost from insufficient raw materials

supply chain

network of organisations, people, activities, information and resources that take product/service from supplier to customer

logistics

managing movement of supplies and products to ensure timely delivery of supplies to production process and finished products to customers

types of stock

raw materials, work-in-progress, finished goods

methods of stock control

stock rotation, stock re-ordeirng

How has the introduction of electronic point of sale (EPOS) improved a business’ stock control?

• means stock can be re-ordered automatically

  • barcode on product read through barcode rader at till (point of sale) showing business what they need to restock and alerts suppliers

    • saves time and less mistakes

      • reduces cost of production but not always appropriate

advantages of just-in-case stock control

• have extra stock on hand so can never run out of products to put on market

  • little risk of stock-out so customers satisfied

• do not have to rely so heavily on suppliers to deliver on time

• can buy in bulk for purchasing economies of scale, reducing unit costs

  • if there is sudden surge, stock is ready immediately

disadvantages of just-in-case stock control

• extra costs

  • products take up a lot of space

  • due to extra security measures

• some products can become obsolete (out-of-date) quickly

  • any stock they have will lose value quickly

• so much money in stock so suffering cashflow problems so affect reputation and relationship with stakeholders

advantages of just-in-time stock control

• lower rent and insurance costs because no need for storage space

• reduce potential cashflow difficulties it might face

• no waste since product can perish over time

• do not require more expensive equipment so reduced costs of production

disadvantages of just-in-case stock control

• unable to take advantage of unexpected surge in demand

  • loss of sales and potentially loss of market share

• good relationship with suppliers necessary since dependent on them

• unable to have purchasing economies of scale which increases unit cost

Explain quality versus cost.

• to produce high quality products, suppliers need to use high quality raw materials and high skilled workers

• good quality raw materials will cost supplier more and skilled workers will demand higher wage and may need expensive training

  • as a result, supplier will charge business more for supplies

Explain quick delivery time versus cost.

• sometimes businesses need suppliers urgently which means that they may need to be distributed using more expensive means of transport, e.g cargo planes rather than slow (but efficient) container ships

  • supplier will pass extra transport costs onto business

• sometimes businesses e.g Amazon guarantee fast delivery if buyer pays monthly fee