2.3.2 Working with suppliers

stock

• raw materials

• work-in-progress

• finished goods

advantages of holding stock in a warehouse

• firm has products available if there’s an uplift in demand

• if supplier problems → still carry on production as raw materials in warehouse

• can stockpile raw materials at cheap price e.g. bulk buy

• warehouse provides ‘just-in-case storage if there are problems with transport/retailer

disadvantages of stock warehouse

• danger of wasted, unused products which increases costs → greater negative environmental impacts

• fixed costs → pay for rent of warehouse

• may be limited space (so makes it difficult to store lots of products)

• perishable products (may go out of date if stored too long)

• fashion products e.g. clothes may go out of fashion before they can be sold

• if there’s an external shock e.g. COVID → left with expensive stock they can’t sell

• cash tied up in stock = poor cash flow management

• transport costs high (to get to and from warehouse)

just-in-time

• a business doesn’t keep parts of stock in a warehouse

• instead they order the parts and get them delivered same day from the supplier

advantages of just-in-time

• no time wasted → efficiency increases=costs lowered (higher profit)

• no wasted products id demand falls = very lean efficient way of operating

• no products that are out of date/out of style → helps make cash flow management effective

• cost effective → no rent/security on a warehouse

disadvantages of just-in-time

• external shock e.g. COVID means suppliers will not be able to deliver on time

• relies on technology → any tech issue with order/transport will stop delivery

• if there’s an uplift in demand = no products available to meet demand

• not good for environment → lots of deliveries

• damaged parts/raw materials will hold production

• unable to take advantage of economies of scale =can’t buy in bulk

procurement

the process by which businesses buy raw materials, component, products, services, and other resources from suppliers to produce their own products / services

logistics

• the overall process of managing how resources are acquired, stored and transported to their final destination

• basically how to get products from A to B and to the customer

poor logistical decisions

• increased costs = increased time → products go out of date

• late delivery / waiting too long = damage to reputation → customers go to competitors = reduced market share

• refuned increases costs

Explain a disadvantage of poor logistical decisions (3)

• higher costs

• time it takes for the product/service to arrive to the customer has increased

• products can go out of date / customer may request compensation for delayed delivery → increases costs = decreases profit