2.3.2 Working with Suppliers | Edexcel GCSE Business Revision Notes 2019

Interpretation of Bar Gate Stock Graphs

A Bar Gate Stock Control diagram illustrates the flow of stock (inventory) into and out of a business over time

2-4-3-interpreting-stock-control-diagram-1

An example of a stock control diagram

Diagram Analysis

The maximum stock level is the maximum amount of stock a business is able to hold in normal circumstances (1600)
The reorder level is the level at which a business places a new order with its supplier (800)
The minimum stock level is also known as the buffer stock level and is the lowest level to which a business is willing to allow stock levels to fall (400)
The lead time is the length of time from the point of stock being ordered from the supplier to it being delivered (1 week)
The stock level line shows how stock levels change over the given time period
- As stock is used up a downwards slope is plotted
- When an order is delivered by a supplier the stock level line shoots upwards

Worked example

The diagram below shows stock movements of kitchen shelving units sold by TamFix Ltd.

2-4-3-interpreting-stock-control-diagram

Identify the following points:

the minimum stock level
the re-order level
the re-order quantity
the lead time for kitchen shelving units (4)

Step 1 - Identify the minimum stock level

The minimum stock level is identified by the bottom-most dotted line - in this case it shows that the minimum stock level is 200 units (1 mark)

Step 2 - Identify the reorder level

The reorder level is clearly identified on the diagram - in this case it shows that the reorder level is 500 units (1 mark)

Step 3 - Identify the reorder quantity

The reorder quantity is the difference between the maximum stock level (shown by the topmost dotted line) and the minimum stock level

1000 units - 200 units = 800 units

The reorder quantity is therefore 800 units (1 mark)

Step 4 - Identify the lead time for kitchen shelving units

The lead time is the difference in time between an order for stock being placed and its delivery. In this case, assuming a five-day working week, the lead time for shelving units is two days (1 mark)

Efficient Procurement of Raw Materials

Efficient procurement of raw materials is crucial for ensuring the success of any manufacturing process
There are several factors that can influence the efficiency of raw material procurement

2-3-2-efficient-procurement-of-raw-materials

Obtaining raw materials in the most efficient way is influenced by a range of factors

Businesses need to carefully consider these factors when sourcing raw materials to ensure that they can efficiently produce high-quality products at a reasonable cost

Examples of Factors That Influence the Process of Sourcing raw Materials

Factor

Explanation

Example

Quality

If the raw materials are of poor quality, then the final product may not meet the desired standards

E.g. a construction company may need to procure high-quality steel to ensure the structural integrity of a building.

Delivery

Companies need to ensure that their raw materials are delivered on time, at a reasonable cost, and in a reliable manner
Many companies are now using an order and delivery process called just in time

E.g. a car manufacturer may need to ensure that their raw materials are delivered on time to avoid delays in production

Availability

Companies need to ensure that the raw materials they need are readily available (this is different to delivery on time)

E.g. Tesla uses cobalt in their batteries and needs to ensure they have a steady supply of this rare earth metal

Costs

Cost is a critical factor in raw material procurement
Companies need to ensure that they are getting the best possible price for their raw materials without sacrificing quality

E.g. a textile manufacturer may need to source cotton at the lowest possible price to remain competitive in the market

Trust

Companies need to ensure that they are working with reliable suppliers who can deliver quality materials on time and at a reasonable cost

E.g. a construction company may need to work with a trusted supplier to ensure that their materials meet safety standards

Just in Time (JIT) stock management is a process in which raw materials are not stored onsite but ordered as required and delivered by suppliers 'just in time' to be used
Careful coordination is required ensure that raw materials and components are delivered by suppliers at the moment that they are to be used

The Advantages and Disadvantages of Just in Time Stock Management

Advantages

Disadvantages

Stockholding costs are minimised
Close working relationships are developed with a small number of trusted suppliers
Cash flow is improved as money is not tied up in stocks
Unused storage space is available for productive use
Teamwork is encouraged so employee motivation is likely to be improved

Bulk buying economies of scale are not generally possible
The ability to respond to unexpected increases in demand is reduced
Administrative costs related to frequent ordering are increased
Unreliable suppliers (late or poor quality deliveries) can quickly halt production
Significant changes to organisational structure and production controls are needed

Exam Tip

When answering questions on procurement, consider any case study material provided.

For example, a more reliable supplier could possibly be more expensive, raising business costs. However, this would reduce the negative impact on branding and customer satisfaction as the business would be able to improve availability of their product and reduce the likelihood of stock costs.

Working with Suppliers (Edexcel GCSE Business)

Revision Note

Interpretation of Bar Gate Stock Graphs

Diagram Analysis

Worked example

Efficient Procurement of Raw Materials

Exam Tip

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Author: Lisa Eades