2.3.2 Working with suppliers — Edexcel GCSE Business revision notes

Managing stock

Stock is the materials and finished goods a business holds. Holding stock costs money — storage space, insurance, and cash tied up that could be used elsewhere — but holding too little risks running out and stopping production or losing sales. Stock management is the search for the right level between those two.

A bar gate stock graph shows stock levels over time, and the specification asks for its interpretation by name.

Maximum, re-order and minimum levels, lead time, and a late delivery eating into the buffer stock.

Maximum stock level: The most stock the business can or wants to hold.
Re-order level: The stock level at which a new order is placed.
Minimum (buffer) stock: The reserve held in case of late delivery or unexpected demand.
Lead time: The time between placing an order and the delivery arriving.
Re-order quantity: How much is ordered each time.

Reading the graph: stock falls at a steady rate as it is used and jumps vertically when a delivery arrives. The order is placed when stock falls to the re-order level — set high enough that the lead time can pass before stock reaches the minimum. If a delivery is late, the business eats into its buffer stock, which is exactly what the buffer is for.

A longer lead time means the re-order level must be higher, because more stock is used while waiting.

Just in time (JIT) stock control means holding almost no stock, with materials delivered exactly when they are needed.

Advantages: very little money tied up in stock, minimal storage space and costs, and less waste from stock that spoils or goes out of date.

Disadvantages: the business is entirely dependent on suppliers being reliable, since a single late delivery stops production; there is no buffer for a sudden increase in demand; frequent small deliveries can cost more than occasional large ones; and bulk-buying discounts are lost.

JIT works when suppliers are close, reliable and well co-ordinated. It is risky when supply chains are long or unpredictable.

Common mistake

Lead time is the wait between ordering and delivery, not the whole cycle between one delivery and the next. Read it on the graph as the horizontal gap from the order point to the vertical jump.

The role of procurement

Procurement means finding and buying from suppliers. The specification lists six things that matter in a supplier relationship, and expects you to weigh them rather than assume price decides everything.

Figure: What matters in a supplier relationship

Factor	Why it matters
Quality	Poor materials mean poor products, complaints, returns and damaged reputation
Delivery — cost	Delivery charges add to the cost of every order
Delivery — speed	Faster delivery means shorter lead times and so less stock needs holding
Delivery — reliability	A supplier that is usually on time but occasionally very late is hard to plan around, and forces a larger buffer
Availability	A supplier that runs out leaves the business unable to produce
Cost	Lower prices reduce variable costs, improving margin or allowing lower prices
Trust	A long-term relationship brings better credit terms, priority when supplies are short, and flexibility in a crisis

Reliability matters more than speed for stock planning: a slow but predictable supplier is easier to work with than a fast but erratic one.

The impact of logistics and supply decisions. The specification names three consequences.

Costs. Supplier prices feed straight into variable costs, and delivery charges add to them. Cheaper materials lower the cost per unit, which lowers the break-even output from 1.3.2.

Reputation. If suppliers are unreliable, the business misses its own delivery promises and customers blame the business, not the supplier. Ethical failures in a supply chain — poor conditions or environmental damage — also attach to the business selling the product, which links to 2.1.4.

Customer satisfaction. Reliable supply means products are in stock and orders arrive on time. Poor supply means empty shelves, delays and complaints — and customers who go elsewhere.

Worked example

A furniture maker is offered materials 15% cheaper by a new overseas supplier with a six-week lead time. Its current UK supplier delivers in one week. Advise.

Identify the gain: 15% off materials directly reduces variable costs and improves the margin on every item.
Identify the cost of the longer lead time: with six weeks instead of one, far more stock must be held to avoid running out.
That ties up cash and needs storage space — costs that offset some of the 15% saving.
Identify the risk: a longer, overseas supply chain is more exposed to delays, and the business cannot respond quickly to a change in demand.
Give a recommendation with a condition attached.

Answer: The 15% saving is real but partly offset by holding six weeks of stock instead of one — tying up cash and needing storage — and a longer overseas chain is more likely to be disrupted. It should trial the new supplier for part of its materials while keeping the UK supplier for the rest, so it gets some of the saving without depending entirely on a six-week lead time.

Procurement: finding and buying from suppliers
Logistics: the management of how goods are moved and stored between suppliers, the business and its customers

Before you practise

Holding stock costs money; holding too little risks running out — stock management balances the two.
On a bar gate graph: maximum stock, re-order level, minimum (buffer) stock and lead time.
An order is placed at the re-order level, early enough to cover the lead time.
A longer lead time requires a higher re-order level.
JIT holds almost no stock: less cash tied up and less waste, but total dependence on reliable suppliers.
Supplier relationships depend on quality, delivery cost, speed and reliability, availability, cost and trust.
Reliability matters more than speed for planning stock.
Supply decisions affect costs, reputation and customer satisfaction — and customers blame the business, not its supplier.

Now practise it

Reading is the easy half. Answer questions on 2.3.2 Working with suppliers and find out which parts you actually know.

Written questions Multiple choice