3.2 The role of procurement

3.2 The role of procurement

1. Keywords

   • Just in case (JIC) production
     • Holds stocks just in case there is a delay fro, supplies or a sudden unexpected increase in demand 
   • The supply chain
     • All businesses, people and activities that take part in the production processes form the start until it gets to the customer 
   • Purchasing economies of scale
     • When the cost per unit falls if large orders are placed with supplies due to a bulk discount
   • Logistics
     • The movement of goods, services, information and money throughout the production process
     • How it is physically delivered
   • Procurement (or purchase)
     • Selecting suppliers, establishing the terms of payment and negotating the contract  
     • How it is purchased
   • Lean production
     • An approach to production that aims to minimize waste

2. Managing stocks

   • Stocks include materials needed every day e.g. raw materials, paper and partly finished products
   • Stock is a business cost and are needed to operate and make goods, e.g. allows a butcher to show the range of meat on offer
   • Stock has an opportunity cost, instead of investing in it the money could be used for other purposes e.g. paying bills or earning interest
   • Stock that is unsold may be reduced to encourage customers to buy or may be wasted, which means the business makes less profit. e.g. Fruit that isn't sold by sell date is thrown away

3. Just in case stock control where a business holds enough stock for a possible increase in production or sales

   • Benefits
     • The business can buy stock in bulk leading to lower prices, fewer deliveries and lower costs, called purchasing economies of scale
   • Drawback
     • The approach can lead to higher costs for storage and wasted stock, potentially lowering profits

4. Just-in-time

   • Advantages
     • Low stock holding costs as it minimizes stock held
     • Doesn't need as much space for stock
     • Less danger of theft or having to reduce price to sell the stock
   • Disadvantages
     • Buy small quantities so less likely to get bulk discount (economies of scale); more transport cost for more frequent deliveries
     • At risk if there are difficulties with delivery/suppliers