Procurement & Logistics (AQA GCSE Business)

Procurement, Logistics, Efficiency & Costs

• Procurement refers to the sourcing and buying of raw materials, goods or services. It includes:

  • Identifying and selecting suitable suppliers

  • Negotiating prices and other important terms and conditions (e.g. lead times, payment terms)

    • Some businesses employ specialist buyers to manage these discussions

  • Taking receipt of products and paying for them

• Logistics involves the management of acquiring, storing and transporting products to their final destination, including:

  • Warehousing

  • Fulfillment, including packing, labelling, and arranging delivery

  • After-sales service, including tracking orders and managing returns

• Effective procurement and logistics make a significant contribution to business efficiency and the reduction of its costs

Benefits of Effective Procurement and Logistics

The Value of Effective Supply Chain Management

• A supply chain consists of all the processes, individuals and businesses that contribute to the production and delivery of a product to the final customer

Diagram: A Typical Supply Chain

The supply chain is all of the people, activities and businesses involved in the manufacture and distribution of products

• The supply chain includes:

  • Producers and processors of raw materials and components

  • Shipping and distribution businesses

  • Warehousing services

  • Wholesalers and retail businesses

• Businesses balance costs with quality, reliability and speed at each stage of the supply chain

  • E.g. Delivering finished goods by air freight is very quick, but it is very expensive so a business may use road haulage to distribute its products to retailers

The importance of effective supply chains

• It helps minimise production costs

  • Sourcing raw materials and components, storing stock and distributing goods to customers are organised in the most efficient way

• It improves customer satisfaction

  • The right products are available at the right time and place

  • As their needs and wants are met promptly, they are likely to recommend the business to others and remain loyal

• It helps businesses to respond quickly to market changes

  • They can introduce new products quickly and provide, giving them a competitive advantage

• It reduces risks

  • Supply disruptions, quality issues, or fluctuations in demand can be managed effectively

• It improves cash flow

  • There is less need to hold large volumes of stock, freeing up cash for other uses