Procurement & Logistics (OCR GCSE Business)

The Role of Procurement

• Procurement refers to the sourcing and buying of raw materials, goods or services

Diagram: The role of procurement

Identifying and selecting suitable products

• A range of factors affect the nature and quantity of products required, including:

  • Fashion

    • Sourcing products that are on-trend

    • E.g. Fashion retailer Zara designs, manufactures and sells clothing and accessories that follow seasonal trends

  • Changes in society

    • Sourcing products that reflect current lifestyles and interests

    • E.g. Supermarket chain Sainsburys stocks extensive ranges of gluten-free, organic and fair trade groceries

  • Seasonal factors

    • Sourcing products that fulfil different needs across the year

    • E.g. Home furnishing retailer Dunelm Mill stocks Christmas ranges between October and December, while its summer range includes outdoor furniture and picnicware

Identifying and selecting suitable suppliers

• Businesses often go to great lengths to find suitable suppliers

  • Factors including the price, quality and reliability of supplies determine whether a business can efficiently produce high-quality products at a reasonable cost

Factors that Influence the Choice of Suppliers

Negotiating prices and other important terms and conditions

• Once suppliers are chosen, ongoing negotiations ensure the needs of the business and its suppliers are met

• Some businesses employ specialist buyers to manage discussions with suppliers, such as

  • The speed and regularity of order fulfilment

  • Extension of trade credit facilities

  • Discounts that may be available

  • The quality of goods and the customer service provided

  • Suppliers' commitment to ethics and social responsibility

Taking receipt of products

• Deliveries from suppliers must be carefully checked to ensure correct quantities have been received and are free from damage

  • Returns may have to be arranged or discrepancies corrected

  • Safeguards to receive bulky, hazardous or valuable supplies may be required, such as security guards or specialist machinery

  • Access arrangements may be needed if deliveries are expected outside of normal operating hours

• Proof of delivery is needed before suppliers can be paid in full for deliveries

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

• 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 an effective supply chain

• 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 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

The Impact of Logistics

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

  • Warehousing

  • Fulfilment, including packing, labelling, and arranging delivery

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

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

Benefits of Effective Procurement and Logistics