Working with Suppliers

Stock management is about holding enough stock to meet demand without tying up too much cash in unsold goods. A bar gate stock graph (also called a saw-tooth graph) shows how stock levels change over time as stock is used up and then replenished by deliveries.

Stock
level
  ↑
Max |----\         ----\         ----\
    |     \       /     \       /     \
Re- |      \     /       \     /       \
order|      ↑   /         ↑   /         ↑
level|      order        order        order
    |       placed       placed       placed
    |
  0 +------------------------------------------→ Time
        ↑lead↑     ↑lead↑
         time       time

Key features of the graph:

• Maximum stock level — the highest amount of stock held; set to avoid overstocking and high storage costs
• Reorder level — the stock level at which a new order is triggered; set high enough to cover usage during the lead time
• Reorder quantity — the amount ordered each time; stock jumps back toward the maximum when a delivery arrives
• Lead time — the gap between placing an order and receiving delivery; if lead time increases unexpectedly, stock may run out before the delivery arrives

When stock falls to the reorder level, a new order is placed. Stock continues to fall during the lead time. Once the delivery arrives, stock rises sharply back toward the maximum. The graph creates a repeated "teeth" pattern.

Exam tip: Questions often ask you to mark the reorder level, reorder quantity, or lead time on a graph. Reorder level is the stock level when a new order is placed — not when the delivery arrives.

Just in time (JIT) is a stock management approach where stock is ordered and delivered exactly when it is needed for production — no buffer stock is held. The business operates with near-zero inventory at all times.

Benefits of JIT:

• No storage costs — the business does not pay for warehouse space or stock insurance
• Reduced waste — perishable or short-shelf-life materials are not left sitting unused
• Cash not tied up in stock — money that would otherwise sit in unsold inventory is available for other purposes

Risks of JIT:

• No buffer if deliveries are late — any disruption to the supply chain halts production immediately
• Relies entirely on supplier reliability — the supplier must deliver the right quantity, at the right quality, at the right time, every time
• Cannot easily absorb sudden demand spikes — if customer orders surge unexpectedly, the business cannot meet them from stock

JIT works best in industries with predictable demand and highly reliable suppliers — for example, car manufacturing (Toyota famously pioneered JIT). It is less suited to businesses with volatile demand or long-distance suppliers.

Exam tip: A common 4-mark question asks you to evaluate whether JIT is suitable for a specific business. Always link your answer to the business context — is their supplier reliable? Is demand stable?

Procurement is the process of sourcing and buying the goods and services a business needs to operate. Choosing the right supplier is a strategic decision — the wrong choice can disrupt production, damage reputation, and increase costs.

Key factors in supplier relationships:

Factor	What it means	Why it matters
Quality	The standard of goods or materials supplied	Poor quality materials produce poor quality products
Cost	The price charged by the supplier	Higher costs reduce profit margins directly
Delivery speed	How quickly the supplier can fulfil an order	Slow delivery may cause production delays
Delivery reliability	Whether deliveries consistently arrive on time	Unreliable delivery disrupts production scheduling
Availability	Whether the supplier can meet order volumes	A supplier who cannot scale up limits business growth
Trust	The strength and history of the relationship	Long-term trust reduces the risk of supply disruptions

Different businesses will prioritise these factors differently. A hospital procuring surgical equipment prioritises quality and reliability over cost — a faulty product or late delivery could endanger patients. A budget supermarket buying own-label food prioritises cost — small margins mean cost savings translate directly into competitive pricing.

A manufacturer of children's furniture is choosing between two suppliers of timber:

• Supplier A — charges £18 per unit, delivers within 3 days, has a 98% on-time delivery record over 5 years, and is ISO-certified for quality
• Supplier B — charges £14 per unit, delivers within 7 days, has a 79% on-time delivery record, and has no formal quality certification

The manufacturer produces 2,000 units of timber per month.

Cost comparison:

• Supplier A: £18 × 2,000 = £36,000/month
• Supplier B: £14 × 2,000 = £28,000/month
• Monthly saving with Supplier B: £8,000

Analysis:

Although Supplier B is £8,000 cheaper per month, a 79% on-time delivery rate means roughly 1 in 5 deliveries is late. For a furniture manufacturer, late timber deliveries halt the production line — staff are paid but output stops, creating idle-time costs and late deliveries to retailers. Children's furniture also carries safety standards: unverified timber quality could lead to product recalls, returns, and reputational damage.

Recommendation: Supplier A is the better choice for this business. The reliability and quality advantages outweigh the extra £8,000 monthly cost, because production disruptions and quality failures would cost far more in the long run.

Exam tip: In a "recommend and justify" question, always pick one supplier and explain why, using the specific context of the business. Do not sit on the fence.

Logistics refers to the physical movement of goods — how stock is transported from supplier to business and from business to customer. Supply chain decisions affect three key business outcomes.

Impact on costs:

• Sourcing cheaper suppliers reduces material costs but may sacrifice quality or reliability
• Holding large buffer stock increases storage and insurance costs
• JIT reduces storage costs but creates dependency on transport reliability

Impact on reputation:

• Consistent stock availability means customers receive orders on time — building trust and repeat business
• A supply failure that leads to product shortages, delays, or defects damages the brand even if the fault lies with the supplier
• Ethical sourcing decisions (fair trade, sustainable materials) can enhance reputation with socially conscious consumers

Impact on customer satisfaction:

• Fast, reliable delivery directly affects how customers perceive the business
• If a retailer runs out of stock because of a supplier failure, the customer may switch to a competitor permanently

Exam tip: Questions linking supply decisions to reputation or customer satisfaction are worth 4–6 marks. State the supply decision, explain the mechanism (why does it affect reputation?), and tie it to business performance.

Holding too much or too little stock both create problems. Effective stock management means finding the right balance.

Too much stock:

• High storage and warehousing costs
• Capital tied up that could be used elsewhere
• Risk of stock becoming obsolete or perishing (especially in food retail or technology)

Too little stock:

• Production stoppages if materials run out
• Inability to meet customer orders — lost sales, damaged reputation
• Emergency orders from alternative suppliers may be more expensive

The right level of stock depends on:

• Demand predictability — stable demand makes it easier to plan reorder quantities
• Lead time — longer lead times require higher reorder levels
• Storage capacity and cost — limited warehouse space caps maximum stock
• Supplier reliability — unreliable suppliers require larger safety buffers

Stock approach	Main benefit	Main risk
Just in Time (JIT)	No storage costs; cash free	Any supply disruption halts production
Buffer stock held	Absorbs demand spikes and delivery delays	Storage costs; cash tied up

Supply chain questions — what examiners look for:

1. Bar gate graphs

Read reorder levels and lead times accurately. The reorder level is the stock level at which a new order is placed — the falling line crosses this threshold to trigger the order, not the point at which stock reaches its lowest. Lead time is the horizontal distance between placing the order and the delivery arriving.

2. JIT analysis questions

Always include both sides — the cost saving from no storage AND the risk from supplier dependency. A one-sided answer will not reach the top mark band on an evaluate or justify question.

3. Supplier selection

Identify the most important factor for the specific business type. A hospital values reliability; a startup on tight margins may prioritise cost. Apply context, not generic lists.

4. Logistics links

Connect supply decisions to business outcomes — cost, reputation, and customer satisfaction — rather than listing them in isolation.

Common error	Correct approach
Saying JIT always saves money	JIT saves storage costs but creates supply risk — both sides must be weighed
Confusing reorder level with minimum stock	Reorder level triggers the order; minimum stock is the safety buffer at the bottom
Listing supplier factors without prioritising	Always rank or justify which factor matters most for the specific business
Ignoring lead time on graph questions	Lead time is the gap between ordering and receiving — it must be shown on the graph