Procurement: managing stock and suppliers

Procurement is buying the inputs a business needs — raw materials, components, services, equipment — and managing the suppliers who provide them. Get it wrong and you stop production; get it right and you cut costs while improving quality.

Key procurement decisions

Choosing suppliers

Five factors matter:

1. Price — direct effect on costs and margins. But cheapest isn't always best.
2. Quality — defective inputs lead to defective outputs.
3. Reliability — late deliveries shut production lines.
4. Flexibility — can suppliers ramp up if demand spikes?
5. Ethics and sustainability — Modern Slavery Act, environmental record, fair trade.

Most businesses balance these in a supplier scorecard — weighing each factor.

Supplier relationships

• Single sourcing — one supplier for an input. Pros: closer relationship, volume discounts. Cons: vulnerable to disruption (Covid, fires, strikes).
• Multi-sourcing — several suppliers for the same input. Pros: resilience, competitive pricing. Cons: less leverage, more admin.

After Covid, many firms moved from single to multi-sourcing.

Negotiation

Beyond price, businesses negotiate:

• Payment terms — 30, 60, 90 days credit.
• Volume discounts — staircase pricing.
• Service levels — delivery times, quality guarantees.
• Exclusivity — limit supplier from selling to competitors.

Stock (inventory) management

Stock is the buffer between supply and demand. Holding too much is expensive; too little risks running out.

Costs of holding stock

• Storage — warehouse rent, heating, security.
• Insurance against loss/damage.
• Wastage / obsolescence — fashion, food, electronics all lose value with age.
• Cash tied up — money sat in stock isn't earning.

Costs of low stock

• Stock-outs — lost sales, customer dissatisfaction.
• Production stops — idle workers and machines.
• Emergency orders — premium prices for urgent delivery.

Stock control diagram

A standard diagram shows:

• Maximum stock level — upper safe limit.
• Reorder level — when to reorder, allowing for lead time.
• Minimum stock level / buffer stock — safety net for late deliveries.
• Lead time — gap between order and delivery.

Two main approaches: JIT vs JIC

Just-in-Time (JIT)

Stock arrives exactly when needed for production. Originated in Toyota.

Advantages:

• Very low storage cost.
• Less waste (especially for perishables).
• Forces tight supplier relationships and quality.
• Frees cash from stock.

Disadvantages:

• Vulnerable to supply disruption (Covid, Suez, wars).
• Requires sophisticated IT and forecasting.
• More frequent, smaller deliveries → higher logistics cost.
• Less flexibility to surprise demand spikes.

Just-in-Case (JIC)

Hold large buffer stocks. Traditional model.

Advantages:

• Resilient to disruption.
• Bulk discounts.
• Can meet sudden demand.

Disadvantages:

• High storage and insurance costs.
• Cash tied up.
• Risk of obsolescence.

Most modern firms hybridise — JIT for fast-moving, predictable inputs; JIC for critical components with long/risky supply chains.

Logistics and supply chain

The supply chain is everyone involved in getting inputs to the business and outputs to customers.

• Inbound logistics — supplier → factory.
• Production / warehousing — internal.
• Outbound logistics — factory → customer.

Modern supply chain trends

• Globalisation has lengthened supply chains (Apple sources from 50+ countries).
• Reshoring / nearshoring — bringing supply closer for resilience (UK textiles partly returning).
• Visibility software — track every shipment in real time.
• Sustainable logistics — electric trucks, route optimisation.
• AI demand forecasting — predict shortages weeks ahead.

Real-world examples

• Toyota / 2011 Japan tsunami — single-sourced Hitachi parts; assembly halted for weeks. Now uses dual sourcing for critical parts.
• Suez Canal blockage 2021 (Ever Given) — 6-day blockage cost world trade ~$10 bn/day.
• UK 2021 lorry-driver shortage — empty supermarket shelves, fuel queues.
• Apple's iPhone supply chain — 200+ suppliers, 50+ countries; tightly integrated with JIT and constant visibility.

Examiner tips

For 6+ mark stock/procurement questions, link the production method (job/batch/flow) to the stock approach. Flow production with high volumes uses JIT; small craft producers more JIC. Always discuss the trade-off between cost and risk.