Procurement & Supply Chains
Why Procurement Matters
Procurement is how a business buys in everything it needs to trade — raw materials, packaging, parts, even office stationery. Get it right and costs drop, quality rises and customers are served on time. Get it wrong and the business can be paying over the odds for unreliable parts that arrive too late to use.
Alongside procurement sits logistics — moving goods from the supplier into the business and then out to customers. Procurement and logistics together decide how much stock a business holds, where it holds it, and how quickly it can fulfil an order.
Two stock strategies dominate the exam: just in time (JIT) keeps almost no stock, with deliveries arriving exactly when needed. Just in case (JIC) keeps spare buffer stock so the business can always meet demand. Each has a clear trade-off — low cost versus low risk.
Managing Stock — JIT and JIC
A business running just in time (JIT) has parts delivered to the factory only as they are needed. Nissan’s Sunderland plant schedules seat deliveries hour by hour. The benefits are powerful: almost no cash tied up in warehouse stock, less wasted space, and obsolete parts become a rare problem. But the business loses its safety net — if a supplier stops delivering, production stops within hours.
The opposite approach is just in case (JIC), where the business deliberately holds buffer stock. UK supermarket chains keep several days’ worth of long-life goods in regional distribution centres so that a delivery hiccup does not empty shelves. The cost is obvious: more warehouse space, more cash tied up in stock, more risk of waste if tastes change.
JIT suits businesses with reliable, nearby suppliers, predictable demand and products where parts are expensive to store (cars, electronics). JIC suits businesses where running out would be disastrous — supermarket chains, hospitals with medical supplies, or a toy retailer stocking up before Christmas. In practice many businesses combine the two, using JIT for predictable items and JIC buffer stock for critical parts that are hard to replace.
You will not be asked to draw or interpret a stock control chart in the exam, but you should be able to evaluate the use of JIT for a given business.
Choosing Suppliers
The decision a business faces is not just ‘which supplier is cheapest’ but which supplier balances price, quality and reliability. A cheap supplier that delivers poor-quality goods costs the business twice — once in the inflated price of rework, and again in lost customers.
Price drives cost per unit. Quality affects the final product and, therefore, the brand. Reliability decides whether the business can fulfil its own promises to customers. A JIT factory cannot use an unreliable supplier, no matter how low the price — one missed delivery halts the whole line.
The three exam-critical factors for choosing a supplier are price, quality and reliability. Businesses must balance them. Marks & Spencer works closely with a small number of food suppliers, accepting higher prices in return for consistent quality and reliable delivery windows.
Procurement and Logistics in Action
Well-run procurement and logistics bring two clear benefits: efficiency (things happen faster, with less wasted effort) and lower unit costs (bulk deals, fewer delays, less stock sitting idle). But the business must weigh the cost savings against the risk to quality and customer service — a supermarket that skipped on fresh-produce logistics would soon have wilted vegetables on the shelf.
What Is a Supply Chain?
A supply chain is the full journey a product takes from raw material to final customer. A loaf of bread on a Tesco shelf has travelled through farmers, millers, bakeries, packers and distribution centres before it reaches the store. If any link in the chain breaks — harvest failure, haulage shortage, factory fire — the end customer notices.
Effective supply chain management means working with suppliers, not just against them on price. Strong relationships produce three concrete benefits: processes run smoothly because everyone knows what to expect, the business secures goods and services at the best value rather than always the lowest sticker price, and waste is stripped out so lead times fall and production speeds up.
The 2021 global semiconductor shortage hit UK car manufacturers hard. Nissan, Jaguar Land Rover and Mini (Cowley, Oxford) all paused production because chips for engine management, entertainment and safety systems simply were not available. Businesses running pure JIT had no stockpile to fall back on. Many have since added a ‘strategic buffer’ of critical components — a partial shift towards JIC — even though it costs more to hold.
Post-Brexit border delays have had a similar effect, particularly on fresh food exporters who cannot wait hours at a port with perishable goods. Strong supplier relationships and contingency planning have become part of the operations job description.
Putting It Together
A business that manages procurement, stock and its supply chain well enjoys lower costs, faster deliveries and a better reputation with customers. One that fumbles these decisions ends up with too much cash in the warehouse, or not enough stock on the shelves — and in both cases, lost profit.