The role of procurement study guide

A system where goods are ordered and received only as they are needed in the production process, minimising inventory levels.

The total cost incurred by a business to hold and manage inventory, including storage, insurance, depreciation and opportunity costs.

Spare stock is extra inventory kept to cover unexpected demand or supply disruptions.

Supplier reliability is the likelihood that a supplier will deliver goods or services on time, in the correct quantity and quality, consistently over a period.

Procurement is the process of identifying, selecting, and acquiring goods or services from external suppliers to meet an organisation’s needs.

The process of aligning the timing, quantity and quality of supplies with a business’s production or sales needs.

Exam practice

• Which of the following is a primary advantage of implementing a just‑in‑time (JIT) stock system for an independent retailer?
• Evaluate the suitability of a just‑in‑time stock management system for a small manufacturer that produces custom kitchen cabinets.
• Which of the following is a direct benefit of reducing stock costs for an independent retailer?
• Analyse how frequent deliveries can lead to lost purchasing economies for a small manufacturer.
• Which of the following is a main benefit of maintaining buffer stock?
• A small manufacturer holds 200 units of a component. The unit cost is £8 and the annual holding cost rate is 25%. Calculate the annual holding cost for this component.
• Which factor is least likely to influence a retailer's choice of supplier?
• Evaluate how a small manufacturer should balance price and reliability when selecting a supplier for a critical component.
• Which of the following best explains how efficient procurement and logistics can lower the unit cost for an independent retailer?
• Analyse how effective procurement and logistics can reduce unit costs for a small manufacturer.
• Which of the following is a direct benefit of effective supplier coordination for an independent retailer?
• Explain how supplier coordination can reduce waste in a small manufacturing business.