Transcript 2. Choice of supplier

MANAGEMENT OF
OPERATIONS
CHOOSING SUPPLIERS
LEARNING INTENTIONS AND
SUCCESS CRITERIA
LEARNING INTENTIONS:
SUCCESS CRITERIA:
I understand why an
organisation must carefully
choose the suppliers they
use.
• I can describe the main
factors which influence the
choice of supplier for an
organisation.
• I can describe why
choosing a ‘good’ supplier
helps an organisation to
succeed.
FACTORS WHICH INFLUENCE
CHOICE OF SUPPLIER
Just as you would carefully consider all the
available information about a product before
making a purchase, business organisations
must do the same.
There are many factors that must be
considered and these are collectively known
as THE PURCHASING MIX.
THE PURCHASING MIX
1 – COST OF MATERIALS
The supplier’s selling price for the materials must
be acceptable and within the budget available to
the business. Private Sector businesses try to
keep costs down so that more profit can be made.
The amount of time given to pay the supplier’s
invoice (bill) is also important – the longer the time
period the better for the business’s cash flow.
PURCHASING MIX
2 – QUALITY OF MATERIALS
The quality of material used must match the
quality required for the final product and be
of a sufficient standard to avoid unnecessary
wastage.
PURCHASING MIX
3 – DELIVERY TIME
This is also known as the LEAD TIME and is
the amount of time between placing an order
and actually receiving the goods.
This is important as the business needs to
know that there will always be a supply of
materials available when required so that
production does not need to stop and
customers can be kept satisfied.
PURCHASING MIX
4 – QUANTITY
Suppliers must be able to meet the
quantities of material the business requires
in order to keep production going and meet
customer demand.
PURCHASING MIX
5 – STORAGE SPACE AVAILABLE
A business will be limited by storage space
and cannot order more stock than they have
space to store. This may influence the
quantity ordered and the price paid for the
stock.
If too much stock is ordered which cannot be
stored securely, wastage of stock is more
likely, which will add to the business’s costs.
PURCHASING MIX
6 – LOCATION OF SUPPLIER
The speed of delivery will be influenced by
the distance from the business to the
supplier. Small local suppliers can deliver
quickly at low cost.
However, suppliers that are further away
may be able to offer better prices due to
being bigger businesses, but will charge
more for delivery and take longer to deliver.
PURCHASING MIX
7 – SUPPLIER RELIABILITY
This is about the reputation of the supplier.
Do they deliver on time with the correct
quantity and quality of materials? Can they
deal with changes to orders at short notice?
How do they deal with complaints?
References should be sought from other
businesses that have used a particular
supplier to check on all of this.
TASK
Complete Worksheet 32 in your jotters.