Supply Policy Overview

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is a significant consequence of overstocking in stock management?

Increased holding costs (correct)

Enhanced brand image

Reduced production halting

Faster delivery times

Which aspect is a limitation of both the Just-in-Time (JIT) and Zero Stock methods?

Lower storage costs

High reliance on suppliers (correct)

Reduced production flexibility

Enhanced customer personalization options

What primary principle does the Zero Stock method emphasize?

Producing goods before customer orders

Maintaining high stock levels at all times

Adjusting stock based on customer demand (correct)

Increasing storage facilities to accommodate excess stock

What is a disadvantage specifically associated with the Just-in-Time (JIT) method?

Loss of production flexibility Signup and view all the answers

How can a stock-out negatively impact a business?

Halting of production Signup and view all the answers

What is one of the main objectives of a supply policy?

To provide materials that meet quality standards Signup and view all the answers

Which of the following describes a significant limitation of national sources of procurement?

High transportation costs Signup and view all the answers

What is a characteristic of the supply on order method?

Products are customized for specific clients Signup and view all the answers

Which limitation affects both national and international sources of procurement?

Limited supplier choices Signup and view all the answers

In a supply for stock approach, what is a potential risk?

Inaccurate demand forecasting Signup and view all the answers

How does the procurement method of supply on order compare to supply for stock?

Supply for stock relies on anticipatory demand Signup and view all the answers

What defines the importance of purchases in a company's supply policy?

Whether purchases are local or international Signup and view all the answers

Which option highlights a characteristic of the supply for stock production mode?

Standardized product production Signup and view all the answers

What is the primary purpose of the purchasing process in an enterprise?

To supply the company with necessary goods at the best cost Signup and view all the answers

Which of the following does NOT trigger a purchase request?

Supplier promotions and discounts Signup and view all the answers

In the supplier selection process, which factor is considered crucial?

Quality of products offered Signup and view all the answers

What is a key responsibility during the monitoring and control step of the purchasing process?

Tracking the order to ensure timely delivery Signup and view all the answers

Which objective emphasizes selecting quality products and suppliers?

Quality objective Signup and view all the answers

Why is timely procurement essential in the purchasing process?

To avoid delays and customer dissatisfaction Signup and view all the answers

What is NOT included in the records kept during the monitoring and control phase?

Market trends affecting supplier demand Signup and view all the answers

What can result from inadequate purchasing in terms of quantity?

Halt or slow production lines Signup and view all the answers

What is one potential disadvantage of centralization in purchasing?

Reduced adaptation to local needs Signup and view all the answers

What is a primary advantage of decentralization in the purchasing process?

Faster response to local user demands Signup and view all the answers

What is the main goal of establishing a partnership between clients and suppliers?

Build stable and mutually beneficial relationships Signup and view all the answers

What is one objective of stock management in the context of financial goals?

Reduce storage costs and risks associated with quality deterioration Signup and view all the answers

How does decentralization affect transportation costs?

It tends to lower transportation costs by ordering locally Signup and view all the answers

Which of the following is a benefit for suppliers in a client-supplier partnership?

Regular income and support through partnership Signup and view all the answers

What can high stock security prevent in a business environment?

Disruptions in business processes Signup and view all the answers

What is a significant consequence of stock outages for a company?

Potential loss of reputation Signup and view all the answers

Study Notes

Supply Policy Definition

Aims to provide companies with materials that meet quality standards, meet the needs of requesting services, and are available at the best price and within required deadlines.
Also aims at maintaining the proper conservation of stored materials.

Supply Policy Characteristics

Sources of Procurement: National or International
Importance of purchases: Local or International
Procurement method: For stock or on order
Objectives of the purchase.

Sources of Procurement

National

Advantages: Short delivery times, low transport costs, access to a diverse network of providers, relatively high quality.
Limitations: Limited supplier choices, difficulties in finding appropriate quality, long delivery times, high transportation costs.

International

Advantages: Highly varied providers, high quality
Limitations: Limited choices, difficulties in finding adequate quality, long delivery times, high transportation costs.

Supply Policy based on Production Mode

Supply on Order

Characteristics: Specific client demands, firm order placed on specific product design, product manufactured for an identified client, not for stock, customized product production.
Limitations: Inability to satisfy client demands if issues arise with the supplier, risk of inaccurate predictions causing product waste, generally higher production costs, limited customization options.

Supply for Stock

Characteristics: Anticipatory demand planning, products manufactured for stock and not for an identified client, standardized product production.
Limitations: Risk of inaccurate demand forecasting leading to product surpluses or shortages, generally higher stocking costs, limited customization capabilities.

Purchasing Process

Purchasing is an activity to supply raw materials, goods, etc. needed at the best possible cost and within set deadlines.

Steps in the Purchasing Process

The Need

The need is expressed as a purchase request for a good or service.
The purchasing dept. determines the precise needs for production.
Purchase requests are triggered by:
- Regular purchases made by the sales department.
- Low stock levels in the warehouse.

Market Research

Search for potential suppliers, both existing and new, domestic and international, through industry publications, trade shows, or direct outreach.

Supplier Selection

Crucial criteria include:
- Price
- Payment terms
- Quality
- Delivery times
- Geographic location
- Financial stability.

Order Placement

Formal order document is issued by the buyer to the seller specifying quantity and terms.
Order placement can be made via fax, phone, online, or in written form.
The order should be promptly confirmed and the supplier should be made aware of the details of the shipment.

Monitoring and Control

Order tracking: Ensure timely delivery and goods matching the specifications of the original order.
Record keeping: Records should be kept for every purchase made. This includes details of materials, such as supplier, contact information, item specifications, dates of purchase, and the price agreed on.
Delivery monitoring: Delivery times are crucial and require monitoring to prevent potential delays, stock shortages, and customer dissatisfaction.

Purchasing Policy Objectives

Quality Objective

The purchase service must select quality products and suppliers that provide essential security for the company.
Ensures appropriate product delivery and maintains client satisfaction and market share.
Optimal service includes:
- Cost reduction in procurement costs.
- Minimizing material storage expenses.

Quantity Objective

The service needs to ensure adequate supplies to the different production units to avoid halting or slowing production lines.
Lack of materials leads to lost clients and delays in projects.
The service must purchase goods in quantities to meet estimated needs.

Time Objective

The purchase service must ensure that products are obtained on schedule to avoid delays and customer dissatisfaction.

Modes of Organization of Purchasing

Centralization

Users formulate their demands to a purchasing department that ensures full supply.
Advantages:
- High bargaining power with suppliers
- Efficient stock management
- Common policy for all establishments
- Companies benefit from price reductions on bulk purchases.

Decentralization

Decentralization of purchases allows users to place orders directly and delegates authority to lower levels.
Advantages:
- Adapt to local needs
- Faster (shorter delivery times)
- Lower transportation costs
- Increased motivation and autonomy of staff.

Partnership between Clients and Suppliers

This is a win-win agreement where both parties prioritize each other's interests for mutual benefit.
Goal: Build stable and mutually beneficial relationships. This facilitates transparent relations between suppliers and clients and ensures successful contracts.

Benefits for the Client

Secure supply (determined delivery schedules, quantities).
Reduction in costs of intermediate goods.
Good quality goods adapted to the needs of production.

Benefits for the Supplier

Regular income.
Partnership ensures financial aid, training, and advanced equipment.
Competitive offer (quality and prices).

Stock Management

A stock is a collection of goods stored awaiting use, to enable ongoing supply to users.
The aim of maintaining a stock is to meet the needs of users.

Stock Security

Prevent stock outages.
High costs associated with outages.
Stock protection can prevent process disruptions, customer loss, decline in revenue, and damage to reputation.

Objectives (Financial)

Reduce stock levels.
Purchase at the lowest possible unit prices.
Reduce storage costs and minimize the risk of quality deterioration due to storage.

Risks Associated with Stock Management

Overstocking

Having a stock level that exceeds the production or sale needs of the business.
Consequence: Increased holding costs for the stock, risk of obsolescence or damage.

Stock-out

A stock level lower than the business's production or sales needs.
Consequences: Production halting or delay, customer dissatisfaction (delayed delivery), damage to the brand image of the enterprise, decrease in revenue.

New Stock Management Techniques

Just-in-Time (JIT) Method

Principle: Producing goods only when they are needed based on customer orders.
Aligns production with customer demand.
Order triggers production.
Reduce lead times.

Zero Stock Method

Principle: Maintaining a minimum stock level to manage costs.
Ensure stock is adjusted for customer demand.
Costs are reduced by reducing the stock holdings.
Benefits: Shorter production times, ability to offer new products more consistently, lower storage costs.

Advantages of JIT and Zero Stock Methods

JIT

Reducing production lead times
Improved goods quality
Faster delivery
Increased customer personalization options

Zero Stock

Reduced production lead time.
Capacity to offer new stock consistently.
Reduced storage costs.

Limitations of JIT and Zero Stock Methods

Both Methods: High reliance on suppliers (delivery times), increased pressure on employees, difficult to adapt to mass production.
JIT: Possible loss of production flexibility.
Zero Stock: Requires careful monitoring and management of stock.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz covers the key aspects of supply policy, including its definition, characteristics, and sources of procurement both nationally and internationally. Test your understanding of the advantages and limitations associated with different sourcing strategies. Explore how these elements influence purchasing decisions within businesses.