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To stock or not to stocK?it’s a question of procurement!

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Teacher Guidance and InstructionsThe following activity is designed to address the content covered in section 2.3.2 of the Edexcel specification focusing specifically on factors affecting supplier choice, procurement and logistics and managing stock.

The group activity allows students to explore a range of options, weighing up the pros and cons of each, before arriving at a final justified decision.

Instructions1 Organise the students into groups of 4

2 Issue each group with a scenario sheet, supplier information cards and a decision sheet

3 Students record their suggested pros and cons based on the information provided on the decision proforma

4 Allow the students time to review the sheet and decide on a final supplier – this decision must be justified

5 There are additional follow up examination questions, written specifically for each examination board, that can be completed in class or set for homework

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To stock or not to stock?it’s a question of procurement!


Dairy Dreams

SCENARIODairy Dreams ice-cream are a medium sized manufacturer of luxury ice-cream who supply to several high-street supermarkets as well as smaller retail outlets. Following the appointment of a new lead buyer to the procurement department the company is reviewing its current stock control methods and suppliers.

Detailed research has been carried out into the range of potential suppliers and tenders have been received from three suppliers to compare alongside their current supplier.

Dairy Dream Ice-cream - Data Drop: • Average monthly demand – 100,000 units (forecasts suggest this will increase by 50% in the next 12 months) • Current output – 30,000 units per week • Current delivery schedule – 60,000 units every two weeks • Current amount of buffer stock held 20,000 units

Your TaskBased on all the information provided, which supplier would you advise Dairy Dreams Ice Cream to choose?

You must be prepared to give reasons to support your decision.

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Supplier – Farm & Country Dairy

Lead Time

5 days

Lead Time

2 days

Discounts available

10%

Discounts available

5% (on orders >10000 units)

Defective products (per 1000 units delivered)

10


15

Minimum order required (units)

5,000


5,000

Price per unit

£1.80

Price per unit

£1.90

Other factorsAlready have a strong working relationship after 10 years with the supplier

Other factorsFavourable credit terms of 60 days

Current Supplier – Fresh Direct Dairy

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Lead Time

7 days

Lead Time

1 day

Discounts available

None

Discounts available

Negotiable


20


10


50,000


5,000

Price per unit

£1.50

Price per unit

£2.00

Other factorsLocated in close proximity to Dairy Dream ice-cream

Other factorsDeliveries are sent 24hrs a day for maximum flexibility

Supplier – Horizon Organic Dairy

Supplier – Acorn Dairy

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To stock or not to stock?it’s a question of procurement!Decision sheet






Pros Cons

The final decision is:

The main reason for this decision is:

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To stock or not to stock?it’s a question of procurement!Decision sheet/ Teacher Guidance






Pros Cons

The final decision is:See commentary below

The main reason for this decision is:Students are likely to opt for either remaining with the current supplier and discuss the benefits to a business of established supplier relationships and bargaining power or opt for Horizon Organic Dairy. For this choice, although price is higher, there is scope to negotiate discounts for Dairy Dreams and also the advantage, as production is set to expand, that they could hold less stock and move to a JIT method of managing stock control. There is also the possibility of the organic USP to be utilised in the luxury ice cream market.

• Established relationships – 10yrs of loyalty• Quality of the product is very good• Price is very competitive compared with other suppliers and almost the cheapest when the discount is factored in at 10%

• Very short lead time which could allow Dairy Dreams to have more frequent orders and hold less stock• Minimum order required is low and more suited to frequent ordering• Credit terms could help cash flow for Dairy Dreams

• Cheapest supplier on offer• Located close to Dairy Dreams therefore delivery costs may be lower, however lead time could be an issue

• Shortest lead time out of all suppliers• 24hr delivery means that Dairy Dreams could have more frequent and smaller deliveries arriving at various times during the day e.g. avoids disruption to production or distribution

• There are cheaper alternatives• Lead time is greater than possible new suppliers – if more frequent orders are needed is the 50,000 units, minimum order quantity, too much?

• Expensive unit price (2nd most expensive) although a discount is available for larger orders• Wastage could be a problem as the number of defective products are 50% higher than existing supplier

• High level of defective products, double the amount currently received• Long lead time (7 days) and two days more than current supplier

• The most expensive supplier, however it is organic produce which could add a further USP in the luxury marketSA

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To stock or not to stock?Follow up examination question Edexcel exam board


Managing Stock

Evaluate the impact on Dairy Dream ice-cream of a decision to manage their stock using JIT (12 marks)

Procurement & Logistics

Evaluate the impact on the procurement and logistics of Dairy Dream ice-cream from a decision to switch suppliers (12 marks)

DescriptorLevel Mark

0

1

2

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0

1-4

5-8

9-12

No rewardable material

Demonstrates elements of knowledge and understanding of business concepts and issues, with limited business terminology used (AO1b) • Limited application of knowledge and understanding of business concepts and issues to the business context (AO2) • Attempts to deconstruct business information and/or issues, finding limited connections between points (AO3a) • Draws a conclusion, supported by generic assertions from limited evaluation of business information and issues (AO3b)

Demonstrates mostly accurate knowledge and understanding of business concepts and issues, including appropriate use of business terminology in places (AO1b) • Sound application of knowledge and understanding of business concepts and issues to the business context although there may be some inconsistencies (AO2) • Deconstructs business information and/or issues, finding interconnected points with chains of reasoning, although there may be some logical inconsistencies (AO3a) • Draws a conclusion based on sound evaluation of business information and issues (AO3b)

Demonstrates accurate knowledge and understanding of business concepts and issues throughout, including appropriate use of business terminology (AO1b • Detailed application of knowledge and understanding of business concepts and issues to the business context throughout (AO2) • Deconstructs business information and/or issues, finding detailed interconnected points with logical chains of reasoning (AO3a) • Draws a valid and well-reasoned conclusion based on a thorough evaluation of business information and issues (AO3b)

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