JIT vs JIC Stock Management

Behind the delivery

You already know the stock decision: just in time, where a business holds almost no stock and orders as it needs it, against just in case, where it keeps a buffer in reserve. You know that JIT cuts storage costs and frees up cash, and that it leaves no margin if something goes wrong. This module starts from a question that decision raises but does not answer. Just in time only works if the deliveries actually arrive. So who decided which supplier delivers them, and on what basis? That decision was made long before any lorry arrived, and it is called procurement: finding and buying what a business needs to operate. It is where the stock policy is really made, because a business whose suppliers are unreliable cannot run JIT at all, whatever it would prefer. There is a second thing the stock decision hides. Ordering little and often means never placing a large order, and large orders usually come with a lower price per unit. So JIT quietly gives up the discounts that bulk buying earns. That is a real cost, and it belongs alongside the storage savings when you weigh the two systems up. This module is about what sits behind the delivery: choosing suppliers, and managing the chain they belong to.

Words for buying and moving

Six terms. The first three are the ones this topic is named after, and they are commonly confused with each other.

What procurement actually covers

A business talks about improving its procurement. What does that most likely mean?

• Improving how it finds, chooses and buys from suppliers, so it gets what it needs at the right price, quality and reliability
• Finding the cheapest possible price for everything it buys
• Improving how it sells its products to customers
• Deciding how much stock to hold in the warehouse

Three things that pull against each other

Your specification names three factors affecting the choice of supplier: price, quality and reliability. Learning the three words is easy; the marks are in understanding that improving one often costs you another. Price matters because what a business pays for its inputs feeds directly into its unit costs, and so into either its profit margin or the price it must charge. A cheaper supplier improves both. Quality matters because the business is judged on what it sells, not on what it bought. Poor inputs mean faults, returns, complaints and reputational damage, all of which cost money that the cheaper price did not save. Reliability matters because a business cannot sell what has not arrived. A supplier who is occasionally late may be perfectly acceptable to a business holding buffer stock, and completely unusable to one running just in time. Notice what that last point does: it makes the supplier choice depend on the stock policy, and the stock policy depend on the supplier choice. The two decisions are the same decision seen from different ends. And notice the general shape, which is what an evaluation question is really testing: the cheapest supplier is not automatically the best value, because value includes what goes wrong.

Match each supplier problem to its cost

Which two follow from buying on price alone

A business chooses every supplier purely on the lowest price. Select the TWO risks that genuinely follow.

• Quality may fall, leading to faults and complaints that cost more than the saving
• The cheapest supplier may be less reliable, which is a serious risk if the business holds little stock
• Its unit costs will rise
• It will be unable to use just in case stock management

Lower cost, or better service

The effects of procurement and logistics on a business, set out as the balance your specification asks for. Most real decisions buy something from the left column at some price in the right.

The supply chain in words

Finding and buying what a business needs to operate is called _____, while managing the movement and storage of goods is called _____. The whole sequence from raw materials to the final customer is the _____ chain. Businesses choose suppliers on price, quality and _____. Buying in large quantities earns purchasing _____ of scale, which a business ordering little and often gives up.

The recommendation that only counts pennies

Four recommendations about choosing a supplier. Select the ONE that judges on price alone.

• Supplier B is slightly dearer but has never been late, which matters because this business holds almost no stock.
• Supplier A should be chosen because it is the cheapest available.
• Supplier A is cheaper, but its quality problems would reach our customers, so the saving may not be worth it.
• Either would work if we held buffer stock, so the choice depends on whether we intend to run just in time.

Choosing a supplier, worked

A business making furniture is choosing between two timber suppliers, and it runs just in time. Supplier A is noticeably cheaper, but has been late on two of its last ten deliveries and its timber has occasionally arrived with faults. Supplier B costs more, has never been late, and its quality has never been questioned. Here is a weak answer and a strong one. Weak: "The business should choose Supplier A because it is cheaper, which lowers unit costs and increases profit." Everything in that sentence is true, and it would still score poorly, because it treats price as the only factor and never mentions what the business is like. Strong: "The business should choose Supplier B. It costs more, which raises unit costs, so this is a real sacrifice. But the business runs just in time and holds almost no stock, so a late delivery stops production rather than being absorbed by a buffer, and two late deliveries in ten is a high risk to carry. The occasional faults matter too, because the business is judged by its customers on the finished furniture, not on what it paid for the timber. If the business held buffer stock, Supplier A would become a reasonable choice, and the saving would be worth taking." Look at what the strong answer does. It reaches a decision rather than listing considerations. It concedes the cost of that decision instead of pretending the choice is free. It justifies using this business specifically, which is what turns a general point into an applied one. And it says what would change the answer, which shows the judgement is reasoned rather than assumed.

How a late delivery travels

A business running just in time receives a late delivery. Put the consequences into the order they occur.

• A supplier misses its delivery date
• There is no buffer stock to draw on, because the business runs just in time
• Production stops, and staff and machinery stand idle
• Orders are fulfilled late, or cannot be fulfilled at all
• Customers are let down, and the damage reaches the reputation of the business rather than the supplier

Procurement drill

Answer from memory. Each question asks what a term means or what follows from it.

Two suppliers, one decision

A bakery supplies cafes each morning and holds very little stock. It is reviewing its flour supplier.

• The cheaper supplier has been late twice this year. What matters most here?
• The bakery could switch to holding buffer stock instead. What changes?
• A third supplier offers a much lower price for very large orders. What is the consideration?
• You must write the recommendation. What makes it a strong one?

Explain how procurement affects a business

Explain what procurement and logistics involve, how a business chooses its suppliers, and why effective supply chain management matters. Use a business you choose and apply your points to it.

• Define procurement and logistics, and say how they differ
• Name the three factors affecting the choice of supplier and explain why each matters
• Explain how supplier choice and stock policy affect each other
• Explain how good procurement can lower unit costs and improve efficiency
• Explain what can be lost, including quality of service and economies of scale
• Explain why the cheapest supplier is not always the best value
• Finish with a judgement applied to your chosen business, and say what would change it