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Exam code:7131

Managing the supply chain effectively

The supply chain is the network of organisations, people, activities and resources that move a product from its basic raw material right through to the final customer
It includes the following:
- Stock control: planning, implementing and monitoring the movement of raw materials, components, work-in-progress and finished goods
- Quality control: ensuring output meets standards so that the end product is safe and meets customer expectations
- Transport networks: ensuring efficient deliveries of goods to customers, taking account of speed, reliability and costs
- Supplier networks: developing strong relationships with suppliers willing to work collaboratively to improve quality
Global supply chains require these activities to be coordinated across international borders
- Some stages can be completed at lower cost in certain countries
  - E.g. China has a reputation for producing high quality, low-cost electronics components
- Labour-intensive processing, such as clothes manufacturing, is outsourced to countries with low labour costs, such as Vietnam
- Scarce raw materials may only be available in certain countries/regions

Decision area	What it involves
Make or buy (produce in-house or outsource)	Decide whether to produce in-house or buy from specialists
Choosing suppliers	Single, trusted supplier or multiple backup options Local or global sources
Purchasing approach	Bulk buying for discounts or frequent, small orders for flexibility
Information sharing and use of technology	Real-time data, bar codes, RFID and cloud systems keep production partners fully informed
Logistics structure	How many and where warehouses are needed Transport options — use an external haulier or keep control of deliveries

Faster delivery to customers
- When every link is well-coordinated, products move quickly from factory to shelf, beating slower rivals
Lower operating costs
- Just-in-time (JIT) deliveries and bulk purchasing agreements reduce storage, handling and material expenses
- E.g. Aldi negotiates long-term contracts with a small group of trusted suppliers, helping it minimise warehouse inventory and keep prices low
Consistent quality
- Close, long-term relationships with suppliers make it easier to enforce standards and fix problems early
Greater resilience to shocks
- A well-planned supply chain includes backup suppliers and effective data sharing so the business can adapt when something goes wrong

Modern supply chains stretch across the world, rely on real-time data and face tough questions about ethics and sustainability
Businesses now use digital tools, closer partnerships and greener standards to keep those long chains working smoothly

Way	Explanation	Example
Use live data to trace every item	Blockchain tracking lets firms see exactly where food comes from and recall only the unsafe batch	Suppliers of fresh spinach and lettuce to US retailer Walmart record field-to-store journeys, cutting tracing time from seven days to two seconds
Predict problems with artificial intelligence (AI)	AI forecasting spots demand changes and machine failures before they hit the supply chain	Nike uses AI models to plan materials and shipping accurately As a result, its rate of late deliveries has fallen significantly
Increase transparency for consumers and investors	Publicly available supplier lists and interactive maps show where ingredients come from	Nestlé publishes downloadable files naming every coffee, cocoa and palm-oil supplier so buyers can see the full chain
Share IT platforms and paperwork digitally	Common data hubs cut time spent on shipping documents and customs	Shipping company Maersk was able to shave days off global freight journeys for customers such as IBM by using electronic bills of lading to clear customs quickly
Monitor operations with connected sensors	Internet-of-Things (IoT) devices flag faults and energy waste in real time	Sainsburys‘ 600 UK stores are fitted with cloud-linked fridge sensors These save nearly £1m in electricity costs each year and reduce inventory replacement costs

Businesses often go to great lengths to find suitable suppliers of raw materials and components
- Factors including the price, quality and reliability of supplies determine whether a business can efficiently produce high-quality products at a reasonable cost
There are several factors that can influence the supplier chosen by a business

Factor	Why it matters
Quality	Inputs must meet exact standards Poor quality travels through to the final product and could damage the brand
Delivery reliability	Late or erratic deliveries halt production lines, especially in JIT systems
Availability and supply security	Businesses need certainty that scarce or crucial materials will not run out mid-project
Price and payment terms	Competitive unit cost and favourable trade credit terms keep finished product prices low and cash flow healthy
Ethical and sustainability standards	Customers and regulators expect fair labour and green practices Failure risks scandals, fines and lost sales
Relationship and trust	Long-term cooperation supports consistent quality and encourages joint problem-solving and cost-saving
Flexibility and responsiveness	A supplier able to vary volumes up or down quickly helps the business cope with demand changes

Explain why reliability might outrank price for JIT firms, but price could still dominate for cost‑leaders

Weigh at least two factors before choosing a supplier to reach evaluation marks

Outsourcing is the process through which a business delegates specific business activities (IT, customer support, HR, etc.) to external service providers
- Businesses choose to outsource these functions to reduce costs, access specialised expertise or focus on core competencies

Cost savings
- Businesses can often reduce expenses associated with operations such as hiring and training employees, maintaining infrastructure and managing IT systems
Access to specialised skills
- External specialists have resources that the business lacks internally, whic