lnventory managementand procurement

Checkyourknowledge andprocurement
of keytermsin inventorymanagement bychooslngthe
bestdefinitionsfor theseterms.

Economies of scale:
a Reducing costsper unit by increasing
production
b Cuttingcostsby reducingoutput
Bufferstock:
a Goodskept in storeto coverseasonal
demande.g.Christmas sale
b Goodskept in storeto coverunforeseen
shortages in demand
or fluctuations
Factorygatepricing:
a Transportcostsare not includedin the
purchase priceofa product
b Thepriceis lowerbecause you buy directlyfromthe manufacturer

4 Supplychain:
a Thecloseco-operation of all partiesinvolvedin the making,selling,and deliveringof
a product
b Networkof storesthat supptycustomers with a widevarietyof products

5 Tender:
a An assessment or calcutation
of the approximatecostor valueof a productor service
b An offerfor goodsor servicesthat followsa for a quotationmadeby an official
request
body,e.g.localgovernment

llatch the beginningsof the sentences(r-6) with the endings(a-f) to makedefinitions of more
key terms.

r Leadtime is the time n

z Procurement
is I
3 A retaileris a business n
I Customer
ordercycletime is the time n
5 A wholesaleris T
6 JIT- just in time is a concept n
 UNIT3 Inventory and procurement
management I 21

a customers arepreparedto wait for the deliveryof theirorder.

b of reducing inventoriesby co-ordinatingthe detivery justbeforetheyareneeded.
of materiats
c it takesto produce andsupplya product.
d an intermediary betweenmanufacturers and retailerswhichbuysin largequantitiesand resells
in smallerquantities.
e thatbuysproducts fromwholesalers or manufacturers and resells
themto the uttimate
consumer.
f the purchasing of goods(materials, parts,supplies, equipment)requiredto runan enterprise.
A UDIO

fl\
{v 2 Listento an expertpresentingan inventorymanagementsystemto the managersof a large retail
7
store. Thensaywhich of the statementsare true Z or fakeE.

r Theinventory
systemis cattedCPR. I
z ll's a sales-based
system. I
3 Thesystemco-ordinates andgoodsin the togistic
the flowof information chain. u
4 hasusedthe systemfor sixyearsnow.
YoungFashion n
5 Ordersareelectronically
transferred
to the warehouse. l
6 Thestorehasreduced costsby about25 percent.
and inventory
transport n
3 Listenagainand completethe sentenceswith the wordsfrom the box.
'.. .:,r,::,..:.,:tl,,i.i.
... . .::.,:lt.r,,:ii::l:ltlli:l:a,l:::ll:.i]]t...
,stockr leadtime9.,,t...,'*trttrnment
. processin$:;1;,...f.enerateO
. Oatitinit!*gng" .
'i r:r:,:r:':r":
PointI schedule. invento'ry o retailer

7 Todayl'm goingto tellyousomething aboutCRP,thatmeanscontinuous

2 l'ltalsoexplainhow it canbe usedto lowerinventoryandoperational costsandto shorten
product
3 Firstof a1[,you decidewhatproducts youwantto orderat what Ievet.
4 Thesystemwitlusethisinformation at the of salein the retailstore.
5 The leadingRussian clothes Young Fashion introduced continuous
replenishment threeyearsago.
6 Withthe newsvstemall ordersare by computers, whichprocess data
received fromcashregisters.
Theordersaresentto the warehouse bv electronic wheretheyare
processed.
8 And finattythe goodsaredeliveredto the differentouttetsaccordingto a
9 Sincethe introduction of the CRPsystem,YoungFashionhavemanaged to cut
andtransport costsby aboutr5%.
10 Moreover. errorsin order havebeenreduced considerably by using
scanning technology andEDl.
22 I UNIT3 Inventory and procurement
management

T H E P A S S IVE

Weoftenusethe passivevoiceto describeprocesses, especially if we aremoreinterestedin the

actionitselfthanin the personwho doesthe action.lt is formedusingthe verbfo be andthe past
(thirdformof the verb).We useby at the end of the sentence
participle to saywho or whatdoes
the action.
Thegoods aredelivered to a depot.
Theorder isgenerotedby the computer.

4 Put the processesdescribedin the presentationabout CRPin the correctorder.

1

?; ".f

a Ordersaregenerated basedon datareceivedfromcashregister.

b Goodsaredelivered to the retailoutlet.
c Systemis activatedat the pointof sale.
d Ordersaresentto the warehouse.
e Ordersare processed.
f Salesinformationis transferredto the CRPcomputer
system.

5 Hereare somemoreinventorymanagemcnttechniques.Gompletethe sentenceswith the passive

form of the verbs in brackets.

A systemin whichthe inventory (monitor),plannedand managed by the

manufacturer on behalfof the customer(oftena retaiter),
z A svstemwhichis simitarto CRP.lt (use,often)for productsthat needto
be suppliedfrequentlyandin sma[[batchsizes.
3 lt meansthat orders (transfer)electronically
to the manufacturer.Then
they (detiver)
to the retailstore.
Rea[-timedemand (identifl/by electronic
cashregisterandthe product
movement (co-ordinate)fromsupplierto the retailstore.
Productsthat havesimilarcharacteristicsregarding theirsellingprofile
(categorize)
into'families'.
 U N I T3 y a n a g e m eannt dp r o c u r e m e n| t 2 3
I n v e n t o rm

6 matchthe planningtechniquesbelowwith the definitions in exercise5.

lrloriv

a DSD= Directstoredelivery
b CM: Category management
c =
VMI Vendor-managed inventory
d CRP: Continuous replenishment
e QR: Quickresponse

f (ompletethe iob advertisement

for a corporateprocurement
managerwith wordsfromthe box.

. 3PLproviders. procurement
fulfilment. negotiatiop . command. vendors
. supplychain. relationship

v We are looking for a proactive and dynamic professionalto take care of our strategic
procurementand supplier I management.

to theDirectorof Corporate
Reporting Procurement, thesuccessful wiil be
applicant
responsible
for managingbothinternalandexternalcustomers
andfor workingwith the
appointed '. While liaising with the team,
a,andrelatedstakeholders, you will also be involved in providing
businesssupportto optimize finance-logisticsprocesses,order
and losisticscosts.

Other responsibilitiesincludeproviding initiativesto help marimize companybusiness

profitability and effi ciency.

The ideal candidateshouldhavea desreein manasementor

logisticsmanagementwith a deepunderstandingand knowledgeof the China logistics
market.You shouldhaveat least5 years' experiencein a multinationalcompanyandyou
shouldpossessoutstanding skills. Basedin Macau.excellent
of English and Cantoneseis a must with Mandarin an advantage.

If you are interestedin this role, pleasesendyour CV in Word format to ...

I Readthe iob advertisement again and answer the questions.

r Whatareawi[[the newcorporate procurement

manager head?
z Whatarethe procurement manager's main
Listtwo or three.
resoonsibilities?
3 Whowiltheishecollaborate in
withctosety
job?
his/her
4 Whatqualifications
areexpected?
5 Whatkindof experienceis required?

Canyou think of otherareaswhichareimportantin

procurement?Discusswith a partner.
24 | UNIT3 and procurement
Inventorymanagement

AUDIO

tr\
\a? Threepurchasingmanagersare discusslngstrategiesfor negotiatingwith a supplier. Listento
8
9
the discussionand answerthe questions.

r Whatkind of relationship
do theywantwith the supplier?
z Whatwouldbe the benefitsof sucha relationship?
3 Whatmarketpositiondoesthe company have?
4 Whatkind of productsdo they make?
5 Whatkindof agreement aretheyinterested in?

1O matctrthe beginnings(r-6) with the endings(a-f) of the sentencesfrom the diatogue.

r Howdo you n
z I thinkwe could T
3 Whatareyour il
4 Yes,and I alsosuggestteltingthem n
5 In my opinionit wouldalsobe important n
6 Goodidea.Andwhy don'twe n
a to pointout that we'reinterested in establishinga long-termagreement.
b that this a goodopportunityto associate with a brandlike ours.
c feelaboutthat?
d lowercostsconsiderably.
e saythat it's theirchanceto enterthe pharmaceutical market?
f thoughtson that, Gisele?

FOROPtl{rOr{S
ASK|t{G

Whatdo you think?

Howdo you feelaboutthat?
Whatareyourthoughtson that?
Do you agree?

suGGEsnoNs
Grvr{copn{lotts/rulxlnc

I suggestthat we ...
I n m y o p i n i o nw e s h o u l d...
, Perhaps we should...
i W hydo n ' tw e ...?

AGREEil{G . ,:
.
i rnurr a goodidea.
I Thatsounds good.
I I agree.
, That's right.
 UNIT3 Inventory and procurement
management l2s

t! You havereceivedthe foltowing emaiIfrom the purchasingdepartmentin your company.Work

out a few suggestionsand reply to this email.

Dear
colleagues
intoallareasofprocurement
looking
Wearecurrently processes
toseehowwecanoptimize
andsavecosts.
youcouldgetbacktouswithafewsuggestions
Perhaps possible
regarding improvements
in
yourowndepartment
orworkenvironment.
Thanks foryourco-operation.
inadvance
Regards
Luke

onyourpartner'ssuggestlons,
12 Worhwith a partner:suggestthesepointsandcomment
Fa!tner A, iil€ 03, p. Z1
FartNrerg File il, p.?2

1J A Spanishcouriercompany a quotationfor packinglabelsandconsignment

receives notes.
Putthewordsor phrasesintothecorrectorderto makesentences. Thefirst partshavebeendone
foryou.

:,# u;;* :.**;.*,u,t'il,'u;*, , ;; +"r*****=**='

,s4S

/ pallets
3 Asrequested to/ wewilldeliver orMadrid.
on/ Barcelona
4 Fora/ wecanofferyouI of2.5o/o twoyears.
/ atleast
termof/ a discount
I contract
/ allprices
5 Intheattached / have in/ yourrequirements
listed
been / quotation /
sheet
columns to.
according
6 lf youhave
/ meknow questions
/ anyfurther / please
let.
7 Welook/ hearing to/ yousoon.
from/ forward
26 I UNIT3 and procurement
Inventorymanagement

Whengivinga customera quotationit is necessary

to includedetailson a numberof things
e.g.prices,discounts,
and deliveryterms.
HerearesomeusefuIphrasesfor quotations:

Prices
Pleasefind aftachedour quotation for ...
Weare pleased to quote as follows.
Wecan quote you a gross/netprice of ...
Theprices quoted obove include ...
Wecan offer you a price of .,.per ...

Discounts
Wecan offer you too/ooff the retail price.
Weallow a 2o/ocash discountfor payment within jo days.
Ourprices are subject to a z5% trade discountoff net price.
Wegrant a trade/quantity/cashdiscountof ... % on our list prices,
lf your order exceedsz,ooo items, we can offer you a further rco/odiscount.

Detivery
Deliverycan be effectedimmediatelyafter recelpt of order.
As requested,we will deliver on pallets to ...
Wewould be able to deliver within rc days of receiptof order.

1{1 ff atctrthe beginnings(r-6) with the endings(a-0 of the sentences.

7 Forordersexceeding5oo pieces, T
2 We granta cashdiscount u
3 Thepricesquoted n
4 As requested,we n
5 Ourpricesaresubject r
6 Thenet price n
a wi[[ detiveron palletsto Rotterdam.
b to a z5o/otradediscountoff net price.
c we granta discountof 5o/".
d of this articleis fz5.oo.
e aboveincludetransportcharges.
c
I of 3% on our Iist prices.

1t e ive a customer a guotation by emait basedon the following detatls.

GPSsystem'RoadNavigator
TX-z3oo'
price:$9z5.oo
morethanro items:additionalS% discount
priceincludesr5% VAT
deliverywithin6 daysof purchase
order
 UNIT3 Inventory and procurement
management | 27

ostcompanies andgovernments today

areunderincreasingpressure
to operate
Andmanyofthemarerealizing
moreefficiently.
thateffectiveprocurement
canreduce costs,
improveprocesses and productivity.
increase
lnthepast few years
strategic
sourcinghas
become a frequently
usedapproach inthis
context.

Butwhatis strategic Toputit

sourcingJ
it means
simply, thatcompaniesareadopting
a newstrategyfor howtheybuyservices
and
oroducts.

Strategic is a systematic
sourcing processof
analyzingexpenditures,internal
andexternal
influences,
andfindingoutwhatkindof supplierrelationships
arenecessary to help
achievethecompany's goals.Beforethecompany to purchase
decides a product or
service,strategic
sourcingisusedto considerthetotalcostof a productor action,not
justthepricealone.

Inthepast,manypurchasing
managers neglectedthefactthatlowpurchasecostdoes
notnecessarily
meanlowtotalcost.Ina strategic
sourcingprocessothercostsare
examinedaswelle.g.thecostof purchasing,
transport,
support,maintenance,
and
disoosal.

Leading
companieshaverealized
howmuchtheycanbenefit
fromstrategic
sourcing,
andmanyhavealready
achieved costreductions.
impressive

@
r Whatdo youthinkof the strategic
sourcingapproach?
z Howaregoodspurchased in yourcompany?
3 Doyou buygoodsfor the company? procedure?
Whatis the standard