Inventory management and procurement

Check your know ledge of key terms in inventory management and procurement by choosing the
best de finitions for these terms.

1 Economies of scale:
a Reducing costs per unit by increasing
production
b Cutting costs by reducing output

2 Buffer stock:
a Goods kept in store to cover seasonal
demand e.g. Christmas sale
b Goods kept in store to cover unforeseen
shortages or fluctuations in demand

Factory gate pricing:

a Transport costs are not included in the
purchase price of a product
b The price is lower because you buy directly from the manufacturer

4 Supply chain:
a The close co-operation of all parties involved in the making, selling, and delivering of
a product
b Network of stores that supply customers with a wide variety of products

5 Tender:
a An assessm ent or calculation of the approxim ate cost or value of a product or service
b An offer for goods or services that follows a request for a quotation made by an official
body, e.g. local government

1 Match the beginnings of the sentences ( i - 6) with the endings (a -f) to make de finitions of more
key terms.

1 Lead time is the time □

2 Procurement is □
3 A retailer is a business □
4 Customer order cycle time is the time □
5 A wholesaler is □
6 JIT - just in time is a concept □
 UNIT 3 Inventory management and procurement j 2 1

a customers are prepared to wait for the delivery of their order.

b of reducing inventories by co-ordinating the delivery of materials just before they are needed,
c it takes to produce and supply a product.
d an intermediary between manufacturers and retailers which buys in large quantities and resells
in sm aller quantities.
e that buys products from wholesalers or manufacturers and resells them to the ultimate
consumer.
f the purchasing of goods (materials, parts, supplies, equipment) required to run an enterprise.
A U D IO

* 2 Listen to an expert presenting an inventory management system to the m anagers of a large retail
store. Then say which of the statem ents are true 0 or false E .

1 The inventory system is called CPR. □

2 It’s a sales-based system. □
The system co-ordinates the flow of information and goods in the logistic chain. □
□
3
Young Fashion has used the system for six years now.

□
4
Orders are electronically transferred to the warehouse.

□
5
6 The store has reduced transport and inventory costs by about 25 per cent.

3 Listen again and complete the sentences with the words from the box.

stock • lead times • replenishment • processing • generated • data interchange •

point • schedule • inventory • retailer

1 Today I’ m going to tell you something about CRP, that means co n t inuous________________
2 I’ ll also explain how it can be used to lower inventory and operational costs and to shorten
pro duc t___________________ .
3 First of all, you decide what products you want to order at w h a t___________________ level.
4 The system will use this information at t h e of sale in the retail store.
5 The leading Russian clo th es Young Fashion introduced continuous
replenishment three years ago.
6 With the new system all orders a r e ___________________ by computers, which process data
received from cash registers.
7 The orders are sent to the warehouse by electronic___________________ , where they are
processed.
8 And finally the goods are delivered to the different outlets according to a ________________
9 Since the introduction of the CRP system, Young Fashion have managed to c u t ___________
and transport costs by about 15%.
10 Moreover, errors in ord er___________________ have been reduced considerably by using
scanning technology and EDI.
2 2 | UNIT 3 Inventory management and procurement

T HE P A SSIV E

We often use the passive voice to describe processes, especially if we are more interested in the
action itself than in the person who does the action. It is formed using the verb to be and the past
participle (third form of the verb). We use by at the end of the sentence to say who or what does
the action.
The goods are delivered to a depot.
The ord er is genera ted by the computer.

i\ Put the processes described in the presentation about CRP in the correct order.
1 ___________________

a Orders are generated based on data received from cash register,

b Goods are delivered to the retail outlet,
c System is activated at the point of sale,
d Orders are sent to the warehouse,
e Orders are processed.
f Sales information is transferred to the CRP computer system.

5 Here are some more inventory management techniques. Complete the sentences with the passive
form of the verbs in brackets.

1 A system in which the inven tory___________________ (monitor), planned and managed by the
manufacturer on behalf of the customer (often a retailer).
2 A system which is similar to CRP. I t (use, often) for products that need to
be supplied frequently and in small batch sizes.
3 It means that o rd e rs___________________ (transfer) electronically to the manufacturer. Then
t h e y ___________________(deliver) to the retail store.
4 Real-time d e m a nd___________________ (identify) by electronic cash register and the product
m ovem ent___________________ (co-ordinate) from supplier to the retail store.
5 Products that have similar characteristics regarding their selling pro file___________________
(categorize) into ‘fam ilies’.
 UNIT 3 Inventory management and procurement |

Now match the planning techniques below with the de finitions in exercise 5.

a DSD = Direct store delivery

b CM = Category management
c VMI = Vendor-managed inventory
d CRP = Continuous replenishment
e QR = Quick response

Complete the job advertisement for a corporate procurement manager with words from the box.

fulfilment • negotiation • 3PL providers • procurement • command • vendors

• supply chain • relationship

V \
W e are looking for a proactive and dynam ic professional to take care o f our strategic
procurem ent and su p p lie r____________________ m anagem ent.

R eporting to the D irector o f C orporate Procurem ent, the successful applicant will be
responsible for m anaging both internal and external custom ers and for w orking w ith the
ap p o in ted . W hile liaising w ith th e ____________________ team,
_____________________ 4, and related stakeholders, you w ill also be involved in providing
business support to optim ize fm ance-logistics processes, o rd e r_____________________ ',
and logistics costs.

O ther responsibilities include providing initiatives to help m axim ize com pany business
profitability and efficiency.

The ideal candidate should have a degree i n ____________________ m anagem ent or

logistics m anagem ent w ith a deep understanding and know ledge o f the C hina logistics
m arket. Y ou should have at least 5 y ea rs’ experience in a m ultinational com pany and you
should possess o u tstan d in g____________________ skills. B ased in M acau, excellent
____________________ o f E nglish and C antonese is a m ust w ith M andarin an advantage.

If you are interested in this role, please send your C V in W ord form at to ...

Read the job advertisement again and answer the questions.

1 What area will the new corporate procurement

manager head?
2 What are the procurement manager’s main
responsibilities? List two or three.
3 Who will he/she collaborate with closely in
his/her job?
4 What qualifications are expected?
5 What kind of experience is required?

Can you think of other are as which are important in

procurement? D iscuss w ith a partner.
2 4 [ UNIT 3 Inventory management and procurement

I
A U D IO

© 9 Three purchasing managers are d iscussing stra tegies for n e g o tia ting w ith a supplier. Listen to
g
the discussion and answ er the qu est io ns.

1 What kind of relationship do they want with the supplier?

2 What would be the benefits of such a relationship?
3 What market position does the company have?
4 What kind of products do they make?
5 What kind of agreement are they interested in?

1 0 Match the beginnings ( i- 6 ) with the e n d in gs (a —f) of the sentences from the dia logue .

1 How do you
2 1 think we could
3 What are your L i
4 Yes, and 1also suggest telling them
5 In my opinion it would also be important
6 Good idea. And why don’t we

a to point out that we’re interested in establishing a long-term agreement.

b that this a good opportunity to associate with a brand like ours.
c feel about that?
d lower costs considerably.
e say that it’s their chance to enter the pharmaceutical market?
f thoughts on that, Gisele?

A S K IN G FOR O PIN IO N S

What do you think?

How do you feel about that?
What are your thoughts on that?
Do you agree?

G IV IN G O P IN IO N S/M A K IN G S U G G ESTIO N S

I suggest that we ...

In my opinion we should ...
Perhaps we should ...
Why don’t we ... ?

A GRE EIN G

That’s a good idea.

That sounds good.
I agree.
That’s right.
 UNIT 3 Inventory management and procurement |

1 1 You have received the follow ing email from the purchasing departm ent in your company. Work
out a few suggest ions and reply to th is email.

...........................

Dear colleagues

We are currently looking into all areas of procurement to see how we can optimize processes
and save costs.

Perhaps you could get back to us with a few suggestions regarding possible improvements in
your own department or work environment.

Thanks in advance for your co-operation.

Regards
Luke :
A

1 2 Work with a partner: suggest these points and comment on your partner’s suggestions.
H p p ap p p H B % , Partner A Fite 03, p. 71
Is p r Partners File 11, p. 72

13 A Spanish courier company receives a quotation for p a c k ing lab e ls and consignment notes.
Put the words or phrases into the correct order to make sentences. The first parts have been done
for you.

\ c**

Dear Ana , Za

1 Please find attached /for three new products /your request/ ^

nnrniintatinn / accnrriinntn .1 . *- ' —1

2 Our prices/annual consumption figures/the basis of / your forecast of / are calculated on.
3 As requested / pallets to / we will deliver on / Barcelona or Madrid.
4 For a / we can offer you / of 2.5% / contract term of / a discount / at least two years. A

5 In the attached/a ll prices /have been listed in/your requirements/quotation sheet/ Elf 1
columns according to.

6 If you have / me know / any further questions / please let.

r 1
7 We look / hearing from / forward to / you soon.
A
Regards
Enrique
A
2 6 I UNIT 3 Inventory management and procurement

I
Q U O T A TIO N S

When giving a custom er a quotation it is necessary to include details on a number of things

e.g. prices, discounts, and delivery terms.

Here are some useful phrases for quotations:

Prices
Please find a ttached our quota tion f o r ...
\Ne are ple a se d to quote as follows.
We can quote you a gross / n e t pric e of...
The pric es quo ted above include ...
We can offer you a pric e of... p e r ...

Discounts
We can offer you 10% o ff the re t a il price.
We allow a 2% cash discoun t for pa ym ent within 30 days.
O ur pric es are subje c t to a 25% trade discoun t o f f ne t price.
We gra n t a trade / quantity / cash discoun t of... % on our list prices.
If your ord er exce eds 2,000 items, we can offer you a further 10% discount.

D e livery
D elivery can be effected imm edia tely after re ce ip t o f order.
As requested, we will d e liver on pa lle ts to ...
We would be able to d e liver within 10 days o f re ce ipt o f order.

14 Match the beginnings ( 1- 6 ) with the endings (a -f) of the sentences.

1 For orders exceeding 500 pieces, □

2 We grant a cash discount □
The prices quoted □
□
3
As requested, we

□
4
Our prices are subject

□
5
6 The net price

a will deliver on pallets to Rotterdam.

b to a 25% trade discount off net price.
c we grant a discount of 5%.
d of this article is £25.00.
e above include transport charges.
f of 3% on our list prices.

1 5 Give a customer a quotation by email based on the follo w ing de tails.

GPS system ‘Road Navigator TX-2300’

Price: $975.00
more than 10 items: additional 8% discount
price includes 15% VAT
delivery within 6 days of purchase order
 U N ITS Inventory management and procurement | 27

O U TPU T
Strategic sourcing in procurement
lo s t com p anies and governm en ts today
I are under in cre asing pre ssure to operate
more efficiently. And many of them are realizing
that e ffective procurem ent can reduce c o sts,
im prove p ro c e ss e s and in cre ase productivity.
In the p ast few y e a rs s tra t egic sourc ing has
b ecom e a frequently used appro ach in this
context.

But what is stra t egic sourc in g ? To put it

simply, it m e ans that com p a nies are adopting
a new stra t e gy for how they buy se rvic e s and
products.

S tra t egic sourc ing is a syst e m a tic p ro c e ss of

an alyzing expenditures, internal and external
influences, and finding out what kind of supplier relationships are n e c e ss a ry to help
a chieve the com p a ny’s go a ls. Be fore the com p any d e cid e s to purch ase a product or
se rvic e , stra t egic sourc ing is used to consid er the total c o s t of a product or action, not
just the price alone.

In the p ast, many purch asing m an age rs n egle cte d the fa c t that low purch ase c o s t do es
not n e c e ssarily m ean low total cost . In a stra t egic sourc in g p ro c e ss other c o s ts are
exam ined as well e .g. the c o s t of purch asing, transport, support, m aintenance, and
disposal.

Le ad ing com p anies have realized how much they can benefit from s tra t egic sourcing,
and m any have alre ady achieved im pressive c o s t reductions.

O V ER T O Y O U

1 What do you think of the strategic sourcing approach?

2 How are goods purchased in your company?
3 Do you buy goods for the company? What is the standard procedure?