The Supply Chain (AQA A Level Business): Revision Note

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:

  • 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 good 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 other 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

Building an effective supply chain

Why an effective supply chain matters

1. Faster delivery to customers

   • When every link is well-coordinated, products move quickly from factory to shelf, beating slower rivals

2. Lower operating costs

   • Just-in-time 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 stock and keep prices low

3. Consistent quality

   • Close, long-term relationships with suppliers make it easier to enforce standards and fix problems early

4. Greater resilience to shocks

   • A well-planned supply chain includes back-up suppliers and effective data sharing, so business can adapt when something goes wrong

Modern supply chains

• Modern supply chains stretch across the world, rely on real-time data and face tougher questions about ethics and sustainability

• Businesses now use digital tools, closer partnerships and greener standards to keep those long chains working smoothly

Ways to manage more complex supply chains

Influences on the choice of suppliers

• 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

A range of factors, including price, quality and reliability impact on the choice of suppliers

Factors that guide the choice of supplier

The value of outsourcing

• Outsourcing is the process where 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

Advantages of outsourcing

• 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, which allows it to benefit from the knowledge and experience of industry specialists as and when required

• Increased flexibility

  • They can provide greater flexibility to scale their operations up or down based on demand fluctuations, which is particularly valuable in industries with seasonal or unpredictable demand

• Focus on core competencies

  • Businesses can concentrate their resources and efforts on their core competencies, where they can add value

Limitations of outsourcing

• Quality control

  • Using external providers makes it harder to ensure consistent quality and adherence to company standards

• Loss of control

  • Handing direct control over those activities to others outside of the business may be risky

  • Companies must carefully select reliable partners and establish clear contractual terms to protect their interests

• Data security and confidentiality

  • Sharing sensitive information outside of the business introduces potential risks to data security and confidentiality

• Communication and cultural differences

  • Using global providers may result in language barriers or problems with time zone differences. Cultural differences may present communication challenges