How businesses choose and manage their suppliers — procurement, the supply chain, and the role of technology and ethical sourcing in supplier relationships.
A supply chain is the sequence of businesses and processes involved in producing and delivering a product to the end customer. Every business that makes a physical product depends on suppliers for raw materials or components.
Example supply chain for a chocolate bar:
🔗 Key idea: The quality and reliability of a business's suppliers directly affects the quality, cost, and availability of its own products. Managing the supply chain effectively is essential for operational success.
Procurement is the process of finding, selecting, and managing suppliers. A business needs to procure (obtain) the raw materials, components, and services it needs to operate.
Good procurement means getting the right materials, at the right price, at the right time, from the right supplier.
| Factor | What it means |
|---|---|
| Price | Cost of materials from supplier |
| Quality | Whether materials meet required standards |
| Reliability | Consistency and on-time delivery |
| Lead time | How long between ordering and delivery |
| Flexibility | Can the supplier adapt to changing orders? |
| Ethics | Are suppliers acting responsibly and sustainably? |
Businesses must weigh several factors when selecting suppliers. The right choice depends on what matters most for that business — cost, quality, reliability, or ethics.
Lower prices reduce costs and can improve competitiveness. However, the cheapest supplier may not offer the best quality or reliability. Businesses must balance cost against other factors.
The quality of inputs directly affects the quality of outputs. A car manufacturer using sub-standard steel will produce unsafe cars. Quality is non-negotiable in many industries.
A supplier who delivers late or inconsistently can halt production (especially under JIT systems). Reliability is often more important than the lowest price.
Local suppliers may offer faster delivery and lower shipping costs. Global suppliers may offer lower prices but longer lead times and higher risk (e.g. disruption from geopolitical events).
Consumers increasingly care about ethical sourcing. Businesses that use suppliers with poor labour conditions or unsustainable practices risk reputational damage.
☕ Fairtrade: Many food businesses source from Fairtrade-certified suppliers who guarantee fair wages to farmers. This costs more but improves brand reputation and meets growing consumer demand for ethical products.
| Single Supplier | Multiple Suppliers | |
|---|---|---|
| Advantages | Stronger relationship; volume discounts; easier to manage | Reduces risk if one supplier fails; price competition |
| Disadvantages | Vulnerable if that supplier fails or raises prices | Harder to manage; may lose volume discounts |
Many large businesses use a mix — one primary supplier for most orders and a backup supplier to reduce risk.
Once suppliers are chosen, businesses must actively manage those relationships to ensure quality, reliability, and cost-effectiveness over time.
Rather than always switching to the cheapest supplier, many businesses build long-term partnerships with key suppliers. Benefits include:
Businesses negotiate payment terms (how quickly they must pay), lead times, minimum order quantities, and price per unit. Larger businesses have more negotiating power.
Modern supply chains use technology to improve efficiency:
🛒 Tesco uses advanced electronic ordering systems that automatically trigger purchase orders when shelf stock falls — linking store tills directly to supplier warehouses. This makes the supply chain faster, cheaper, and more accurate.
Businesses face growing pressure from customers, government, and investors to source ethically and sustainably. This means:
Ethical sourcing may increase costs in the short term but builds long-term brand trust and avoids reputational damage from supply chain scandals.
| Benefit of ethical sourcing | Challenge |
|---|---|
| Improved brand reputation | Higher raw material costs |
| Customer loyalty from ethically-minded consumers | Harder to monitor overseas suppliers |
| Avoids legal and PR scandals | Ethical suppliers may have longer lead times |
| Supports sustainable supply in the long run | May reduce competitiveness on price |
Click a term, then click its matching definition.
Always link supplier choices to the business context. A budget manufacturer prioritises price; a premium manufacturer prioritises quality and reliability.
JIT and supplier reliability are linked. If a question mentions JIT, always point out the risk of supplier delays — it's a key weakness of that system.
Ethical sourcing is increasingly tested. Be ready to explain trade-offs: ethical sourcing costs more but protects brand reputation and avoids legal/PR problems.
Know the single vs multiple supplier trade-off. Single supplier = volume discounts and strong relationship, but high risk. Multiple suppliers = reduced risk but harder to manage.
Lead time is a key concept. It's the time between placing an order and receiving it. Short lead times = more flexible operations, especially for businesses using JIT.
"Discuss the impact to a business of using a single supplier for all its raw materials." (6 marks)
One impact of using a single supplier is that the business is able to negotiate volume discounts, as it places all of its orders with one company and therefore becomes a highly valued customer. This means the cost of raw materials per unit is likely to fall, which reduces total costs and improves the profit margin of the business. The business may also benefit from a stronger, more reliable relationship with its supplier, leading to priority treatment and faster delivery times.
However, a significant drawback is the operational risk this creates for the business. If the single supplier experiences difficulties — such as a factory fire, a workers' strike, or financial problems — the business has no alternative source of supply and production may be forced to stop entirely. This could lead to missed customer orders and damaged relationships, resulting in lost revenue and potential long-term reputational harm. The business would also face the time and cost of urgently finding a new supplier, which may not be possible at short notice.