The Role of Procurement Practice Questions

This question is about procurement and suppliers.

Item A: Hillcrest Pottery Ltd

Hillcrest Pottery Ltd (HP Ltd) makes handmade ceramic plates and bowls in Derbyshire. It employs 24 people and sells to restaurants and hotels across the UK. Every order is made to the customer's own design, so no two orders are the same. HP Ltd uses about 20 tonnes of clay each month.

HP Ltd buys all of its clay from Ceramica, a supplier based in Portugal. Ceramica's clay is the cheapest HP Ltd has found, but orders must be at least 20 tonnes and take three weeks to arrive. HP Ltd rents a storage unit for the clay at £900 a month; the rental agreement can be ended with one month's notice. Last year two Ceramica deliveries arrived late. HP Ltd missed a deadline and a hotel chain cancelled a £40 000 order.

Marlow Clays is a new supplier based 15 miles from the factory. It will deliver any quantity within 48 hours, but charges more per tonne. The owner, Fatima, must decide whether to change supplier.

Table 1: HP Ltd's clay suppliers

	Ceramica	Marlow Clays
Price per tonne	£420	£483
Minimum order quantity	20 tonnes	1 tonne
Time from order to delivery	3 weeks	48 hours
Late deliveries last year	2	0

Item A: Kestrel Outdoor plc

Kestrel Outdoor plc manufactures tents, rucksacks and sleeping bags at two factories, one in Leicester and one in Portugal. It sells to outdoor retailers in 14 European countries, and its best-selling two-person tent is sold to retailers for £120.

Waterproof fabric, zips and buckles are bought from suppliers in Vietnam, and shipments take six weeks to arrive by sea. Kestrel buys fabric in bulk and receives a 10% discount on any order over 20 000 metres. Its last bulk order was for 30 000 metres of fabric at £6 per metre before the discount. The fabric is kept in a warehouse next to the Leicester factory, which costs £400 000 a year to rent, heat and insure.

Around 70% of Kestrel's orders from retailers are placed between January and April, ready for the summer camping season, so the factories are extremely busy in those months. Last year Kestrel wrote off £85 000 of fabric in colours that were no longer used in any of its designs.

The operations director, Dan Whitcombe, has been asked by the board to reduce the amount of money tied up in stock without putting production at risk. He is considering introducing just in time (JIT) stock management for fabric.

Item A: Harrowgate Foods plc

Harrowgate Foods plc makes chilled ready meals which it supplies to supermarket chains in the UK and Ireland. The company was founded in 1998 and now produces 2 million meals a week at three factories.

Chilled meals have a short shelf life, so they must reach supermarket shelves within 24 hours of leaving the factory. In 2022 Harrowgate spent £14 million on a new distribution centre near Birmingham and on 60 refrigerated lorries fitted with tracking technology. Supermarket buyers can now see on screen exactly when a delivery will reach their depot, and the temperature of the load is recorded throughout the journey.

Supermarkets charge Harrowgate a penalty of £250 for every delivery that arrives late or at the wrong temperature. Supply contracts are reviewed every two years.

Table 2: Harrowgate Foods' deliveries

	2021	2023
Deliveries made	40 000	48 000
Deliveries arriving late	4 800	3 600

Item B: Harrowgate Foods plc

Harrowgate is considering using a specialist logistics business, Kelmore Chilled Haulage Ltd, for its deliveries to supermarkets in Ireland. Kelmore would charge £180 for each delivery, compared with the £230 it costs Harrowgate to make a delivery with its own lorries. Kelmore's lorries are refrigerated, but they do not have Harrowgate's tracking technology.

Item A: Korvell Technology plc

Korvell Technology plc assembles laptop computers at a factory in Gdansk, Poland, and sells them online in 14 countries. It employs 900 people and assembled 640 000 laptops last year.

Screens, batteries and keyboards are bought from six suppliers in Asia. Components travel by sea and take five weeks to reach Gdansk. Korvell currently holds six weeks of components in a warehouse beside the factory. Renting and heating this warehouse costs £1.8 million a year, and components can become out of date because Korvell changes its laptop models every nine months.

Last winter one supplier failed to deliver batteries on time. Assembly stopped for nine days, 12 000 customer orders were delayed and Korvell paid £400 000 in refunds. Its average score on shopping review websites fell from 4.4 to 3.6 out of 5.

Korvell's operations director is considering replacing its six suppliers in Asia with one supplier in the Czech Republic that makes all three components. Components would arrive by lorry in two days, so Korvell could hold one week of components instead of six. However, the Czech supplier charges more, and buying from it would add £3.2 million a year to Korvell's component costs.