Working with suppliers and the supply chain
The supply chain is every stage a product passes through from raw material to final customer, and a business sits inside it as both a customer of its suppliers and a supplier to someone else. Managing the relationship matters because a supplier's failure becomes the business's failure in the eyes of its own customers.
Method
- Map the chain for the business in the case before answering: who supplies it, what it does to the product, and who it sells to. The answer usually depends on where the risk sits.
- Rank the supplier criteria for this specific business rather than listing them. A hospital ranks reliability above price; a discount retailer usually does not.
- Trace the effect of a supplier problem through to the customer: a late component means a late product, which means a lost order and a damaged reputation, which means lost future sales.
- Use trade credit properly. Longer credit terms improve cash flow because the business sells the goods before paying for them, which can matter more to a small firm than the price itself.
- For single versus multiple sourcing, argue the trade-off between buying power and risk, then decide based on how damaging a stoppage would be to this business.
- Where ethics or the environment appear in the case, connect them to a business consequence such as reputation, price premium or the cost of switching, rather than treating them as a moral aside.
Worked example
Harlow Toys buys all its plastic components from one supplier who is 15 per cent cheaper than any alternative and offers 60 days credit. The supplier has recently missed two delivery dates, causing Harlow to be late with a supermarket order. Analyse whether Harlow should add a second supplier.
- State the current position clearly: single sourcing has given Harlow the lowest price and generous credit terms, and 60 days credit means Harlow can sell the toys before it has to pay for the plastic, which supports its cash flow.
- Identify what has changed: reliability has failed twice, and the consequence has passed on to a supermarket customer. Supermarkets impose penalties and drop suppliers who miss delivery windows, so the risk is not just this order.
- Analyse the benefit of a second supplier: if one delivery fails, production continues, so Harlow protects the supermarket contract, which is likely to be its largest source of revenue.
- Analyse the cost: splitting orders means smaller orders with each supplier, so Harlow may lose part of the 15 per cent discount and may not get 60 days credit from the new supplier, worsening cash flow.
- Quantify the trade-off in the answer even without exact numbers: the discount is a known percentage of component cost, while the risk is a possible loss of the whole supermarket contract, which is a much larger sum.
- Reach the judgement: Harlow should add a second supplier for a minority of its orders, keeping most volume with the cheap supplier to protect the discount, because the cost of insurance is small and predictable while the cost of losing the contract is large and sudden.
Practice questions
Try each question, then tap to reveal the answer.
Q1Define supply chain.Show answer
Answer: All the stages and organisations involved in getting a product from raw materials through production and distribution to the final customer.
Q2Give three criteria a business uses when choosing a supplier.Show answer
Answer: Any three of: price, quality, reliability of delivery, flexibility, payment or credit terms, location, capacity, and ethical or environmental standards.
Q3Explain how trade credit affects a small business's cash flow.Show answer
Answer: Trade credit lets the business receive goods now and pay later. If it can sell the finished product before the supplier's invoice is due, it never needs to fund the stock from its own cash, which reduces the working capital it must hold.
Q4State one advantage and one disadvantage of using a single supplier.Show answer
Answer: Advantage: larger orders with one supplier bring bulk discounts and a closer relationship. Disadvantage: complete dependency, so a failure at that supplier halts the business with no alternative.
Q5Explain why a supplier's poor quality is a problem even when the business itself checks the goods.Show answer
Answer: Checking costs time and money, and any faulty items still have to be returned and replaced, which delays production. Anything missed reaches the customer as the business's own fault, since the customer has no relationship with the supplier.
Q6Give one reason a business might pay more to source locally.Show answer
Answer: Any one of: shorter lead times allow smaller stock holdings and faster response; lower transport costs and emissions; easier to visit and inspect; a local sourcing story can be used in marketing.
Q7Why can poor conditions at a supplier damage a business that does not own that supplier?Show answer
Answer: Customers and the media hold the recognisable brand responsible for its whole chain. A story about conditions at a factory can cause boycotts and lasting reputational damage, so the business bears the cost of a problem it did not directly create.
Exam-style questions
Written in the style of a GCSE Business exam paper, with a full mark scheme.
Marden Coffee roasts and sells coffee through 12 shops. It currently buys green beans from a single importer at 4.20 pounds a kilo with 30 days credit. A second importer offers Fairtrade certified beans at 5.10 pounds a kilo with 14 days credit. Marden uses 20,000 kg a year. (a) Calculate the extra annual cost of switching entirely to the Fairtrade supplier. (b) Analyse two factors Marden should consider before switching.
Show mark scheme
Tick each line you got. Your score builds from the marks on the scheme.
Nothing ticked yet - 9 available
Evaluate the view that price should always be the main factor when a business chooses a supplier.
Show mark scheme
Tick each line you got. Your score builds from the marks on the scheme.
Nothing ticked yet - 9 available
See real GCSE Business past-paper questions, with official mark schemes →
Free printable worksheet
Want more practice on paper? Download the working with suppliers and the supply chain worksheet pack - 8 pages of exam-style questions with a full mark scheme. One email opens every download in this browser for 14 days - no account, no card. Print it for personal and classroom use.
Next topics
Not quite what you needed?
Tell us what is missing on working with suppliers and the supply chain, or which topic to write up next. Every request is read, and we reply to every one.
Build a full practice pack.
This topic is one of hundreds in the library - pick the ones a student needs and generate a printable PDF in minutes.