Inventory management and procurement. Lesson 3.

Inventory management and procurement

1) Check your knowledge of key terms in inventory management and procurement by choosing the best definitions for these terms.

             Inventory management and procurement

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
3 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 assessment or calculation of the approximate 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
Match the beginnings of the sentences (i-6) with the endings (a-f) to make definitions 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

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,

с it takes    to produce and supply a product.
d an intermediary between manufacturers and retailers which buys in large quantities and resells in smaller 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.

2 Listen to an expert presenting an inventory management system to the managers of a large retail store. Then say which of the statements are true V_ or false X.
1 The inventory system is called CPR. 
2 It’s a sales-based system. 
3 The system co-ordinates the flow of information and goods in the logistic chain. 
4 Young Fashion has used the system for six years now. 
5 Orders are electronically transferred to the warehouse. 
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 continuous
2 I’ll also explain how it can be used to lower inventory and operational costs and to shorten product .
3 First of all, you decide what products you want to order at what level.
4 The system will use this information at the of sale in the retail store.
5 The leading Russian clothes Young Fashion introduced continuous replenishment three years ago.
6 With the new system all orders are 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 cut and transport costs by about 15%.
10 Moreover, errors in order have been reduced considerably by using scanning technology and EDI.
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 order is generated by the computer.
4) Put the processes described in the presentation about CRP in the correct order.
a Orders are generated based on data received from cash register,
b Goods are delivered to the retail outlet,
с 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 inventory _______ (monitor), planned and managed by the
manufacturer on behalf of the customer (often a retailer).
2 A system which is similar to CRP. It _______ (use, often) for products that need to
be supplied frequently and in small batch sizes.
3 It means that orders _______ (transfer) electronically to the manufacturer. Then
they _______ (deliver) to the retail store.
4 Real-time demand _______ (identify) by electronic cash register and the product
movement _______ (co-ordinate) from supplier to the retail store.
5 Products that have similar characteristics regarding their selling profile
(categorize) into ‘families’.

6) Now match the planning techniques below with the definitions in exercise 5.

a DSD = Direct store delivery
b CM = Category management
с VMI = Vendor-managed inventory
d CRP = Continuous replenishment
e QR = Quick response
7) Complete the job advertisement for a corporate procurement manager with words from the box.
fulfilment • negotiation • 3PL providers • procurement • command • vendors • supply chain • relationship
  We are looking for a proactive and dynamic professional to take care of our strategic procurement and supplier _______ management.
Reporting to the Director of Corporate Procurement, the successful applicant will be responsible for managing both internal and external customers and for working with the
appointed _______ . While liaising with the _______ team, _______, and related stakeholders, you will also be involved in providing business support to optimize finance-logistics processes, order, and logistics costs.
Other responsibilities include providing initiatives to help maximize company business profitability and efficiency.
The ideal candidate should have a degree in management or logistics management with a deep understanding and knowledge of the China logistics market. You should have at least 5 years' experience in a multinational company and you should possess outstanding skills. Based in Macau, excellent
of English and Cantonese is a must with Mandarin an advantage.
If you are interested in this role, please send your CV in Word format to...
8) 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 areas which are important in
procurement? Discuss with a partner.
9) Three purchasing managers are discussing strategies for negotiating with a supplier. Listen to the discussion and answer the questions.
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?
10 Match the beginnings (i-6) with the endings (a-f) of the sentences from the dialogue.
1 How do you
2 I think we could
3 What are your
4 Yes, and I also 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,
с feel about that?
d lower costs considerably.
e say that it’s their chance to enter the pharmaceutical market?
f thoughts on that, Gisele?

What do you think?
How do you feel about that?
What are your thoughts on that?
Do you agree?
I suggest that we ...
In my opinion we should ...
Perhaps we should...
Why don’t we ... ?

That’s a good idea. That sounds good.
I agree.
That’s right.
11 You have received the following email from the purchasing department in your company. Work out a few suggestions and reply to this email.





12 A Spanish courier company receives a quotation for packing labels and consignment notes.
Put the words or phrases into the correct order to make sentences. The first parts have been done for you.




When giving a customer 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:


Please find attached our quotation for...
We are pleased to quote as follows.
We can quote you a gross/net price of...
The prices quoted above include ...
We can offer you a price of... per...


We can offer you 10% off the retail price.
We allow a 2% cash discount for payment within 30 days.
Our prices are subject to a 25% trade discount off net price.
We grant a trade/quantity/cash discount of... % on our list prices.
If your order exceeds 2,000 items, we can offer you a further 10% discount.


Delivery can be effected immediately after receipt of order.
As requested, we will deliver on pallets to ...
We would be able to deliver within 10 days of receipt of 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
3 The prices quoted
4 As requested, we
5 Our prices are subject
6 The net price


a will deliver on pallets to Rotterdam,
b to a 25% trade discount off net price,
с 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.

15 Give a customer a quotation by email based on the following details.
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 


Strategic sourcing in procurement
Most companies and governments today are under increasing pressure to operate more efficiently. And many of them are realizing that effective procurement can reduce costs, improve processes and increase productivity.
In the past few years strategic sourcing has become a frequently used approach in this context.
But what is strategic sourcing? To put it simply, it means that companies are adopting a new strategy for how they buy sets.

Most companies and governments

Strategic sourcing is a systematic process of analyzing expenditures, internal and external influences, and finding out what kind of supplier relationships are necessary to help achieve the company's goals. Before the company decides to purchase a product or service, strategic sourcing is used to consider the total cost of a product or action, not just the price alone.
In the past, many purchasing managers neglected the fact that low purchase cost does not necessarily mean low total cost. In a strategic sourcing process other costs are examined as well e.g. the cost of purchasing, transport, support, maintenance, and disposal.
Leading companies have realized how much they can benefit from strategic sourcing, and many have already achieved impressive cost reductions.


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?




1a 2b 3a 4a 5b


ic 2f зе 4a sd 6b

1 False: it’s called CRP.
2 True
3 True
4 False: three years.
5 True
6 False: 15%.

1 replenishment
2 lead times
3 stock

4 point
5 retailer
6 generated
7 data interchange
8 schedule
9 inventory
10 processing



1c System is activated at the point of sale.

2f Sales information is transferred to the CRP computer system.

За Orders are generated based on data received from cash register.

4d Orders are sent to the warehouse.

5e Orders are processed

6b Goods are delivered to the retail outlet.



1 is monitored

2 is often used

3 are transferred; are delivered

4 is identified; is co-ordinated

5 are categorized



а3 b5 c1 d4 e2



1 relationship

2 3PL providers

3 procurement

4 vendors

5 fulfilment

6 supply chain

7 negotiation

8 command



1 strategic procurement and supplier relationship management

2 manage internal and external customers, optimize processes, order fulfilment and logistics costs

3 with the procurement team

4 degree in supply chain management or logistics management

5 minimum of five years in a multinational company, languages



1 more co-operative relationship, strategic partnership

2 lower costs considerably and work more efficiently

3 market leader

4 pharmaceutical products

5 long-term agreement



1c 2d 3f 4b 5a 6e



Suggested answer

Dear Luke

We have talked about possible cost savings in purchasing in our team. We also think it would be a good idea to discuss this in more detail*

We feel there would be a lot of saving potential in some areas, especially in supplier management.

In our opinion we should:

1 choose our suppliers more carefully

2 establish stricter standards for our suppliers

3 co-operate more closely with some of our important suppliers (to achieve better results),

I'll call you next week to give you some more details on that.





1 Please find attached our quotation for three new products according to your request.

2 Our prices are calculated on the basis of your forecast of annual consumption figures.

3 As requested we will deliver on pallets to Barcelona or Madrid.

4 For a contract term of at least two years we can offer you a discount of 2.5%.

5 In the attached quotation sheet all prices have been listed in columns according to your requirements.

6 If you have any further questions please let me know,

7 We look forward to hearing from you soon,



1c 2f зе 4a 5b 6d



Suggested answer

Dear ...

Please find attached our quotation for our GPS system "Road Navigator TX-2300'.

We can offer you a price of $975.00 per item including VAT at 15%.

If your order exceeds 10 items, we can offer an additional discount of 8%. Delivery will be made within 6 days of receipt of purchase order.

If you have any further questions, please let me


Best regards

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