Page 7 - CIMA MCS Workbook August 2018 - Day 2 Suggested Solution

SUGGESTED SOLUTIONS

CHAPTER NINE

EXERCISE ONE (SUPPLIER STRATEGY)
Briefing Notes
Supplier Strategy

Multi-sourcing

Benefits

Greater security of supply

If we were reliant on a single supplier then if there are problems with that supplier (perhaps as a
result of a disaster at the supplier such as a fire or problems with the product itself), then it could
seriously disrupt the fit-out of new premises. Without supply as and when we need it, gym
openings could be delayed. By having a number of suppliers, if there is a problem with one
supplier we can easily switch to one of our others to ensure our carefully planned opening times
for new gyms are not disrupted.

Greater pressure on suppliers to be competitive

If suppliers are aware that they are one of a number of suppliers, then there is an incentive for
them to be competitive in terms of price and also in terms of delivery lead times, quality and
credit terms. A single supplier maybe less incentivised to perform well.

Drawbacks

Not as easy to develop and maintain relationships

It is important that there are good relationships with suppliers to ensure price, quality and
continuity of supply. If there is only one supplier for each type of product we require e.g. TV
screens, gym equipment etc (or a small number of suppliers) it is relatively easy to develop and
then maintain a good relationship. The greater the number of suppliers, though, the harder and
more time consuming this becomes.

Possible economies of scale lost

Economies of scale such as discounts will only arise from buying items in bulk. By using multiple
suppliers we will spread the volumes required across the supplier base which means that the
opportunities we may currently be benefitting from in terms of bulk purchasing discounts are
reduced.

Preliminary recommendations

GymFit has close working relationships with existing suppliers, presumably resulting in attractive
credit terms and the occasional discount. We would have to consider whether these terms can be
improved upon by single sourcing.
On the other hand, if we extend the number of suppliers used, then we may lose e.g. bulk
discounts and find that existing suppliers are less willing to allow us such favourable credit terms,
resulting in greater pressure on liquidity.

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