Passage2 “Golden Key”with which YH Company reduces...

Passage2 “Golden Key”with which YH Company reduces its purchasing cost To realize zero inventory for packing materials YH Company, a manufacturer of chemical fiber products, used to have higher stocklevels ofpurchased goods for the purpose of ensuring production needs. Previously packing materials worth as much as four million Yuan entered the warehouse, which tied up substantial amount of working fund and increased purchasing costs. Meantime the enterprise undertook great market risks in the purchasing process. For the sake of reducing purchasing cost and guarding against market risks,the company changed the supply of certain raw materials and packing materials from indirect supply to direct supply, i.e. the quantity of packing materials needed will directly be shipped onto the production site by the supplier, and regular settlement is made so that there is no working fund tied up. To ensure the secured supply of materials, YH also had suppliers participate in its production operation, by which the suppliers will arrange materials and make timely adjustment to the items and quantity of supplied goods. Thanks to the direct supply mode, zero inventory is fulfilled with regard to goods like packing materials, and this alone saw 200 m Yuan reduction in its working fund last year. Suppliers to assist in clearing the warehouse In making use of its good partnership with suppliers, YH further tapped its potential in cost reduction. Focusing on the fact that there used to be a high stock level of spares and fittings. YH coordinated with the suppliers and urged them to gradually buy back the inventories. By way of collaboration with suppliers, YH cleared up its warehouse, eliminated overstocked goods and further improved its inventory structure. Through suppliers buy-back operation, YH in 2009 reduced overstocked goods in excess of 7. 5m Yuan. YH’s development in recent years has brought great market opportunities to a large number of suppliers. Forward-looking suppliers no longer seek a simple transaction-based relationship; instead they expect to set up a long-term strategic partnership with YH. Questions: 1. According to the passage,______is not the disadvantage of buying more raw materials and storing them in the warehouse.

A、occupying capital

B、adding procurement costs

C、having more market threats

D、guarantying production