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HMRC internal manual

Holding and Movements Alcohol Strategy - Supply Chains

Overview: What are common features of a supply chain?

Features of a supply chain include:

  • The aim of most supply chains is to get the goods from source to final customer as cheaply and as quickly as possible.
  • Traders acting as brokers/owners sell goods for more than the purchase price and additional costs.
  • Businesses aim to hold as little stock as possible, and prefer to receive payment for their sales before they have to pay their suppliers. They should not normally increase stock holdings drastically, unless it is part of a genuine business expansion etc. For example, opening and stocking a new retail outlet.
  • Genuine businesses often rely on a number of reliable sources.
  • If they are offering special credit incentives to entice customers (for example, 60 days credit), they should be negotiating similar rates with suppliers to support their sales strategy.
  • Businesses should be buying, wherever possible, from the producer or early in the supply chain, to avoid having to pay other owner costs and profit. There comes a time when, after successive sales and mark-ups, the goods cannot be sold at a competitive price.
  • Will aim to cut logistical costs etc. such as transportation, by choosing appropriate geographical locations to operate the business from, or dealing with reasonably local traders.
  • Producers will often have orders in place, or have a reasonable forecast of likely sales before manufacturing new product.
  • Genuine traders will want to buy a product, near the source of production as possible and sell it on as quickly as possible at a reasonable profit. Excessive storage time or stock is often considered as dead or wasted money.
  • It is common to see some alcoholic beverages sold at near cost or as a loss leader. The commercial reasoning behind this may be genuine. For example, to attract customers etc.

Further information on the commercial and financial credibility of a trader is available in HMASCR Credibility guidance and HMASSC3000 ofthis guidance.