2.4.3 Flashcards
Stock control (23 cards)
What are 3 possible types of stock a business might hold?
- Raw materials & components
- Work in progress
- Finished goods
For what 2 reasons might a business need to hold stock?
○ To help meet demand on time
○ So that the business can sell products that are currently not in production
Why is stock management and control important?
○ If you have perishable stock, then you don’t want to overstock in case it goes off then there is a lot of lost money
○ Good stock management is a key part of business efficiency
How much stock should a business hold?
- Slightly more than the demand level
- Variable with seasonal products
- A start up would want to hold less stock to free up capital
- Less when there is a recession
- More because of concerns about Brexit etc delays
- The longer stock is held, the greater the risk of obsolescence
What is the cost of storage?
More stock requires larger storage space and possibly extra employees and equipment control and handle them
What are interest costs?
Holding stocks means tying up capital on which the business may be paying extra interest
What is obsolescence risk?
The longer stocks are held, the greater the risk that they will become obsolete and are therefore unusable and incapable of being sold
What is a stock out?
A stock out happens if a business runs out of stock, this can result in:
- Lost sales & customer goodwill
- Costs of production stoppages or delays
- Extra costs of urgent, replacement orders
On a stock control chart what is the maximum level?
The maximum level of stock a business wants to or can hold
On a stock control chart what is the re-order level?
The level of stock when more is ordered
On a stock control chart what is the lead time?
The amount of time between placing an order and receiving more stock
On a stock control chart what is the minimum stock level?
The smallest amount of stock a business wants to hold
On a stock control chart what is the buffer stock?
A contingency in case of unexpected orders or delays from suppliers
Benefits of holding less stock?
- Lower stock holding costs (e.g. storage)
- Less capital (cash) tied up in working capital – can be used elsewhere in the business
- Lower risk of obsolescence
- Consistent with operating ‘lean’
- Easier to manage, less employees and technology
- You are likely to have a reliable local supplier with short lead times
Drawbacks of holding less stock?
○ You are less likely to be able to meet sudden high demand, loosing revenue
○ You are dependent on a supplier and your business can be effected badly by their poor lead times
○ You are more dependant on the supplier
Benefits of holding more stock?
- You are less dependant on suppliers
- You are less likely to suffer from a stock-out and loss of revenue with a higher buffer zone
- If you make bigger orders, you will be more likely to capitalise on bulk buying and the economies of scale
- It is easier to handle unexpected changes in demand
Drawbacks of holding more stock?
○ Higher likelihood of product obsolescence
○ Higher stock storage costs, requiring more complex management and employees
○ Higher levels of working capital tied up in stock
Worse effected by a sudden fall in consumer demand
What is J.I.T?
Just in time, a form of stock control
What is just in time stock control?
Stock required for production arrives just as it is needed
What are the implications of a just in time stock control system?
○ No need for buffer stocks
○ Stock holding costs are minimised
○ Lead times are very short
○ Requires highly reliable supplier and sophisticated IT systems to work properly
What is lean production?
Where minimal capital is tied up in stocks
What competitive advantage does lean production produce?
Producing more using less, by eliminating all forms of ‘waste’ (anything that does not ‘add value’ to the final product)
How does lean production work?
- Maximising labour productivity (therefore, uses less labour)
- Production techniques (fewer defects, improved quality and reliability
- Just in time stock control (less stock / storage space / capital equipment = cost advantages)
- Speedier product development
