2.4.3 Stock Control Flashcards
Buffer Stock
Stock a firm keeps in case there is a cost shortage or sudden increase in demand
JIT hold no buffer stock
Re-order Level
This is when a firm re orders stock when it reaches a certain level to avoid the use of buffer stocks
Re-order Quantity
The firm must re-order the correct quantity
Lead Time
How long suppliers will take to supply the firm’s stock once an order is put in
Implications of Poor Stock Control
- Storage costs
- Opportunity costs
- Spoilage costs
- Unsold stock
- Shrinkage (theft)
Poor Stock Control : Storage Costs
Firm must pay storage costs which increases costs of production
Poor Stock Control : Opportunity Costs
When firms hold stock, they tie up their cash in storage costs which could have been used in a more beneficial way
Poor Stock Control : Spoilage Costs
Some stock may perish which increases costs of production
Poor Stock Control : Unsold Stock
High levels of stock may mean some remain unsold due to changes in trends meaning firms pay cost of production but gain no revenue
Poor Stock Control : Shrinkage (Theft)
High levels of stock can encourage theft which results in firms paying to produce an item and not getting any revenue
Advantages of Good Stock Control
- Firms have more stock to quickly meet any extra orders
- Also means if there are issues with suppliers, firms will still have stock that can be used so customers are not lost to rivals
Just In Time (JIT)
When stock is ordered just as it is needed in the production process
Advantages of JIT
- Stock is not warehoused which is a huge cost saving in terms of needed warehouse staff and large premises
- Lack of spare stock encourages less waste reducing costs of production
- No chance of stock being stolen or perishing
Disadvantages of JIT
- Difficult to cope with large increases in demand meaning customers may be lost to rivals
- Increase order and admin costs due to there being more smaller orders which also restricts the firm from benefitting from EOS
