2.4.3 - Stock control Flashcards
(15 cards)
What are business stocks?
Stocks are raw materials, work-in-progress, and finished goods held by a firm to enable production and meet customer demand.
What are the three main types of stock?
Raw materials & components – bought from suppliers, used in production
Work in progress – semi-finished goods
Finished goods – completed products ready for sale
Give an example of each stock type:
1. Raw materials
2. Work in progress
3. Finished goods
Raw materials: Ingredients or car parts
Work in progress: A half-built house
Finished goods: Supermarket items or items in Amazon warehouse
Name 3 reasons why businesses hold stock.
To meet customer demand
To allow continuous production
To provide flexibility against uncertainty
Why is stock management important?
Prevents costly stock-outs
Frees up capital tied in stock
Helps avoid holding unnecessary or obsolete inventory
Modern IT systems make it more efficient
What factors influence how much stock a business holds?
Demand satisfaction
Working capital needs
Risk of stock losing value
What are 4 key costs of holding stock?
Storage costs – e.g., warehouse, handling
Interest costs – tied-up capital
Obsolescence – risk stock becomes outdated
Stock-out costs – lost sales & goodwill
What are stock-out costs and why are they significant?
Costs from running out of stock, including lost sales, production delays, and damage to customer loyalty.
What is the purpose of a stock control chart?
To maintain stock levels that minimise total stock costs.
What are the key elements of a stock control chart?
Maximum level – highest stock held
Re-order level – when to re-order
Lead time – time from order to delivery
Minimum level – lowest safe stock
Buffer stock – safety margin
What factors affect when/how much stock to re-order?
Supplier lead time
Risk of stock-outs
Demand levels
What are the benefits of holding low stock levels?
Lower storage & obsolescence costs
Less working capital tied up
Leaner operations
What are the drawbacks of holding low stock levels?
Higher risk of stock-outs
Potential for delayed production or lost sales
What are the benefits of holding high stock levels?
Fewer stock-outs
Can meet unexpected demand
Bulk ordering = lower unit costs
What are the drawbacks of high stock levels?
Higher storage and capital costs
Increased risk of obsolescence
