Stock Control

Question 1

Illustrate a stock control diagram

Answer 1

Figure 1

Question 2

Implications of holding too much stock

Answer 2

• storage: occupies space in buildings, adds additional costs: lighting, heating and labour.
• opportunity cost: capital tied up in stock earns no rewards. The money used to purchase stocks could have been put towards new machinery.
• spoilage costs: quality of some stock may deteriorate over time (perishable goods). Finished goods can become outdated and difficult to sell.
• administrative and financial costs: costs of placing and processing orders, handling costs and the costs of falling to anticipate price increases.

Question 3

Implications of too little stock

Answer 3

• the business may not be able to cope with unexpected increases in demand. This might result in lost customers if they are let down too often.
• if stock deliveries are delayed, the firm may run out of stock and have to halt production. This can lead to idle labour and machinery while the firm waits for delivery.
• the firm is less able to cope with unexpected shortages of materials. Result in lost production.
• a firm which holds low stocks may have to place more orders. This will raise total ordering costs. It might also miss out on discounts from bulk buying.

Question 4

Adv of JIT

Answer 4

• improves cash flow as money isn’t tied up in stock
• the system reduces waste, obsolete and damaged stock.
• more factory space is made available for productive use.
• the costs of stockholding are reduced.
• links with and the control of suppliers are improved.
• the supplier base is reduced significantly.
• the motivation of workers is improved. They are given more responsibility and encouraged to work in teams.

Question 5

Disadvantages of JIT

Answer 5

• a lot of faith is placed in the reliability and flexibility of suppliers.
• increased ordering and administrative costs.
• advantages of bulk buying may be lost.
• vulnerable to a break in supply and machinery breakdowns.
• difficult to cope with sharp increases in demand.
• possible loss of reputation if customers are let down by late deliveries.

Question 6

Competitive advantage from lean production

Answer 6

• raises productivity
• reduces costs and cuts lead times
• lowers the number of defective products
• improves reliability and speeds up design time
  With these businesses can charge lower prices, offer better quality and reliability and fight off rivals in the global market place.