Topic 39 -> Stock Control

Question 1

What do firms keep in stock?

Answer 1

Raw materials and components -> avoid stoppages while waiting waiting for deliveries + buy in bulk to cut costs
Work in progress -> part-finished goods waiting for next production stage
Finished goods -> meet sudden demand spikes & keep customer supplied while production ramps up

Question 2

Factors that determine how much stock

Answer 2

1. Demand
2. Stockpiled goods
3. Cost of holding stock
4. Working capital available
5. Type of stock
6. Lead time
7. External factors

Question 3

Reading stock control diagram

Answer 3

1. Maximum stock level -> ceiling a firm tries not to exceed
2. Minimum level -> emergency reserves
3. Re-order level -> point that triggers a new order
4. Re-order quantity -> size of each fresh order
5. Lead time -> order -> arrival

Question 4

Risks of poor stock control -> holding too much VS holding too little

Answer 4

Holding too much VS holding too little
Holding too much
1. Opportunity cost
2. Spoilage/obselence
3. Admin & finance costs
4. Shrinkage

Question 5

Risks of poor stock control -> holding too much VS holding too little

Answer 5

Holding too little
1. Lost sales & goodwill if shelves empty
2. Overtime and costly rush deliveries
3. Labour & machinery waiting for inputs
4. Missed bulk-buy discounts
5. Production halts -> penalties & late fees

Question 6

Waste minimisation

Answer 6

Why stock is wasted -> perishability & obsolescence/ limited selling seasons
Perishability: refrigeration; rapid transport; markdowns before sell dates
Limited selling seasons: demand forecasting w/ historical data; adjustable pricing; lean batch sizes

Question 7

Advanatges of just in time production

Answer 7

. Raise productivity
. Shorten lead times
. Lower defects and rework
. Cut labour and space needs