2.4.3 Stock Control

Question 1

Stock

Answer 1

Represents the raw materials, work-in-progress and finished goods held by a firm to enable production and meet customer demand.

Question 2

Buffer stock (just in case)

Answer 2

An amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers.

Question 3

Main influences on amount of stock held

Answer 3

1) Need to satisfy demand – demand may be seasonal or unpredictable.
2) Need to manage working capital – capital is tied up in stock which reduces working capital.
3) Risk of stock loosing value – going obsolete, out of date.

Question 4

Costs of poor stock management

Answer 4

• Storage costs.
• Obsolesce risk.
• Opportunity cost - over-stocking means typing up cash that can’t be used elsewhere.
• Stock out costs – happens if business runs out of stock (lost sales, customer goodwill, cost of production stoppages and delays, extra costs of urgent orders).

Question 5

Waste minimisation

Answer 5

Cutting out any process that does not add value to the business to minimise inputs.

Time wasted by workers who are not busy
- Using more raw materials than needed
- Machines idle
- Throwing away faulty items
- Unsold stock.

Question 6

How does lean production affect competitive advantage?

Answer 6

1) Reduces costs  Reduces prices
2) Reduces costs  Increases profit margin  Reinvested in innovation and improving product/service  Firms compete on quality.

Question 7

Stock control chart

Answer 7

Diagram to show the level of stock over time to aid decision making.

Question 8

Maximum stock level

Answer 8

Maximum amount of stock a business is able to hold.

Question 9

Minimum stock level

Answer 9

The lowest level to which a business is willing to allow stock levels to fall.

Question 10

Re-order level

Answer 10

The level at which a business places a new order.

Question 11

Lead time

Answer 11

The length of time of the point of stock being ordered to being delivered.

Question 12

Factors influencing when/how much stock to re-order

Answer 12

• Lead time from supplier.
• Implications of running out.
• Demand for the product.

Question 13

Limitations of stock control charts

Answer 13

• Regular pattern unlikely – orders may arrive late, incorrect quantity.
• Constant usage rate unlikely – line gradients may change depending on quick or slow use of stock.

Question 14

Just in time

Answer 14

Where production occurs with minimum stock levels so that every process is completed just in time for the next process.

Question 15

Advantages of Just in time

Answer 15

• Low storage costs.
• High quality – zero defects.
• Less waste.
• Low opportunity cost of capital.
• Better liquidity.

Question 16

Disadvantages of Just in time

Answer 16

• Loose economies of scale.
• Vulnerability to supplier.
• Struggle to meet sudden demand changes.

Question 17

What does Just in time depend on?

Answer 17

• Supplier relationships.
• Reliable workers.
• Flexible workforce.
• Suitable equipment.