39. Inventory Control

Question 1

Inventory stages

Answer 1

• Raw materials and components
• work-in.progress
• Finished goods

Question 2

Factors influencing inventory levels:

Answer 2

• Demand
• Stockpile goods
• The costs of inventory holding
• The amount of working captal available
• The type of inventory
• Lead time
• External factors

Question 3

Implication of holding too much inventory:

Answer 3

• Storage costs
• Opportunity costs
• Spoilage costs
• Administrative and financial costs
• Unsold inventory
• Shrinkage (thief of products by employees)

Question 4

Implication of holding too litle inventory:

Answer 4

• Not able to cope to an increase in demand
• If inventory deliveries are delayed the business may need to stop production
• The firm is less able to cope with unexpected shortages of materials
• A firm which holds very low inventory may have to place more orders

Question 5

Advantages of just in time (JIT manufacturing) :

Answer 5

• It improves cash flow since money is not 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 significantly
• Links with and the control of suppliers are improved
• The supplier base is reduced significantly
• More scope for the integration within the factory’s computer system
• The motivation of workers is improved. They are given more responsability and encouraged to work in teams

Question 6

Disadvantages of just in time (JIT manufacturing) :

Answer 6

• 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
• At risk of 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 7

Buffer stocks

Answer 7

Stock held as a precaution to cope with unforseen demand

Question 8

Kanban

Answer 8

A card or an object that acts as a signal to move or provide resources in a factory

Question 9

Lead time

Answer 9

the time between placing the order and the delivery of goods

Question 10

re-order level

Answer 10

the level of current stock when new orders are placed

Question 11

re-order quantity

Answer 11

The amount of stock ordered when an order is placed

Question 12

stock rotation

Answer 12

the flow of stock into and out of storage

Question 13

work-in-progress

Answer 13

partially finished goods