Stock Control

Question 1

What is 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

What is buffer stock?

Answer 2

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

Question 3

Key reasons to hold stock

Answer 3

• enable production to take place
• satisfy customer demand
• precaution against delays from suppliers
• allow efficient production
• allow for seasonal changes
• provide a buffer between production processes

Question 4

2 reasons why a business would keep a buffer stock of raw materials

Answer 4

• if deliveries are delayed, buffer stock allows production to continue
• if a batch of supplies is found to be faulty, the buffer stock can be used to continue production

Question 5

2 reasons why a business would keep a buffer stock of finished goods

Answer 5

• helps to ensure that the business can always supply customers when they need a product, with the right size or colour
• allows the firm to accept rush orders from customers

Question 6

4 impacts of holding too much stock

Answer 6

• opportunity cost: ties up capital, as stock prevents that money from being used in other ways
• cash flow problems: stock represents cash that has been covered into stock but not yet converted back into cash. Hold too much stock and there is a danger the firm will run short of actual cash
• increases shortage costs: keeping stock costs money, it needs space, perhaps security
• increases wastage: too much stock may lead to stock “going off” or becoming obsolete

Question 7

4 impacts of holding too little stock

Answer 7

• lost customers: of an order or customer arrives, expecting to receive their products immediately and there is none in stock, that customer or order may be lost to competitors
• delays in production: if there are no materials to process, machinery and workers may be left standing idle until the next delivery arrives
• loss of reputation: this may occur if word gets around that the business struggles to maintain enough stock to meet customer needs promptly

Question 8

What is meant by just in time management?

Answer 8

Aims to eliminate buffer stock completely. Relies entirely on frequent, small deliveries of materials from suppliers being delivered without felt and without any quality problems

Question 9

Key issues a business would have to consider when deciding whether to introduce JIT

Answer 9

• suppliers must be willing to deliver frequently (often several times a day)
• deliveries must be absolutely reliable; missed deliveries leave the firm without stock
• suppliers may need to relocate close to the company using JIT
• will smaller, more frequent deliveries lead to loss of bulk buying discounts

Question 10

What is waste minimisation?

Answer 10

Aspect of lean production that focuses on reducing waste in any business process, such as wasted time, labour on materials

Question 11

3 ways in which JIT production helps

To reduce wastage

Answer 11

• less stock is held, meaning there is far less likelihood of stock wastage
• cash is not tied up in stock, effectively wasting it
• removing buffer stock helps to highlight bottlenecks and problems in production processes. These can be ironed out by adjusting the production system

Question 12

What is lean production?

Answer 12

Collective term for a range of Japanese techniques designed to eliminate waste from business processes

Question 13

4 ways lean production can help a business to run efficiently

Answer 13

• more input from staff
• a focus on quality
• fewer wasted resources through JIT and total quality management
• a focus on reducing wasted time, so speed can become a source of competitive advantage

Question 14

Japanese production techniques linked to lean production

Answer 14

JIT
Kaisen
Cell production
TQM