2.4.3 Flashcards
Stock control
What are 3 possible types of stock a business might hold?
- Raw materials & components
- Work in progress
- Finished goods
For what 2 reasons might a business need to hold stock?
○ To help meet demand on time
○ So that the business can sell products that are currently not in production
Why is stock management and control important?
○ If you have perishable stock, then you don’t want to overstock in case it goes off then there is a lot of lost money
○ Good stock management is a key part of business efficiency
How much stock should a business hold?
- Slightly more than the demand level
- Variable with seasonal products
- A start up would want to hold less stock to free up capital
- Less when there is a recession
- More because of concerns about Brexit etc delays
- The longer stock is held, the greater the risk of obsolescence
What is the cost of storage?
More stock requires larger storage space and possibly extra employees and equipment control and handle them
What are interest costs?
Holding stocks means tying up capital on which the business may be paying extra interest
What is obsolescence risk?
The longer stocks are held, the greater the risk that they will become obsolete and are therefore unusable and incapable of being sold
What is a stock out?
A stock out happens if a business runs out of stock, this can result in:
- Lost sales & customer goodwill
- Costs of production stoppages or delays
- Extra costs of urgent, replacement orders
On a stock control chart what is the maximum level?
The maximum level of stock a business wants to or can hold
On a stock control chart what is the re-order level?
The level of stock when more is ordered
On a stock control chart what is the lead time?
The amount of time between placing an order and receiving more stock
On a stock control chart what is the minimum stock level?
The smallest amount of stock a business wants to hold
On a stock control chart what is the buffer stock?
A contingency in case of unexpected orders or delays from suppliers
Benefits of holding less stock?
- Lower stock holding costs (e.g. storage)
- Less capital (cash) tied up in working capital – can be used elsewhere in the business
- Lower risk of obsolescence
- Consistent with operating ‘lean’
- Easier to manage, less employees and technology
- You are likely to have a reliable local supplier with short lead times
Drawbacks of holding less stock?
○ You are less likely to be able to meet sudden high demand, loosing revenue
○ You are dependent on a supplier and your business can be effected badly by their poor lead times
○ You are more dependant on the supplier
