2.4.3 Stock Control Flashcards
What does stock include?
A business’s stock includes the raw materials needed for making a product, the materials being used for work-in-progress, and the store of finished goods that a business holds to supply to customers.
What factors determine how much stock a business would want to hold?
The max level of stock a business wants to hold usually depends on the size of their warehouses, opportunity cost + production method.
How do production methods and stock control interlink?
-Flow production requires a large stock of raw materials.
-Batch production leads to large stocks of work-in-progress.
-Job production often means there is no stock of finished goods to be stored.
-Cell production usually relies on just-in-time stock control.
What is a buffer stock?
The minimum level of stock so that a business won’t run out of raw materials or finished goods.
What factors affect the amount of buffer stock needed?
-Storage space available
-The kind of product
-The rate at which stocks are used up
-The lead time (time it takes for the goods to arrive after ordering them from the supplier).
What is the re-order quantity/level
-The re-order quantity is the amount the business orders from it’s suppliers.
-The stock level at which this re-order is placed is called the re-order level.
What is the use of stock control diagrams?
Stock control diagrams allow managers to analyse + control stock over a period of time.
What are the benefits to a business of holding buffer stock?
-Needed to avoid running out of stock.
-Beneficial for a business in a mass market where they need to be able to consistently meet customer demand or risk losing loyal customers to competitors.
-May be beneficial for a business to hold a large amount of buffer stock, as they could be offered a bulk discount = EOS.
-EOS lowers unit costs and so savings can be passed onto customers by lowering prices = competitive advantage.
What are the negatives to a business of holding buffer stock?
-There are storage costs involved, e.g. rent for warehouse, heating, lighting, refrigeration, security etc.
-Wastage costs; the longer a business holds stock, the more likely it is to create waste.
-In dynamic markets there could be high wastage costs as things change very quickly + can go out of fashion.
-Capital tied up in stock is unproductive + could be used more productively elsewhere (holding stock comes with an opportunity cost).
Poor stock control; Stock-In + Stock-Out costs
1.) Poor stock control can lead to high stock-in costs (costs associated with holding too much stock). This could be particularly bad for small businesses or those in a dynamic market.
2.) Poor stock control could lead to high stock-out costs (costs associated with running out of stock). E.g. running out of stock may stop manufacturing, however staff will still need to be paid.
3.) If a business is a supplier then running out of stocks could affect the whole supply chain.
4.) Stock-out costs can also be associated with lost sales from losing customers, as they are tired of waiting for new stock to arrive.
Lean production; holding very little stock
-Lean production is an efficient form of production that focuses on waste minimisation whilst maintaining/improving the rate of output + quality of finished products.
-If there’s less waste then the firm is more efficient —> lower costs —> lower prices = competitive advantage.
-One method of lean production is to hold very little stock.
What is just-in-time management?
Just-in-time stock management is a method of lean production which aims to reduce waste of materials by having products available just in time for when the customer needs them.
What are the advantages of JIT management?
-Storage costs are reduced + cash flow is improved.
-There is less waste.
-The business is more flexible so it can cope with changes in demand.
-By removing the cost of storage + reducing waste, a business can price their products lower and gain a competitive advantage.
What are the disadvantages of JIT management?
-Having very little stock means that forms rely on frequent deliveries (hard to organise + stressful for staff).
-If the supplier is unreliable the firm may run out of stock.
-Smaller more frequent deliveries means the business can’t benefit from EOS.
