2.4.3 - Stock Control

Question 1

What does a stock flow diagram illustrate?

Answer 1

Flow of stock in and out of a business over a period of time

Question 2

What is maximum stock level?

Answer 2

Maximum stock a business can hold in normal circumstances

Question 3

What is the reorder level?

Answer 3

Level at which a business places an order with supplier

Question 4

What is the minimum stock level and what is it also known as?

Answer 4

• Buffer stock
  Lowest stocks a business will allow itself to fall to

Question 5

What is lead time?

Answer 5

Length of time for stock to be reordered to when it is delivered

Question 6

What is buffer stock?

Answer 6

Quantity of goods kept in case of stock shortages so can consistently meet demand

Question 7

2 Advantages of buffer stock

Answer 7

1. Stability in stock
   - Can meet changes in demand
2. Competitive advantage
   - Gain a strong reputation for meeting demands and consistently providing goods

Question 8

3 Disadvantages of buffer stock

Answer 8

1. Cost
   - Requires storage facilities and management systems increasing costs
2. Opportunity costs
   - Ties up capital when it could be used in other aspects of the business
3. Risk of obseleteness
   - Chance that the buffer stock can loose demand therefore wasted capital and storage

Question 9

2 Problems with holding excess stock

Answer 9

1. Storage costs
2. Risks of spoilage and broken products leading to excess costs

Question 10

2 Problems with holding too little stock

Answer 10

1. May run out
   - Creates a bad reputation for not meeting demand
2. Demand cannot be met
   - Loss of potential sales

Question 11

What is Just in Time management (JIT)?

Answer 11

When products and raw materials are ordered when needed for production and not stored onsite

Question 12

Advantages of JIT

Answer 12

1. No stock holding costs
2. Cash flow improved
   - No excess costs for storage
3. Unused storage space available
   - Can be used for production or other areas to increase productivity
4. Fresh stock

Question 13

Disadvantages of JIT

Answer 13

1. Late deliveries
   - Can be caused by unforeseen circumstances therefore cannot meet demand
2. Cannot respond to unexpected increases in demand

Question 14

What is waste minimisation/lean production?

Answer 14

Using as few resources as possible in production

Question 15

Ways a business can minimise waste?

Answer 15

1. Staff training
   - Reduces mistakes therefore less wasted products
2. Security and stock rotation
3. Sales tactics for obsolete products

Question 16

Advantages of lean production

Answer 16

1. Lower unit costs so prices lower to competitors
2. Better quality so higher satisfaction