2.4.3 Stock Control

Question 1

What does a stock control diagram show?

Answer 1

Illustrates the inventory into & out of a business over time

Question 2

Define ‘inventory’

Answer 2

The amount of stock a business has

Question 3

What is the maximum stock level?

Answer 3

• The maximum amount of stock the business is able to hold in normal circumstances

Question 4

What is the reorder level?

Answer 4

• The level at which the business places a new order with it’s supplier

Question 5

What is the minimum stock level (buffer stock)?

Answer 5

• The lowest level to which a business is allowing stock levels to fall

Question 6

What is the lead time?

Answer 6

• The length of time from the stock being ordered from the supplier to it being delivered

Question 7

What is buffer stock?

Answer 7

• Buffer stocks are a quantity of goods/raw materials kept in case of stock shortages

used to provide competitive edge over rivals unable to meet demand

Question 8

What are the advantages to a business of holding buffer stock?

Answer 8

Stability in supply
* B stock ensures a stable supply of goods which is able to respond to unexpected demand

Competitve advantage
* By having a reliable supply of goods businesses can gain reputation for always being able to meet the needs of their customers

Price stabilisation
* B stock can help prevent extreme price fluctuations as helps market to avoid shortages which can result in rapid price increase

Question 9

What are the disadvantages to a business holding buffer stock?

Answer 9

Costs
* Holding B stock can be expensive as requires storage & inventory management systems

Risk of obsolescence
* B stock can become obsolete if demand for particular product/input declines

Opportunity cost
* Holding B stock ties up capital that could be invested into other areas of the business

Question 10

What are some of the implications of holding too much stock?

Answer 10

• Significant storage loss
• Opportunity cost
• Unsold stock
• Waste-spoilage & shrinkage
• Price reduction

Question 11

What are some implications of holding too little stock?

Answer 11

• Risk of stockout
• Unexpected increases in demand cannot be met
• Loss of potential sales

Question 12

What is Just in time stock management?

Answer 12

• A process in which raw materials are not stored onsite but ordered & delievered by suppliers ‘just in time’ for production

Question 13

What are the advantages of JIT stock management?

Answer 13

• Stockholding costs & storage costs are minimised
• Close working relationships developed with a small number of trusted suppliers
• Unused storage space is available for productive use

Question 14

What are the disadvantages of JIT stock management?

Answer 14

• Ability to respond to unexpected demand is reduced
• Unreliable suppliers (e.g. late, poor quality) can quickly halt production
• Administrative costs related to frequent ordering are increased

Question 15

How can wastage in a business occur?

Answer 15

• Stock becomes obsolete unless used by a particular date
• Perishable stock (food and medicines) that is not used before they deteriorate will need to be thrown away
• Stock may be damaged as result of poor storage conditions

Question 16

What three ways can you minimise waste through in a business?

Answer 16

• Storage
• Planning
• Sales Tactics

Question 17

What storage ways are there to minimise waste?

Answer 17

• Refrigerate & protect perishable goods from damage
• Effective security-stop stock getting damaged
• Careful stock rotation

Question 18

What planning ways are there to minimise waste?

Answer 18

• Diligent forecasting
• Staff training
• Computerised stock control

Question 19

What sales tactics are there to minimise waste?

Answer 19

• Reduce prices to encourage purchases
• Alternative uses for obsolete stock

Question 20

What is lean production?

Answer 20

Involves the minimisation of the resources used in production

Question 21

What is involved in lean production?

Answer 21

• Less time required as production process is organised in most efficient way
• Fewer materials used as there is focus on waste reduction
• Space required for production is reduced as result of JIT stock management

Question 22

How is the use of lean production likely to lead to a competitive advantage?

Answer 22

• Lower unit costs are achieved due to minimal wastage so prices may be lower than those offered by competitors
• Better quality of output as a result of supplier reliability & carefully managed production processes

Unit costs-Total cost of producing one unit of output