2.4.3. Stock Control

Question 1

Interpreting stock control

Answer 1

-Holding stock costs money and ties up cash, but with no stock, production can halt or customers may be disappointed.
LOOK AT STOCK CONTROL DIAGRAM
-Max stock level: affects storage and space
-Min stock level: buffer stock level. Amount always aimed to have available.
-Reorder level:amount at which new stock is triggered
-Lead time: delivery time between reorder being placed and stock arriving.

Question 2

Buffer stock

Answer 2

-Reasons for keeping buffer stock of raw materials:
1.If deliveries delayed, buffer stock allows production to continue
2.If batch it faulty, buffer stock used to continue production

-Reasons for keeping buffer stock of finished goods:
1.Helps to ensure that the business can always supply customers when they need a product, with the right size or colour

Question 3

Implications of poor stock control:Problems with too much stock:

Answer 3

-Problems with too much stock:
1.Increases opp. costs as it ties up capital as stock and prevents money being used more efficiently.
2.Cash flow problems- Stock represents cash that’s been converted to stock but not yet converted to cash. Hold too much stock=risk of running short of actual cash.
3.Increased storage costs
4.Increased financing costs-If stock purchased via burrowing then business experiences extra interest costs.
5.Increased wastages-Damaged or obsolete goods

Question 4

Implications of poor stock control:Problems associated with too little stock

Answer 4

-Problems associated with too little stock
1.Loss of customers-Late orders affects flow of business production. Customers may be lost to competitors
2.Delays in production-Stoping and restarting machinery is costly.
3.Loss of reputation-If business struggles to maintain enough stock to meet customers needs properly

Question 5

JIT Stock Management

Answer 5

-Aims to eliminate buffer stock completely. Relies on frequent small deliveries from suppliers without delay and quality problems. May eliminate costs involved in stock holding but increases danger of production halting due to lack of materials:

1.Suppliers must be willing to reliever frequently
2.Deliveries need to be reliable
3.Suppliers may need to relocate closer to company

Question 6

Waste minimisation

Answer 6

Fundamental to lean approach in production. A JIT approach to manage stock and reduce waste:
1.Less stock held therefore less stock waste
2.Cash not tied up in stock, effectively wasting it
3. Removing buffer stocks helps highlight problems in production processes.

Question 7

Competitive advantage from Lean Production

Answer 7

Lean production is a way to eliminate waste. Ft. JIT stock management, continuous improvement linked with total quality management and cell production can improve how business are run in no. of ways
1.More input from staff
2.Focus on quality and reducing wasted time to increase speed
3.Fewer wasted resources

These features lead to following of competitive advantage:
1.Higher levels of productivity, reducing labour costs
2.Less space and stock, reducing fixed costs
3.Higher quality, leading to repetitional advantages and greater repeat customers
4.Faster development of new products, allow firm to be first to market new ideas