2.4.3 : Stock Control Flashcards
What is stock ?
It represents the raw materials , work in progress + finished products held by a firm to enable production and meet customer needs
What are the three types of stock ?
Raw materials - bought from suppliers
Work in progress - semi or part finished production
Finished goods - completed products ready for sale or distribution
What are the key reasons to hold stock ?
Just in case
Enable production to take place
Allow efficient production
Satisfy customer demand
Allow for seasonal changes
Precaution against delays from suppliers
What are the main influences on the amount of stock you hold ?
Need to satisfy demand - failure to have goods ready for sale is costly
Need to manage working capital - holding stock ties up cash in working capital
Risk of stock losing value - holding stocks for long could mean they lose their value or can’t be sold
The costs and risks of holding stocks ?
Cost of storage - more stock requires larger storing spaces + extra employees
Interest costs - holding stocks may tie up capital meaning the business may have to pay interest towards it
Obsolescence risk - the longer stocks are held the longer there is a risk of them becoming obsolete
Stock out costs - a stock out happens if a business runs out of stock this can result in a loss of customers
Why do businesses use stock charts ?
Businesses use stock control charts because they are then able to maintain stock levels to that the total costs of holding stocks is minimised
What are the key parts of a stock control chart ?
Maximum level - max level of stock a business can or wants to hold
Re-order level - acts as a trigger point , so that when stock falls to this level the next supplier orders should be placed
Lead time - the amount of time between placing an order and receiving the order
Minimum stock level - minimum amount of a product that a business would want to hold as stock
Buffer stock - an amount of stock held as a contingency fund in case of unexpected orders so that the orders can be met and in case of any delays
What are the factors affecting when or how much stock to re-order ?
Lead-time from supplier
Implications of running out
Demand for the product
What are the advantages of low stock levels ?
Lower stock holding costs
Lower risk of stock obsolescence
Less capital tied up in working capital - can be used elsewhere in the business
Consistent with working ‘lean’
What are the advantages of having high stock levels ?
Production fully supplied - no delays
Potential for lower units in costs if ordering in bulk
Better able to handle rapid changes in demand
Less likelihood of stock outs
What are the concepts of just in time ?
Stock required for production arrives just in time
Lean production = minimal capital tied up in stocks
Implications :
No need for buffer stock
Stock holding costs are minimised , lead times are very short , requires highly reliable suppliers
