2.4.3 Stock Control

Question 1

Definitions from stock control diagrams

Answer 1

• A stock control diagram illustrates the flow of stock (inventory) into and out of a business overtime
• The maximum stock level is the maximum amount of stock of business is able to hold in normal circumstances
• The reorder level is the level of which the business places is a new order with a supplier
• The minimum stock level is also known as the buffer stock level and is the lowest level to which business is willing to allow stock levels to fall
• The lead time is the length of time from the point of stock being ordered from the supplier to it being delivered
• The stock level line shows how stock levels change over the given time period

Question 2

Buffer stocks

Answer 2

• Bathurst stock is a quantity of goods/raw materials kept in case of stock shortages
  
  • This can provide a competitive edge over rivals, unable to meet demand
  • this approach is commonly called just in case stock control

Advantages:
- Stability and supply: buffer stocks in a stable supply of goods which is able to respond to unexpected customer demand
- Price stabilisation: buffer stocks can help prevent extreme price fluctuations as it helps the market to avoid shortages, which would result in a rapid price increases
- Raw materials security carry on businesses that are dependent on particular raw materials avoid disruption to their supply
- Competitive advantage: by having a reliable supply of goods businesses can gain a reputation for always being able to meet the needs of their customers

Disadvantages:
- Cost: holding buffer stocks can be expensive, as it requires the facilities and inventory management systems
- Risk of obsolescence: buffer stocks can become obsolete if the demand for a particular product or input declines
- Opportunity cost: holding buffer stocks ties up capital that could be invested in other areas of the business

Question 3

Implications of poor stock control

Answer 3

1. Holding too much stock. -> significant storage costs –> risk of spoilage and shrinkage
   -> opportunity cost –> unsold stock –> price reduction
2. Holding two little stock. -. Risk of stock out –> production stoppages –> capital and labour under utilised
   -> unexpected increase increases in demand cannot be met –> loss of potential sales

Question 4

Just in time stock management

Answer 4

• Just in time stock management is a process in which all materials are not stored on site
• Careful coordination is needed to ensure that all materials and components are delivered by supplies at the moment that they are to be used

Advantages:
- Stock holding costs: including storage costs are minimised
- Working relationships are developed with a small number of trusted supplies
- Cash flows improved as money is not tied up in stock
- Unused a storage bases available for productive use
- Teamwork is encouraged to employ motivations likely to be improved

Disadvantages:
- Bulk buying economies of scale are not generally possible
- The ability to respond to unexpected increases in demand is reduced
- Administrative costs related to frequent ordering are increased
- Unreliable suppliers can quickly hold production
- Significant changes to organisational structure and production controls are required

Question 5

Waste minimisation

Answer 5

• Wasting a business can a car for a number of reasons: stock becomes obsolete unless used by particular date, perishable stock that is not ease before they deteriorate will need to be thrown away, stock may be damaged as a result of poor storage conditions and may not be suitable for use in the production process
• Allowing ways to go unable increase the unit cost of production and reduce both efficiency and productivity

Question 6

Ways to minimise waste

Answer 6

1. Storage.
   - Refrigeration and protection from damage, effective security, careful stock rotation
2. Planning.
   - Diligent forecasting, staff training, computerised stock control
3. Sales tactics.
   - Reduced prices to encourage purchases, alternative uses for obsolete stock

Question 7

Competitive advantage from lean production

Answer 7

• Lean production involves the minimisation of the resource is used in production
• Leads to competitive advantage: lower unit cost achieved due to minimum wage, so prices may be lower than those offered by competitors. Better quality of output is likely as a result of supply reliability and carefully managed production processes.