2.4.3 Stock Control (2/4)

Question 1

Buffer stocks

Answer 1

Stocks held as a precaution to cope with unforeseen demand

Question 2

Why is it important for businesses to hold buffer stocks?

Answer 2

1) To cope with a surge in demand -> may lose sales opportunities + regular customers if there is no stock.
2) There can be a holt in production if no raw materials + components

Question 3

Businesses need to hold the ‘right’ amount of what?

Answer 3

Stock

Question 4

Holding too much or too little stock can both have a negative impact on business T/F?

Answer 4

TRUE

Question 5

5 Problems with holding too much stock

Answer 5

1) Opportunity cost - money used to purchase stock could have been used elsewhere e.g new machinery
2) Spoilage costs - quality may deteriorate over time and some products are perishable
3) Unsold stock - maybe unexpected reduction in demand, firm maybe left with stocks it cannot sell
4) Storage costs
5) Need extra staff to manage stocks held - costly

Question 6

Elaboration on ‘storage costs’

How is storage costs a problem when it comes to stock?

Answer 6

• Stocks occupy space in buildings - that space could have been used for machinery for extra production
• may have to rent out extra properties & buildings
• some products require special storage conditions e.g certain foods need refrigerators . - can be expensive purchase

Question 7

3 problems with holding too little stock

Answer 7

1) may not be able to cope with unexpected demand. This can result in a loss of customers
2) little stock of materials/components may cause a halt in production if shortages occur
3) Holding too low stock means as a business you have to place more orders.This raises total ordering costs and you may miss out on discounts e.g bulk buying