2.4.3 Stock control Flashcards
Stock (inventory)
- raw material (input, introduction process, primary sector)
- work in progress and finished goods (end output) held by a firm to enable production = meet customer demand
- enables business respond immediately
- eradicates lead time
first to deliver means
- first mover advantage (competitive advantage)
- good reputation
Main types of stock
- raw materials/ components (supplier= in production)
- work in progress (semi / part finished production)
- finished goods (ready for sale /distribution)
why do businesses hold stock
- satisfy demand
- in case of mistakes (contingency) = safety buffer
- avoid problems supplier delays
- enable efficient production
- purchasing economies of scale
- seasonal changes
- buffer between production processes
buffer stock (just in case)
stock control system (pushed)
amount of stock held as a contingency in case of unexpected orders
so such orders can be met & in case of any delays from supplier
- link between EPOs (electronic payment order) and stock control
- EDI (electronic data interchange)
EDI
Electronic data interchange
EPOs
Electronic point of sale
factors determine whether a business needs to hold stock
- level of demand (high/low) (fluctuates=dynamic market)
- nature of market
- nature of production process (flow vs lean)
- amount of capital available (bulk buy/afford to store)
- perishable/high rate of obsolescence
costs of holding stock
- storage costs (staffing, rent ,security)
- insurance
- depreciate value
- cash is stuck in stock = cash flow issues/ liquidity problem = decrease in working capital
- interest (tying up capital pay interest on)
stock levels
how changes occur, decreases as used, increases when delivery
maximum
most you are able/can/want to hold
max storage capacity
re order levels
“trigger” point so that when stock fall to this level, next supplier order is placed
accounts for lead time to process order and make delivery
minimum (buffer)
safety, fall back if delay
lead time
calculated from re- order point to then max stock level
amount of time between placing order and receiving stock
buffer stock
amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers
Cons of JIT
- arrive to early=too much
- too late = impact production line
- lots of risk - no room for error (contingency plans)
- extreme vulnerability (to supplier/industrial action)
- no purchasing economies of scale
- struggle to meet sudden demand changes
Pros of JIT
- no waste
- meet customer needs
- help with cash flow (better liquidity)
- respond to demand
- high quality 0 defects
Just in Time
production occurs with minimum stock levels so every process is completed just in time for next process
Features of JIT
- no stock held - reduce waste
- multi-skilled/flexible staff
- production to order (pulled demand)
- 0 defects (no back up) = go to buffer
JIT depends on
- supplier relationships (communication, flexible, quality)
- reliable and flexible workforce (modify work loads = cope with changes, adapt)
- suitable equipment
Factors influencing how much stock to reorder
- current supply/max capacity store
- demand
- forecast changes trend
- consider high performance production line
- (when to order is lead time from supplier)
Limitations of Factors influencing how much stock to reorder
- assuming constant usage rate of stock (unlikely)
- multiple products
- no external factors affecting (delays)
- assuming cash flow to buy stock
- assuming experience of manager to implement
- line gradients may change - quick/slow of stock
waste minimisation
cutting out any process that does not add value to the business in order to minimise inputs (CELL)
reduce waste = reduce cost
CELL
capital
enterprise
land
labour
adding value
-consumer thinks worth more (pay more )
- due to ethics, appearance, quality, brand
- ‘perceived to be worth more in the eyes of consumer’
waste can be…
- time wasted by idle workers
- workers moving from place to place unnecessarily - transition time
- more raw materials than needed (excess stock)
- throwing away faulty items (defects)
- machines standing idle (downtime)
- unsold stock (cashflow & obsolete)
gross profit
sales - stock
Competitive advantage through lean management
PRICE
- reduce waste= reduce cost = reduce prices
- lean management reduces waste
- through JIT production/stock management
- reduce unit cost = reduce prices
- firms more price competitive
Competitive advantage through lean management
NON-PRICE
- lean management reduces waste-respond to demand = quality improve
- through JIT production/stock management (no buffer stock)
- reduce unit cost - variety - add value
- increase profit margin (assuming price stays same) price increase
- if profit increases re-invested into innovation & improve production/service
