2.4.3 Stock control Flashcards
What are the different types of stock?
Raw materials and components
Work in progress
Finished goods
Raw materials and components
- stock that business has purchased from a supplier
- held by firm until ready to process into finished output
Work in progress
- items that have started to be processed by are incomplete
- moving through the production process
- firm may store unfinished products to give it some flexibility to meet customer demand
Finished goods
- product is complete
- selling in large batches or to an individual buyer
What is producing for stock / stock-piling?
-a firm that produces seasonal goods will have most of the years production building stock in preparation for the busy season
What is the opportunity cost for holding more stock or less stock?
More stock - unity costs will rise
Less stock - may not be able to meet customer demand
What are the parts of a stock control chart?
- stock levels
- maximum stock level
- re-order level
- minimum stock level
What are the parts of a stock control chart?
-stock levels
- the line shows how stock levels have changed over this period of time
- as stock is used up, the level of stock gradually falls fro left to right
- delivery = stock levels go up in vertical line - the greater the rise, the more stock has been delivered
What are the parts of a stock control chart?
-maximum stock level
this shows the amount that a firm is willing or able to hold in stock
What are the parts of a stock control chart?
-reorder level
when stocks falls to this level, a new order will be sent in to the supplier
-this line is reaches some time before the delivery due to the supplier needing some lead time to process the order and make the delivery
What are the parts of a stock control chart?
-minimum stock level (buffer stock)
the firm will want to keep a certain minimum level of stock so it has something to fall back on if supplies fall to arrive if there is a sudden increase in demand
Why aren’t stock control charts alway accurate?
- orders may arrive late
- orders may not be the right quantity
- the rate of usage is likely to be constant
Implications of too much stock
- opportunity cost
- cash flow problems
- increased storage costs
- increased finance costs
- increased stock wastage
Implications of too much stock
-opportunity cost
-holding the firm’s money is form of stock prevents it using its capital in other ways such as investing in new technology/machinery, research and development on a new product - could affect competitiveness
Implications of too much stock
-Cash flow problems
-holding wealth in the form of stock may cause cash flow problems if cant sell, insufficient to pay suppliers
Implications of too much stock
-increased storage costs
-rental cost of the space needed and the higher the stock value, the higher the cost of insurance against fire and theft
Implications of too much stock
-increased Finance costs
-if the capital for the extra stock needs to be borrowed, the cost of that capital (interest rate) will be significant added annual overhead
Implications of too much stock
-increased storage wastage
the more stock that is held, the greater the risk of it going out of date
- perishable goods
- consumer trends change - value will be reduced
How does restocking boost cash?
cut order of supplies - cash outflows decrease - net cash flow improves
boost sales to customers - cash flow increases - net cash flow improves
Negatives of holding too little stock
- lost orders
- worker downtime
- loss of reputation
- buffer
Negatives of holding too little stock
-lost orders
-urgent customer orders may not be met because there is too little finished stock
Negatives of holding too little stock
-worker downtime
-caused if essential components have been delayed in arriving from suppliers and if buffer has been used already
Negatives of holding too little stock
-loss of reputation
-loss of firms reputation and any goodwill it has been able to build up with its customers
Negatives of holding too little stock
-buffer
-the desired minimum stock level held by a firm host in case something goes wrong
Stockholding case
the overheads resulting from the stock levels held by a firm
lead time
the amount of time between when the stock is ordered and when it is received
Just in time production
a Japanese system whereby no buffer stocks are held and stocks are ordered as and when they are needed
Lean production
a collective term for a range of techniques designed to eliminate waste, such as JIT, Kaizen, TQM and cell production.
How can lean production improve productivity?
- maximising work flow - quicker delivery of products to market - minimal costs and improved customer satisfaction
- allows a business to respond rapidly to changing conditions
- JIT puts pressure on managers to demand higher quality standards and more efficiency from workers
What is the competitive advantage of using lean production?
- maximises the input from staff
- focusses attention on the quality of supplies and production
- minimises wasted resources in stock through JIT -
- higher level of labour and reliability for the customer
- requires less stock, less factory space and less capital equipment
What are the marketing advantages of using lean production?
- improves quality and reliability for the customer
- requires fewer engineering hours to develop a new product
- lean producer can speedily develop a wide range of new products
Factors that influence the levels of stock held by a business:
- nature of product (perishable or not)
- resources and storage capacity
- demand
- value of product
- finance available
- supplier
- seasonality
Buffer stock?
the amount of stock held as a contingency plan in case of unexpected orders so that such orders can be met and in case of any delays from suppliers
Why use stock control charts?
-to maintain stock levels so that the total costs of holding minimised
Re-order level
when stock falls below this level, a new order is sent out to suppliers
Drawbacks of using JIT
- reliant on good relationships with suppliers
- increase in demand - may not be able to meet it
- high risk if isn’t managed well
Benefits of using JIT
- minimise waste
- only orders what you need
- less storage costs
What is Just in case?
where materials, goods and labour are on hand so they are there who needed in the production process. In order to work efficiently must forecast demand.
Benefits of JIC
- helps when demand is higher than expected
- makes sure a business can almost always meet an order
- less exposed to waste stoppages from suppliers
Drawbacks of JIC
- increase expenses for idle materials
- extra equipment
- warranty repair
- wasted space
- low economies of scale - only buying in small volumes
examples of waste from production
- over-production
- waiting time
- obsolete stocks
- defects
- machinery idle
- staff idle
Benefits of using lean production
- limited waste - limits obsolete goods - cost effective
- strong customer relationships - involves meeting the needs of loyal customers on a regular basis
- no wasted space as only using needed equipment and building space - room necessary to meet the demand required
Drawbacks of using lean production
- require good and sustained relationship with suppliers
- training for employee costs
- little margin of area - if machine breaks down, may lose efficiency advantage
