3. Inventory Flashcards
what is inventory control?
the process of making sure that the correct level of inventory is maintained to be able to meet demand while keeping the costs of holding inventory to a minimum
what are the problems that come with over stocking?
-too much inventory can result in high storage costs
-products left unsold that may be spoiled/stolen
-capital is tied up
-firms must have in place an effective inventory control system
what re the problems that come with under stocking?
-the business has nothing to sell (may have to stop production)
-no bulk buying discount if you buy in small quantities
-customers go elsewhere
-increased admin costs as you need to order more often
-poor reputation with customers
-loss of sales results in loss of profits
what is the purpose of inventory management systems?
-to anticipate running out of inventory before it happens
-to ensure production line is always able to run
-to ensure customer orders are not delayed through lack of inventory
-to control admin costs of ordering
-to avoid high storage costs
what is the purpose of inventory management systems?
-to anticipate running out of inventory before it happens
-to ensure production line is always able to run
-to ensure customer orders are not delayed through lack of inventory
-to control admin costs of ordering
-to avoid high storage costs
what is electronic inventory management?
using bar codes/ QR codes allow all inventory to be tracked electronically from the moment it arrives with the manufacturer it is delivered to the customers
what are the benefits of electronic inventory management?
-it provides managers with instant up-to-date information on inventory
-it also allows for automatic re-ordering of inventory when the re-order level is reached
-there is a reduction in instances of human error
-it highlights changes in demand from customers
-it alerts management to theft of inventory
what are the costs of electronic inventory management ?
-money tied up in inventory could have been put to an alternative use
-risk of value of inventory falling (could be due to changes in fashion, advances in technology making inventory obsolete out-of-date)
-insurance and warehousing
-labour cost involved in inventory control
what is JIT?
an inventory control system where inventory is ordered to arrive just before they are needed
what are the advantages of JIT?
-reduces storage costs
-organisation more responsive to customer demand
-money is not tied up unnecessarily in inventory
-improves cash flow
-less wastage
-less warehouse space required - saving money
-theft reduced
what are the disadvantages of JIT?
-organisation can lose out on bulk buying discounts
-relies heavily on suppliers cooperation
-can result in high admin and delivery costs
-if there is a delay in delivery may interrupt production
-organisation may be unable to meet sudden increases in demand
what is a warehouse?
a place where finished products are held until they are ready to be distributed to the customer
what are the advantages of warehousing?
-large amount of inventory can be securely stored which can reduce theft
-allows for inventory types to be better categorised making management of inventory easier
-easier access resulting in more efficient delivery
what are the disadvantages of warehousing?
-expensive to run due to overhead/energy/rent/security costs
-fire/flood/contamination can effect the entire inventory reserve
-may be located in a rural area due to land/premises costs
what is centralised storage?
storing inventory in one central location in a large purpose built warehouse
what are the advantages of centralised storage?
-speed of inventory handling and security is improved due to specialist warehouse staff being used
-economies of scale
-consistency throughout the organisation
specialised staff
what are the disadvantages of centralised storage?
-high costs due to the need for specialist staff
-unresponsive to local needs
-inventory levels need to be communicated with the warehouse
-specialised equipment needs to be purchased and maintained
-declined due to JIT
what are the disadvantages of centralised storage?
-high costs due to the need for specialist staff
-unresponsive to local needs
-inventory levels need to be communicated with the warehouse
-specialised equipment needs to be purchased and maintained
-declined due to JIT
what is decentralised storage?
storing inventory in locations close to where they are needed for production or sales
what is decentralised storage?
storing inventory in locations close to where they are needed for production or sales
what are the advantages of decentralised storage?
-inventory is always close at hand
-responsive to local needs
-reflects local production levels
-no negative consequences of over stocking
what are the disadvantages of decentralised storage?
-can lead to wastage or theft
-lack of specialist staff= clumsy and inefficient
-problems being harder to pinpoint for senior management
-consequences of under stocking
what is logistics?
the finished product and how it gets to the customer
what does logistics include?
packaging
storage
distribution
transport
what should packaging do?
protect the product and look appealing
what is distribution and transport?
how you get your product from the source to the final customer
what are some methods of transport ?
road-congestion and high cost but easy access to all places
rail-declining use, less congestion
water-not suitable for delivery inland, no congestion
air-costly but fast and no congestion
