3.4.5

Question 1

What is inventory?

Answer 1

refers to the supplies and stock held by a business. Coordinating inventory and managing the supply chain effectively can influence the competitiveness of a business.

Question 2

Factors to consider when managing inventory and the supply chain: Speed

Answer 2

Some industries rely on speed. For example, parcel delivery companies. Even where speed is not as important as other factors, like quality, it can still mean the difference between a customer choosing one business over another.

Question 3

Factors to consider when managing inventory and the supply chain: dependability

Answer 3

Meeting a deadline is very important for some industries.
For example, the travel industry. All businesses can claim to meet a deadline, but reputation precedes a business when it comes to dependability. Some businesses may provide money back’ guarantees if a deadline is not met.

Question 4

Factors to consider when managing inventory and the supply chain: Flexibility

Answer 4

Flexibility is about customisation.
The greater level of customisation a business offers, the better it is able to meet customer needs. However, often greater customisation increases unit costs. For example, all Dell computers are manufactured to their customers’ inventory specifications. This is known as mass customisation.

Question 5

Issues in managing inventory

Answer 5

• risk - some inventory poses a greater risk than others. Inventory can be perishable (food), easily damaged in storage (glassware) or become outdated quickly (fashion and technology)
• costly - holding stock ties up cash which could be used in other investments (opportunity cost)
• meeting demand - holding stock allows a business to meet demand

Question 6

Inventory inclues

Answer 6

raw materials, work in progress and finished goods

Question 7

Choosing the right supplier:

Answer 7

• the cost and quality of materials
• dependability
• ethical practices
• availability of trade credit
• level of service
• flexibility
• speed

Question 8

Re-order level

Answer 8

the level at which new inventory will be re-ordered. This will
depend on the buffer stock level and the lead time.

Question 9

Re-order quantities

Answer 9

the quantity of an item the business will order at a given time.

Question 10

Buffer inventory

Answer 10

the minimum amount of inventory a business wants to hold.

Question 11

Lead time

Answer 11

how long it takes from the order being placed with the supplier to it arriving.

Question 12

Managing inventory
A business must consider the following issues when using inventory control charts:

Answer 12

• unexpected changes in demand
• long lead times which make inventory planning more difficult
• suppliers who fail to deliver
• choosing the right buffer stock level can affect efficiency and cash flow
• human or computer error when re-ordering stock.

Question 13

When choosing a supplier a business might consider:

Answer 13

• the price
• the flexibility in terms of size and customisation
• the discounts offered on scale
• potential for trade credit.

Question 14

The supply chain refers to the

Answer 14

network of providers involved in the process of getting the product to the customer. This may involve a wide number of people and organisations.

Question 15

Effective management of the supply chain may involve:

Answer 15

• supplier strategy - such as long-term vs short-term agreements
• agreeing contracts with suppliers - service level agreement or a code of conduct
• deciding on what aspects of the process the business will do itself and which it will outsource
• vertical integration - will the business take control of the supply chain for itself?

Question 16

Managing supply to meet demand

Answer 16

• employ a flexible workforce (part-time employment and temporary contracts)
• product to order - only producing a product when an order comes in
• queuing systems - automated queuing can help manage supply during high demand periods
• Outsource production to other businesses when demand is high. Outsourcing can help a firm subcontract a specialist task, such as payroll, and help manage capacity utilisation.