3.4.5 Making operational decisions to improve performance: managing inventory and supply chains Flashcards
Holding stock is good for…
-Rise in demand
-Has a value
-Bulk buying (get discounts)
-Shows the goods available for production
Excess stock
-High storage costs
-Money tied up in stock
-High security costs
-High insurance costs
Factors influencing stock
-Unpredictability of demand
-Competition
-Reliability of supplier
-Rental costs for storage
Average inventory formula
Beginning inventory+ ending inventory/2
Storage of stock
-Centralised=stock can be held in one central area
-Decentralised=stock can be located in different areas in which they are used
Centralised stock advantages
-All in one place (easier to access)
-Cheaper
-Easier to store stock
Centralised stock disadvantages
-Harder to distribute
-Risk of cross contamination (food)
-More risk of damage
Decentralised stock advantages
-Easier to distribute
-Where it is most likely to be needed
-Hold more stock
Decentralised stock disadvantages
-More expensive
-Harder to track stock
-Multiple supplies/issues with delivery
Why are suppliers important?
-Provide stock/raw materials
-Need to be consistent
-Lower prices
-Good relationship
-Quality
Benefits of good suppliers
-Businesses can give better customer service (leads to better customer satisfaction and customer loyalty)
-Less production delays (consistent with buying products, achieve demand)
-Lower costs (help with profit margins, lower prices for customers)
How can reliability of suppliers be measured?
-Measured in delivery dates
-Whether they’ve been on time
-Checking the quality of products are consistent
What is meant by ‘payment terms’ with suppliers?
Agreement of payment between suppliers and business (Trade credit-buy now pay later)
Mass customisation
- a process that allows a company to personalise certain features of a product while still keeping costs at or near mass production prices
Mass customisation benefits
-Prevents resell
-USP (unique selling point)
-Customers needs
-Build brand strength+loyalty
-Low unit costs combined with personalised product = higher added value
Mass customisation drawbacks
-Seasonal
-Longer to manufacturer
-Longer to deliver
-Lower profit margins
-Struggle to keep up with demand/time consuming
What is a supplier
A business that provides goods and services to another business
Supply chains
Complete sequence of stages involved in transforming raw materials into finished goods and getting them into the hands of customers
Benefits of having a variety of suppliers
-Search for lower costs
-Less likely to have delays (may have a backup)
-More bargaining power
Benefits of having fewer suppliers
-Cheaper
-Build better relationships
-Less payments to track
Strategic suppliers
The business cannot succeed without maintaining an effective supplier relationship. The goods and services are crucial to the businesses success
Commodity suppliers
They provide goods and services that can easily be bought elsewhere and which are not hugely important to the business
Outsourcing
-Delegating one or more business processes to an external provider who the owns, manages, administers the selectd processes to an agreed standard
Outsourcing benefits
-Ability to access specialists with greater capabilities and higher quality
-Reduce costs if outsourcing provider is able to provide at lower costs
-Makes operations more flexible
Outsourcing drawbacks
-No guarantee that costs will be lower
-Potential loss of expertise from the business
-Supplier may fail to meet quality standards
Offshoring
Work is done overseas
Profit in absolute terms
The £ value of profits earned
Profit in relative terms
The profit earned as a proportion of sales achieved or investment made
Gross Profit formula
Sales revenue- cost of sales (Absolute terms)
Operating profit formula
Gross profit-expenses (Absolute terms)
Profit of the year/Net profit formula
Operating profit-interest and taxation (Absolute terms)
Ratio analysis
Analysing relationships between financial data to assess the performance of a business
Profitability ratios provide useful insights
-Is the business making a profit? Is profit growing?
-How efficient is the business at turning revenues into profit?
-Is the profit enough to justify investment in the business?
Profit margins formula
margin (%)= type of profit/sales revenue x 100
Possible actions to increase profits
-Increase quantity sold
-Increase selling price
-Reduce variable costs per unit
