3.4.5 Managing Inventory Flashcards
Mass customisation
Producing flexibility on a mass production assembly line giving the twin benefits of customer satisfaction and cost effectiveness
Service agreement
A contract between a company and its supplier that sets out exactly what is required by when and at what quality standards
Competitiveness
The extent to which a a firm can stand up to or beat its rivals
Opportunity cost
Cost of missing out on the next best alternative when making a decision
Stockholding costs
The overheads resulting from the stock levels held by a firm
Inventory
Raw materials, work- in progress and finished goods held by a firm to enable production and meet customer demands
Key reasons to hold inventory (ESPESB)
-Enables production to take place
-Satisfy customer demand
-Precaution against delays from suppliers
-Allows efficient production
-Allows for seasonal changes
-Provides a buffer between production processes
Cost of holding inventories
Cost of storage
Interest costs
Obsolescence risk (depreciating)
Why use inventory control charts?
Maintain inventory levels so that Total costs of holding inventories is minimised
Key parts of inventory control chart
Maximum level
Max level of inventory a business can or wants to hold
Reorder level
Acts as a trigger point, so that when inventory falls to level the next order is placed
Lead time
Amount of time between placing the order and receiving the inventory
Minimum inventory
Min amount of product the business would want to hold in stock
Buffer stock
Amount of inventory held as a contingency in case of unexpected orders. And incase of delay from suppliers
Factors affecting when/ how much inventory to re-order
Lead time from the supplier
How long it takes for the supplier to deliver
Higher lead time may require a higher re order level
Advantage of having low inventory levels
-Lower holding costs
-Lower risk odds inventory obsolescence
-Consistent lean production
Advantage of high inventory levels
No delays
More flexible
Less likelihood of stock outs
What is the concept of just in time (JIT)
-Inventory arrives just as it is needed
No need for buffer stock
Stock holding costs are minimised
Short lead times
Requires highly reliable suppliers and sophisticated IT systems to work properly
Benchmarked data
Is information on how well one company is performing compared to its competitors.
Supplier
A business or individual that provides a good or services to another business
Vertical integration
Combination of two or more stages of production normally operated by separate companies
Corporate social responsibility (CSR)
Is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders
The value of outsourcing ? Advantage
Flexible
Can reduce costs
Can focus on main business activities
Disadvantage of outsourcing
Difficult to manage
Could be more expensive
Communication issues
