3.4.5 Managing Inventory

Question 1

Mass customisation

Answer 1

Producing flexibility on a mass production assembly line giving the twin benefits of customer satisfaction and cost effectiveness

Question 2

Service agreement

Answer 2

A contract between a company and its supplier that sets out exactly what is required by when and at what quality standards

Question 3

Competitiveness

Answer 3

The extent to which a a firm can stand up to or beat its rivals

Question 4

Opportunity cost

Answer 4

Cost of missing out on the next best alternative when making a decision

Question 5

Stockholding costs

Answer 5

The overheads resulting from the stock levels held by a firm

Question 6

Inventory

Answer 6

Raw materials, work- in progress and finished goods held by a firm to enable production and meet customer demands

Question 7

Key reasons to hold inventory (ESPESB)

Answer 7

-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

Question 8

Cost of holding inventories

Answer 8

Cost of storage
Interest costs
Obsolescence risk (depreciating)

Question 9

Why use inventory control charts?

Answer 9

Maintain inventory levels so that Total costs of holding inventories is minimised

Question 10

Key parts of inventory control chart
Maximum level

Answer 10

Max level of inventory a business can or wants to hold

Question 11

Reorder level

Answer 11

Acts as a trigger point, so that when inventory falls to level the next order is placed

Question 12

Lead time

Answer 12

Amount of time between placing the order and receiving the inventory

Question 13

Minimum inventory

Answer 13

Min amount of product the business would want to hold in stock

Question 14

Buffer stock

Answer 14

Amount of inventory held as a contingency in case of unexpected orders. And incase of delay from suppliers

Question 15

Factors affecting when/ how much inventory to re-order

Lead time from the supplier

Answer 15

How long it takes for the supplier to deliver
Higher lead time may require a higher re order level

Question 16

Advantage of having low inventory levels

Answer 16

-Lower holding costs
-Lower risk odds inventory obsolescence
-Consistent lean production

Question 17

Advantage of high inventory levels

Answer 17

No delays
More flexible
Less likelihood of stock outs

Question 18

What is the concept of just in time (JIT)

Answer 18

-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

Question 19

Benchmarked data

Answer 19

Is information on how well one company is performing compared to its competitors.

Question 20

Supplier

Answer 20

A business or individual that provides a good or services to another business

Question 21

Vertical integration

Answer 21

Combination of two or more stages of production normally operated by separate companies

Question 22

Corporate social responsibility (CSR)

Answer 22

Is a business approach that contributes to sustainable development by delivering economic, social and environmental benefits for all stakeholders

Question 23

The value of outsourcing ? Advantage

Answer 23

Flexible
Can reduce costs
Can focus on main business activities

Question 24

Disadvantage of outsourcing

Answer 24

Difficult to manage
Could be more expensive
Communication issues

Question 25

What is a supply chain

Answer 25

All the contractors, subcontractors and delivery business involved in getting suppliers components to your factory/ business

Question 26

What is the supply chain chart

Answer 26

Supplier to supplier—> supplier—> manufacturer—> wholesaler—> retailer

Question 27

How does a business manage a supply chain

Answer 27

Select supplier
Supplier strategy
Supplier contract
Involvement
Flexibility

Question 28

Value of managing a supply chain

Answer 28

Reduce costs
Avoid negative incidents
Vertical integration
Ensure supplier meet requirements

Question 29

Why are suppliers important

Answer 29

-For a business to meet the needs and wants of customers
-Suppliers determine costs for business
Suppliers/ quality
JIT (late delivery = stock out

Question 30

What makes an effective supplier

Answer 30

Quality
Price
Reliability
Communication
Capacity
Financially secure

Question 31

What is a strategic supplier

Answer 31

Business cannot succeed without maintaining an effective relationship

Question 32

What is a commodity supplier

Answer 32

They provide goods and services that can easily be brought elsewhere and which are not hugely important to the business

Question 33

How do suppliers improve business performance

Answer 33

Lower purchase costs
Better quality
Improved customer service
Increased productivity
More flexible capacity

Question 34

How is managing suppliers linked to managing cash flow

Answer 34

Trade credit = where a business buys good and services from a supplier and pays later
Extending terms- but expanding too far risks damaging supplier relationships

Question 35

Factors affecting when/ how much inventory to re-order

Implications of running out (JIT)

Answer 35

If stock outs are damaging = high reorder level

Question 36

Factors affecting when/ how much inventory to re-order

Demand for the product

Answer 36

Higher demand = higher order