4.4e - Inventory Control Flashcards
Inventory control definition
Ensuring a business is flexible and can satisfy the demand for its products
In what situations are low inventory levels useful?
- Rent is high
- Business sells a perishable good
- Business has cash flow problems so cannot afford to have money tied up in stock
Advantages of low inventory levels:
- Reduce costs (less spent on rent)
- Less likely that stock will perish
In what situations are high inventory levels useful?
- Business can buy resources in bulk
- Product sold have unpredictable levels of demand
- Business has plenty of available storage space
Advantages of high inventory levels:
- More likely to meet customer demand
- No shortage of raw materials (doesn’t slow down production process)
- Purchasing economies of scale
Inventory chart definition
A diagram used to monitor levels of inventory over a particular period of time
Buffer stock definition
The amount of stock held as a contingency in case of unexpected orders or delays from suppliers
Reorder level definition
A trigger that tells the business to order more inventory as it is getting too close to minimum levels
Re-order level formula
(Lead time (days) x average daily usage) + buffer stock level
What can the position of the reorder level depend on?
- Lead time from suppliers
- Demand
- Competitiveness of market
Inventory wastage definition
Loss of inventory without it being sold
Inventory rotation definition
Making sure that new inventory is not placed in front of old inventory
