ch 39 Flashcards
What is stock?
the goods or merchandise kept on the premises of a shop or warehouse and available for sale or distribution.
A business may purchase raw materials and components for a product, for example a computer manufacturing business might purchase a motherboard, screws, circuits plastic covers as well as a variety of metals, these stocks can also be called inventories. These are assembled into a product and sold off to consumers. Some businesses may hold stocks of finished products before they are delivered to the consumers. A variety of stocks are held for different reasons.
What are raw materials and components?
These are purchased from suppliers before production and often stored in firms for when there is a change in production levels. Delays in production may be avoided if materials are supplied via stores rather than waiting for a new arrival of delivery. When a company is let down by suppliers, stocks will enable them to resume production.
What are work-in-progress?
These are partly finished goods, for example a car on the assembly line where half of it is completed but the product is still not finished.
What are Finished Goods?
Finished goods may be kept due to changes in demand and to cope with these changes. This avoids having to step up production dramatically.
factors that influence inventory level
-Buffer stocks- this is the term used to describe stock held to cover unforeseen rises.
-Stockpile goods- toy manufacturers may store stock up until December as demand will rise during the Christmas period.
-Cost of stock handling- it is expensive to hold stock therefore low quantities are held.
-The amount of working capital available- a business of short working capital may not be able to purchase stock even if it is needed.
-External factors- fear of future shortages may lead to more stock held.
-Types of inventory- businesses will hold different items at different quantities for example fresh food ingredients will be in low stock as they have a best before date while screws etc may be held in abundance.
-Lead Time- the amount of time it takes stock to be ordered, received, inspected and made ready for use. The longer the lead time the higher the minimum level of stock needed.
factors that influence inventory level
-demand
-stockpile goods
-the cost of holding inventors
-the amount of working capital available
-the type of inventory
-lead time
-external factors
What are buffer stocks?
Buffer stocks are essentially emergency stocks held in case of a stock shortage; a business may keep buffer stocks of finished goods in case there is an increase in demand. If businesses cannot meet with a surge in demand then they will miss out on sales opportunities.
Businesses that keep buffer stocks are those that likely experience sharp fluctuations in demand.
Some businesses need to hold buffer stocks of raw materials, this is to protect themselves in a break of supply, which could lead to a halt in production.
What are the implications of holding too much stock?
-Storage – Stocks of raw materials, components and finished goods occupy space in buildings. Some businesses may also have to pay heating, lighting and labour costs (such as security guards)
-Spoilage Costs- The quality of stock may deteriorate over time. If this is too happen they may not be able to be sold and need to be thrown away which increases costs as no revenue is made.
-Unsold Stock – unexpected reduction in demand the firm may be left with stocks that are unable to be sold.
-Administrative and financial costs – include the cost of placing and processing orders, handling costs
-Shrinkage – Very large stocks might result in a increase in theft by employees. They may feel the business will not miss the stock.
and the cost of failing.
-Opportunity Cost – Capital in stocks earns no rewards. Money which purchased stocks could of purchased new machinery.
What are the implications of holding too little stock?
-May not be able to cope up with unexpected increases in demand, this may lead to a loss of customers if they cannot supply regularly
-If stock is delayed during delivery, the business may run out of stock and have to stop production of the product. This can lead to idle labour and machinery
-The firm is less able to cope with unexpected shortages of materials. Again this could result in loss of production
-A firm which holds very low stocks may have to place more orders. This will raise total ordering costs. It might also miss out on discounts from bulk buying.
what is Just in Time management of stock?
-As the industry became more competitive shipbuilders insisted that steel suppliers deliver orders ‘just in time’.
-This reduced the need for high levels of working capital and improved the financial performance of the business
-when inventory isn’t held and products are made as they are ordered
-JIT was extended to all stages of production
Requires high levels of organizational skills and reliable suppliers.
What is waste minimization?
A failure to control stock adequately can result in wasted stock.
This is most likely to happen to perishable stock (stock that deteriorates after a certain amount of time e.g. food).
However, stock can be wasted if it has a limited life span and becomes obsolete after a certain amount of time. This may include newspapers, seasonal goods, and merchandise produced for specific events like a concert.
What are some ways to minimise waste?
-If goods are perishable they must be stored in refrigerated units to prolong the life, particularly in warm weather.
-Businesses have to be diligent when forecasting demand patterns for perishable goods. If they overestimate demand they could be left with a lot of unsold stock. Businesses may use complex quantitative techniques, historic data relating to demand and the shelf life of products to calculate this.
-The use of a stock rotation method e.g. the FIFO method (first in first out). This means the stock that was delivered first must be issued first. this means that the old inventory is used up first.
-The use of a computers to manage stock control.Computerised systems are programmed to automatically order stock when the re-order level is reached. In supermarkets, computerized checkout system record every item of stock purchased by customers and automatically subtract items from total stock levels.this is done in large businesses.
-Some large businesses might be able to use adjustable pricing strategies to help minimise waste e.g. if the sell-by-date is approaching prices might be reduced to encourage purchases.
-Perishable goods need to be transported rapidly. If transportation can be speeded up then goods will reach the market place more quickly and be available in a better condition. Some, goods like food and flowers are flown to customers to increase the speed of delivery.
-A business may find creative methods in the disposal of good that have passed their sell-by-date.
For Example. Food products might be given to charities or sold as animal feed, newspapers and magazines are likely to be recycled.
what techniques can be used to reduce the amount of resources used in production?
Kaizen
Cell production
Flexible manufacturing
Team working
Empowerment
Multi-skilling
What are the benefits to businesses who are lean producers?
Lean producers
-use less time,
- less stock
, fewer materials,
-less labour,
-less space and few suppliers.
- Lean producers have a competitive advantage because the reduction in waste and resource use will lower production costs. Specifically, competitiveness will be improved
What does lean production do?
-Raise productivity
-Reduce costs and cut lead times
-Lowers the number of defective products
-Improve reliability and speeds up design time
With these improvements business will be able to charge lower prices, offer better quality and reliability
