inventory management

Question 1

purpose of max inventory level

Answer 1

most amount of inventory held. setting this level avoids consequences of overstocking

Question 2

purpose of minimum inventory level

Answer 2

least amount of inventory that should be held at any one time. setting this avoids consequences of under stocking,

Question 3

purpose of re-order level

Answer 3

the level at which the inventory is reordered, in order to make sure that stock does not drop below the minimum level. Avoids running out of stock

Question 4

purpose of buffer inventory

Answer 4

this is extra inventory below the agreed minimum to be used in emergencies. This is to ensure that production doesn’t stop and sales continue to be made.

Question 5

purpose of the lead time

Answer 5

time taken between the order being places and the inventory arriving.A short lead time as possible allows the business to react to rush orders.

Question 6

describe JIT production

Answer 6

• method of stock control
• aims to keep costs to a minmum by cutting down on the level of inventory or work-in-progress
• stock arrives just in time for use in the production process
• reliable suppliers are crtical
• goods are manufactured only when customer orders are recieved

Question 7

benefits of JIT

Answer 7

• less finance tied up in stock (reduces potential cashflow problem)
• less storage and warehouse space is required (lower costs)
• wastage and/or damaged inventory is reduced (cost savings leading to higher profits)
• organisations can be more flexible and adapt to changes in tastes or fashion (competitive edge)
• reduced theft as inventory is easy to monitor

Question 8

costs of JIT

Answer 8

• A breakdown in deliveries or technology can have a negative impact on the organisation’s reputation (fall in sales and market share)
• Bulk buy discounts cannot be taken advantages of (higher costs of production leading to a higher selling price)
• Increased administrative and delivery costs due to repeated ordering
• Time consuming to constantly check each delivery for quality for allowing materials to be used in production (lower productivity rates)
• No room for error in production
• Requires excellent relationships with suppliers to work effectively, which can take time to develop
• Dependent on reliable suppliers however if inventory does not arrive then production will halt

Question 9

centralised storage

advantages

Answer 9

• Cheaper for a supplier to deliver to one location
• Bulk purchasing allows for economies of scale/reduced costs/ discounts
• Reduces costly duplication of administration/storage facilities
• Items can be found quicker as they are in one place
• Specialist staff are employed to maintain inventory, which improves the speed of inventory handling and security

Question 10

centralised storage

disadvantages

Answer 10

• Inventory has to be delivered to each department causing delays
• Specialist staff needed this increases wage costs
• Specialist equipment needs to be purchased and maintained
• Inventory usage levels and needs are unclear as departments need to communicate with the warehouse

Question 11

decentralised storage

advantages

Answer 11

• Inventory is always close at hand when needed for production or to sell to customers
• Inventory usage reflects production as it is stored in factories or retail outlets
• Smaller amounts of inventory result in no negative consequences of overstocking
• Smaller more local warehouses are more responsive to local needs

Question 12

decentralised storage

disadvantages

Answer 12

• Can lead to wastage or theft of inventory a security isn’t as good as it is in centralised storage
• Lack of specialist staff can lead to inventory control being inefficient
• Each department may handle inventory differently, leading to inconsistency problems
• Smaller amounts of inventory result in negative consequences of understocking

Question 13

centralised storage meaning

Answer 13

storing the inventory in one central location

Question 14

decentralised storage meaning

Answer 14

storing the inventory in many locations

Question 15

management of inventory

logistics

Answer 15

• Logistic management of inventory refers to the process of dealing with an entire order from start to finish
  Logistic managers will be responsible for the following process*

Inventory - liaising with suppliers that provide materials for production, partly or completely finished goods
Storage & warehousing - ensuring the appropriate storage of inventory including sending inventory to production departments if required
**Order processing **- dealing with orders from customers to ensure they receive the correct products