inventory management Flashcards
benefits of overstocking
- overstocking allows the business to meet unexpected orders
- overstocking prevents stopping production
drawbacks of overstocking
- money tied up in stock could be invested elsewhere
- inventory can go out of fashion or spoil
benefits of understocking
- storage costs decreased
- less money tied up in stock
drawbacks of under-stocking
- production may be halted due to lack of materials
- customers who don’t receive orders on time will be dissatisfied
Maximum inventory level
the largest amount to be stored
Minimum inventory level:
the lowest amount to be stored
Lead time:
time taken between ordering and the inventory being delivered
Re-order quantity:
the amount of inventory ordered to restore levels to their maximum point
Re-order level:
the level of inventory at which new stock is ordered
Buffer inventory:
items held in case deliveries are held up or there is an unexpected large order
just in time inventory management
A Just in time (JIT) inventory control system means a business holds no stock and only receives raw materials and components when they are required for production.
potential benefits of Just in Time inventory management
- lower storage costs
- reduced wastage as less inventory is stored
- reduced risk from fashion changes in the market
potential drawbacks of Just in Time inventory management
- if inventory doesn’t arrive production may halt completely
- increased transport costs due to the number of deliveries
- may lose out on bulk buying
centralised storage
Centralised storage means that the inventory of the business is stored in a single location
benefits of centralised storage
- Inventory may be ordered in bulk leading to economies of scale and reduced unit costs.
- Suppliers are delivering to one location, so reduced delivery costs.
- No space is taken up in departments with storage.
drawbacks of centralised storage
- More time is taken to access inventory
- Additional staff to operate the warehouse increases costs.
- Cost of specialist equipment and storage facilities.
decentralised storage
Decentralised storage means each department in the organisation is responsible for ordering and storing its own inventory.
Advantages of Decentralised Storage
- Inventory is immediately available in departments, so there is no delay in receiving goods.
- Smaller amounts of inventory being held means less wastage and spoilage.
- Departments are more responsive to local needs and changes in the market.
Disadvantages of Decentralised Storage
- Increased delivery times due to low amounts being delivered to multiple locations.
- Increased transportation/delivery increased the carbon footprint of the business.
- Less specialist handling of inventory so lower efficiency in inventory handling and processing.
factors that would influence a manufacturer’s choice of a supplier
- price offered by the supplier
- location and transport costs
- lead time
- product quality
- discounts and trade credit
- ability to supply on time
supply chain management
Supply chain management (SCM) is the management of the flow of goods and services, from the start of production to the final purchase by the consumer.
Describe some of the factors a business must consider in order to ensure that its supply chain management is efficient.
- determining the best way to transport goods
- determine the best channel of distribution
- determine the most reliable supplier
- determine if specialist staff are required
