inventory management

Question 1

benefits of overstocking

Answer 1

• overstocking allows the business to meet unexpected orders
• overstocking prevents stopping production

Question 2

drawbacks of overstocking

Answer 2

• money tied up in stock could be invested elsewhere
• inventory can go out of fashion or spoil

Question 3

benefits of understocking

Answer 3

• storage costs decreased
• less money tied up in stock

Question 4

drawbacks of under-stocking

Answer 4

• production may be halted due to lack of materials
• customers who don’t receive orders on time will be dissatisfied

Question 5

Maximum inventory level

Answer 5

the largest amount to be stored

Question 6

Minimum inventory level:

Answer 6

the lowest amount to be stored

Question 7

Lead time:

Answer 7

time taken between ordering and the inventory being delivered

Question 8

Re-order quantity:

Answer 8

the amount of inventory ordered to restore levels to their maximum point

Question 9

Re-order level:

Answer 9

the level of inventory at which new stock is ordered

Question 10

Buffer inventory:

Answer 10

items held in case deliveries are held up or there is an unexpected large order

Question 11

just in time inventory management

Answer 11

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.

Question 12

potential benefits of Just in Time inventory management

Answer 12

• lower storage costs
• reduced wastage as less inventory is stored
• reduced risk from fashion changes in the market

Question 13

potential drawbacks of Just in Time inventory management

Answer 13

• if inventory doesn’t arrive production may halt completely
• increased transport costs due to the number of deliveries
• may lose out on bulk buying

Question 14

centralised storage

Answer 14

Centralised storage means that the inventory of the business is stored in a single location

Question 15

benefits of centralised storage

Answer 15

• 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.

Question 16

drawbacks of centralised storage

Answer 16

• More time is taken to access inventory
• Additional staff to operate the warehouse increases costs.
• Cost of specialist equipment and storage facilities.

Question 17

decentralised storage

Answer 17

Decentralised storage means each department in the organisation is responsible for ordering and storing its own inventory.

Question 18

Advantages of Decentralised Storage

Answer 18

• 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.

Question 19

Disadvantages of Decentralised Storage

Answer 19

• 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.

Question 20

factors that would influence a manufacturer’s choice of a supplier

Answer 20

• price offered by the supplier
• location and transport costs
• lead time
• product quality
• discounts and trade credit
• ability to supply on time

Question 21

supply chain management

Answer 21

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.

Question 22

Describe some of the factors a business must consider in order to ensure that its supply chain management is efficient.

Answer 22

• determining the best way to transport goods
• determine the best channel of distribution
• determine the most reliable supplier
• determine if specialist staff are required