Management of Operations : Inventory Mangement

Question 1

Problems of overstocking

Answer 1

A good amount of money can be tied up as stock is an expensive piece of item.

Stock could get stolen

If social factors change then stalk may go to waste.

Question 2

Problems of understocking

Answer 2

The business may not be able to cope with unexpected orders if the stock is low. This can upset customers and lead them onto other businesses.

If there are not enough stock then production may be stopped - Machinery will be idle and sales may be lost.

The firm may have to place orders more often - this causes high administration cost and the buisness may lose out on discounts for bulk buying

Question 3

Advantages and Disadvantages of Centralised Storage

Answer 3

Security is easier to set up and maintain
Procedures such as receiving, Issuing and distributing is easier to Manage

Disadvantages:
Expensive to set up and maintain
Time may be wasted going to and from the storage space.

Question 4

Advantages and Disadvantages of decentralised storage

Answer 4

Stock can be accessed and easily obtained when required
Less chance of stock going to waste or deteriorating.

Disadvantages:
Storage space is required in many locations
Risk of theft is higher as security is harder to maintain.

Question 5

Just in time production

Answer 5

This is a method of stock control using technology which involves getting stock to arrive before they are needed for the production process. This can improve cash flow as a large amount of money is not ties up as stock. It reduces waste as stock does not deteriorate and cuts down on warehousing costs.However, JIT requires very reliable suppliers.