Operations Flashcards
Purpose of stock/ inventory management
To prevent overstocking
To prevent understocking
Purchasing mix (factors to consider for suppliers)
Cost of raw materials
Quality of raw materials
Lead time of delivery
Distance from supplier to customer
Reliability /reputation
Credit facilities
Quantity of raw materials
Overstocking consequences
Supplies go out of date
Supplies could go out of fashion
Increase risk of theft
Increased storage costs
Money tied up in capital
Consequences of understocking
Production may have to stop
Customers may not be able to purchase product
Lose economies of scale, increasing cost of raw materials
Inventory management diagram labels
X axis - time
Y axis - stock level
Maximum level - top line
Reorder level - middle line
Minimum level - lowest line
Gap between minimum and zero - buffer stock
Point where stock line meets reorder level - reorder line
Point where stock line meets minimum level - delivery time
Difference between min and max level - reorder quantity .
Lead time - the difference between the reorder time and delivery time .
Maximum inventory level
The level of stock in a business which is used to prevent the business form overstocking
Minimum inventory level
The level of stock used to prevent the business from understocking and running out of stock
Reorder level
The level of inventory where a new order is sent to supplier, to refill inventory before business hits the minimum inventory level.
Reorder time
Where a business sends a new order to a supplier.
Lead time
The time it takes for a supplier to deliver an order, after the order has been sent to them.
Computerised stock control
Where a business uses an electronic system, such as epos to ensure that the business doesn’t over or under stock.
Manual stock control
Where a business keeps track of their stock level using human labour, and someone has to count stock.
Advantages of computerised stock control
Inventory is always up to date
Automatic reordering
Managers can gather sales statistics to see how well products are performing, and make management decisions
More secure, deterring theft
Just in time
An alternative inventory management system where a business orders the raw materials for the business exactly when the raw materials are required.
Advantages of Just in time
No waste of raw materials
No money tied up in capital
Cuts out need for storage
Business is more responsive to external factors changing
Relationship with supplier is dependable (could be bad)
Disadvantages of JIT
Late deliveries stop production
Admin and order costs increase
If there is a surge in product demand the business won’t be able to respond
Economies of scales can’t be taken advantage of
Can be time consuming to constantly check quality of raw materials entering the business production chain.
Disadvantages of computerised stock control
If power is down stock system breaks down
High startup cost
Centralised storage definition
Where a business uses one large storage location to store stock, which delivers to all retail locations, and us typically purpose built.
Decentralised storage definition
Where a business uses multiple small storage locations to store stock, and each location will only deliver to one retailer or department.
Advantages of centralised storage
Suppliers deliver to one location -reduce admin costs
Store more stock - Economies of scale
Often located close to infrastructure -easily accessible
Greater uniformity over whole business, meaning business may be more efficient
Better security since security
is in one location.
Disadvantages of centralised storage
Increased waste for products which go out of date
It may take longer to get stock from storage to some retailers
Staff is specialised meaning they will need higher wages
Increased storage costs and cost of specialised equipment
Advantages of decentralised storage
No delays since stock is close at hand
Will respond better to local external pressures
Decrease waste - since less stock may go out of date.
Decreased cost of specialised equipment
Disadvantages of decentralised storage
Less security distributed amongst storage
Less specialised staff, meaning lower expertise
Less uniformity, decreasing business efficiency.
What do logistical managers do
They ensure there are the right materials, at the right location at the right time, for the lowest cost.
Methods of production
Job
Batch
Flow
Job production
Where a business manufactures a one off product one at a time, each product is unique and specifically customised to the order of the customer.
Advantages of job production
Customisable
May be seen as higher quality
Can charge a higher price
More motivated employees
No high startup cost
Disadvantages of job production
Higher cost of wages
Requires skilled staff, which may make training necessary
Human error
Less productive than other methods of production due to employee breaks
Slower
Batch production def
Where a business manufactures many different groups of products, products within all groups are identical, however groups have small variations.
Batch production advantage
Small customisability since batches can be adapted for customer requirements
Can be capital or labour intensive
May not need skilled workers
Batch production disadvantages
Employee mistakes can have a huge impact on whole groups of products
Employees can be idle in between batches
Equipment may need to be cleaned in between batches.
Flow production
Where a business manufactures the product on a capital intensive assembly line, which manufactures identical standardised products.
Advantages of flow production
Can take advantage of economies of scales
Products standardised/identical ensures quality
Products can be manufactured 24/7
Decrease wage costs.
Disadvantages of flow
Standardised so no customisation
High startup cost
Low employee motivation
Breakdown in equipment can stop production/ be costly
Capital intensive production
Producing products that primarily use machinery and equipment, which is typically flow production.
