Operations- Stock Management

Question 1

What is stock?

Answer 1

The materials held by the business that it needs to produce the final product for the customer

Question 2

What is the purpose of stock control systems? (4 reasons)

Answer 2

To anticipate running out of stock before it happens
To ensure that customer orders are not delayed through lack of stock
To minimise the amount of money tied up in stock which could be used more profitably elsewhere in the business
To minimise the chance of stock becoming obsolete

Question 3

Describe economic/ maximum level on a stock control diagram

Answer 3

The highest level of stock that should be held to minimise costs, bearing in mind storage space and finance available

Question 4

Describe minimum stock level on a stock control diagram

Answer 4

The level that stock should not fall below in order to avoid shortages

Question 5

Describe the reorder level on a stock control diagram

Answer 5

The level at which stock should be reordered taking into account usage and lead times

Question 6

Describe lead time on a stock control diagram

Answer 6

The time between ordering new stock and its arrival

Question 7

Give 4 problems with understocking

Answer 7

The business may run out of stock and have nothing to sell, or may have to stop production
Customers have to go elsewhere to buy
Customers may stop coming all together
Unable to take advantage of bulk buying discounts

(All these lead to a loss of sales and profits)

Question 8

Give 4 problems with over stocking

Answer 8

Money tied up in stock could be used elsewhere
May cause cash flow problems
Increased risk of theft
Changes in demand mean that it could go to waste

Question 9

Describe the Just in Time (JIT) stock management method

Answer 9

It limits the amount of stock held by the organisation to near zero.
The stock is held by the supplier and is only brought to the factory as and when needed.
This is a popular method of operation for mass manufacturers.
It works best if there is a very close relationship between the manufacturer and their suppliers

Question 10

Give 4 advantages of JIT

Answer 10

Reduces storage costs as stock is delivered as it is needed
The organisation is more responsive to consumer demand
Improves cash flow
There is less warehouse space needed for stock

Question 11

Give 4 disadvantages of JIT

Answer 11

Organisations can lose out on bulk- buying discounts
Relies heavily on suppliers cooperation in delivering stock when it’s needed
Can result in high admin and delivery costs as there are many small deliveries
The organisation may be unable to meet sudden increases in demand

Question 12

What is electronic stock management?

Answer 12

It uses bar codes to allow all stock to be tracked electronically from the moment it arrives with the manufacturer until it is delivered to the customer.

Question 13

Name 3 benefits that electronic stock management brings to the organisation

Answer 13

It provided managers with instant up to date information on stock
There is a reduction in instances of human error
It alerts management to theft of stock

Question 14

What is centralised stock control?

Answer 14

The stock is held in a central store making it secure, with specialist staff to check and issue stock

Question 15

Give 3 advantages of centralised stock control

Answer 15

Storage costs can be better controlled
Fewer smaller purchases are necessary
It can reduce costs as bulk purchasing uses economies of scale

Question 16

Give 3 disadvantages of centralised stock control

Answer 16

Time delays between ordering and receiving the stock
If large amounts are held there is an increased likelihood of waste
The cost of creating an area for storage

Question 17

What is decentralised stock control?

Answer 17

When stock is held at various locations within the organisation

Question 18

Give 3 facts about de-centralised stock control

Answer 18

Allows for better decisions to be made about what stock to buy and how much to order
Makes sure that stock is always available for production
Can be more expensive

Question 19

What is warehousing?

Answer 19

When companies make use of warehouse facilities to bulk store their goods.
This space my be owned by the company, leased or rented.

Question 20

Give 3 advantages of warehousing

Answer 20

Large amounts of stock can be securely stored which can reduce theft
Allows for stockpiling in advance of periods of high demand so that sales will not be lost
May allow easier access resulting in more efficient delivery, as fewer runs may be needed saving expense on fuel

Question 21

Give 3 disadvantages of warehousing

Answer 21

Expensive due to overhead/ security costs
May be located in a rural area due to land costs
Fire/ flood/ contamination can affect the entire stock reserve