productive efficiency - stock control Flashcards
explain what is meant by stock control?
the processes and controls used by a business to ensure that it has sufficient stock for its purpose
what does stock control ensure?
customer demand is met without delay while keeping the costs associated with holding stock to a minimum
what are the three types of stock control?
- raw materials
- work in progress
- finished goods
what are raw materials?
materials used to make the goods
what is work in progress?
partly-finished goods
what are finished goods?
goods that are sent to customers
what is maximum level on a stock control chart?
max level of stock a business can or wants to hold
what is re-order level on a stock control chart?
acts as a trigger point, so that when stock falls to this level, the next supplier order is placed
what is lead time on a stock control chart?
amount of time between placing and receiving an order
what is minimum level on a stock control chart?
minimum amount of product the business would want to hold in stock (depends of sales, lead-time and the unknown)
what is the economic order quantity?
(holding and ordering costs)
order quantity that minimises total inventory holding costs and ordering costs
what is buffer stock?
an amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers
what does economic order quantity do?
(cost of holding stock and amount ordered)
tries to balance up the cost of holding stock with the amount that is ordered
what factors affect when/how much stock to re-order?
- lead time from supplier
- implications of running out
- demand for the product
how does lead time from supplier affect when/how much stock to re-order?
- how long it takes for the supplier to deliver the order
- higher lead times may require a higher re-order level
how does implications of running out affect when/how much stock to re-order?
if stock-outs are very damaging, then they have a high re-order level and quantity
how does demand for the product affect when/how much stock to re-order?
higher demand normally means higher re-order levels
what are the benefits of holding stock?
- meet demand ☞ regular amount
- fluctuations in demand ☞ if demand for a product increases, you have enough
- economies of scale ☞ lowering unit costs but not having to keep re-ordering
- buffer stock (links w/ economies of scale)
what are the disadvantages of holding stock
- ⭐️storage costs
- ⭐️opportunity costs ☞ paying for stock prevents the business from undertaking alternative expenditure
- ⭐️depreciation - product may become obsolete or be perishable
- security ☞ CCTV cameras, security guards
- administration ☞ checking stock arrival, raising orders, delivery
- insurance costs
how to calculate the average stock levels?
average stock = (maximum stock level + minimum stock level)/2
what is just in time?
when a business holds no stock and instead relies upon deliveries of raw materials and components to arrive exactly when they are needed
it orders the raw materials when an order is placed
advantages of JIT?
- reduction in storage space which saves rent and insurance costs
- less working capital is tied up in stock
- less likelihood of stock perishing
- avoid the build-up of unsold finished product that can occur with sudden changes in demand
- less time is spent on checking and reworking the product of others as the emphasis is on getting the work right first time (leads to stress for employees) but increases quality
disadvantages of JIT?
- there is little room for mistakes as minimal stock is kept for re-working faulty product
- production is very reliant on suppliers and if stock isn’t delivered on time, the whole production schedule can be delayed
- there is no space finished product available to meet unexpected orders, because all products are made to meet actual orders - however, JIT is a very responsive method of production
what is electric point of scale?
involves every product having a unique bar code number and information is sent to a computer via electronic data interchange (EDI) which will automatically reorder stock out at the required level
