productive efficiency - stock control

Question 1

explain what is meant by stock control?

Answer 1

the processes and controls used by a business to ensure that it has sufficient stock for its purpose

Question 2

what does stock control ensure?

Answer 2

customer demand is met without delay while keeping the costs associated with holding stock to a minimum

Question 3

what are the three types of stock control?

Answer 3

• raw materials
• work in progress
• finished goods

Question 4

what are raw materials?

Answer 4

materials used to make the goods

Question 5

what is work in progress?

Answer 5

partly-finished goods

Question 6

what are finished goods?

Answer 6

goods that are sent to customers

Question 7

what is maximum level on a stock control chart?

Answer 7

max level of stock a business can or wants to hold

Question 8

what is re-order level on a stock control chart?

Answer 8

acts as a trigger point, so that when stock falls to this level, the next supplier order is placed

Question 9

what is lead time on a stock control chart?

Answer 9

amount of time between placing and receiving an order

Question 10

what is minimum level on a stock control chart?

Answer 10

minimum amount of product the business would want to hold in stock (depends of sales, lead-time and the unknown)

Question 11

what is the economic order quantity?

(holding and ordering costs)

Answer 11

order quantity that minimises total inventory holding costs and ordering costs

Question 12

what is buffer stock?

Answer 12

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

Question 13

what does economic order quantity do?

(cost of holding stock and amount ordered)

Answer 13

tries to balance up the cost of holding stock with the amount that is ordered

Question 14

what factors affect when/how much stock to re-order?

Answer 14

• lead time from supplier
• implications of running out
• demand for the product

Question 15

how does lead time from supplier affect when/how much stock to re-order?

Answer 15

• how long it takes for the supplier to deliver the order
• higher lead times may require a higher re-order level

Question 16

how does implications of running out affect when/how much stock to re-order?

Answer 16

if stock-outs are very damaging, then they have a high re-order level and quantity

Question 17

how does demand for the product affect when/how much stock to re-order?

Answer 17

higher demand normally means higher re-order levels

Question 18

what are the benefits of holding stock?

Answer 18

• 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)

Question 19

what are the disadvantages of holding stock

Answer 19

• ⭐️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

Question 20

how to calculate the average stock levels?

Answer 20

average stock = (maximum stock level + minimum stock level)/2

Question 21

what is just in time?

Answer 21

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

Question 22

advantages of JIT?

Answer 22

• 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

Question 23

disadvantages of JIT?

Answer 23

• 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

Question 24

what is electric point of scale?

Answer 24

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