Purchasing Flashcards
purchasing
effective stock management, whether it is of raw materials, work in progress or of finished goods
key aspects of effective stock management
•businesses must ensure that stock is available for use within the manufacturing process as and when it’s needed
•part-finished goods don’t sit around unused and losing value: they are brought to the next stage as soon as possible
•finished goods are available for timely delivery to customers and aren’t made before customers are found for them
re-order level
the level of stock at which a new order is placed
re-order quantity
the quantity ordered in order to return the stockholders to maximum level- measured by the difference betweenbthe maximum and minimum stock holding levels
lead time
the amount of time that elapses between placing an order and the delivery of that order
buffer stock
the amount of stock held between the minimum stock holding and zero stock- used in case of late deliveries or extra orders
computerised stock control
stock details held on computer databases and when the quantity of stock changes the database is updated regularly and allows for accurate stock checks and the automatic reordering of stock if the level falls below the reorder level
JIT manufacturing system
designed to minimise the costs of holding stocks of raw materials, components, work in progress and finished goods- materials are delivered shortly after they are required and when orders have been placed and go straight onto the production line; virtually no stock is stored on site
Key requirements for JIT to operate effectively
•very efficient ordering system
•reliable suppliers
•well-trained workforce that can be trusted and are willing to work in teams
•a cooperative culture where managers encourage employees to achieve their goals flexibly
Problems of JIT
•ordering and administration costs are likely to rise
•advantages of bulk buying may be lost
•suppliers who don’t deliver on time can bring the whole production line to a halt, leading to a bad reputation if customers don’t receive their goods on time
Systems for effective stock management
•effective relationships with suppliers and customers
•effective internal relationships- each team within the production process treats the next as its customer
outcomes of effective stock control
•assess the performance of products
•monitor and limit shrinkage
•maintain stock in good condition
•monitor customer preferences
•maintain stock security
advantages of effective stock management
•reduction in working capital which frees money for investment and improves liquidity
•improved relationships with customers- helping to guarantee ongoing orders
•freeing of storage space
•less stock wastage and discounting- smaller buffer stocks and suppliers of finished goods means stock is less likely to be damaged or out of date/ fashion
•easier stock rotation- older stock is used before newer stock
consequences of not having enough stock
•production will have to cease and production schedules reorganised
•employees have to be laid off and sent home
•orders may be late and the firm’s reputation may be damaged
•orders may be cancelled and profits may fall
consequences of holding too much stock
•high costs- storage, insurance, security, staff wages
•takes up space that could be more productively used
•opportunity cost- money is tied up and could be more effectively used elsewhere
•could be left with stocks if they cannot be sold due to unexpected change in demand
•stock may become obsolete if superseded by newer, better product
•stocks can be damaged
•health and safety issues
