Purchasing and Inventory control Flashcards
What is stock
Inventory = raw materials, work-in-progress and finished goods held by a firm to enable production and meet customer demand
What are the types of stock
Raw materials, work in progress, finished goods
Why do businesses hold stock
- Raw materials so manufacturing can be completed
- Finished goods to ensure timely delivery
What are the key reasons to hold stock
- Enable production
- Precaution against supplier delays
- Efficient production
- Seasonal adjustments
- Production process buffer
What are some of the influences on how much stock should be held
- volatility of demand
- Avoid opportunity cost of excess
- Reduce risk of obsolescence
- cost of storage
What are the costs of holding inventories
- Rent and utilities for storage
- Capital tied up (interest rates)
- Obsolescence risk
What are the advantages of high and low inventory levels
Low:
- Lower costs
- Lower obsolescence risk
- Less capital tied up
High:
- Fully supplied production
- Economies of scale
- Flexible to demand
- Less chance of stockouts
What is the buffer stock
Amount of inventory held in case of delays
What is reorder level
Stock level at which more inventory is reordered
What is lead time
Time between ordering and receiving stock
What are some of the factors affecting inventory reorder levels
- Lead time from supplier
- Stock out risk
- volatility of Demand for product
- Time frame for obscelecense
