Resource Management 2.4 Flashcards
What is stock?
Raw materials, work-in-progress and finished goods held by a firm to enable production + meet customer demand
What are the 3 main categories of stock?
- Raw material & components
- Work in progress
- Finished goods
What is raw materials & components stock?
- Bought from suppliers
- Used in production process
What is work in progress stock?
Semi/ part finished production
What is finished goods stock?
Completed products ready for dale/ distribution
What are 6 reasons why businesses will hold stock?
- Enable production to take place
- Satisfy customer demand
- Precaution against delays from suppliers
- Allow efficient production
- Allow for seasonal changes
- Provide buffer between production processes
Why is stock management and control important?
Stock outs or having the wrong stock can lead to significant damage to the business
What are the 3 main influences on the quantity of stock held?
- Need to satisfy demand
- Need to manage working capital
- Risk of stock losing value
What 4 costs need to be accounted for when holding stock?
- Cost of storage
- Interest costs
- Obsolescence risk
- Stock out costs
What is the cost of storage?
More stock requires large storage space + extra employees/ equipment to control/ handle them
What are interest costs for stock?
Holding stock means typing up capital on which the business may be paying interest
What is obsolescence risk?
Longer stock held, greater the risk that they will become obsolete (unusable)
What are stock out costs?
Happens if business runs out of stock
- Lost sales & customer goodwill
- Cost of production stoppages/ delays
- Extra costs of urgent, replacement orders
What is the maximum level on a stock control chart?
Max level of stock a business can/ wants to hold
What is the re-order level on a stock control chart?
Know that when stock falls to this level, the next supplier order should be placed
What is the lead time on a stock control chart?
Amount of time between placing the order + receiving the stock
What is the minimum stock level on a stock control chart?
Minimum amount of product the business would want to hold in stock
What is buffer stock on a stock control chart?
Amount of stock held as a contingency in case of unexpected orders, so orders can be met
On a stock control diagram, what do the vertical gaps mean?
Quantity of stock
On a stock control diagram, what do the horizontal distances mean?
Times
What considerations are required in deciding when and how much stock should be re-ordered?
- Lead-time from suppliers
- Implications of running out (stock-outs)
- Demand for the product
What are the benefits of holding low stock levels?
- Lower stock holding costs
- Lower risk of stock obsolescence
- Less capital tied up in working capital
- Consistent with operating ‘lean’
What are the benefits of holding high stock levels?
- Production fully supplied
- Potential for low unit costs if ordering in bulk
- Better able to handle unexpected changed in demand
- Less likelihood of ‘stock-out’
What is lean production?
An approach to management that focuses on cutting waste, whilst ensuring quality
