Stock Control

Question 1

3 types of stock

Answer 1

Raw materials, work-in-progress, finished goods

Question 2

Raw materials as stock

Answer 2

theses are the stock that the business has purchased from other suppliers
it is held by firm until it is ready to process them into finished output

Question 3

Work-in-progress as stock

Answer 3

At any given moment a firm will have some items it has started to process but are incomplete

• may be currently moving through production process
• may be that the firm stores unfinished goods to have some flexibility to meet customer demand

Question 4

Finished goods as stock

Answer 4

Once a product is complete, the firm may hold it

- may be it sells goods in large batches or no buyer has bought product yet

Question 5

Why do some business stock-pile?

Answer 5

A firm that produces seasonal goods will have most of the years production building stock in preparation for the busy season

Question 6

If a firm holds high level of stock…

Answer 6

Costs increase

Question 7

Stock level line - what does it show?

Answer 7

This shows how stock levels have changed over this time period.
As stock is up, the level of stock gradually falls from left to right

Question 8

What does the maximum stock level line show?

Answer 8

The amount that a firm is willing or able to hold in stock

Question 9

What does the re-order level line show?

Answer 9

The amount that when stock fall to this level, a new order will be sent to the supplier
The re-order line is reached some time before the delivery due to the lead time to process the order and make the delivery.

Question 10

What is the minimum stock level?

Answer 10

The level of stock that the firm wants to keep so it has something to fall back on if suppliers fail to arrive or if there is a sudden increase in demand

Question 11

Why aren’t stock level graphs always accurate?

Answer 11

Orders may arrive late
Orders may not be the right quantity
The rate of demand and sales in unlikely to be constant

Question 12

What are the implications of poor stock control? (holding too much)

Answer 12

Too much stock
Cash flow problems 
Increased storage costs 
Increased finance costs 
Increased stock wastage

Question 13

What are the implications of poor stock control? (holding too much)- cash flow problems

Answer 13

There is an opportunity cost of holding too much stock. Holding the firms money/wealth in stock prevents it using capital in other ways such as investing in new technology, research and development on a new product which could effect the competitiveness of the business

Question 14

What are the implications of poor stock control? (holding too much) - Cash flow problems

Answer 14

Holding wealth in the form of stock may cause cash flow problems if they can’t sell, insufficient working capital to pay suppliers

Question 15

What are the implications of poor stock control? (holding too much) - Increased storage costs

Answer 15

Rental costs of the space is needed and the higher the stock value, the higher the cost of insurance against fire and theft

Question 16

What are the implications of poor stock control? (holding too much) - increased finance costs

Answer 16

If the capital for the extra stock needs to be borrowed, the cost of that capital (interest rate) will be a significant added annual overhead

Question 17

What are the implications of poor stock control? (holding too much) - Increased stock wastage

Answer 17

The more stock that is held, the greater the risk of it going out of date - obsolete

Question 18

How do you boost cash by destocking?

Answer 18

Cut order supplies or boost sales to customers

Question 19

How does destocking boost cash - cut order supplies?

Answer 19

Cut order supplies - cash outflows decrease - net cash flow improves

Question 20

How does destocking boost cash? - boost sales to customers

Answer 20

Boost sales to customers - cash flow increases - net cash flow improves

Question 21

What are the costs of holding too little stock?

Answer 21

Lost orders
worker downtime
loss of reputation

Question 22

What are the costs of holding too little stock? - Lost orders

Answer 22

urgent customer orders may not be met because there is too little finished stock