UNIT 4. Chapter 22: Inventory management Flashcards

1
Q

Def. Stock (Inventory)

A

Materials and goods required to allow for the production and supply of products to the customer.

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2
Q

What are the three forms of stock held?

A
  • Raw materials and components
  • Work in progress: Stock being converted from raw materials to finished goods
  • Finished goods
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3
Q

Why is stock management crucial?

A

To avoid:
• Insufficient stock to meet unforeseen changes in demand
• Out of date stock
• Stock wastage from mishandling stock
• Very high stock level which will result in excessive storage cost and high opportunity cost
• Late deliveries and too large or small deliveries

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4
Q

What are the stock holding costs?

A
  • Opportunity cost
  • Storage costs
  • Risk of wastage and obsolescences
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5
Q

What are the costs of not holding enough stock

A
  • Lost sales
  • Idle production resources
  • Special orders could be expensive e.g. urgent orders
  • Small order quantities
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6
Q

Def. Economic order quantity

A

The optimum or least-cost quantity of tock to re-order taking into account delivery costs and stock holding costs.

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7
Q

What are the variables (and their definitions) for a graphical approach of controlling stock levels? (5)

A

• Buffer stock: The minimum stocks that should be held to ensure that production could still take place should a delay in delivery occur or should production rates increase
• Maximum stock level: Limited by space or by financial costs of holding even higher stock levels.
• Re-order quantity: the number of units ordered each time, influenced by economic order quantity.
• Lead time: The normal time taken between ordering new stocks and their delivery.
• Re-order stock level: Level of stock that will trigger a new oder to be sent to the supplier.
The graph: book pg. 422

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8
Q

Def. JIT

A

Just in time: This stock-control method aims to avoid holding stocks by requiring supplies to arrive just as they are needed in production, and completed products are produced to order.

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9
Q

What are the requirement for JIT to work? (7)

A
  • The relationships between suppliers have to be excellent
  • Production staff must the multi-skilled and prepared to change jobs at short notices
  • Equipment and machinery much be flexible
  • Accurate demand forecasts
  • The latest IT equipment
  • Excellent employee-employer relationship
  • Quality must be made everyone’s priority
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10
Q

Advantages of JIT (4)

A
  • Capital (for inventory) and opportunity costs, storage costs (from stock holding) are reduced
  • Reduced risks of outdated or damaged inventory
  • Quicker response time for consumer demands
  • Motivation for employees due to range of work
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11
Q

Disadvantages of JIT (2)

A
  • Any failures like worker strikes or transport problems may lead to expensive production delays
  • Increase in delivery costs due to need to small deliveries (no purchasing economies of scale).
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12
Q

What is JIC?

A

Just in case - holding a lot of inventory in preparation of any malfunctions in the production system.

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