2.4.3

• What is a stock control diagram?

  • A stock control diagram illustrates the flow of stock (inventory) into and out of business over time.
• The maximum stock level is the maximum amount of stock a business is able to hold in normal circumstances.
• The reorder level is the level at which a business places a new order with its supplier.
• The minimum stock level is also known as the buffer stock level and is the lowest level to which a business is willing to allow stock levels to fall.
• The lead time is the length of time from the point of stock being ordered from the supplier to it being delivered.
• • The stock level line shows how stock levels change over the given time period
  • As stock is used up a downwards slope is plotted
  • When an order is delivered by a supplier the stock level line shoots upwards
• What is buffer stocks?

  A quantity of goods or raw materials that are kept in case of stock shortages.
• • Buffer stocks can provide a  competitive edge  over rivals unable to meet demand.
• How does buffer stocks provide stability in supply?

  • Stability in supply - Buffer stocks ensure that a business has stock to respond to unexpected demand.
• How does buffer stocks provide competitive advantage?

  • A reliable supply of goods = business gains reputation for being able to meet customer needs.
• How does buffer stock provide price stabilisation?

  • Helps prevent extreme price fluctuations as it helps market to avoid shortages which would result in rapid price increases.
• How does buffer stock provide raw material security

  • Stock of raw materials mean that business depends on particular raw materials avoid disruption to their supply.
• Disadvantage of buffer stocks

  • Costs - Expensive as it requires storage facilities & inventory management systems.
  • Risk of obsolescence - products become obsolete if demand rapidly declines.
  • Opportunity costs - BS ties up capital that would be invested in other areas of business.
• Problems of holding too much stock

  • Storage costs (e.g. warehouse rental, security costs) will be higher than necessary.
  • The risk of spoilage and stock shrinkage will be increased, leading to increased costs.
• Problems of holding too little stock

  • May run out of stock = production stoppages & higher unit costs related to underused capacity.
  • Rapid increase in demand may not be capable of being met = a loss of potential sales revenue.
• What is JIT stock management

  • Just in Time (JIT) stock management is a process in which raw materials are not stored onsite
  • Stock is ordered as required, and delivered by suppliers 'just in time' for production.
• • Careful coordination is needed to ensure that raw materials and components are delivered by suppliers at the moment that they are to be used.
• Advantages of JIT

  • Stockholding costs/ storage costs are minimised.
  • Close working relationships are developed with a small number of trusted suppliers.
  • Cash flow is improved as money is not tied up in stocks.
  • Unused storage space is available for productive use.
  • Teamwork is encouraged = employee motivation is likely to be improved.
• Disadvantages of JIT

  • Bulk buying economies of scale  may not be possible.
  • Ability to respond to unexpected increases in demand is reduced.
  • Administrative costs related to frequent ordering are increased.
  • Unreliable suppliers (e.g. late or poor quality deliveries) can quickly halt production.
  • Significant changes to organisational structure  and production controls are required.
• How does waste occur in a business?

  • Stock becomes obsolete unless used by a particular date
  • Perishable stock (food and medicines) that is not used before they deteriorate will need to be thrown away
  • Stock may be damaged as a result of poor storage conditions and may not be suitable for use in the production process
• • Allowing waste to go unchecked will increase the unit costs of production and reduce both efficiency and productivity
• Minimisation of waste will depend upon nature of product. For perishable items, refrigeration & careful stock rotation can reduce waste.
• Effective sales forecasting can help reduce wasted stock.
• Competitive advantage from lean production

  • Less time required as production is organised efficiently.
  • Fewer materials used due to focus on waste reduction.
  • Less labour - lean production= capital intensive.
  • Space required for production is reduced due to JIT.
  • Small no of trusted suppliers work closely with business.
• Lean production involves the minimisation of resources used in production.
• Lower unit costs through waste minimisation = prices will be lower than offered by competitors.
• Better quality of output is a result of supplier reliability & carefully managed production process.
• Staff training & computer inventory management systems may reduce waste as there are fewer errors.
• Ways to minimise waste - storage

  • Refrigeration & protection from damage.
  • Effective security.
  • Careful stock rotation.
• Ways to minimise waste - planning

  • Diligent forecasting.
  • Staff training.
  • Computer stock control.
• Ways to minimise waste - sales tactics

  • Reduce prices to encourage purchase.
  • Alternative uses for obsolete stock.
• In a JIT System, a business holds no buffer stock.