Inventory

• Stocks


  The raw materials, work in progress, and finished products that enable production to be scheduled and operated or for a retailer to meet customer demand
• Types of stock


  • Raw materials and components
  • Work in progress
  • Finished goods
• Raw materials and components


  • Go into the production process
• Work in progress


  • Non-finished or unfinished stock, e.g. construction, production line items
• Finished goods


  • Goods ready to sell
• Buffer


  The need for stock to ensure there is no stock-out or delay in production
• Costs of holding stock

  • Storage costs (warehousing, employees, equipment)
  • Interest/finance costs
  • Obsolescence risk
  • Stock-out costs
• Stocks and inventories mean the same thing
• Stock


  • Raw materials and components
  • Work in progress
  • Finished goods
• Stock control chart


  Particularly useful for raw materials and components, and finished goods
• Objective of stock control

  • Maintain stock so that the total cost of holding stock are minimized
• Stock control chart construction

  1. Y-axis shows units of stock held

  2. X-axis shows elapsed time in weeks
• Maximum stock level


  The maximum amount of stock a business can hold
• Minimum stock level


  The minimum amount of stock a business wants to hold (buffer stock)
• Reorder level


  The point at which the stock control system automatically places an order with the supplier
• Lead time


  The time between the supplier receiving the order and delivering the stock
• High lead time or uncertain lead times


  Suggests setting a higher reorder level
• Implications of running out of stock are very damaging


  Suggests setting a higher reorder level
• Unpredictable demand


  Influences how much stock is reordered
• Advantages of holding low minimum stock levels

  • Reduces stock holding costs
  • Reduces risk of stock becoming obsolete
  • Consistent with lean production
• Advantages of holding high minimum stock levels

  • Better able to handle unexpectedly strong demand
  • Reduces risk of stock outs