Supply Chains and Inventory

• Supply Chains

  All of the resource providers throughout every stage of operations
• Suppliers

  Those responsible for providing resources to businesses
• Inventory

  The number of goods held in stock including raw materials, work in progress and finished goods
• Ways to Manage Inventory and Supply Chains

  1. Flexibility

  2. Just in time operations

  3. Technology to quickly change reorder levels
• Flexibility is the ability for a firm to respond to change
• Mass Customization

  The ability to tailor goods made in bulk to meet the requirements of individual consumers
• Managing Inventory and Supply Chain Depends Upon

  • Speed of response
  • Dependability
• Speed of response allows

  • To meet customer needs within a set time period
  • Ability to make changes to products to reflect changing consumer tastes
• Dependability

  A business operating a JIT system will be reliant on suppliers to deliver the right quantity and quality on time to ensure supply meets demand
• Ways to manage supply matching demand

  1. Outsourcing

  2. Use of temporary and part time employees

  3. Producing to order
• Outsourcing

  The practice of using the services of other organisations to complete all or parts of the manufacturing processes
• Value of outsourcing

  • Provides flexibility in supply
  • Can increase capacity without high capital expenditure
  • Can buy expertise
• Quality must be maintained when outsourcing
• Temporary employees

  Contracted to work for a business for a specified period of time
• Part time employees

  Contracted to work less than a full time employee
• Benefits of using temporary and part time workers

  • Flexible workforce
  • Better able to match supply to demand
  • Not tied into paying workers when they are not being used to their full potential
• Recruitment and training costs may be high and may not be seen as value for money when using temporary and part time workers
• Producing to order

  Supply is only triggered by specific demand
• Influences on the amount of stock held

  • The businesses attitude to risk
  • The importance of speed of response as an operational objective
  • Speed of change within the market
  • Nature of the product (Eg. Perishable or long lasting)
• Inventory Control Charts

  A management tool used to control and monitor the flow of stock
• Inventory Control Charts

  • Visual representation of lead time, reorder level, buffer level of inventory, re-order quantities
• Lead time

  Time it takes between placing an order and receiving the delivery
• The greater the lead time the higher minimum inventory level
• Reorder level

  The level of inventory which triggers an order, this may be done automatically by a computerised system
• Reorder level is determined by the lead time and the minimum inventory level
• Buffer level of inventory

  Stock held by a business to cope with unforeseen circumstances
• When a business reaches minimum inventory level it is left just with buffer inventory
• JIT businesses will have no buffer inventory
• Re-order Quantities

  The point at which an order for new inventory is placed
• Re-order Quantities are dependant on buffer level of inventory and lead time
• Advantages of holding buffer stock

  • Can meet customer demand
  • Quickly respond to increases in demand
  • Continue with production even if there are issues with stock deliveries
• Disadvantages of holding buffer stock

  • Money tied up in holding stock
  • Costs associated with stock holding (Eg. Storage, staff, insurance)
  • Risk of waste (Eg. Out of date, damaged stock)
• Influences on choice of suppliers

  • Price
  • Quality
  • Payment terms
  • Reliability
  • Flexibility
  • Capacity
• Price

  • Keep unit costs low
  • Can either pass on saving to consumer in form of lower prices or enjoy higher profit margins
• Businesses must be careful that lower prices don't equal sub-standard quality
• Payment terms

  • In advance
  • Upon delivery
  • Pre-agreed credit terms (Eg. 30 days)
  • Payment plan (Eg. Payment in stages)
• Payment terms

  A business may wish to choose a supplier with generous payment terms in order to help their cash flow
• Flexibility allows firms to meet a sudden increase or decrease in demand
• Producing to order requires high levels of flexibility
• Producing to order benefit; Cash is not tied up in holding inventory