4.5 - Managing inventory and supply chains

• Stock


  The raw materials needed for making a product, the materials that are currently being used for products-in-progress and the store of finished goods that a firm holds to supply to customers
• Firms don't tend to hold much stock because of the costs involved
• Storage costs


  • Rent for the warehouse
  • Heating, lighting, refrigeration, security etc.
• Wastage costs


  • Costs of throwing away useless stock
  • Stock gets physically damaged as time goes on
  • Stock can go out of fashion
• Opportunity cost


  • Cost of investing money in stock instead of something else
  • Capital tied up in stock is unproductive and could be used more productively elsewhere
• Stock Control aims to keep levels of stock Just Right
• Most businesses try to minimise the level of stock they're holding
• Maximum level of stock


  • Depends on the size of their warehouses
  • Depends on their production method
  • Depends on opportunity cost
• Flow production


  • Needs a large stock of raw materials
• Batch production


  • Leads to large stocks of work-in-progress
• Job production


  • Often means there is no stock of finished goods to be stored
• Cell production


  • Usually relies on just-in-time stock control
• Buffer stock


  Minimum level of stock so that a business won't run out of raw materials or finished goods
• Amount of buffer stock needed


  • Depends on the storage space available
  • Depends on the kind of product (perishable, or something that keeps)
  • Depends on the rate at which stocks are used up
  • Depends on the lead time
• Lead time


  The time it takes for goods to arrive after ordering them from the supplier
• The longer the lead time, the more buffer stocks you need to hold
• Re-order quantity


  The amount the company orders from its supplier
• Re-order level


  The stock level at which the re-order is placed
• Inventory control charts


  Allow managers to analyse and control stock over a period of time
• Businesses need to have


  • Flexible supply chains
  • Dependable supply chains
• Supply chain


  1. Provider of raw materials

  2. Manufacturers

  3. Distributors

  4. Retailers
• All the members of the supply chain need to be dependable
• Flexible


  Businesses need to be flexible on the time taken to supply goods and the volume of goods they supply
• Flexible workforce


  • Utilise outsourcing to help manage sudden changes in demand
• A supplier that can offer faster response times than its competitors is more likely to gain the contract
• Businesses need to match supply to demand
• Core workers


  Employees who are essential to a business, like senior managers and skilled workers, employed on full-time, permanent contracts
• Peripheral workers


  Employees who aren't essential to a business, employed on temporary, part-time or zero-hours contracts
• Peripheral workers


  • Help a business deal with unforeseen or foreseen increases in demand
• Outsourcing


  Businesses contract out some activities to other businesses rather than doing them in-house
• Benefits of outsourcing


  • Businesses can accept contracts they would otherwise have turned down
  • Benefit from the specialised knowledge of the businesses they outsource to
  • Reduces costs by not having to pay for permanent staff when only needed occasionally
• Disadvantage of outsourcing


  • Business doesn't have control over the quality of the outsourced work
• Mass customisation


  Producing to order, combining the flexibility of a custom-made product with the low cost of mass production
• Requirements for mass customisation


  • Flexible and efficient production process
  • Flexible and efficient supply chain
• Benefits of mass customisation


  • Increase in customer choice without a corresponding increase in costs
  • Can lead to a competitive advantage
• Challenges of mass customisation


  • Customised products can be expensive
  • Can take a long time for them to be delivered to customers
• Effective suppliers


  • Offer products or services that match (or exceed) the needs of your business
• When looking for suppliers, it's best to be sure of your business needs and what you want to achieve
• Important factors to consider when choosing suppliers


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


  The total cost of acquiring the product