T39- Stock control

• What are types of stock?

  • raw materials and components (brought from suppliers, used in production process)
  • work in progress (construction project)
  • finished goods (completed goods ready for sale)
• what are reasons to hold stock?


  1.     Enables production to take place

  2.     Satisfy customer demand

  3.     Precaution against delays from suppliers

  4.     Allows for seasonal changes

  5.     Provide a buffer between production processes
• influences on the amount of stock held:

  1.     Need to satisfy demand- failure to have goods available for sale is very costly

  2.     Need to manage working capital- holding stock ties up cash in working capital

  3.     Risk of stock losing value- longer stocks are held, the greater risk that they cannot be used or sold.
• what is the maximum level of stock?

  max level of stock a business can and wants to hold is 70,000
• what is a pre-order level?


  acts as a trigger point so that when stock falls the next supplier order will be placed 40,000
• what is the lead time?

  amount of time between placing order and receiving it.

  1 month
• What is minimum stock level?

  MINIMUM AMOUNT OF PRODUCT THE BUSINESS WOULD WANT TO HOLD IN STOCK. ASSUMING THE MINIMUM STOCK LEVEL I MORE THAN 0, THIS IS KNOWN AS BUFFER STOCK.20,000
• what is buffer stock?

  Buffer stock is a reserve of a commodity held by a government or organization to stabilize prices and supply in the market. In case of delays from suppliers.
• what are implications of holding too much stock?

  • renting warehouses are expensive and people to run them
  • money is used on holding stock and could be used elsewhere
  • stock can be left unsold in cases of unexpected reduction in demand.
  • theft
• what are implications of holding to little stock?

  • business may not be able to cope with an unexpected increase in demand = loss of customers
  • stock deliveries may be delayed so may run out of stock
• what are advantages of JIT?

  • improves cash flow since money is not tied up in stocks
  • reduces waste
  • more factory space
  • links with suppliers are improved
  • workers will be more motivated as they are given more respobsibility
• what are disadvantages of JIT?

  • increased ordering and administration costs
  • vulnerable to break in supply and machinery breakdowns
  • possible loss of reputation of customers are let down by late deliveries
• what is the point in using JIT and lean production?

  The method of just in time and lean production all aim to use fewer resources in production, if a business can produce a product using less stock, fewer material and less labour you get lower unit costs meaning competitive advantages meaning it can lower pricing meaning bigger market share meaning greater revenue and profits.