stock control
types of stock
raw materials
work-in-progress
finished goods
buffer stock
is an emergency minimum level of stock held
holding buffer stock of finished goods - surges in demand
or - holding a buffer stock of raw materials
buffer stock protects against the risk of disrupted production & workers idling waiting for stock to arrive
disadvantages of holding high levels of stock
if selling fruits or vegetables they may become perished
more costs for the business such as: renting factories
fluctuations in demand - trends & behaviour
damage to property or theft - results in more costs
stock control chart
maximum stock level - largest amount of stock that can be held
re-order level - if stock falls to this level, firms will order more stock from the supplier. this level is reached before delivery, as the supplier needs to process the order
minimum stock level - aka buffer stock level, least amount of stock the firm wishes to keep
implications of poor stock control
opportunity cost - money is only used for stock and nothing else
cash flow problems - if stock isn't sold quickly - profits aren't maximised
increased storage costs - cost of warehousing, insurance, security
holding too little stock
firm cannot cope with surges in demand
result in loss of customers as they simply move to competitors
stopping production - idle labour
just in time
stock control system that operates with 0 buffer stock
advantages - reduced stock-holding costs
improved cash flow
reduced stock waste & more space in factories
disadvantages - unreliable suppliers (late delivery, poor quality)
no spare or finished goods meaning that the business cannot meet unexpected orders
kaizen - a japanese term for "continuous improvement" - making many small, gradual changes to improve either quality or efficiency
order quantity: the amount ordered each time
reality of stock control:
in reality stock control diagrams showing a neat pattern is not true. orders may arrive late and may not be of the correct quantity. the rate of usage of stock may not be constant, during busy times stock levels will fall a lot quicker. the benefit of a stock control diagram is that it gives the firm a clear picture of how stock levels have changed and to identify the reasons for these changes
lean production:
JIT is a key part of lean production. this is a philosophy that attempts to eliminate all forms of waste from the production process. by reducing waste, the business can improve efficiency and lower its unit costs. this provides it with a competitive advantage:
- using the ideas of staff through kaizen groups who meet regularly to suggest ideas for improving productivity and quality
- maintaining high levels of quality throughout the production process
- quicker speed of production and development of new products