Stock ManagementLesson 2.7 – Year 12 Business

1. Raw materials and components

- these are waiting to be used in the production process

2. Work in progress or unfinished goods

- these are stocks of goods in the process of being manufactured

3. Finished goods

- these are goods produced and ready to be sold.

What are Stocks?

But why do we want to hold stocks?

Holding Stocks…

Advantages…

+ Can meet customer demand & no upset customers

+ Production lines not halted by shortage of raw materials

+ Economies of scale by purchasing in bulk

A happy customer

Holding Stocks…

Disadvantages.. - Warehouse Costs- Security Costs- Stocks may perish (e.g.

food) or go out of style (e.g. clothes/computers)

Warehouse and security costs

Stock Control Methods

Just-in Case and Just-in Time

Just in Case (JIC)

1. Just-in-case (JIC): firms have buffer stocks (spare stocks) at each stage of production.

+ Production can continue if consumer demand rises or if suppliers are delayed

- However, firms can be left with large levels of stock (which may lose value and need to be kept in a warehouse with security)

Just-in Time (JIT)

2. Just-in-time (JIT): firms try to keep stock levels to a minimum, with supplies being delivered just as they are needed.

+ This reduces the cost of holding stock

- However, firms need reliable suppliers otherwise the whole system breaks down (production may stop, customers may not get the product)

What else do we need to know? Contrast the short-term and long-term

implications of the different approaches, given the particular organisation and the market within which it is operating

If a company is considering switching to just-in-time, think about how easy this will be to implement, given its particular circumstances in terms of finance, personnel, relationships with suppliers and customers and the type of product being manufactured.

Activity

Just in Case versus Just in Time activity.

Stock Control ChartsStock Level

(Units)

Time (Months)

100

200

300

1 2 3 4

Stock Control ChartsStock Level

(Units)

Time (Months)

100

200

300

1 2 3 4

Stock Control Charts (Draw me)Stock

Level

(Units)

Time (Months)

100

200

300

1 2 3 4

Maximum Stock

Re-order Level

Minimum Stock

Lead TimeBuffer

Stock

Stock control charts key terms… Maximum stock level – this is the maximum amount of

stock a business would wish to hold. This could represent enough stock for a month or a week, it might be as much as the warehouse has space for, or it might depend on the order size needed to qualify for a quantity discount .

Re-order level – this acts as a trigger point, so that when stocks fall to this level, the next order should be placed. This helps take account of fluctuations in sales levels over time.

Lead time – the amount of time between placing the order and receiving the stock

Stock control charts key terms… Minimum stock level – this is the minimum

amount of product the business would want to hold in stock. Assuming the minimum stock level is more than zero, this is known as buffer stock

Buffer stock – an amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers.

Stock control diagram activity

Please have a go at the stock control drawing task