Business stock control

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  • Stock Control
    • What is stock?
      • Raw materials, semi-finished goods and components.
        • Raw materials and components
          • Purchased by suppliers before production.
          • Stored by firms to cope with changes in production levels
          • Delays can be avoided if these can be supplied from stores rather than waiting for a new delivery to srrive
          • If company is let down by suppliers it can use stocks to carry on production
        • Work-in-progress
          • Partly finished goods
          • Products on assembly line which are only partly built
        • Finished goods
          • Cope with sudden changes in demand
          • Firms can meet urgent orders
          • Avoids the need to step up production rates quickly
    • Factors influencing stock levels
      • Demand
        • Sufficient stock need to be kept to cope with normal demand
        • Firms must also carry enough stock to cover unexpected demand
      • Stockpile goods
        • Building up stocks a few months before a busy period
        • e.g toy store building up stock a few months before December
      • The costs of stock holding
        • If stock is expensive, only a small quantity will be kept
      • The amount of working capital available
        • If a business is short of working capital then they may not be able to purchase more stock
      • The type of stock
        • A business can only hold small stock of perishable goods
        • Almost entire stock of finished goods is sold in one day
        • Stoc can also become out of date from new models
      • Lead time
        • Amount of time it takes for a stock purchased to be ordered to when it arrives
      • External factors
    • Buffer Stocks
      • Emergency stock hold incase there is a shortage
      • Business may hold buffer stock for finished goods in case there is a sudden increase in demand
      • Businesses that need to hold buffer stocks of finished goods are those that experience sharp increase in demand
      • Some businesses need to hold buffer stocks of important raw materials or components
        • To protect themselves from a break in supply
          • Leading to a halt in production
      • Gives competitive edge to business
        • Respond to customer orders quickly
    • Implications of poor stock control
      • Holding too much stock
        • Storage
          • Stock occupy's space in buildings
          • Costs for electricity lighting etc
          • Insurance
        • Opportunity cost
          • Money used to purchase stock could of been put towards other uses
        • Spoilage costs
          • Quality may deteriorate over time
          • Finished goods may become outdated and difficult to sell
        • Admin and financial costs
          • The cost of placing and processing orders
          • Handling costs
          • Cost of failing to anticipate prices
        • Unsold stock
          • If there is an unexpected reduction in demand, the firm may be left with stocks it can not sell
        • Shrinkage
          • Large stock may increase in theft by employees
      • Too little stock
        • Business may not be able to cope with unexpected increases in demand
        • If delivery is delayed, they may run out of stock and production will be stopped
        • Less able to cope with unexpected shortages of material
        • May have to order more often, missing out on bulk buying
    • JIT management of stock
      • Important part of lean production and Kaizen approach
      • Stock is delivered a few hours before it is needed
      • Reduces the need for high levels of working capital
      • Improves financial performance of the business
      • Advantages
        • Improves cash flow
        • Reduces waste, obsolete and damaged stock
        • More space available for productive use
        • Cost of stock holding is reduced
        • Improved links with supplier
        • Supplier base reduced significantly
        • Improves motivation as workers are encouraged to work in teams
      • Disadvantages
        • Highly reliant on supplier
        • Increased ordering and admin costs
        • Advantages of bulk buying is lost
        • Difficult to cope with sudden increase in demand
        • Possible loss of reputation if customers are let down by late deliveries
    • Waste minimisation
      • Fresh produce such as fruit have to be thrown away when the detoriate
      • Perishable goods are refrigerated
      • Businesses have to be careful when forecasting demand for perishable goods
      • suitable stock rotation method should be adopted
        • First in first out
        • Stock delivered first should be used first
      • Computerised systems are programmed to order stock automatically when re-order level is reached
        • e.g barcodes
      • Adjustable pricing strategies
        • e.g reduced to clear
      • Perishable goods should be transported rapidly
      • Some businesses may find creative methods in the disposal of goods
        • e.g donating the food to charity
    • Competitive advantage from lean production
      • Raised productivity
      • Reduces costs and cuts lead times
      • Improves reliability and speeds up design time
      • Lowers the number of defective productives

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