Business - Operations Management - Stock Control

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Business Angela Emma Rudd BMA
4th February 07
Operations Management
Stock control
What are Stocks?
Stocks are goods, which have been produced or are in the process of being produced
but which have not been sold yet. All firms hold different types of stock. Stocks can take
a variety of forms:
Raw materials and components ­ These are waiting to be used in the
production process.
Works in progress or unfinished goods ­ These are stocks of goods in the
process of being manufactured
Finished goods ­ These are goods that have been produced and are ready to be
sold. In the case of the manufacturer, these are goods waiting to be sold or
delivered to the shops, or the final customer. Retailers hold finished goods on
their shelves ready to be sold.
Holding stock is important to firms because they are often needed to maintain
production and to meet customer's demands. With stocks available a business can
produce at any time and has goods available for customers. However, the problem is
that holding stocks can be expensive and risky. For example the more stocks a
business has:
The greater the warehousing space needed
The more money there is tied up in stocks this means the firm has a high
opportunity cost because the money that is invested on stocks could be used in
other ways
The higher security costs to protect the stocks
The greater the risk inevitably if a firm holds stock there is the danger that it will
perish or become obsolete.
The decision on how many sticks to hole is, therefore, a trade off between the costs of
holding the stocks and the problems, which might occur if stocks are not held.
Buffer Stocks
This is the minimum amount of stock that a firm wants to hold as any time. If the level of
stocks falls below the buffer level there may be a risk of running out this could either
halt production or mean that customers would have to be turned away because no
finished goods are available. Several factors influence the level of buffer stocks a
business holds:
The rate at which stocks are generally used up ­ the faster stocks are used up,
the more the firm will have to hold at any time.
The warehousing space available ­ the smaller the space a firm has for storage,
the lower the level of stock.
The nature of the product ­ if the product is fragile or likely to depreciate, the firm
will not want too much stock in case it breaks or loses value rapidly.
The reliability of suppliers ­ the more reliable suppliers are, the few buffer stocks
the firm needs to hold
The supplier's leadtime ­ the leadtime is the time it takes for products to arrive
from when they are ordered. The shorter the leadtime, the smaller amount of
stock a firm needs to hold. If however the leadtime is long, the firm will need to
hold more stock in case there are any delays.

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Business Angela Emma Rudd BMA
4th February 07
The maximum stock that a firm will hold depends on:
How much space a firm has
The opportunity cost of having money tied up in them
Stock Control
Stock control involves stock rotation. This is a method of organising stocks so that the
oldest supplies are used up first, rather than the newest deliveries. Stock rotation is
important within supermarkets.
Just in Time (JIT)
Just in time production occurs when firms produce products to order.…read more

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Business Angela Emma Rudd BMA
4th February 07
Investment in machinery, which is flexible and can be changed from producing
one type of item to another without much delay.
Training of employees so that they have several skills and can do a variety of
jobs.
Negotiation with employees so that their contracts are flexible and allow them to
move around
Building relationships with suppliers who can produce Just in Time as well.…read more

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