:) Low levels of stock because stock is only ordered as needed
:) Reduces costs of storage and wastage
:) Reduces the chance of holding unsellable/obselete stock
:) Less chance of ruined/damaged stock
:) Creates more space for new production plans
:) Creates good relationship with suppliers
:( break in supply chain causes immeadiate problems- lose customers
:( Cost of processesing order may increase (charge more lose customers)
:( Reputation in suppliers hands
There is a buffer stock if needed
Reduces pressure on cash flow
Purchasing economies of scale
Can meet sudden changes in demand
Provides spare parts
No last minute delivery issues
No charge from suppliers for stock holding
holding stock, stock out and total cost
Cost of holding stock- cost rises as more and more units are held in storage.
Cost of Stock out- Small amount of stock then the cost of having a sudden change in demand will be big, this decreases the more stock you hold.
Total costs- by combining both sets of costs we can see that the minimum point of the total cost is whats called the ECONOMIC ORDER QUANTITY, this is the amount that should be ordered in a given time period (usually annually)
Traditional stock control
Initial order- 1st amount of stock ordered
Usage pattern- how much stock is used over a given period
Maximum stock level- maximum amount of stock held at any one time.
Minimum stock level- stock kept as a reserve
Reorder level- once this point is crossed stock is reordered
Reorder quantity- amount of stock ordered each time
Lead time- how long the stock takes to be delivered.
Optimal Stock levels
Factors affecting the optimal stock level:
Market- growing, increase in sales, new competitors
Final product- type, price, single use, high volume, complex
Stock- perishable, out of date, big (take up space)
Finance- enough funds at the right time, credit from suppliers, purchasing economies of scale
HR- implication of changing amount of stock held
Infrastrucure- will the condition of roads/ weather affect delivery?
Is the facility being used to its maximum capacity?
Capacity Utilization= (actual production/ productive capacity)x100
FIFO and LIFO
First In First Out- assumes stock for production is issued in the order that it is delivered.
date stock recieved stock issued goods in stock stock valuation
LIFO- last in 1st out