Stock represents the raw materials, work-in-progress and finished goods held by a firm to enable production, and meet customer needs.
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What are the three main types of stock?
Raw Materials, Work-in-Progress & Finished Goods
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What are raw materials & components?
Bought from suppliers, and used in production process. e.g. parts for assembly or ingredients
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What are Work-in-Progress goods?
Semi or part-finished production e.g. construction projects
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What are Finished Goods?
Completed products ready for sale or distribution. e.g. products on supermarket shelves; goods in the Amazon warehouses
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Why use stock control charts?
To maintain stock levels so that the total costs of holding stock is minimised.
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What is Maximum Level?
Max level of stock a business can or wants to hold.
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What is Re-Order level?
Acts as a trigger point, so that when stock falls to this level, the next supplier order should be placed.
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What is Lead Time?
Amount of time between placing the order and receiving the stock.
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What is Minimum stock level?
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.
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What is 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.
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What can affect when / how much stock to re-order
Lead-time from supplier, Implications of running out (stock-out), Demand for the product
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Advantages of LOW stock levels?
Lower stock holding costs, Lower risk of obsolescence, Less capital (cash) tied up in working capital - can be used elsewhere in business. Consistent with operating "lean"
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Advantages of HIGH stock levels?
Production fully supplied - no delays, Potential for lower unit costs by ordering in bulk / high quantities. Better able to handle unexpected changes in demand or need for higher output. Less likelihood of "stock-outs"
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What is the concept of Just-in-Time (JIT)
When the stock required for production arrives just as it is needed.
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Implications of Just-in-Time (JIT)
No need for buffer stocks, Stock holding costs are minimised, Lead times are very short and requires highly reliable suppliers & sophisticated IT systems to work properly
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