Stock Control LO: To know how this is managed and controlled
Purchasing • Essential part of the business, need to order stock for manufacturing or retail. MUST ENSURE - • Sufficient quantity is ordered (not too much) • It is the right quality • Available where they are needed in the factory • Price must be competitive • Good relationships built with suppliers
Suppliers – Things that must be considered • Quality checked through samples or visit to factory • Do they have ISO 9000? • Price can be negotiated especially when purchasing in bulk • Can discuss credit periods • Will they be consistent and on time? • Is the financial position of the firm safe? • If the needs of the buyer changes, can the supplier react? • Should we place large orders occasionally or small orders frequently? • Should we accept lower quality stock at a lower cost? • Should we use only one supplier?
Types of stock • Raw materials and components – comes from outside suppliers and will help to make the finished product • Work in progress – Things that have been started to be processed • Finished goods – May keep goods for a while after they are made as they have to be sold, may be in batches or individually. Especially true with the stockpiling before Christmas.
Stock management • Stock rotation – Use oldest stock first, makes sure nothing is out of date or obsolete. • Stock wastage – Loss of stock in production or process, main causes: • Materials wasted and thrown away • Reworking of items not made correctly • Defective products that cannot be corrected • Damaged due to handling or storage • Stealing by customers or staff • Passing use by dates
Stock control charts • Look at the level of stock over time to help to manage it Charts show the following things: • Stock levels – vertical line when a delivery is made but then slowly goes down • Maximum stock level – Shows the largest amount you can store • Re-order level – A trigger point when the new order should be sent to the supplier • Minimum stock level – Need to keep a certain minimum level as a buffer so you have something should you need it
The costs of stock – Too much • Opportunity cost – Holding stock means money is wrapped up and cannot be used elsewhere • Cash flow problems – Less money to pay things • Increased storage costs – larger premises needed, more labour, security etc. • Increased finance costs – If capital needs to be borrowed • Increased stock wastage – More chance of stock getting damaged or turning bad
The costs of stock – Too little • Workers and machines may stand idle • Lost orders as the orders cannot be fulfilled in time • Orders not being fulfilled on time causing a bad relationship with customers • Loss of the firms reputation and goodwill from customers Need to balance these costs for optimum stock control
IT and stock control • Stock control made easier by the use of IT • Databases used to hold details about stock • Systems control stock so it is re-ordered as soon as it is used – usually done using barcodes • RFID (radio frequency identification) often used today to see exactly where the stock is in the warehouse • Allows you to know exactly what you store
JIT – Just in Time • Allows firms to hold very little stock • Stock is to arrive at the factory just as it is needed so that it does not have to be held • Must have a very good relationship with the suppliers • Deliveries must be made frequently • Would only be established over time as holding no stock is a massive risk
Advantages and Disadvantages of JIT ADVANTAGES • Improves liquidity • Costs of holding stock reduced • Storage space converted into something more useful • Stock wastage and rotation are less of an issue • Response times are speeded up as components can be ordered instantly DISADVANTAGES • Break in supply causes problems to production • Costs of processing orders may be increased • The reputation of the manufacturer is placed in the hands of the supplier
Some questions • What businesses may rely the most on good stock control? • How will internet shopping change stock control? • When might it be good for a firm to run out of stock? • Where does the idea of JIT come from • Should all firms use JIT?
Revision exercises • Page 263 • Answer the B revision exercises