课 9, 主题 3

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2-4-3-stock-control

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Interpretation of stock control diagrams

A stock control diagram illustrates the flow of stock (inventory) into and out of a business over time

Example stock control diagram

Stock level graph over 10 weeks showing stock units held. Maximum 1,600 units, reorder 800 units, minimum 400 units, lead time and buffer stock indicated. — **Stock control diagrams show maximum and minimum stock levels, reorder level, lead time and buffer stock level**

Diagram analysis

The maximum stock level is the maximum amount of stock a business is able to hold in normal circumstances (1,600)
The reorder level is the level at which a business places a new order with its supplier (800)
The minimum stock level is also known as the buffer stock level and is the lowest level to which a business is willing to allow stock levels to fall (400)
The lead time is the length of time from the point of stock being ordered from the supplier to it being delivered (one week)
The stock level line shows how stock levels change over the given time period
- As stock is used up, a downward slope is plotted
- When an order is delivered by a supplier, the stock level line shoots upwards

Worked Example

The diagram below shows stock movements of kitchen shelving units sold by TamFix Ltd.

Graph showing stock levels over four weeks, with stock dropping from 1,000 units to 200 units, then replenishing at a reorder level of 500 units each week. — **Graph showing stock level, reorder level and number of weeks for TamFix Ltd**

Identify the following points:

The minimum stock level
The reorder level
The reorder quantity
The lead time for kitchen shelving units (4)

Step 1: Identify the minimum stock level

The minimum stock level is identified by the bottom-most dotted line. In this case, it shows that the minimum stock level is 200 units. [1]

Step 2: Identify the reorder level

The reorder level is clearly identified on the diagram. In this case, it shows that the reorder level is 500 units. [1]

Step 3: Identify the reorder quantity

The reorder quantity is the difference between the maximum stock level (shown by the topmost dotted line) and the minimum stock level.

1,000 units (maximum stock) − 200 units (minimum stock) = 800 units

The reorder quantity is therefore 800 units. [1]

Step 4: Identify the lead time for kitchen shelving units

The lead time is the difference in time between an order for stock being placed and its delivery. In this case, assuming a five-day working week, the lead time for shelving units is two days. [1]

Buffer stock

Buffer stock is a quantity of goods/raw materials kept in case of stock shortages
- This can provide a competitive edge over rivals unable to meet demand
- This approach is commonly called “just in case” stock control
The decision to keep buffer stocks is one that businesses have to weigh up very carefully
- The decision will be influenced by the nature of the business and the product/service it provides

Advantages and disadvantages of holding buffer stock

Advantages	Disadvantages
Stability in supply Buffer stocks ensure a stable supply of goods, so the business is able to respond to unexpected customer demand Price stabilisation Buffer stocks can help prevent extreme price fluctuations, as they help the market to avoid shortages, which would otherwise result in rapid price increases Raw materials security Businesses that are dependent on particular raw materials avoid disruption to their supply Competitive advantage By having a reliable supply of goods, businesses can gain a reputation for always being able to meet the needs of their customers	Cost Holding buffer stocks can be expensive, as it requires storage facilities and inventory management systems Risk of obsolescence Buffer stocks can become obsolete if the demand for a particular product or input declines Opportunity cost Holding buffer stocks ties up capital that could be invested in other areas of the business

Advantages

Disadvantages

Stability in supply
Buffer stocks ensure a stable supply of goods, so the business is able to respond to unexpected customer demand
Price stabilisation
Buffer stocks can help prevent extreme price fluctuations, as they help the market to avoid shortages, which would otherwise result in rapid price increases
Raw materials security
Businesses that are dependent on particular raw materials avoid disruption to their supply
Competitive advantage
By having a reliable supply of goods, businesses can gain a reputation for always being able to meet the needs of their customers

Cost
Holding buffer stocks can be expensive, as it requires storage facilities and inventory management systems
Risk of obsolescence
Buffer stocks can become obsolete if the demand for a particular product or input declines
Opportunity cost
Holding buffer stocks ties up capital that could be invested in other areas of the business

Implications of poor stock control

Too much or too little stock: implications

Flow chart illustrating poor stock control, detailing consequences of holding too much or too little stock, including storage costs and risk of stockouts. — **Implications of poor stock control include increased storage costs, risk of stockout and inability to meet demand**

Problems may arise from holding too much stock
- Storage costs (e.g. warehouse rental, security costs) will be higher than necessary
- The risk of spoilage and stock shrinkage will be increased, leading to increased costs
Similarly, holding too little stock is risky
- A business may run out of stock, resulting in production stoppages and higher unit costs related to underused capacity
- A sudden increase in demand may not be capable of being met, which leads to a loss of potential sales revenue

Just-in-time stock management

Just-in-time stock management is a process in which raw materials are not stored on-site
- Stock is ordered as required and delivered by suppliers “just in time” for production
Careful coordination is needed to ensure that raw materials and components are delivered by suppliers at the moment that they are to be used

Advantages and disadvantages of just-in-time stock management

Advantages	Disadvantages
Stockholding costs, including storage costs, are minimised Close working relationships are developed with a small number of trusted suppliers Cash flow is improved, as money is not tied up in stock Unused storage space is available for productive use Teamwork is encouraged, so employee motivation is likely to be improved	Bulk-buying economies of scale are not generally possible The ability to respond to unexpected increases in demand is reduced Administrative costs related to frequent ordering are increased Unreliable suppliers (e.g. late or poor-quality deliveries) can quickly halt production Significant changes to organisational structure and production controls are required

Waste minimisation

Waste in a business can occur for a number of reasons
- Stock becomes obsolete unless used by a particular date
- Perishable stock (food and medicines) that is not used before it deteriorates will need to be thrown away
- Stock may be damaged as a result of poor storage conditions and may not be suitable for use in the production process
Allowing waste to go unchecked will increase the unit costs of production and reduce both efficiency and productivity
Businesses may take a range of steps to minimise waste

Ways to minimise waste

<img alt=”Diagram showing ways to minimise waste: storage, planning and sales tactics, with tips such as refrigeration, forecasting, and reducing prices for obsolete stock.” data-nimg=”1″ decoding=”async” height=”578″ loading=”

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