2.4.3 Stock Control

Stock

🔗 Goods held by a business which will be sold to consumers

Stockpiling

🔗 Where firms build up stock in preparation

Maximum stock level

🔗 The largest quantity of stock

Buffer stocks

🔗 Extra stock held by a business just in case of something that was not anticipated e.g., for demand spikes, damaged stocks or a supplier issue

Lead time

🔗 The time taken between ordering and delivering stock

Interpretation of a stock control diagram

• Implications of poor stock control
• Unrealistic, stock may arrive early/late
• Stock may be used up quicker (if the business is using up a lot of stock) or slower, if it isn't selling as much stock

Implications of holding too little stock

• High pressure on workers to get it right the first time, reduces productivity due to fear of error, fixed costs spread over less output, higher cost per unit
• Little/no buffer stock for a demand spike, unable to capitalise off high levels of demand, dissatisfied customers, lower customer retention and brand loyalty, lower market share
• Heavy reliance on suppliers, if stock is damaged or late, the process gets delayed, detrimental to operations, no spare stock if the supplier is unreliable, loss of sales and lower customer satisfaction with damaged products and lower business profits from diseconomies of scale (machines on for the same amount of time but producing less products)

Implications of holding too much stock

• Workers know there is more stock available if they make a mistake, encourages worker inefficiency, more wastage, diseconomies of scale, less competitive, lower market share
• Too much working capital tied up in stock, opportunity cost, this cash could be invested into to developing other aspects of the business

Lean production

🔗Any system of production that tries to minimise waste during the production process, increasing efficiency

Waste minimisation

• Seeks to increase productivity by examining every stage of production to see if it can be improved, increasing efficiency

Key features of lean production

• Just in Time
• Kaizen
• Total quality management
• Waste minimisation

Just-in-time (JIT) management of stock: Where the stock arrives on the as and when it is needed

• Less working capital tied up in stock, can be used to reinvest in the business to improve product quality or lower cost per unit
• Business is flexible, can respond quickly to changes in demand, higher customer satisfaction, higher market share
• High pressure on workers to get it right first time, reduces productivity due to fear of error, fixed costs spread over less output, higher cost per unit
• Heavy reliance on suppliers, if stock is damaged or late production gets delayed

Time-based management

Seeks to reduce the level of wasted time during the production progress

• Enables business to focus on other objectives or use time to improve the business e.g., reinvestment, marketing strategy, product development
• Opportunity cost, focusing on reducing time could rush production, lower quality products that don't meet expectations, lower customer satisfaction, weakens brand image
• High pressure on staff to be fast, encourages rushing, demotivating due to pressure, reduces productivity due to fear of error, fixed costs spread over less output, higher cost per unit

Competitive advantage from lean production

• Improved quality due to more efficient production methods
• Staff feel more involved and motivated
• Average costs should decrease as waste is minimised
• Efficiency and productivity should rise

Should all lead to a competitive advantage through

• Lower prices
• Improved quality
• Reputation