Stock Stocks are goods which have been produced or are in the process of being produced but which have not been sold yet.
Types of Stock Stocks can take a variety of forms: –R–Raw materials and components – waiting to be used in the production process –W–Works in progress or unfinished goods – goods in the process of being manufactured –F–Finished goods – goods produced and ready to be sold.
Holding stocks Holding stocks is important to firms because they are often needed to maintain production and to meet customers’ demands. A business can produce at any time and has goods available for customers. However, holding stocks can be expensive and risky. The more stocks a business has: The greater the warehousing space needed The more money there is tied up in stocks The higher the security costs to protect the stocks The greater the risk
Firms must hold sufficient stocks of items for a number of reasons. ItemReasonCosts of zero stock Raw materials and work in progress To meet production requirements Idle time (worker and machine); knock-on effect of delayed production Finished goodsTo meet customer demand Loss of goodwill and orders; financial penalties for missing deadlines Consumables, spares, equipment To support sales and production Idle time (worker and machine); delayed production
Buffer stock The buffer stock is the minimum stock a firm wants to hold at any moment. Several factors influence the level of buffer stocks a business holds: – The rate at which stocks are generally used – The warehousing space available – The nature of the product – The reliability of suppliers – The supplier’s lead time. ( The lead time is the time it takes for an item to arrive from the moment it is ordered.)
The maximum stock that a firm will hold depends on: – How much space a firm has – The opportunity cost of having money tied up in them
Stock Control The management process that makes sure stock is ordered, delivered and handled in the best possible way. An efficient stock control system will balance the need to meet customer demand against the cost of holding stock.
Avoiding the costs of holding large quantities of stock Buying stock in bulk to achieve discount and ensure supply
Managing stock usage Stock rotation = method of organising stocks so the oldest supplies are used first. Computer-based stock control – EPOS (Electronic Point of Sale) assists in the tracking of stock. Barcode monitors sales and movements of stock in the store. Reducing the overall level of stock – Minimise the amount of stock kept to reduce costs of high stockholding
Stock Control Charts Define buffer stock, reorder level and lead time It is helpful to be able to calculate and comment on the lead time required in given situations This will be affected by factors such as the type of product, its perishability and the location of the supplier Construct and interpret stock control charts showing maximum stock level, buffer stock level, reorder level and lead time AS Business Studies by A. Mottershead et al Chapter 50 pages 352- 354 The Times 100 (12th Ed.) McDonalds case study It is important to state, and show, understanding of the assumptions made when drawing these diagrams See the Specimen paper for an example of this type of question