LO: To know how this is managed and controlled 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Stock management Stock rotation – Use oldest stock first, makes sure nothing is out of date or obsolete.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 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