IGCSE Business

Managing Stock

Capacity Utilisation

• A business would ideally like to have everything / everyone utilised, used to full effect

• Think of a café

• Should a café the size of this room have 1 chair?

• Why?

Stocks• Most businesses hold stock• There are 3 main types;

• Stocks of material bought from other businesses (steel for a car manufacturer)

• Stocks of materials that have been semi-furnished by the producer (components that put together make something)

• Stocks of finished goods (made and ready for customers)

Definition

• Stocks – materials that a business holds. Some could be materials waiting to be used in the production process and some could be finished stock waiting to be delivered or sold to customers.

Definitions• Maximum stock level – this is the maximum amount of stock a

business would wish to hold. This could represent enough stock for a month or a week, it might be as much as the warehouse has space for.

• Re-order level – this acts as a trigger point, so that when stocks fall to this level, the next order should be placed. This helps take account of fluctuations in sales levels over time. When an order is placed, there is a lead time that the supplier needs to meet that order. Ideally this new order will arrive just before stocks fall below the minimum stock level

• Minimum stock level – this is the minimum amount of product the business would want to hold in stock. Assuming the minimum stock level is more than zero, this is known as buffer stock

Advantages and Disadvantages • There are specific advantages and disadvantages for businesses

holding stock. They are:

• Can meet sudden changes in demand Cost of storage - rent and insurance

• Less chance of loss of production time because of stock-outs Money/capital tied up in stocks not being used elsewhere in the business

• Can take advantage of bulk buying and economies of scale Large stocks subject to deterioration and theft

• Cost of storage - rent and insurance• Money/capital tied up in stocks not being used elsewhere in the

business• Large stocks subject to deterioration and theft

Recap

• What is maximum stock level mean...

• Re-Order Level...

• Buffer Stock/Minimum Stock Level...

Uncertainty...• In reality stocks and production don’t change the way we want

them to, this is because things can happen that mean we can use more stock or less than some weeks, e.g. Umbrellas in a sudden downpour in summer.

• Also stock does not always arrive on time

• What can happen is stock levels fall below where we want them to be.

• So we rush to get stock in or produce more

• But then we can end up having too much stock

Just in Time Stock Control• Holding stock that does not sell is costly

• Because of this some businesses change to a method called Just In Time or JIT.

• The business holds no stock

• When they need the materials and components they are ordered and delivered when needed

• Car Manufacturers are a good example of JIT

• Businesses which supply components to the car manufacturers deliver parts to the production line as and when they are needed.

Advantages of using different stock control methods

• Cost – stocks cost money to hold, (storage rates and interest on the stocks possibly). So the least amount of stock cuts costs and saves money.

• Price – businesses are able negotiate discounts to prices if an ordered in placed of a bulk quantity. Having enough stock is key, buying larger amounts is cheaper than frequently buying small amounts.

• Environmental effects, more small orders use more fuel for transport etc..

• You can be ready for particular season, e.g. Christmas

Disadvantages of using different stock control methods

• Production Needs – Holding too little stock can lead to loss of production and sales. For example if an order is placed for this week but you don’t have the right amount of stock in for the order.