Stock Control (Edexcel A Level Business)

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

An example of a stock control diagram
 

Diagram Analysis

• The maximum stock level is the maximum amount of stock a business is able to hold in normal circumstances (1600)
  
• 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 (1 week)
• The stock level line shows how stock levels change over the given time period
  • As stock is used up a downwards slope is plotted
  • When an order is delivered by a supplier the stock level line shoots upwards

• 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
    
    

The Advantages & Disadvantages of Holding Buffer Stocks

Implications of poor stock control

• 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  [popover id="kO4zTS0JSdd0vRc~" label="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 and this leads to a loss of potential sales revenue

• Just in Time (JIT) stock management is a process in which raw materials are not stored onsite but ordered as required and delivered by suppliers 'just in time' for production
• Careful coordination is required to ensure that raw materials and components are delivered by suppliers at the moment that they are to be used
   

The Advantages and Disadvantages of Just in Time Stock Management

• Wastage 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 they deteriorate 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

• The minimisation of waste will depend upon the nature of the product
  • For perishable items, refrigeration and careful stock rotation can reduce wastage
    
• Staff training and computer inventory management systems may also reduce wastage as fewer errors are likely to be made
  
  
• Effective sales forecasting can help to reduce the amount of wasted stock retained by the business

• Lean production involves the minimisation of the resources used in production
  • Less time is required as the production process is organised in the most efficient way
  • Fewer materials are used as there is a focus on waste reduction
  • Less labour is used as lean production is typically capital intensive
  • The space required for production is reduced as a result of just in time stock management
  • A small number of trusted suppliers work closely with the business
    
    
• The use of lean production is likely to lead to a competitive advantage 
  • Lower  unit costs  are achieved due to minimal wastage so prices may be lower than those offered by competitors
  • Better quality of output is likely as a result of supplier reliability and carefully managed production processes