Unit 2 Operations Management

Session 5 Stock control

Objectives for today’s session

1. To understand the issues involved in the purchasing function

2. To explain the function of stock management including stock rotation and stock wastage

3. To understand how stock control charts work4. To evaluate the issues involved in stock holding

including opportunity cost5. To analyse the impact of IT on stock

management6. To analyse JIT as a method of lean production7. To understand how Kanban stock control works

The purchasing function

• Definition: bringing stock into the business

• This involves consideration of:

– Quality

– Price

– Quantity

– Flexibility

– Reliability

– Financial stability

The 3 types of stock

Work in progress

Finished goods

Raw materials

Stock management• Definition: the way in which stock is

controlled within the business• Involves:

– Stock rotation• Using oldest stock first - FIFO

– Controlling stock wastage – caused by?

Stock control charts• Used to monitor the stock levels in the business

• Can highlight problems e.g. stock being ordered

late, stock arriving late

• Stock control chart terms:

– Buffer stocks – minimum level of stock held

– Re-order level – the level at which new stock is ordered

– Lead time – the time lag between order and delivery of

stock

– Maximum level – the highest amount of stock the business

is able to hold

Costs of stock holding

• Opportunity cost• Cash flow• Storage costs• Finance costs• Wastage/

obsolescence

• Idle resources• Stock-outs• Lost orders• Reputation• No benefit from

economies of scale

Too much?

Too little?

What is the ideal level of stock?

JIT• Definition: organising operations so that

raw materials arrive just as they are needed for production

• This means the level of raw materials held in the business is zero

• Products are produced to order rather than ‘just in case’

• Cuts stock holding costs• Requires strong links with suppliers to

avoid stock-outs• Workforce must be reliable and flexible

Kanban• Definition: record card system of stock

control using 2 boxes of each type of stock

In component production area to be re-filled

On production line being used

SX305

Box 1

SX305

Box 2

Questions1. Explain 2 advantages and 2 disadvantages of

holding high levels of stock 2. Explain the meaning of the term opportunity cost

in terms of stock management3. Outline 3 factors which will influence the re-order

level4. Outline 2 factors which will influence the

maximum stock level held5. State 4 possible reasons for stock wastage in a

supermarket6. What is meant by stock rotation?7. Explain 2 benefits and 2 problems of JIT stock

control for a retailer8. Why might suppliers dislike supplying a firm who

operates a JIT stock control policy?