Managing stock

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Managing stock

Stock- The resource the business uses to supply customers

Types of stock

Raw materials- materials needed to make the final product. The business holds the raw materials so they can make the product if the order comes late or is to expensive from their suppliers.

Work in progress- products that are in the process of being made. This will be used to help the business make large stock of the final product.

Finished goods- products the business are ready to sell. This increases the amount of revenue the business makes as they are selling more products.

Stock is expensive for the business to hold because:

buying it ties up cash which could lead to cash flow problems.

it has to be stored, protected and insured, lowering profits.

it can remain unsold, go out of date, become obsolete, get damaged or stolen, increasing costs.

But there are also costs of not holding enough stock:

Missed deliveries could lead to loyal customers going elsewhere.

Unable to meet sudden increase in demand.

Production has to be halted as raw materials run out - meaning workers and machinery are left idle.

Managing stock

Businesses therefore need to manage their stock in effective ways. The key is to minimize stock while having enough stock so they can supply the customers with the orders they need.

Stock control Charts allow a business to see the amount of stock they hold.

Maximum stock level- Highest amount of stock the business can hold.

Re-order stock- Is the point at which the new stock will be ordered.

Lead time- Time delay between ordering the stock and receiving the stock.

Buffer stock- Minimum amount of stock a business can hold.

Usage Rate- amount of stock used per period of time.

Technology and stock control

Just in Time- Aims to eliminate the holding of stock. Stock only arrives when it is needed in the production process.

Just in case- Stock management which involves holding stock at all times. Benefits of holding stock: production can continue effectively, so businesses can meet unpredictable increase in demand. so businesses can benefit from cheaper prices as a result of bulk buying.