Business Economics WEEK 4 W/C 4 th March 2013 INTRODUCTION Course Advanced Diploma Management

WeekChapterTopics One (1)Ch 16 – Purchase control Introduction -Course overview -Objectives -Assessment The time value of money Purchasing - Intent Two (2)Ch 16 – Purchase control Supply strategies (make or buy?) Outsourcing Purchasing strategies Three (3)Ch 16 – Purchase control Supplier analysis Purchasing processes Purchase simulation exercise Four (4)Ch 17 – Stock management What does a company want to achieve? Stock mgmt – Intent Stock adv vs disadv. Stock ordering methods Five (5)Ch 17 – Stock management OPV methods OPV calculations Conundrum – People/Profit/Planet Six (6)Ch 17 – Stock management Case study tasks Trivia – Pop Quiz Course review

Homework tasks last week Please complete 16.9 How did you go? 3

Assessment Update and review. How goes progress? Any problems or questions

Assessment For the company you are to complete the following: – A brief back ground on the company. – The method you would use for the procurement of goods i.e. make or buy. – The purchase strategy you would implement i.e. cooperation or differentiated or a hybrid. – The risks associated with the points # 2 and 3. – Contingencies to mitigate the identified risks. – Recommended stock management method. – An analysis of which one the company focuses on Profit/People/Planet. The research must be thorough and contain a good analysis to support developed answers. In other words you need to argue or present your case and support it with evidence. Anticipated written report length 4-6 A4 pages (est. 500 words per page).

Assessment Update and review Next week 5-7 minute in class presentation – initial findings One or two members can present.

Stock control Production & operations: There are three types of stock that a business can hold: Stocks of raw materials (inputs brought from suppliers waiting to be used in the production process) Work in progress (incomplete products still in the process of being made) Stocks of finished products (finished goods of acceptable quality waiting to be sold to customers) 7

Stock control What are some of the aims of stock control? 8

Stock control The aim of stock control is to minimise the cost of holding these stocks whilst ensuring that there are enough materials for production to continue and be able to meet customer demand. ˜Obtaining the correct balance is not easy and the stock control department will work closely with the purchasing and marketing departments. 9

Stock control The marketing department should be able to provide sales forecasts for the coming weeks or months (this can be difficult if demand is seasonal or prone to unexpected fluctuation) Stock control managers have to judge the type, quantity and timing of stocks needed. 10

Stock management w w ZpHiMTwOdM ZpHiMTwOdM Logistics Bureau 11

Types of stock Production companies Raw materials, ancillary materials and components Goods in progress Finished goods Trading companies Finished goods (commodities) ˜ Service companies No stock If required some ancillary materials 12

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Why is stock necessary? Increasing the stock means (all else being equal) Decreasing the stocks means (all else being equal) - Faster deliveries - A higher level of stock service - Better observation of delivery deadlines - Better delivery reliability - Better delivery flexibility - Less negative delivery information - Slower deliveries - A lower level of stock service - Poorer observation of delivery deadlines - Poorer delivery reliability - Poorer delivery flexibility - More negative delivery information Increasing the stock means (all else being equal) Decreasing the stock means (all else being equal) - Higher stock costs - Lower packing costs - Lower transport costs - lower administrative logistics costs - Lower cost of lost sales - Lower stock costs - Higher packing costs - Higher transport costs - Higher administrative logistics costs - Higher cost of lost sales 6 The connection between stock size and delivery service The connection between stock size and logistics costs 14

Stock management Good stock management by a firm will lower costs, improve efficiency and ensure production can meet fluctuations in customer demand. It will give the firm a competitive advantage as more efficient production can feed through to lower prices and also customers should always be satisfied as products will be available on demand. Poor stock control can lead to problems associated with overstocking or stock-outs. 15

Stock management ˜ Poor stock control can lead to problems associated with overstocking or stock-outs. ˜If a business holds too much buffer stock (stock held in reserve) or overestimates the level of demand for its products, then it will overstock. 4 ˜Overstocking increase costs for businesses as holding stocks are an expense for firms for several reasons. – Increases warehouse space needed – Higher insurance costs needed – Higher security costs needed to prevent theft – Stocks may be damaged, become obsolete or perish (go out of date) – Money spent buying the stocks could have been better spent elsewhere – The opposite of an overstock is a stock-out. This occurs when a businesses runs out of stocks. This can have severe consequences for the business: – Loss of production (with workers still having to be paid but no products being produced) – Potential loss of sales or missed orders. This can harm the reputation of the business. – In these circumstances a business may choose to increase the amount of stock they hold in reserve (buffer stock). There are advantages and disadvantages of increasing the stock level. 16

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Stock management Two methods: Purchasing at a specific reorder point – Identifying the minimum stock – Order new consignments from supplier when stock falls to minimum – The same volume is purchased every time Periodic purchasing – Ordering products at specific intervals ( once a week, once a month) – The volume purchased depends on the sale since last order 18

Stock methods What are some examples where business would use one type or the other or a combination of both? 19

Reorder point With buffer stock 20

Periodic purchasing With buffer stock 21

Simplified stock model 22

Supply chain Future supply chain – mEo mEo 23

Homework tasks Please complete 17.1 and 17.3 from the textbook chapter. 24

Weekly slides QonNKkqwdJXeQzt QonNKkqwdJXeQzt 25