1. STOCK CONTROL
ALSO CALLED INVENTORY MANAGEMENT WHEN CONSIDERED WITH PURCHASING
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2. INVENTORY MANAGEMENT
A very important part of operations management because:
Inefficient stock control leads to a large cost to the business
Must be a balance between the cost of holding stock and the cost of lost production and sales
Efficient production needs a continuous supply of stock
The decision on how much stock to carry will be decided at the planning stage
To ensure continuous production economic stock level must be calculated
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3. STOCK MANAGEMENT SYSTEM
Any stock management system will try to balance the needs of the production department with the costs of holding stocks
The 3 main categories of stock in an organisation are:
Raw materials (components for the product/process)
Work-in-progress
Finished stock
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4. ASPECTS OF STOCK CONTROL
Issuing stock
Monitoring stock levels
Deciding on quantities of stock held
Storage of stock
Purchase of materials
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5. ISSUING STOCK
Should only be done on production of an authorised REQUISITION CARD
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6. MONITORING STOCK LEVELS
By recording (manually, using a BIN CARD SYSTEM)
Using a DATABASE or SPREADSHEET (gives a running balance total) – should reduce the need for a physical stock count
A PHYSICAL STOCK COUNT – MUST be carried out at least once per year for accounting purposes
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7. DECIDING ON QUANTITIES OF STOCK HELD
Essential to have the correct quantities of materials at any one time
Stocks too low - leads to delays or stops in production
Stocks too high leads to unproductive money
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8. STORAGE OF STOCK
Centralised Storage
Decentralised Storage
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9. STOCK KEY WORDS Economic Re-order Stock Stock Level Level Minimum
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10. Re-order stock quantity
The amount of stock required to bring stock back to its Economic Stock Level.
Summarise from your core notes the equations and examples for calculating stock. Pages 17-18
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11. Distance between the lines identifies the lead time (amount of time taken to receive your order of stock)
Economic Stock level
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12. ECONOMIC STOCK LEVEL
The lowest level of stock that makes sure that production is not interrupted by shortages
Also ensures that the company is not carrying too much stock
Keeps costs to a minimum
Calculated using the following:
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13. CALCULATION OF ECONOMIC STOCK LEVEL (ESL)
PRODUCTION TIME x DAILY USAGE
Eg To ensure production continues without interruption for a 20 day period where 100 units are used daily
ESL = 20 days x 100 units
= 2,000 units
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14. MINIMUM STOCK LEVEL
The level which ensures that there will always be stock for production allowing for ordering and delivery times (lead time)
Calculated using the following:
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15. CALCULATION OF MINIMUM STOCK LEVEL (MSL)
DELIVERY TIME + STOCK RESERVE x USAGE PER DAY
Eg Usage – 100 units pr day
Orders take 5 days to be delivered
Reserve of 3 days = 800 units
stock
MSL = x 100 units
= 8 x 100
= 800 units
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16. RE-ORDER STOCK LEVEL
When stock falls to this level, new stock must be ordered to make sure that the organisation does not run out
Eg where it takes a week to order and deliver new stock, there must be a week’s supply of stock left in storage
Calculated using the following:
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17. CALCULATION OF RE-ORDER LEVEL (R-OL)
MINIMUM STOCK + (LEAD TIME x AVERAGE USAGE)
Eg Minimum Stock Level = 800 units
Lead time = 5 days
Average usage = 100 units per
day
R-OL = 800 units + (5 days x 100 units) =
= 1,300 units
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18. RE-ORDER QUANTITY
Amount of stock required to bring the level back to the economic stock level on the same day that new stocks are received
Usually the re-order quantity is automatically ordered as soon as the re-order level is reached
Calculated using the following:
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19. CALCULATION OF RE-ORDER QUANTITY (R-OQ)
ECONOMIC STOCK LEVEL – MINIMUM STOCK LEVEL
Eg Economic Stock Level = 2,000
units
Minimum Stock Level = 800 units
R-OQ = 2,000 – 800 units
= 1,200 units
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20. CALCULATION OF STOCK LEVELS
Example 1 – Calculate Economic Stock Level when 200 units are used daily and production continues for 15 days uninterrupted
Example 2 – Calculate Minimum Stock Level when 200 units are used per day and it takes 10 days to order with a reserve of 5 days for unforeseen circumstances
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21. CALCULATION OF STOCK LEVELS
Example 3 – Calculate Re-Order Level when minimum stock level is 500 units, lead time is 4 days and average usage per day is 150 units
Example 4 – Calculate Re-Order Quantity when economic stock level is 1,000 units and minimum stock level is 600 units
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22. THE EFFECTS OF TOO MUCH STOCK
They are often cited as being:
High costs eg storage, insurance, lighting and handling
Factory space eg loss of productivity due to wasted space
Opportunity cost will be high
Large stock levels might result in unsold stock
Increased theft by employees as businesses will not miss a small amount of stock relative to the total stock
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23. THE EFFECTS OF TOO LITTLE STOCK
They are often cited as being:
Unable to cope with unexpected increases in demand and therefore lose customers
If deliveries are delayed, the firm may run out of stock and have to halt production, which can lead to idle labour and machinery
Unable to cope with unexpected shortages of materials
Lose discounts for bulk buying
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24. TYPES OF STOCK CONTROL
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25. AUTOMATED STOCK CONTROL
Using a computerised stock control system where, when the stock falls to the re-order stock level, the computer will automatically order more stock.
Registered onto computer which will automatically order
Stock taken out of warehouse
Scanned
New Stock arrives
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26. BAR CODES
As the stock leaves the warehouse it will be scanned, the computer will adjust the stock level and when it reaches the re-order stock level the computer will automatically place an order with the supplier
When new stock comes in and is checked (scanned) the computer will increase the stock level accordingly
Stock still has to be checked in case of damage, wastage or theft
Example – Supermarket stock control
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27. Customer buys a tin of beans Barcode is scanned at checkout
Stock levels are automatically altered once scanned
Once the stock levels reach a certain level (Reorder level) – the computer system is automatically triggered and an order is sent.
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New stock is delivered

28. JUST IN TIME (JIT)
Most popular method of operations for mass manufacturers
Limits the amount of stock held by the organisation to near zero
There must be a close relationship between the supplier and the manufacturer
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29. IN PRACTICE
The stock is held by the supplier and is only brought to the factory as and when it is needed
Production must be designed in a way that will allow JIT to be successful
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30. COST SAVINGS
No money tied up in stock – money can be used for other purposes
Less Storage Costs – space, equipment, warehouse and stores staff, services, etc.
Stock losses/wastage are reduced due to less damage, theft, stock deteriorating
With JIT, the above costs would be paid by the supplier
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31. ADVANTAGES Smooth production flows – more likely to be continuous
Less stock held
Cost of production reduced
Planning of production is easier
Meet deadlines
No overproduction
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32. KANBAN JIT can’t operate unless a KANBAN system is in use
Where cards are used to inform operators exactly how much is to be produced at each stage and the exact amount of stock they should take out of storage
Known as a ‘pull-through’ approach – the stock is pulled through the system
If there is no demand for the product then there will be no production
The marketing/sales department will let the operations department know if there is a demand
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33. ADVANTAGES OF KANBAN
Savings made on both purchase and storage costs of unused stocks
Stock usage exactly matches production requirements
Close ties with suppliers are established
Production delays are prevented
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34. DISADVANTAGES OF KANBAN
Suppliers must be willing to participate
High dependency on suppliers and their ability to conform to the organisation’s requirements
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35. STORAGE OF STOCK
Used if a business does not operate a JIT system and needs to keep additional stock
Must decide whether they wish to hold it centrally or decentralise storage
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36. CENTRALISED STOCK SYSTEM
Advantages
Stock is more secure
Specialist staff are trained to receive, check and issue it
Standard procedures can be issued for ordering, receiving and issuing stock
Storage costs can be better controlled
Costs
Recruitment, training and salaries of specialist staff
Cost of creating a storage area
May be time delays between ordering and receiving stock
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37. CENTRALISED STOCK SYSTEM
Disadvantages
time wasted going to and from
stores
cost of dedicated storage area
cost of specialist staff
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38. DECENTRALISED STOCK SYSTEM
Better decisions are made about what stock to buy and how much to order
Stock is more likely to be available for production
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39. DECENTRALISED STOCK SYSTEM
Advantages
stock always “on hand” when
required
orders will reflect actual usage
faster turnover of smaller
amounts of stock reduces
likelihood of deterioration/decay
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40. DECENTRALISED STOCK SYSTEM
Disadvantages
less rigid control – theft and loss
more likely
takes up space in production
areas
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41. STOCK CONTROL AND IT
Modern stock control systems make use of bar coded information that is then scanned in to computers.  This ensures that the computer knows exactly which products have entered and left the stock room.  In a retail outlet an EPOS system (Electronic Point of Sale) is used to record exactly what has been sold, allowing up-to-date stock records to be kept.  This data can assist in the decision of how much to order and when to order. 
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42. STOCK CONTROL AND IT
All of the information will be held in a database.  This will make it easy for the firm to carry out an aged stock analysis.  The computer provides a printout of the stock in order of age.  This makes it easy for the manager to make decisions about future prices and stock purchases, eg price reductions on any products that have been in stock for too long (sale) and reducing the orders for types of stock that have been lying around for too long (size or colour).
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