1. Unit 2 Operations Management Session 5 Stock control

2. 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 work 4.To evaluate the issues involved in stock holding including opportunity cost 5.To analyse the impact of IT on stock management 6.To analyse JIT as a method of lean production 7.To understand how Kanban stock control works

3. The purchasing function Definition: bringing stock into the business This involves consideration of: –Quality –Price –Quantity –Flexibility –Reliability –Financial stability

4. The 3 types of stock Work in progress Finished goods Raw materials

5. 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?

6. Stock control chartscharts 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

7. 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?

8. 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

9. 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

10. Questions 1.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 management 3.Outline 3 factors which will influence the re-order level 4.Outline 2 factors which will influence the maximum stock level held 5.State 4 possible reasons for stock wastage in a supermarket 6.What is meant by stock rotation? 7.Explain 2 benefits and 2 problems of JIT stock control for a retailer 8.Why might suppliers dislike supplying a firm who operates a JIT stock control policy?