MANAGEMENT OF OPERATIONS

STOCK MANAGEMENT

LEARNING INTENTIONS AND SUCCESS CRITERIA

LEARNING INTENTIONS:

I understand what is involved in effective stock management.

SUCCESS CRITERIA:• I can describe the DIFFERENT

STOCKS a business may hold.• I can explain the costs of

OVERSTOCKING.• I can explain the costs of

UNDERSTOCKING.• I can describe the different

activities that are involved in

the STOCK CONTROL

PROCESS.

WHAT IS STOCK MANAGEMENT?

STOCK MANAGEMENT is all about trying to

make sure that the business has a STOCK LEVEL

that prevents OVERSTOCKING PROBLEMS and

UNDERSTOCKING PROBLEMS.

Let’s find out what some business experts

think about stock management:http://www.bbc.co.uk/learningzone/clips/a-short-introduction-to-production-methods/10966.html

WHAT IS STOCK?

Stock in any business is an UNUSED AMOUNT of

something, and the main types of stock are:• RAW MATERIALS (basic parts still to be used

in production)• WORK IN PROGRESS (products that have

been started but not yet finished)• FINISHED GOODS (products that are complete

and ready to be sold to consumers)

OVERSTOCKINGOverstocking means that a business has bought in MOREstock than it regularly needs and so will face the followingproblems due to extra unnecessary stock:• High labour costs for security staff to prevent theft of stock • High labour costs for warehouse staff to manage stocks• High storage costs for large premises to store stock• High costs of insurance for large amounts of stock• Less chance of wastage or theft being noticed and dealt

with• Risk of losing money on stock that becomes obsolete eg if

trends change (social factor)• Money is tied up in stock that could be used for other

purposes within the business eg buying new equipment to increase production

UNDERSTOCKING

Understocking means that a business has NOT bought in enough stock to continue with its ordinary activities and sowill face the following problems from a lack of stock:

• Production may have to stop• Stockouts may occur (this means there is no stock for

customers) leading to decreased sales and profits, less customer loyalty and a damaged business reputation

• Unexpected customer orders cannot be met

STOCK CONTROL

Once a business has decided how much

stock to have (to prevent over or under

stocking), then it will have to make sure that

stock is re-ordered when necessary and is

looked after to prevent wastage or theft.

Businesses will do this through a process

known as STOCK CONTROL.

STOCK CONTROL SYSTEMS

The work to keep track of what is happening

to stocks can be done either MANUALLY

(by hand using a record known as a STOCK

CARD) or by COMPUTER eg using a simple

Spreadsheet or sophisticated stock control

software.

STOCK LEVELS

A MAXIMUM STOCK LEVEL is set in line with consumer

demand and storage space available. This should prevent

overstocking.

A MINIMUM STOCK LEVEL is set in line with normal

demand and lead times from suppliers. This should prevent

understocking.

A RE-ORDER LEVEL is set between the maximum and

minimum levels taking account of the minimum level, lead

time and normal demand. This should prevent stock-outs.

STOCK DIAGRAM

Stock levels can be shown in a chart as

follows:

ADVANTAGES OF COMPUTERISED STOCK CONTROL

• Computers can accurately calculate stock figures quickly and these can be updated continually if the system is linked to an EPOS sales system

• Computers may be able to replace staff in stock control which saves on wages

• Computers can automatically remind staff when the reorder level has been reached

• Reminding staff of when to reorder should lower the chance of running out of stock

• Computers can automatically reorder stock to prevent any chance of staff forgetting

• The information gathered from computerised stock records can help with decision making about stock eg if products are not selling well, use a special promotion

• The need for physical stock checks is minimised, although they still need to be done at least once a year to check the accuracy of the computerised data which will not show events such as theft or damaged stock.

USE OF BAR CODES

Bar codes are now used to identify products andthe contents of boxes of products being delivered. This makes the checking of stock when it is delivered much quicker as the bar code will be scanned and this will automatically update the computerised stock records. When items are sold or removed from stock, they can be scanned again to automatically reduce theamount in the stock records.

JUST-IN-TIME STOCK CONTROL

Some manufacturers use the Just-in-Time system of stockcontrol eg car manufacturers. Here there is no storage of stock at all, thus saving money on warehousing and all its Associated costs. Stock is ordered just in time for when it is needed in the manufacturing process. This system couldnot work without very reliable suppliers that are located close to the manufacturing base.

Although money is saved on warehousing, due to frequent small orders, bulk-buying discounts will be unavailable andadministration costs will be higher.

JUST-IN-TIME STOCK CONTROL

Let’s watch a video clip about how JIT stock

control works in practice:

http://www.bbc.co.uk/learningzone/clips/just-in-time-delivery/11381.html

TASK

Complete Worksheet 33 in your jotters.