2. Capacity Utilisation
• A business would ideally like to have
everything / everyone utilised, used to full
effect
• Think of a café
• Should a café the size of this room have 1
chair?
• Why?
3. Stocks
• Most businesses hold stock
• There are 3 main types;
• Stocks of material bought from other businesses
(steel for a car manufacturer)
• Stocks of materials that have been semifurnished by the producer (components that put
together make something)
• Stocks of finished goods (made and ready for
customers)
4. Definition
• Stocks – materials that a business holds. Some
could be materials waiting to be used in the
production process and some could be
finished stock waiting to be delivered or sold
to customers.
5. Definitions
• Maximum stock level – this is the maximum amount of stock a
business would wish to hold. This could represent enough stock for
a month or a week, it might be as much as the warehouse has
space for.
• Re-order level – this acts as a trigger point, so that when stocks fall
to this level, the next order should be placed. This helps take
account of fluctuations in sales levels over time. When an order is
placed, there is a lead time that the supplier needs to meet that
order. Ideally this new order will arrive just before stocks fall below
the minimum stock level
• Minimum stock level – this is the minimum amount of product the
business would want to hold in stock. Assuming the minimum stock
level is more than zero, this is known as buffer stock
6. Advantages and Disadvantages
• There are specific advantages and disadvantages for businesses
holding stock. They are:
• Can meet sudden changes in demand Cost of storage - rent and
insurance
• Less chance of loss of production time because of stock-outs
Money/capital tied up in stocks not being used elsewhere in the
business
• Can take advantage of bulk buying and economies of scale Large
stocks subject to deterioration and theft
• Cost of storage - rent and insurance
• Money/capital tied up in stocks not being used elsewhere in the
business
• Large stocks subject to deterioration and theft
7. Recap
• What is maximum stock level mean...
• Re-Order Level...
• Buffer Stock/Minimum Stock Level...
8. Uncertainty...
• In reality stocks and production don’t change the way we want
them to, this is because things can happen that mean we can use
more stock or less than some weeks, e.g. Umbrellas in a sudden
downpour in summer.
• Also stock does not always arrive on time
• What can happen is stock levels fall below where we want them to
be.
• So we rush to get stock in or produce more
• But then we can end up having too much stock
9.
10. Just in Time Stock Control
• Holding stock that does not sell is costly
• Because of this some businesses change to a method called Just In
Time or JIT.
• The business holds no stock
• When they need the materials and components they are ordered
and delivered when needed
• Car Manufacturers are a good example of JIT
• Businesses which supply components to the car manufacturers
deliver parts to the production line as and when they are needed.
11. Advantages of using different stock
control methods
• Cost – stocks cost money to hold, (storage rates and interest
on the stocks possibly). So the least amount of stock cuts
costs and saves money.
• Price – businesses are able negotiate discounts to prices if an
ordered in placed of a bulk quantity. Having enough stock is
key, buying larger amounts is cheaper than frequently buying
small amounts.
• Environmental effects, more small orders use more fuel for
transport etc..
• You can be ready for particular season, e.g. Christmas
12. Disadvantages of using different stock
control methods
• Production Needs – Holding too little stock
can lead to loss of production and sales. For
example if an order is placed for this week but
you don’t have the right amount of stock in
for the order.
