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16 Cards in this Set
- Front
- Back
Def of inventory |
These afe thematerials and goods required to allow for the production and supply of products to customers |
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Reasons for holding stock (5) |
Stock of raw materials is kept in order to meet production requirement Stock of work-in-progress is maintained in order to continue the production process andallowing greater flexibility and better utilisation of time and machinery. Stocks of finished goods are maintained in order to meet customers’ demand on time Stocks of equipment and spares are kept in order to support sales and production To control cash tied up in stocks To control wastage and pilferage |
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Name and explain types of inventory |
1) Raw materials-: the basic materials from which a product is made and they are usually bought from outside.2) Work-in-progress-: unfinished project that is still being added to or developed or partially completed goods3) Finished products-: goods that have completed the manufacturing process |
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COSTS OF HOLDING HIGH LEVEL STOCK 5 |
Opportunity cost as capital is tied up in stored stocks Storage costs will increase Rise in administrative and finance costs e.g insurance Wastage of resources in a period of lower demand in the market Risk of theft |
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BENEFITS OF HOLDING HIGH LEVEL STOCK |
firm can enjoy the benefit of bulk buying There is production flexibility since the business will be having enough stock at any given time Machine and factory plant will be operating at full capacity at all times Enough stock will be available to support production and sales |
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Def of buffer stock and why we use it |
refers to the reserves of stock kept to cater for eventual stock out or uncertainties. To avoid the risk of running out of stock, the business must have reserved stock-this technique is used to avoid stock out costs which are:- Lost production Lost contribution from lost sales Loss of customer good will High unit costs associated with urgent purchase |
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Def of re order stock level and why we use it |
efers to the level of stock at which a new order is placed with the supplier. The quantity of this order or the re-order quantity will be influenced by the economic order quantity (EOQ) |
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What is EOQ |
least cost quantity of stock to re-order taking into account delivery costs and stock holding costs. |
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What does EOQ depend on |
depends on -: -interest on capital-storage costs-wastage costs |
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What is PTIMUM STOCK LEVEL TO BE HELD |
-refers to the right quality and quantity of stocks to be kept at the business to promote the smooth running of production. |
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What is lead time |
is the amount of time it takes for a stock purchased to be received, inspected and made ready for use. If more time is required between ordering new stocks and their delivery then a higher minimum stock is needed |
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Whst is the re order level |
- this is the level of stock at which a new order is placed with the supplier. The quantity of the new order will be influenced by the EOQ |
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What is JIT |
- this is the level of stock at which a new order is placed with the supplier. The quantity of the new order will be influenced by the EOQ |
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Requirements of JIT |
i).Employee Flexibility- employees of the firm should be multi-skilled and should be able to switch jobs quickly so that excess stocks of raw materials won’t build up.ii)Flexibility of Machinery- modern, computerised machinery is required for JIT production as it can produce a wide range of products just by changing a single softwareiii)Excellent relationships with suppliers- it should be possible for suppliers to be able to supply raw materials at short notice Accurate demand forecast- this will enable the business to produce a reliable production schedule which would help in the calculation of precise number of goods to be produced over a certain timev)Extensive use of IT- computerised records of sales and stock levels would allow minimum stocks to be held. Electronic communication with suppliers would enable accurate delivery of supplies |
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Benefits of JIT |
The right quantities are produced or purchased at the right time Improvements on product quality Reduction in storage costs Less chance of stock being out-dated or obsolescent Less stock reduce the risk of damage and wastage Higher profits due to overall decrease in costs |
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Disadvantages if JIT |
Advantages of bulk buying are lost Delivery costs rises as frequent small orders are delivered Administration costs rises as so many small orders need to be processed Doesn’t work when demand is unpredictable |