Managing Inventory: Inventory (Stock) Control Charts

What are the three main types of stock?

• Raw materials and components

• Work in progress

• Finished goods

Why do we use stock control charts?

The overall objective of stock control is to maintain stock levels so that the total costs of holding stocks are minimised

What are the key parts of a stock control chart?

• Maximum level: Max level of stock a business can or wants to hold

• Re-order level: Acts as a trigger point, so that when the stock falls to this level, the next supplier order should be placed

• Lead time: Amount of time between placing the order and receiving the stock

• Minimum stock level: The business would want to hold a minimum amount of product in stock. Assuming the minimum stock level is more than zero, this is known as buffer stock

What are the factors affecting when/how much stock to re-order?

• Lead time from the supplier

  • How long it takes for the supplier to deliver the order

  • Higher lead times may require a higher re-order level

• Implications of running out (stock-outs)

  • If stock-outs are very damaging, then have a high re-order level and quantity

• Demand for the product

  • Higher demand normally means higher re-order levels

What are the advantages of low stock levels?

• Lower stock holding costs (e.g. storage)

• Lower risk of stock obsolescence

• Less capital (cash) tied up in working capital- can be used elsewhere in the business

• Consistent with operating ‘lean’

What are the advantages of high stock levels?

• Production fully supplied- no delays

• Potential for lower unit costs by ordering in bulk/high quantities

• Better able to handle unexpected changes in demand or need for higher output

• Less likelihood of ‘stock-outs’