Business Management - Stock terms

Buffer stock

The minimum stock level that a firm wishes to hold at any point in time.

Capacity utilization

Refers to the extent to which an organization operates at its maximum level (known as the firm’s productive capacity).

Capacity utilization rate

Measures a firm’s actual output as a percentage of its capacity (maximum potential output), at a particular point in time.

Capital productivity

This measures how efficiently an organization’s fixed assets are used to generate output for the business.

Cost to buy (CTB)

In a ‘make or buy decision’, this method calculates the total cost of subcontracting production to a third-party supplier.

Cost to make (CTM)

In a ‘make or buy decision’, this method calculates the total cost of producing the product in-house, instead of using a third-party provider.

Finished goods

Completed final products of a business that are ready to be sold to consumers.

Just-in-case (JIC)

A stock control system that relies on the use of reserve or buffer stocks in order to meet changing levels of demand.

Just-in-time (JIT)

A lean stock control system that relies on deliveries of stock being made just in time for them to be used in the production process.

Labour productivity

This measures the average output per worker, for a given period of time.

Lead time

The timeframe (or time lag) from when a firm places an order for stock and it receiving delivery of the stock.

Make or buy descision

The choice of managers whether to manufacture a product in-house (make) or to purchase it (buy) from a third-party subcontractor.

Maximum stock level

The most amount of stock that a firm wants to hold at any point in time, given its storage facilities and capacity.

Productive capacity

The maximum level that a firm is able to operate at, given the resources it has.

Productivity

Refers to the level of efficiency in the production process. The more productive resources are, the more output they generate.

Raw materials

Natural resources used in the production process, e.g. wood, fish, physical land, and water.

Reorder level

The level of inventory when a firm is required to reorder its stock.

Reorder quantity

The amount of new stock that is ordered for production.

Semi-finished goods

Inventory consisting of work-in-progress, i.e. components of an incomplete product.

Stock control chart

A visual tool used to monitor and analyze a firm’s stock levels. It shows the rate at which stocks are used, when stocks are ordered, how long they take to be distributed, and when they are delivered.

Stock-out

This occurs when a business has no more stock for production or sale, i.e. it is out of stock.

Stockpiling

This occurs if a business orders more stock than it would usually do, perhaps in anticipation of higher levels of demand during economically prosperous times, such as peak trading periods.

Supply chain management (SCM)

The art of managing and controlling the sequence of activities from the production of a product to it being delivered to the final customer.

Usage rate

This shows the speed (rate) at which stocks are used in the production process.