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

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

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

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’

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’