MANAGEMENT OF OPERATIONS

1
MANAGEMENT OF OPERATIONS

• STOCK MANAGEMENT

2
LEARNING INTENTIONS AND SUCCESS CRITERIA

• LEARNING INTENTIONS
• I understand what is involved in effective stock
  management.

• SUCCESS CRITERIA
• I can describe the DIFFERENT
• STOCKS a business may hold.
• I can explain the costs of
• OVERSTOCKING.
• I can explain the costs of
• UNDERSTOCKING.
• I can describe the different
• activities that are involved in
• the STOCK CONTROL
• PROCESS.

3
WHAT IS STOCK MANAGEMENT?

• STOCK MANAGEMENT is all about trying to
• make sure that the business has a STOCK LEVEL
• that prevents OVERSTOCKING PROBLEMS and
• UNDERSTOCKING PROBLEMS.
• Lets find out what some business experts
• think about stock management
• http//www.bbc.co.uk/learningzone/clips/a-short-in
  troduction-to-production-methods/10966.html

4
WHAT IS STOCK?

• Stock in any business is an UNUSED AMOUNT of
• something, and the main types of stock are
• RAW MATERIALS (basic parts still to be used in
  production)
• WORK IN PROGRESS (products that have been started
  but not yet finished)
• FINISHED GOODS (products that are complete and
  ready to be sold to consumers)

5
OVERSTOCKING

• Overstocking means that a business has bought in
  MORE
• stock than it regularly needs and so will face
  the following
• problems due to extra unnecessary stock
• High labour costs for security staff to prevent
  theft of stock
• High labour costs for warehouse staff to manage
  stocks
• High storage costs for large premises to store
  stock
• High costs of insurance for large amounts of
  stock
• Less chance of wastage or theft being noticed and
  dealt with
• Risk of losing money on stock that becomes
  obsolete eg if trends change (social factor)
• Money is tied up in stock that could be used for
  other purposes within the business eg buying new
  equipment to increase production

6
UNDERSTOCKING

• Understocking means that a business has NOT
  bought in
• enough stock to continue with its ordinary
  activities and so
• will face the following problems from a lack of
  stock
• Production may have to stop
• Stockouts may occur (this means there is no stock
  for customers) leading to decreased sales and
  profits, less customer loyalty and a damaged
  business reputation
• Unexpected customer orders cannot be met

7
STOCK CONTROL

• Once a business has decided how much
• stock to have (to prevent over or under
• stocking), then it will have to make sure that
• stock is re-ordered when necessary and is
• looked after to prevent wastage or theft.
• Businesses will do this through a process
• known as STOCK CONTROL.

8
STOCK CONTROL SYSTEMS

• The work to keep track of what is happening
• to stocks can be done either MANUALLY
• (by hand using a record known as a STOCK
• CARD) or by COMPUTER eg using a simple
• Spreadsheet or sophisticated stock control
• software.

9
STOCK LEVELS

• A MAXIMUM STOCK LEVEL is set in line with
  consumer
• demand and storage space available. This should
  prevent
• overstocking.
• A MINIMUM STOCK LEVEL is set in line with normal
• demand and lead times from suppliers. This should
  prevent
• understocking.
• A RE-ORDER LEVEL is set between the maximum and
• minimum levels taking account of the minimum
  level, lead
• time and normal demand. This should prevent
  stock-outs.

10
STOCK DIAGRAM

• Stock levels can be shown in a chart as
• follows

11
ADVANTAGES OF COMPUTERISED STOCK CONTROL

• Computers can accurately calculate stock figures
  quickly and these can be updated continually if
  the system is linked to an EPOS sales system
• Computers may be able to replace staff in stock
  control which saves on wages
• Computers can automatically remind staff when the
  reorder level has been reached
• Reminding staff of when to reorder should lower
  the chance of running out of stock
• Computers can automatically reorder stock to
  prevent any chance of staff forgetting
• The information gathered from computerised stock
  records can help with decision making about stock
  eg if products are not selling well, use a
  special promotion
• The need for physical stock checks is minimised,
  although they still need to be done at least once
  a year to check the accuracy of the computerised
  data which will not show events such as theft or
  damaged stock.

12
USE OF BAR CODES

• Bar codes are now used to identify products and
• the contents of boxes of products being
  delivered.
• This makes the checking of stock when it is
• delivered much quicker as the bar code will be
• scanned and this will automatically update the
• computerised stock records.
• When items are sold or removed from stock, they
• can be scanned again to automatically reduce the
• amount in the stock records.

13
JUST-IN-TIME STOCK CONTROL

• Some manufacturers use the Just-in-Time system of
  stock
• control eg car manufacturers. Here there is no
  storage of
• stock at all, thus saving money on warehousing
  and all its
• Associated costs. Stock is ordered just in time
  for when it
• is needed in the manufacturing process. This
  system could
• not work without very reliable suppliers that are
  located
• close to the manufacturing base.
• Although money is saved on warehousing, due to
  frequent
• small orders, bulk-buying discounts will be
  unavailable and
• administration costs will be higher.

14
JUST-IN-TIME STOCK CONTROL

• Lets watch a video clip about how JIT stock
• control works in practice
• http//www.bbc.co.uk/learningzone/clips/just-in-ti
  me-delivery/11381.html

15
TASK

• Complete Worksheet 33 in your jotters.