Managing stock usage

• Stock rotation = method of organising stocks so the oldest supplies are used first.

• Computer-based stock control– EPOS (Electronic Point of Sale) assists in the tracking of stock.

Barcode monitors sales and movements of stock in the store.

• Reducing the overall level of stock– Minimise the amount of stock kept to reduce costs of high

stockholding

Stock Control

• Several methods of stock control exists

• They focus on the RE-ORDER QUANTITY (how much stock is ordered when a new order is placed) and the RE-ORDER LEVEL (the level of stock when an order is placed)

Assumptions…

• Sometimes deliveries are late = delays in stocks arriving– Firms have to use buffer stock

• Re-order quantities need to be reviewed regularly

• Suppliers might offer discounts for ordering larger quantities

• Quantities of stocks used in each time period are unlikely to be constant.– Production levels fluctuate according to demand

• Draw a stock control chart using the following information:– Buffer stock level = 1,000 units– Maximum stock level = 10,000 units– Lead time = 1 week– Stock usage = 500 per day

• What will happen to the reorder point if the lead time is:– Increased - Reduced

Your turn…• Ann Brennan runs Shepherds Bakery. Stocks of raw materials at the

business are currently purchased in response to usage. For example, the bakery uses on average 500 kilos of flour per week. The most Ann wishes to hold at any time is 2,000 kilos. She would be worried if the stock fell below 500 kilos. An order time takes one week to arrive, so Ann always re-orders when her stock falls to 1,000 kilos.

• What is meant by the terms:– Re-order level– Buffer stock– Lead time?

• Draw a stock control graph for flour at Shepherd’s Bakery over a six week period.

• Draw a second graph showing the situation if twice the normal amount of flour were used in the fourth week.

Define the following terms….

• Buffer stock

• Re-order level

• Lead time