Supply chain - EduqasStock control

Traditional stock control methods

Traditional stock control relies on forecasting stock levels along with closely monitoring stock and reordering when required. Often traditional stock management relies on a ‘just-in-case’ (JIC) method, where business have spare stock to ensure they can continue operating.

The maximum stock level is the largest amount of stock a business can store on site. The maximum stock level will vary for each business, for a large business this could be 500,000 items, for a small business it could be 100 items.

The minimum stock level is also known as buffer stock. This is the lowest amount of stock a business can store on site while still being able to operate effectively, for example a small shop may keep 10 tins of beans as a buffer. Buffer stock ensures a business can still operate for a short while if there are delays to deliveries or there is a large spike in demand. It also allows a business to replace any damaged stock while continuing to meet customer demand.

Lead time is how long it takes from ordering stock for it to arrive. Cakes ordered from a bakery two miles away may have a lead time of one day whereas clothes ordered from a factory in China may have a lead time of eight weeks.

Just-in-time (JIT) stock control

Just-in-time (JIT) is a stock control method where the business doesn’t store any raw materials. Instead, it has regular deliveries that bring only what is needed before its existing raw materials run out, so buffer stock is not needed.

The business orders smaller but more frequent quantities of stock that are taken straight to the production line on the factory floor. For this method of stock control to be effective, a business needs a good relationship with its suppliers. Suppliers will ideally be local to reduce both delivery costs and lead time.

JIT stock control can have disadvantages. For example, there may be times when a business runs out of stock because of late deliveries. Businesses have to decide whether the advantages of JIT outweigh its disadvantages.

Advantages of JIT

• Removing buffer stock space (which would previously have been used for storage) means more space can be used for sales.
• Smaller but more frequent deliveries mean that the products will be fresher. A business can also have new stock delivered more frequently, eg perishable items such as fresh fruit and vegetables.
• Businesses will no longer have large amounts of capital tied up in stock that could go out of date or out of fashion. This capital can then be reinvested or spent elsewhere.
• Having less stock that could go out of date will reduce waste, saving money.
• JIT reduces production costs, allowing a business to price its products to give it a competitive advantage.

Disadvantages of JIT

• It can be hard for businesses to react to unexpected changes in demand, eg a heatwave causing an increase in the demand for ice cream, as they have no stock and have to rely on suppliers.
• Businesses are unable to use bulk-buy discounts if they only buy in small quantities.
• Customers could receive a poor service if the business misjudges the amount of stock it needs and allows products to go out of stock.

Computerised stock control

Many businesses now use computer software that automatically reorders stock when it reaches a pre-set reorder level. For example, stock levels can be automatically updated every time a product is sold to a customer, as products are scanned at the checkout using a bar-code scanner. This not only ensures accurate stock levels but also allows stock to be automatically reordered when it reaches a pre-set level.