Edexcel A2 Business

2.4.3 Stock Control

Revisionstation
You will need a ruler and selection of colours
Calculators will be needed for this topic
Worksheet
From Edexcel
a) Interpretation of stock control diagram
b) Buffer stocks
c) Implications of poor stock control
d) Just in time (JIT) management of stock
e) Waste minimisation
f) Competitive advantage from lean production
Starter
• You have two cats.
• Each cat eats 2 pouches of wet food a day (one at 6 am one at 2pm)
• Each cat also eats 25g of dry food a day
• You shop once a week and only have limited money
• Questions:
1. How many wet cat food pouches would you buy for one 7 day week?
2. What size bag of dry cat food would you buy for 7 days?
3. Is there an efficient way to ensure that you never run out of cat food?
4. What if you don’t have the storage space?
5. What if you have a tight weekly budget?
6. On which day would you go shopping (assume your week starts on Sunday) to ensure a
constant supply?
Answers to starter
1) 28 pouches of wet food a week
2) 350g bag of dry food
3) Buy lots and lots and lots of cat food and have it in the cupboard
4) Having cat food delivered just before you run out, you won’t need
storage space
5) Make sure you only buy exactly what is needed
6) Go shopping on Friday to ensure there is a small buffer stock, incase
the shops have run out
Definition: Stock control
• Stock control is the control of the flow of stock in a business, it
concerns the ordering and management of:
1. Raw materials
2. Components
3. Work-in-progress
4. Finished goods
Stock explained
Stock is also known as inventory. It can mean any of these; raw materials, work-in-progress,
components or even finished goods. So stock does not have to be complete products it can be part
made items. This is an example of the stocks held by Denby pottery. What would a component be in
Denby pottery?
Raw materials - Work-in-progress Finished goods
clay
Interpretation of stock control
diagram
Stock management diagram
• Stock management can be carried
out by using a diagram such as the
one on the right

• This diagram is also known as a bar

gate if you are looking for examples
online or in text books

• You do not have to draw one in an

exam but you will need to be able
to make calculations from one
Step 1: Know the diagram
• In a business they may need to
order more stock when they run
out
• For example in a pet shop they
may need to order cat food
• The goods will come from the
supplier but may not turn up for a
few weeks
• Business needs to PLAN to make
sure that they don’t run out of cat
food to sell
Step 2: Understand about holding stock
• High stock holding is expensive and
adds to the cost of a business
which will reduce profits e.g. extra
storage, insurance, etc.
• A business can be left with lots of
unwanted stock e.g. cat food that is
out-of-date
• Makes it more difficult to compete
on price due to stock holding costs
• Can you explain how this would
have an impact on profitability? Urgh this cat food it out-of-date
 Step 3: Have a go at drawing a diagram
20

15
Stock Level – boxes of cat

10

5
food

2 4 6 8
Time in weeks
 Step 3: Have a go at drawing a diagram
20
Maximum Stock Level

15
Stock Level – boxes of cat

Re-order Level
10

5 Minimum Stock Level

food

Lead Time Buffer stock

2 4 6 8
Time in weeks
 Step 4 read your diagram
The stock arrives when your stock level is at maximum – think about a box of cat food arriving and filling the
shelves

What is the max stock level that the business can hold?

What is the minimum stock level that the business can hold?

What is the re-order level?

What is the buffer stock level?

How long does it take for stock to arrive after it has been
ordered? (this is the lead time)
Step 5 check your answers

20
What is the max stock level that the business can hold?

5
What is the minimum stock level that the business can hold?

10
What is the re-order level?

5
What is the buffer stock level?

4-5 days
How long does it take for stock to arrive after it has been
ordered? (this is the lead time)
Try another example
What is the max stock level
that the business can hold?
What is the minimum stock
level that the business can
hold?
What is the re-order level?

What is the buffer stock

level?

How long does it take for

stock to arrive after it has
been ordered? (this is the
lead time)
Answers
What is the max stock level 95
that the business can hold?
What is the minimum stock 25
level that the business can
hold?
What is the re-order level? 60

What is the buffer stock 25

level?

How long does it take for 5

stock to arrive after it has weeks
been ordered? (this is the
lead time)
Try this question (not an exam question)

What is the max stock level that the

business can hold?

What is the minimum stock level that

the business can hold?

What is the re-order level?

What is the buffer stock level?

How long does it take for stock to arrive

after it has been ordered? (this is the lead
time)
Try this question (not an exam question)
Answer
Buffer stocks
Buffer stocks
• Buffer stocks are stocks which are
held in case there is unforeseen rise
in demand or a problem with supply
• A business will keep buffer stocks to
make sure that production is not
stopped and that customers are
kept happy with supply dates being
met
• Some goods cannot hold buffer
stocks – due to perishability (it goes
off like milk) or due to obsolescence
(it goes out of date like technology)
Buffer stocks Disadvantages
• The cost of storage is high, a
business will need to pay for
premises, staff and security of the
Advantages
stock
• Holding buffer stocks means that
• This can tie up the working capital
a business can easily respond to of a business
changes in consumer demands
• Holding buffer stocks means that
if the suppliers cannot deliver on
time that production will not be
affected
Implications of poor stock control
Stock out costs
• Stock out costs are the costs of
not having stock when it is
needed:

1. Loss of customer goodwill

2. Loss of sales revenue
3. Damage to reputation
4. Disruption to production
Just in time (JIT) management of
stock
Just-in-time delivery
• Just-in-time means that a
business does not keep stocks of
parts in a warehouse
• Instead they order the parts and
get them delivered same day
from the supplier
• This means very close links with
suppliers
• Watch the video: can you now
explain JIT to someone else?
JIT and suppliers
• To make JIT work the
manufacturer needs to have
excellent working relationships
with their smaller parts suppliers
• JIT does not work when there
are delivery or quality issues
• No buffer stocks are held in a JIT
system so if delivery does not
arrive the product cannot be
made
Where JIT is most suitable
• Just in Time Manufacturing (JIT) -
also known as "lean manufacturing"
refers to a system of manufacturing
in which products are not built until
the product is ordered and paid for
• Some companies that have
successfully implemented JIT include
Toyota, Dell and Harley-Davidson.
Can you find other examples?
JIT + Waste + Lean Management
• JIT's main philosophy is to
eliminate waste - wasted inventory,
wasted stock and wasted time
• By creating and delivering products
quickly when consumers request
them excess inventory is
eliminated, customers receive their
orders quicker and the
manufacturer doesn't need to keep
a large inventory of stock parts
JIT Disadvantages
• The business won’t be able to meet
unpredicted surges in demand
• The business won’t be able to quickly
Advantages replace damaged parts
• As parts are ordered as they are • If the delivery does not turn up in time this
needed there is no wastage can stop the whole production line, which
is costly
• Parts are not warehoused which is
a massive cost saving in terms of
premises and staff
• Stock is less likely to go out of date
• The business will improve their
cash flow, as their money is not
tied up in stock
Waste minimisation
Definition: Waste
• Any activity or result that the customer doesn’t value and is not
willing to pay for. These activities that don’t add value for the
customer between the inputs and the outputs must be removed or
minimised.
Waste minimisation
• Waste minimisation can help
improve efficiency and reduce
the unit costs of production
• Waste minimisation can also
improve the public image of the
business – if they are seen to be
more eco friendly
• Waste minimisation can carry
heavy legal fines for non-
compliance
7 Deadly wastes
• Lean production aims to
eliminate the 7 deadly wastes:
1. Over production
2. Waiting time
3. Transportation time
4. Excess processing
5. Excess stock
6. Excess motion
7. Product quality
7 Deadly wastes: #1 Over production
• Over production means that the
business is making more than
required and maybe running at over
capacity (Just-in-case)
• Over production can stop the Over production could be a huge meal in a restaurant
smooth flow of materials round the or over-staffing an event
factory and reduces quality of
finished goods
• Overproduction is number 1
because it triggers all the other
types of waste, can you explain why
this is true?
7 Deadly wastes: #2 Waiting time
• The waste of waiting can take
two forms;
• Waiting because the next step in
the process is not ready
• Waiting because there are not
enough inputs necessary to
complete the next process
• E.g. garden company waiting for
delivery of trees and grass
• What is the waiting time in the
airline industry?
7 Deadly wastes: #3 Transportation time
• There can be significant costs spent
on transporting parts, components
and stock to each workstation or
between sites
• It wastes energy and resources of an
employee that could be better used
• It wastes fuel for forklifts and lorries
• Anytime that materials have to be
moved from one place to another is
an opportunity to reduce wasteful
transportation
7 Deadly wastes: #4 Excess processing
• Excess processing can mean any extra
processes which take the original raw
material further and further from its
natural state
• This is fine if it meets customer needs,
but if the customer doesn’t want these
extra processes then this is wasteful
• If the customer just wants to buy a
garden shed and we paint it before
delivery, and the customer wasn’t
really expecting it to be painted, just
plain wood, then this is wasteful
unnecessary process
7 Deadly wastes: #5 Excess stock
• If a product is over produced then
it must be stored somewhere
until it is needed. This means
warehousing, tracking and
monitoring.
Clothes, if stored too long, risk going out of fashion
• It risks the products becoming
obsolete, going off or going out of
style (depending on hat it is) and
it is incurring costs
• Can you link this to profitability of
a business?
7 Deadly wastes: #6 Excess motion
• Excess motion can mean unnecessary
activities within the workspace
• Too much bending, lifting stretching
can be tiring and case accidents
• Examples might be printers or
photocopies that are not in a
convenient location and require staff
to have to walk to them
• Can you think of an example at your
school or college of where excess
motion may be a problem? In this work area tools and components are stored
right where they are needed. This is called point of
Use Storage or POUS)
7 Deadly wastes: #7 Product quality
• If product quality is inferior then this
will cause scrap and rework, these
defects all add costs to the
manufacturing process
• Mistakes can cause waste, for
example when you order a chicken
legend meal with no lettuce and no
mayo from the drive through and it
arrives wrong, this may have to be
thrown away – causing waste
• Can you explain how a glitching
game may be relevant here?
Suggested activity – 7 wastes video project

• Watch the video – these

students made a video to
illustrate the 7 deadly wastes,
it’s had 55,000 views!
• Could you write a script for your
own version?
• Could you make your own film?
Competitive advantage from lean
production
 Lean production
• Lean production is a Japanese approach top production first
adopted by Toyota.
• The aim is to reduce resources used in production, to use less
of everything;
A. Time
B. Labour
C. Capital
D. Space in the factory
E. Raw materials
Lean production cost savings
• Toyota can develop a car in 18
months, it takes general Motors
(who make Ford) three years.
• It takes GM 50% longer to
assemble their cars than Toyota
do.
• So there are impressive cost
savings to be made from
introducing lean production
Benefits of lean production
• Improved customer service
through delivering exactly what
is required when they want it
(think cars)
• Improved productivity in terms
of output per worker per time
period
• Quality improvements through
reduction in defects and
reworking faulty goods
More benefits of lean production
• Shorter lead times – which can
become a competitive advantage
for the business – who wants to
wait six months for a sofa?
• Reduced waste in terms of the 7
types of waste
• Safer work environment, with a
more organised leaner
organisation comes higher levels
of safety
Revision videos
Case study for question 1 – from 2017 paper
 Sample question 1

Knowledge Application Analysis

1 2 1
Answer sample question 1
Glossary
• Stock control; the control of the flow of stock within a business
• Buffer stock; stock held in case there is an unforeseen demand
• Lead time; the time it takes from ordering the product to delivery to
customer
• Work-in-progress; goods which are still being made
• 'Just-in-time': System of delivering parts to the assembly line in a
continuous flow, rather than stockpiling large volumes at the plant