Managing Stock (AQA GCSE Business)

Approaches to Managing Stock

• Stock, also known as inventory, includes the goods and materials a business holds for the ultimate goal of resale, or for use in production

Types of Stock in Vehicle Production

• The management of stock is an important consideration for businesses

  • Problems may arise from holding too much stock

    • Storage costs (e.g. warehouse rental, security costs) will be higher than necessary 

    • The risk of spoilage and stock  [popover id="kO4zTS0JSdd0vRc~" label="shrinkage"]  will be increased, leading to increased costs

  • Similarly, holding too little stock is risky

    • A business may run out of stock, resulting in production stoppages and higher unit costs related to underused capacity

    • A sudden increase in demand may not be capable of being met and this leads to a loss of potential sales revenue

Diagram: Implications of Poor Stock Control

A range of problems can be caused by holding too much or too little stock

• In some cases, the benefit of being able to meet customer demand outweighs the cost of holding excess stock

  • In these instances, a just in case stock management approach is most suitable

    • E.g. IKEA relies on having sufficient stock to meet customers' immediate needs, so makes use of large warehouse spaces at each of its regional stores

• In other cases, the loss of purchasing economies of scale is outweighed by significant storage cost savings

  • In these cases, a just in time stock management approach is most suitable

    • E.g. Sports brand Nike uses a just in time stock management system, which allows it to quickly respond to changes in customer demand and reduces the risk of having to sell obsolete stock at low prices

Just in case Stock Management

• Just in case stock management involves a business holding a quantity of raw materials, components or finished goods as buffer stock

  • Stock is held in case of shortages so as to provide a  competitive edge  over rivals unable to meet demand

• The decision to keep buffer stocks is one that businesses have to weigh up very carefully

  • Holding stock incurs storage and security costs and can increase waste, as stock could be damaged, become obsolete or stolen

  • Failing to hold enough stock could mean a business is unable to meet demand, potentially missing out on sales revenue

Evaluation of Just in Case Stock Management

Just in time Stock Management

• Just in Time (JIT) stock management is a process in which raw materials and components are ordered as required and delivered 'just in time' to be used in production

• Raw materials and components are ordered from a small number of trusted key suppliers at the moment that they are to be used

  • Close, long-term relationships with these suppliers need to be developed

    • They must be flexible and reliable

    • They may be required to hold stock on behalf of a JIT-operating customer

    • They are often in close proximity to their key JIT-operating customer

      • E.g. Around half of businesses using JIT stock management systems aim to source raw materials and components from local or regional suppliers

Evaluation of Just in Time Stock Management