Revision Notes

Control - stock

Any system of control sets standards, measures deviations from standards and then takes corrective action. The situation is the monitored.
Stock control means making sure there is not too much stock, too little and it is of the right quality.
JIT means low stock. Thus stock costs are minimised. These include rent, security, obsolescence and capital tied up. Stock is a current asset. High stock reduces liquidity.
Key formula: Economic Order Quantity. This determines the most economic size of each order. Formula: EOQ = Square root of (2od/h) O =ordering costs of the item; d = annual demand; h = holding costs of 1 unit per annum.
EOQ is likely to change as the larger the order the less the costs of actually making the order (per item).
Key diagram: stock control chart showing: maximum, re-order and minimum levels.
Two bin method: two bins of stock, when one bin is empty then it is time to place an order.
When setting the re-order level lead-time (time from when the order is placed to when the delivery arrives) must be considered.
Lead-time is affected by production time, distance; stock levels at the supplier, method of transport.
Stock control may mean that delivery and production times of the supplier are more important than the cost of supply.