Organisational IssuesStock and Stock Control (special thanks to Geoff Leese)
Objectives • To explain some of the main issues related to the management of stock • To list some of the main approaches to stock management including JIT, Fixed time etc. • To describe the concept of Economic Order Quantity (without the calculations) • To introduce the term Supply Chain Management • To describe the role of IT in the management of materials in an organisation These objectives relate to LO 1 – Concepts, theories and principles related to the use of computing in business, and Indicative content – Functional areas of business, marketing sales and production etc.
What is stock? • ‘stock’ can refer to • Raw materials required for production of goods • Part finished goods - Goods in Progress • Finished goods • We need to control stock because • A lot of money can be tied up • We are obliged to produce financial reports • It is the key to efficient customer service
Costs of holding Stock • Value of materials • Space • Staff costs • Financing costs • Effect on cash flow • Deterioration / shelf life / obsolescence • Price movements • NB – costs associated with placing orders
Who decides how much stock to hold? • Various Interested parties • Finance limit holdings and restrict the claim on company capital • Sales: Want to fill orders promptly so as not to lose sales through a ‘stock-out’ • Production: Want to maintain sufficient stocks so as to avoid bottlenecks
Supplier considerations • Reliability • Price • Bulk discounts • Lead time • This is time lapse between order and delivery
Economic Order Quantity • i.e. what is the best quantity to buy • Accountants have worked on this for a long time! • Think about buying milk – trip to shop for one carton per day? Or buy 7 cartons on Saturday – trade off? • Think about cost of purchasing( car, petrol, labour) cost of storage (electricity, fridge) may buy too many, may run out • Seasonal businesses – How many Christmas trees should Tesco buy in? is it better to run out than to throw away? • EOQ is mathematical approach to calculating best trade off between costs • Formula best left to the mathematicians!
Stock Control Systems 1. Fixed re-order stock level • The business decides the minimum level of stocks it can tolerate, and then re-orders before the stocks reach this level. The exact timing will depend on lead time.
2. Fixed time re-ordering • The firm re-orders stocks at a fixed time each month or week. • Advantage - it represents a routine for the firm and ensures that stocks are regularly supplemented. Disadvantage - may well mean the level of stocks fluctuating quite a bit depending on the rate they are used up. Inflexible as a system as well unless used very carefully
JIT – Just in Time • Started in Japan in 50’s • Changed the ‘philosophy’ of production • VERY briefly… • Traditional production worked on forecasts, built components, stored excess as ‘inventory buffers’ – called ‘push’ system • JIT seeks to eliminate excess items, and make items only when needed – called ‘pull’ system • This means workforce must be flexible / multi skilled – adapt work to which items are needed • JIT manufacturing is assisted by technologies such as: Electronic Data Interchange (EDI), Computer Integrated Manufacturing (CIM), Optimal Production Technology (OPT) etc. • JIT needs strong supplier relationships - selection of only those suppliers who are prepared to meet production specifications and delivery requirements
Supply Chains A SUPPLY CHAIN is a network of • supplier, • manufacturing, • assembly, • distribution, and • logistics, that work together to perform the functions of • procurement of materials, • transformation of these materials into intermediate and finished products, and the • distribution of these products to customers. Supply chains arise in both manufacturing and service organizations.
SUPPLY CHAIN MANAGEMENT • (SCM) is a systems approach to managing the entire flow of information, materials, and services from raw materials suppliers through factories and warehouses to the end customer. (SCM is different from SUPPLY MANAGEMENT which emphasizes only the buyer-supplier relationship.) • Supply chain management has emerged as the new key to productivity and competitiveness of manufacturing and service enterprises.
Two elements of SCM The first refers to the ‘back-end functions’ such as: • Procurement • Manufacturing • Distribution The second is called called the ‘front-end function’. This is where IT systems play a key role, for example to • facilitate the back-end operations. Key technologies here include: EDI (for exchange of information across different players in the supply chain) • Electronic payment protocols • E-logistics; Continuous tracking of customer orders through the Internet; • Internet-based shared services etc. • You will study SCM in more detail on any Electronic Commerce module.
Simple Stock Records – what data is needed? • Write down at least10 attributes for a stock record • Write down at least 6 activities that will cause this stock record to be updated (or altered in any way) • Write down at least 10 management reports that might be produced from the information in your stock records • How might automated Sales Invoicing interact with a stock file? • How might automated Re-Ordering interact with a stock file?
What software is available? • Huge numbers of packages • Locate with google search (or similar) e.g. • Accounting • Material management • Inventory control • Sales Order Processing • Automated Invoicing • Many are expensive – check freeware first • Look for small to medium company first • Look for demos, or screenshots
Take a few minutes to reflect…. • Why is the efficient management of materials so crucial to all organisations? • Why do companies spend vast sums of money on IT designed to support this function? • What are the major components of these IT systems? • What advantages are gained when the systems work well (think Tesco, etc) • What happens if the systems don’t work so well (think Sainsbury etc)