Stock Control

Stock Control Production Control Share| Email| Print This is the system used to ensure that the business always has sufficient stock available to meet customer requirements.

Re-Order Quantities The re-order quantity is the amount of stock and raw materials that a business orders from its suppliers each time it reaches its re-order level. This again will vary from business to business and from industry to industry.

For example, a business selling fastmoving consumer goods (e.g. chocolate bars or baked beans) is likely to order a far larger amount of stock from its suppliers than a manufacturer of goods with a slower stock turnover (e.g. televisions or washing machines).

There are several factors which will influence the amount of stock which a business orders, including: 1. Lead times. 2. The expected level of customer demand. 3. The costs of stockholding. 4. The type of stock, whether it is perishable or durable.

Buffer Stocks This is the minimum stock level which will be held by a business to meet any unexpected occurrences. For example, A sudden large order from a customer, deliveries of raw materials not arriving on time, or computer reordering systems breaking down.

Lead Times This is the amount of time that elapses between a business placing an order with a supplier for more stock or raw materials, and the delivery of the goods to the business. The business will wish the lead-time to be as short as possible, so that it can meet its customer orders and minimise the time between paying for the stock and receiving the revenue from the customer.

However, this may not happen due to a number of factors, such as delays in the supplier receiving the order, or the breakdown of the suppliers' lorries delivering the stock to the business.

An effective stock control system, combining the above four elements, can be seen below:

1.

2. 3. 4.

From this diagram, it can be seen that: The re-order level (i.e. the amount of stock remaining when an order is placed) is 20,000 units. The re-order quantity (i.e. the amount of stock ordered from a supplier) is 20,000 units. The buffer stock (i.e. the minimum stock holding) is 10,000 units. The lead-time (i.e. the time delay between placing an order for stock and receiving it) is 8 days.

Stock Rotation Many businesses use a stock rotation system. This is the process of ensuring that the older batches of stock are used first rather than the newer batches, in order to avoid the possibility that the older stocks will become obsolete or go past their sell-by-date.

This is often referred to as a First In First Out (F.I.F.O) system, to encourage the older batches of stock to be used first, therefore avoiding the possibility that the older stock will be left in a warehouse, possibly becoming unusable.

Link to Information Technology (C.A.D/C.A.M) The production process and stock control systems in a business can be assisted by the use of Information Technology (I.T). Sophisticated software packages can enable a business to keep detailed and accurate records on its purchases of stock and its sales to customers, using such systems as Electronic Point of Sale (E.P.O.S).

This records every transaction made by a business and can, therefore, enable it to monitor its stock levels and sales of products to a 100% level of accuracy. This system can automatically re-order stock when numbers fall to a certain level in the warehouse, as well as monitoring the quantity of each component that is used in the production process.

This enables a tight control to be kept on both costs and waste, as well as recording the amount of revenue received from customers and any outstanding customer debts.

Computer Aided Design (C.A.D) is the use of sophisticated computer software to design three-dimensional images of products quickly and relatively cheaply.

Computer Aided Manufacturing (CAM) is the use of computers and software for a wide variety of production tasks, including automated production lines and stock control systems.

Quality Total Quality Management (T.Q.M)

This is the attempt by a business to stop errors and waste from occurring at all levels within the organisation, and to try to encourage all employees to make 'quality' paramount within their daily activities (whether in production, marketing or personnel).

T.Q.M: 1. Internal relationships between workers and their superiors and subordinates are seen to be as important as the external relationships that exist between the business and its customers and suppliers. 2. TQM must be seen to be a policy that is followed by, and has the commitment of, all workers, from senior management to shop floor employees.

1.

2.

3.

The business must monitor all its activities and processes in order to identify any areas for improvement and to ensure that quality is being achieved. Team-working is important, since a group of people working together will develop a wider range of skills, co-operation, and higher motivation than if workers were performing repetitive tasks on their own. Regular market research must be undertaken to ensure that customers are happy with the level of service that they receive (any complaints can be used to improve the existing systems).

Quality Circles This is a group of workers that meets at regular intervals during the working week in order to identify any problems with quality within production, to consider the alternative solutions to these problems, and to then recommend to management the solution that they believe will be the most successful.

The members of the quality circle are also involved in the implementation and monitoring of the solution. This should help to improve the level of motivation amongst the workers because it makes each person in the group feel valued and that they are making a significant contribution to the improvements on the factory-floor.

Zero Defects This is the ultimate objective for a business, to produce every product with no defects, therefore eliminating waste and the time taken to correct mistakes.

Zero defects can lead to an improved business and customer reputation, as well as increasing levels of both sales and profitability. In order for the objective of zero defects to be achieved, it requires the involvement of every employee in the business, making sure that they are all committed and suitably trained.

Continuous Improvement (Kaizen) Kaizen is a Japanese word which means 'change for the better'. A business will often be facing increasing demands from customers to add new features to their products, as well as facing pressures from their competitors who are producing new and improved products, or offering improved after-sales service.

The business will need to continually update and improve their products and marketing, in order to stay ahead of their competitors and boost revenue and profitability.

It is widely held that any aspect of the business can be improved, not just the production processes and, as with zero defects, it is vital that every employee in the business is involved in this philosophy, not simply those in the production department, but also those in marketing, finance and personnel.

Kaizen aims to eliminate waste, and reduce both the time and the costs of production. It links in with other concepts such as TQM, quality circles, productivity improvements and new product development.

Quality Standards The British Standards Institution (BSI) is the body that is responsible for setting quality and performance standards in UK industry.

The BSI 'kitemark' on a product implies to customers that it has been manufactured and produced to a high level of quality, and will be fit for the purpose for which it was advertised.

Quality assurance refers to the attempt to achieve customer satisfaction, by ensuring that the business sets certain quality standards and publicises the fact that these standards are met throughout the business.

British Standard 5750 (BS 5750) was the most common quality certification in the UK. It is now known as ISO 9000, which is an international standard that tells customers that a business has reached a required level of quality in its products and processes.

Quality of output is vital for retaining customer loyalty and, therefore, it is necessary for quality to be an important consideration in the design, the production, the distribution, the sale and the after-sales service of products.

Employee involvement and participation in quality programmes (e.g. quality circles and suggestion-schemes) will serve two purposes: 1. Improve the overall quality of the output and processes. 2. Help motivate the workers by making them feel that their contributions and their suggestions are highly valued.

Quality control is the process of checking the quality and the accuracy of raw materials and supplies as they arrive at the business, and also of the finished products as they leave the business en route to retailers and customers.

This is usually carried out either by quality inspectors or by the employees themselves. The philosophies of zero defects and Kaizen require stringent quality control systems, in order to reduce the costs and time associated with both waste and the correction of low quality output.

Production Decision Making Industrial Location

Basics

of Production

Industrial Location This is the decision that a business or an industry makes concerning its geographical placing in a country. There are many factors which influence the precise location of a business or an industry, including: The cost and the availability of land. Land in an urban area is clearly less abundant (and therefore more expensive) than land in rural locations or on the edge of towns and cities. Therefore it would be advisable, and also more feasible, for a business which requires a large amount of land to locate away from the centre of an urban area.

The cost and the availability of labour. The unemployment rate varies in different areas of the UK, and a business which is labour-intensive may choose to locate near to an area of high unemployment in order to take advantage of the availability of labour at a fairly low wage.

Communication links. Many businesses choose to locate near to motorways, rail links, seaports or airports if they either have a significant amount of raw materials to receive, or a significant number of products to distribute across a wide area of the country.

Transport costs/proximity to the market. Some businesses will locate in certain areas of the country in order to minimise their transportation costs. For example, producers of fast-moving consumer goods (f.m.c.gs) will often have to distribute their products nationwide, and therefore will try to locate as near to the market as possible so their transportation costs are not excessively high.

Availability of raw materials. Some businesses will try to locate near to their suppliers or to the source of their raw materials. For example, businesses which require bulky raw materials, such as timber, will often try to locate near their suppliers so to reduce the leadtime between ordering and receiving the raw materials.

Government location incentives. The UK government has over the past 30 years offered a range of incentives to businesses to locate in depressed areas of the UK, in order to reduce the unemployment rates in those areas by creating jobs. The incentives (such as grants, tax breaks, and reduced rent and rates) are offered both to existing businesses to relocate to the depressed areas, as well as to new businesses which are about to set up.

Industrial inertia refers to the situation when a business or an industry decides to remain in its original location and is very reluctant to relocate, even after the reasons for it locating there in the first place are exhausted.

reasons for this include: 1. The cost of moving may be very large. 2. Strong links with the local community and with other local businesses may have been developed and a move away from there may destroy those links. 3. Some areas and products have an international reputation which may be difficult to establish if the business were to locate elsewhere (e.g. Scottish whisky).

However, industrial inertia can actually make an area become depressed if that area depends on a particular industry or business for employment and wealthcreation. If the industry goes into decline and no other industries or businesses wish to move to this area, then mass unemployment is created, and many of these unemployed will not be trained to perform any other jobs.

International location

International location of industry is also a very important factor in today's global business environment. As well as the reasons for location mentioned earlier, there are a number of other factors that a business will need to consider before choosing a foreign country in which to locate.

These factors include:the language spoken legal differences the economic environment the stability of the political structure.

Over the past 25 years, the UK government has encouraged much foreign investment into the UK from outside Europe - specifically from Japan. These Japanese companies (e.g. Nissan, Sony) create wealth for the UK by providing employment and income to workers, and paying tax to the UK government. They can help to rejuvenate depressed areas and often purchase their supplies and raw materials from other UK businesses.

1. 2. 3.

4.

The Japanese companies are enticed to locate in the UK through a number of factors: English is the first foreign language taught in Japan. Low wage rates in the UK. Government incentives to locate in the UK (e.g. cheap rent, rates, etc). Gateway for selling goods to other EU countries.

Production Methods

There are four ways for manufacturing businesses to organize their production job production, batch production, flow production and cell production.

Job production

This method of production involves an item being manufactured entirely by one worker or by a group of workers.

These items are often made to customer requirements, rather than being mass produced. This type of production is usually undertaken by small businesses and craft industries (e.g. carpenters), although larger businesses which specialise in 'one-off' products (e.g. bridges) may also use this production method.

Batch production

This method of production involves the manufacture of an item being divided into a number of small tasks. A collection (or 'batch') of items each have one of these tasks completed, and then the batch moves onto the next manufacturing task.

In other words, several items have the same task performed on each of them and then they move onto the next task together in a group.

This production method can result in the build-up of large amounts of stock and work-in-progress. This may be a problem if the business is in a fashion industry, where customers' tastes can change quickly and unpredictably, leaving the business with much stock that it is unable to sell.

Flow production

This method of production involves the tasks which were identified in 'batch' production becoming continuous for each unit, often with the use of a moving conveyor belt (e.g. a car assembly line). Each unit is produced individually, instead of being produced in batches.

This type of production is usually undertaken by large businesses. This method of production was first established by Henry Ford in the 1920s, when he developed the world's first automated production line.

This involved each car passing the workers on a moving conveyor belt, rather than the workers continually moving to the car. This method should boost labour productivity and reduce average cost of production even further.

It is often argued that flow production leads to high rates of alienation, demotivation and absenteeism amongst the employees - it is for these reasons that much machinery is today used on these production lines to perform simple, repetitive tasks which humans may easily become bored in performing.

Cell production

This method of manufacturing an item organizes workers into 'cells' within the factory, with each cell comprising several workers who each possess different skills. Each cell is independent of the other cells and will usually produce a complete item, and each cell will usually have an output target to achieve for a given period of time.

It is often argued that if the group of workers in each cell can see the completion of the finished product, then their work will have more meaning and therefore their levels of motivation and job satisfaction will be greatly enhanced.

Research and Development (R&D)

All businesses need to develop longterm strategies, and an important part of this strategy must be the continual development and launch of new products, or amendments made to existing products. This is the purpose of research and development (R&D).

R&D can basically be defined as: 'carrying out extensive scientific research into the product and its design, and then developing a range of prototypes, each to a slightly different specification.' The prototype which best meets the needs of the customers and the business is then likely to be commercialised.

The development of products can take several years to complete and many businesses spend a huge amount of money on this process (e.g. Unilever spent over 600 million on R&D in 1997). It can often be a very risky process, since much money can be spent on ideas that will never be commercialised.

It is within the 'sunrise' industries (i.e. industries which are fairly young and have rapid growth potential, such as computers and aerospace) that extensive R&D spending today can result in a huge competitive advantage in the future.

The benefit of being the first company to launch a new, innovative product is immeasurable, since the company can charge a high price and build up a strong market share as it faces no competition.

It is estimated that only about one product in the pharmaceutical industry reaches the commercialization stage (i.e. launched onto the market) for every ten which are developed and test-marketed. Therefore, the company will have massive R&D costs to recoup when it actually launches a new product, and it will probably take several years before it will have broken-even and covered all the R&D costs.

The businesses which are most likely to succeed in the future are those which develop more new products than their closest rivals, bring their new products to the market in less time than their rivals, compete in more product- and geographic-markets than their rivals, and provide very strong after-sales service to customers.