2.33 Managing Stock

Procurement

The process of managing a business’s major purchases, from raw materials to delivery vans.

Logistics

The organisation and management within a business of the transport of raw materials and goods (source, store, supply)

A business might use a bar gate diagram to help manage stock. This helps the business to plan and make sure they don’t run out of stock. If they did, customers may go elsewhere. However, holding stock is expensive, and some stock e.g. food, may have a short shelf life and could go to waste. Click here to see a bar gate diagram – make sure you can answer the questions which go with it.

Just in time

  • 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

To make it work, a business must have good relations with its suppliers. It won’t work if there are problems with delivery times, or if the raw materials are not good enough quality when they arrive. In a JIT system the business holds no stock in reserve.

The big advantage of JIT is the cost savings achieved through not holding stock. This also improves their cash flow as no money is tied up in stock.

Disadvantages include that it is difficult to cope with a sudden increase in demand, and if a delivery doesn’t turn up it can bring everything to a halt – think about what might happen to their reputation if the business can’t meet customer needs.