AS Business 2013

Inventory Management, including Just in Time (JIT)

Inventory Management

• Objectives– What is inventory?– Why do companies need to keep inventory?– What are the costs of not having inventory?– What are the costs of having too much inventory?

Inventory Management

• Inventory (stocks) = materials or goods required to allow for the production and supply of products to the customer

• Three types of inventory:– Raw materials– Work in progress.– Finished goods.

The Production Process

InputsResourcesLandCapitalLabourEnterprise

ProductionProcesses

OutputsFinished goods

and services

Waste

Value added reinvested into inputs or marketing, research and administration

Inventory Management

• A4 Paper at Cambridge College

What are the costs of holding inventory

• Warehousing• Opportunity cost• Theft• Damage• Obsolescence

• And others……

Why do companies have inventory?

• Avoid lost sales• Avoid idle production• Special (emergency) orders are expensive• Purchasing economies of scale.

• There are others…….

Total Stock Holding Costs

Controlling Stock

FOR WED AND THURS WITH SUBSTITUTE – 20 MARKS

• Activity 22.2 Page 425

• Revision questions page 427-428– 1,3,4,5,6

JUST IN TIME STOCK CONTROL• X

Just-in-time (JIT)

• What is Just-in-time?– Stock control method aims to avoid holding

inventory by requiring suppliers to deliver just as parts are needed

• Why do companies use it?– Aims to reduce inventory holding costs by not

holding any inventory, and at the same time avoiding the costs of not holding stock

Just-in-time (JIT)Good Bad

•No costs of holding stock. •Expensive to set up.

•If anything goes wrong the whole manufacturing operation can stop dead!

Just-in-time (JIT)

• Needs of Just-in-Time– Excellent relations with suppliers.• Suppliers to be reliable and committed• Located nearby• Communication with suppliers to be excellent – IT

– Accurate forecasts of demand• Which parts do we need and how many?

– IT• Computers to control ordering.

Just-in-time (JIT)

• Needs of Just-in-Time (continued)– Machinery• Flexible to switch between products

– Quality is essential• No spare parts so all parts must be perfect.

– Staff• Skilled and trained• Committed• Good relations between management and employees

FOR WED AND THURS WITH SUBSTITUTE

• Activity 22.3 page 426