Stock Control and Resource Management

Just In Time is a lean production technique, It involves ordering a product right as it is about to run out, but before the business has to stop manufacture, this allows a business to work effectively when creating a product that requires a lot of parts and accessories.

types of stock control and resource management arrows
Raw MaterialsWork in ProgressFinished Goods
Bought from suppliers   Supplier may not be able to meet demand   Supplier could not raise prices   Used in assembly or as ingredients   Parts for assembly Not Sellable   Costs business money to make into product   May be a slow process   Wine   May cost staff hours if long time delays i.e. building houses Needs moving for social events   Christmas Gifts

This table shows the disadvantages of holding stock at different levels of the stock control process.

Why hold stock?

  • Fundamentally holding stock allows production to take place
  • To satisfy customer demand
  • As a precaution against delays from suppliers
  • It allows efficient production
  • It allows for seasonal changes
  • It provides buffer between production process

Main influences on Stock

  • The need to satisfy demand such as demand influxes or lower commodity prices.
    The a need to manage working capital, stock control for example could mean a product is depleted without being replaced.
    Risk of losing value, such as the stock market price. Food and vegetables such as flowers may also decrease in value over time.

Low stock levels

  • Lower stock holding posts.
  • Lower risk of obsolescence.
  • Less capital tied up in stock. So the business is more liquid.
  • Consistent with operating on lean production.

High stock levels

  • Production is always fully supplied so there are never any delays as the product never runs out.
  • Potential for lower costs by ordering in larger quantities.
  • The business is better able to handle unexpected changes in demand or the need for higher output as they will have the stocks available.

Advantages and Disadvantages of Capital and Labour Intensive Production

In Business, production generally has two techniques;

  • Labour Intensive Production aims to use a large workforce to complete work by hand, this usually employs a lot of people to create a product. Some products may be seen to have more value if they were manufactured by hand.
  • Capital Intensive Production aims to create a product using as little people as possible, the process could be entirely or partially automated and can sometimes be used to assist individuals in manufacture, such as a custom robotic factory worker that moves parts of a product to assembly, or a robot that screws in multiple screws at once. The aim of these tools is to make the job simple or quicker than manual labour, in order to product multiple product in a given time. Production machinery may be very expensive, but aims to be cheaper than labour intensive production in the long run.

labour intensive production

Labour Intensive Production

Labour costs are higher than capital intensive production, however they can vary. If the task is simple then automation may not be necessary. Labour Intensive production will generally have lower running cost than capital intensive production, as workers will perform most of the tasks. Firms can benifit from access to low-cost labour as the job will likely be low skilled.

  • Businesses can benefit from premium pricing for ‘hand crafted’ goods.
  • There is generally better quality if it is not a fast process.
  • Labour costs can be lower if businesses hire on temporary contracts. Individuals will not need to operate specialised machinery.
  • Some businesses can use a flexible workforce to make sure that locations are staffed efficiently.
  • Labour Intensive production allows for improvement easily compared to capital intensive production.
  • Observation is easier.
  • Lower Break-even output.

automotive-production-line-2 capital intensive production

Capital Intensive Production

  • There is generally a better consistency than manual labour.
  • Businesses can loose competitiveness as they are stuck in the same production technique.
  • Machinery may become obsolete.
  • You can’t make businesses such as a restaurant or hotel capital intensive as customers may feel that their stay was devalued by it.
  • May generate resistance from labour workforce when implementing.
  • Kanban systems are easier to implement.
  • There may be a greater loss if there is a fault.
  • Programmed machines do not loose skill and there is no skill shortage for machines.
  • Potentially High labour costs if individuals need to maintain complex machines.
  • Firms can benefit from access to long term financing.
  • Labour is more specialised so individuals are good at their job.
  • There is usually longer term benefits.
  • Robots do not require pay.
  • Costs are mainly fixed.
  • There is therefore usually a higher break-even output.

Kanban Systems in Lean Manufacture

Kanban systems in business allows them to effectively manage their stock internally, essentially for businesses that require large amounts of stock, such as small parts, screws or trolley-based workstations, they will likely use a Kanban system to effectively manage their stock. A typical Kanban asset tag will have the item description, part number and sometimes will include the cost of the unit, should the business want to try to regulate the use of the item.

What is the purpose of Kanban?

  • A Kanban system ensures that employees always have access to the tools they need and JIT systems can be implemented easily.
  • A Kanban system also allows a business to measure the amount of parts that they do not use when producing a product, and may be able to go to a smaller or higher quantity when ordering.
  • The tag system can also work with a three bin system, one on the factory floor, one in the re-stock room, and one at the supplier. This ensures that the bins are always stocked.
  • This system can also link in with other elements of lean production.
  • Defective products never make it to factory floor as they would not be stocked by the stock control system.
  • Some implementations have plates with the items needed laid out so workers can simply pick up the tools they need and assemble to product without having to move or find the item.
  • Some implementations also have the production line move along at the pace of the ordered quantity, making staff work harder to keep up with the product. (usually for production lines like planes or cars)

Kanban Asset Tag

kanban card system

Some businesses use the Average cost per unit to judge their effectiveness and efficiency, as Kaizen systems recommend ‘Continuous Improvement’ the average cost per unit provides a metric for them to calculate if they are more or less efficient.

Total production costs in period / Total output in period (units) = Average cost per unit

The rise of E-commerce (electronic commerce) and M-commerce (mobile commerce) has made the re-ordering process of these parts much more accessible for a company.

Lean Production Techniques

Lean production methods such as Kaizen and Kanban allow a business to motivate staff to use less waste and treat resources as a finite resource.

Lean Production for Expansion

Most businesses that are doing well consider expanding, when they do they need to use more effective methods of production in order to survive, this means cutting cost on waste and optimising lead times and output. Lean production is about continuously checking that the business processes are as fast as possible.

  • Just In Time – Just In Time (JIT) requires a good relationship with suppliers who are going to deliver when you need them, this saves on storage cost. This also means that a business will have better cash flow if they can tie this together with trade credit.
  • Total Quality Management – In TQM, Each Item is checked for consistency and to meet standards, although it may be expensive and time consuming, it could mean that the business has less waste.

Businesses may want to consider increasing machinery capacity or staff work overtime during expansion. Walking, waiting time and bad quality are eliminated or minimised in a lean production.

Lean Production Techniques

 

Pull (Kanban)

  • Products are made to order, when they are ordered.
  • Businesses only order new stock when it is needed.
  • Items are only bought when they are needed or in demand.
  • Essentially Pull is JIT (Just In Time).
  • There is a reduced amount of leftover resources as products are made to order.

One-piece flow

  • One item is produced at a time, so there is not confusion in manufacture.
  • The flow of production becomes highly predictable and focused.
  • One product is made at a time, so production could be slow.
  • Large objects may only be made one at a time.
  • Batch ordering may not be possible, so businesses cannot take advantage of economy of scale.
  • Standardise manufactured components.

Takt

  • Takt is how fast a product is manufactured to meet demand.
  • It allows a business to balance work to achieve a continuous flow.
  • Continuous Improvement > Kaizen says ‘Continuous Improvement’ through self reflection.

No Defects

  • Products with defects must be fixed before being allowed to go on to the next stage of production.
  • Rate of production is improved, as the rate off success is near optimal.
  • Products with defects may still have been able to sell. It means waste could be higher than before.
  • Products could also be higher quality.

Lead time is the time it takes for a customer to receive a product after ordering it.

Zero based budgets are are when budgets are reviewed without reference to the previous budget. Normally this does not happen, however it is growing in popularity, as it usually results in lower costs.