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.

Common AS-Level Business Studies Equations

Here is a list of routinely forgotten equations for Business Studies, make sure to memorise them.

Equations


Total Contribution =

Total revenue - Total variable cost

Contribution per unit =

Selling price per unit - Variable cost per unit

or (for total contribution)

Contribution per unit x Number of units sold

Profit =

Total contribution - Fixed cost

Break-even Output =

Fixed cost / Contribution per unit


 What do they mean?

  • Contribution is useful for a business to be responsible for a range of products, it allows them to calculate how much money they make on a sale.
  • The Break-even charts (and equation) is a tool that allows you to show total costs at all possible levels of output or demand from zero to maximum capacity. Break-even is not given in money, and should be the amount of units sold.
  • Profit is money made, not taking anything into account other than fixed and variable cost.
  • Contribution per unit, is just total contribution per unit. So to get it, divide by the amount you sell of a product (or use the other formula). Don’t confuse this with break-even.

When calculating using these equations it is important to consider external factors. Such as extrapolation or economic variables that could be changing the data. However you may not get questions like this in the exam.

Sometimes four mark questions may ask about productivity. For example, these questions do not want you to describe the formula, they may want you to state it. But make sure to stick to  the ‘because, leading to, therefore and such as’ structure. Otherwise you may not be answering the question correctly.

Break-even output is easier to consider it as the fixed costs divided by the contribution per unit, like so. If it costs $500 in rent, and you get $1 for every candy bar you sell, you need to sell 500 candy bars. Because $500 / $1 is 500 not $500.

Remember that break-even output is never given as money. Remember also to consider confidence intervals may mean that the data given is not accurate, as well as the accuracy of the data you have received.


comments hear-say equationsRemember that the information you have may be hear-say and not 100% accurate, things may change. The variable cost of items may raise, or lower. Total contribution may not be accurate if the business sells multiple products at different prices. Make sure to base your equations off all of the information available, don’t take short-cuts.

"Revenue is vanity, Profit is sanity, Cash is King!"

Remember, its not percentages or ratios that businesses put in the bank, it’s dollars. credit. So think about how valuable the data you have actually is. Make sure you understand the numbers! cash flow shortages can be negated with better trade terms. Having predictable cash flow is preferable, so make sure that you mention it.