2.3 Working with Suppliers

2.3 Making operational decisions

2.3.2 Managing stock

Multiple Choice

Which of the following best describes the term, just in time (JIT) stock control?

• The stock which a business holds

• A diagram which shows business stock levels and usage over time

• A system whereby stock arrives only when it is needed by the business

• The minimum amount of stock that a business holds at any one time

Multiple Choice

In a bar gate stock graph, what is the re-order level?

• The time at which new stock is ordered

• The amount of new stock that is ordered

• The amount of stock that leads to a new order being placed

• The time at which stock levels reach zero

Key elements to this topic

Bar gate stock

graphs

Just in time
stock control

Managing stock

Multiple Choice

Which of the following is the most likely direct benefit of having an efficient logistics department?

• Stock will arrive exactly when required

• Lead times will increase

• Increased amounts of buffer stock can be held

• Insurance costs will increase

Multiple Choice

Which of the following is a drawback to a business of using just in time (JIT) stock control?

• High insurance costs

• Stock could become out of date or obsolete

• Storage costs will be high

• Delays in deliveries could result in idle resources

Multiple Choice

Which of the following is most likely to be an advantage to a business of using just in time (JIT) stock control?

• Last minute orders can be met successfully

• Bulk buying of stock can lead to lower costs

• Improved cash flow

• Delays in the production process are less likely to occur

The process of managing stock involves ensuring
sufficient:-
•

Stocks of raw materials required to produce the finished
goods are available

•

Stocks of finished goods needed are available to meet
demand

•

Staffing in service industries, e.g. checkout operators in a
supermarket, is accurate to ensure a quality service is
provided to customers

Many businesses use production scheduling software to plan
production and stock levels.

When managing stock, the key for a business is to
ensure: the right quantity of stock is always
available at the right time, at the right quality and at
the right price!

Managing stock

Multiple Choice

When choosing a supplier, which of the following would be the most important factor to a business which uses just in time (JIT) stock control?

• Reliability

• Payment terms

• Cost

• Quality

Multiple Choice

Which of the following businesses is most likely to operate a just in time (JIT) stock control system?

• Car manufacturer

• Nationwide footwear retailer

• Wholesaler of building supplies

• School uniform retailer

Multiple Choice

Which of the following best describes the process of ensuring the correct supplies are ordered and delivered on time?

• Operations

• Logistics

• Procurement

• Just in time (JIT) stock control

Types of stock management

Just in time

(JIT)

Minimum amount of

stocks of raw
materials and

finished goods are
held by the business

Just in case

(JIC)

The business holds
buffer stocks of raw
materials/finished
goods just in case
there is a problem
with deliveries or

there is an

unexpected surge in

demand

Multiple Choice

Which of the following is a potential benefit to a business that buys larger quantities of stock in order to negotiate a cheaper price from suppliers?

• Increased quality

• Lower unit costs

• Faster delivery times

• Increased selling prices

Multiple Choice

Which of the following factors would a café, which prides itself on the sale of ethically sourced products, consider the most important when choosing its suppliers?

• Cost

• Delivery

• Availability

• Trust

Multiple Choice

Which of the following best describes the term, buffer stock?

• The maximum amount of stock the business can physically hold

• The amount of stock that arrives in a new delivery

• The minimum amount of stock the business wishes to hold

• The amount of stock held when a new order is triggered

Just in time - Mini

The Mini factory in Oxford use a just in time system. Watch
the clip, what does the success of just in time depend on?

Multiple Choice

Which of the following statements best describes the term, minimum stock level?

• The time between re-order and delivery of stock

• The highest level of stock held by a business at any one time

• Stock kept by a business to guard against unforeseen shortages

• The least amount of stock a business can or wants to hold

Multiple Choice

Which of the following terms best describes the process of choosing a supplier, agreeing what to buy, at what price and by when?

• Just in time (JIT) stock control

• Logistics

• Stock control

• Procurement

Multiple Choice

Which of the following is a consequence for a food wholesaler of holding large volumes of stock?

• Low insurance costs

• Low storage costs

• Difficulty in meeting customer demand

• Short shelf life of stock

Just in time stock control

Key facts:
❖ Careful planning is required as raw

materials arrive at the production line as
they are required. JIT works well when
demand is consistent.

❖ Good relationships with suppliers are

essential; suppliers are therefore usually
located nearby.

Multiple Choice

Which of the following is a potential benefit to a clothing e-tailer of choosing a supplier that consistently delivers high quality goods?

• Increased brand loyalty

• Guaranteed higher footfall in its physical stores

• Customers will expect to pay lower prices

• Increased number of returns

Multiple Choice

Which of the following statements is true in relation to the bar gate stock graph below?

• The business experienced a stock out in month one

• The maximum stock level the business wishes to hold is 4 cartridges

• The lead time for each delivery is always two months

• D The re-order quantity in month two is 6 cartridges

Multiple Choice

Which of the following is a benefit to a business of choosing a supplier that charges the lowest price for stock?

• Flexibility on selling price

• Increase in unit costs

• Lower profit margins

• Guaranteed high quality

In pairs, discuss and list

three benefits and

three drawbacks to a

business of using
just in time stock

control

Just a minute…

Multiple Select

Which two of the following are possible drawbacks to a high street fashion retailer of changing to a just in time (JIT) stock control system? The business...

• May be unable to meet unexpected demand for fashionable products

• Will have to use potential selling space to hold buffer stock

• May have to increase stock room capacity

• Will have a weaker cash flow

• May lose out on discounts resulting from bulk buying of stock

Multiple Choice

On a bar gate stock graph, which of the following terms describes the size of an order that is delivered to a business at a set moment in time?

• Maximum stock level

• Re-order quantity

• Minimum stock level

• Re-order level

Multiple Select

Which two of the following statements are true in relation to the bar gate stock graph below?

• 3000 bags of flour arrive in week 3

• Maximum stock held is 5000 bags of flour

• Stock ordered in week 5 takes 2 weeks to arrive

• Buffer stock held is 6000 bags of flour

• Minimum stock held is 1000 bags of flour

•

Stock levels can be
kept to a minimum

•

Reduced storage
and other costs,
such as insurance

•

Less waste

•

Improved cash flow

Benefits of just in time

Multiple Choice

Which of the following job roles would be found within the logistics department for a large supermarket chain?

• Customer services manager

• Warehouse manager

• Retail manager

• Human resources manager

Problems of just in time

• Reliant on a good relationship

being formed with suppliers

• Vulnerable to disruptions in

transport

• Careful planning required; no

spare buffer stock is held

• Benefits from bulk buying may

be lost

• More administration/paperwork

as many orders are placed

Multiple Choice

Which of the following areas of business is most likely to be responsible for ensuring customer deliveries arrive on time?

• Production

• Sales

• Customer services

• Logistics

Just in case stock control

The alternative approach to just in time stock
control is the situation when a business chooses to
hold stock within the business. This is often referred
to as just in case stock control.
Key facts:
❖ It is often used when demand is unpredictable,

suppliers are not nearby and storage is not
expensive, as buffer stock is held.

❖ It is not suitable for products which perish,

become obsolete or go out of date quickly.

Multiple Choice

Which of the following terms describes the time difference between a business ordering and receiving stock?

• Re-order quantity

• Lead time

• Buffer stock

• Re-order level

Bar gate stock graph

If a business chooses to hold
stock of different products, it

can use a bar gate stock

graph to show and track stock
levels of each product over a

period of time.

Multiple Choice

Which of the following best describes the term, logistics? Ensuring the…

• Correct supplies are ordered, stored and delivered on time

• Cheapest supplies are purchased

• Highest quality supplies are purchased and delivered

• Most reliable supplier is chosen

Bar gate stock graphs

: Stock level of
product X over time

: Maximum stock
level the business wishes or is
able to hold of this product at
any one time

: Re-order level – the
point when a new order is
triggered

: Minimum stock
level or buffer stock is the
lowest amount of stock the
business wishes to hold

: Lead time represents
the time difference between
placing an order and receiving it
What has happened at the start of weeks 2, 4, 6 and 8?

Multiple Select

Which two of the following are most likely to occur when a business introduces just in time (JIT) stock control?

• Lower stock holding

• An increase in obsolete stock

• More frequent deliveries

• A build-up of unsold stock

• Increased storage space is required

Interpreting bar gate stock graphs

By reviewing product
X’s bar gate stock
graph, calculate the:

1.

maximum stock
level

2.

buffer stock level

3.

number of units the
business uses each
day

4.

re-order level

5.

lead time

6.

re-order quantity

Multiple Select

When choosing a new supplier, which two of the following would be the most important factors for a discount supermarket to consider if it is currently experiencing delays in delivery?

• Quality

• Cost

• Reliability

• Availability

• Payment terms

Interpreting bar gate stock graphs

By reviewing product X’s bar
gate stock graph, calculate the:
1.

maximum stock level – 800
units

2.

buffer stock level – 100 units

3.

number of units the business
uses each day – in 14 days
the business has used 700
units/14 days = 50 units (800
units max. stock level – 100
units buffer stock level = 700
units in 2 weeks)

4.

re-order level – 400 units

5.

lead time – 6 days (re-order
level = 400 units; business
uses 50 units per day: 400
units – 100 units buffer =
300 units /50 units = 6 days

6.

re-order quantity = 700 units
(800 units max. stock level –
100 units buffer = 700 units)

Recap: interpreting bar gate stock graphs

By reviewing product Y’s bar
gate stock graph, calculate
the:

1.

maximum stock level

2.

buffer stock level

3.

% increase in the re-order
quantity from month 4 to
month 6

Explain:
4. What has happened to the
stock levels of product Y
during months 4 and 5

Recap: interpreting bar gate stock graphs

By reviewing product Y’s bar gate stock
graph, calculate the:
1.

maximum stock level - 1,000 units

2.

buffer stock level – 200 units

3.

% increase in the re-order quantity
from month 4 to month 6

Re-order quantity month 6 = 1,000 units
Re-order quantity month 4 = 800 units
% increase = 1,000 – 800 = 200 units

800 units

= increase of 25%

Explain:
4. What has happened to the stock levels of
product Y during months 4 and 5
Demand/usage rate for product Y increased
during month 4. A re-order was triggered at
600 units, but this did not arrive until
month 6, when stock was replenished back
to the maximum stock holding level of
1,000 units. Product Y was out of stock
during month 5.

Re-order level

Just a minute…

In pairs, you have 60
seconds to write down

the benefits and

problems a business

may encounter by
holding too much

stock

Benefits and problems of a business

holding stock

Benefits

Problems

�
Production is less reliant on suppliers
and if stock is not delivered on time, the
whole production schedule need not be
delayed

�
Spare finished products are available to
meet unexpected orders, which can
increase the level of customer service

�
Economies of scale are possible from
bulk purchasing stock

�
Higher stock holding means a need for
more storage space, which increases
rent and insurance costs

�
Money is tied up in stock and is
therefore unavailable for other
purposes

�
Stock might go out of date, prices
may need to be reduced to sell
excess stock

�
Build up of unsold finished products
leading to higher stockholding costs

�
Stock is available for re-working faulty
products or to meet sudden increases in
demand

Case study – Poundland (1)

Everything for £1 was the idea of Poundland
founders in 1990, when the first store opened in
Burton-upon-Trent. Since then, the public limited
company has become one of the largest discount
& value retailers in the UK, with thousands of
value products offered in over 700 stores.

In its 2016 financial reports, Poundland shared
positive news of increased revenue and new
stores. However, its ability to manage consumer
demand was questioned in 2015 when the
company suffered a 43% drop in profits, which the
business partly contributed to the phenomenon of
‘loom bands.’

Case study – Poundland (2)

In response to a sudden demand for loom
bands, Poundland rushed to get its stores
stocked with as many packs of loom bands
as possible to meet increasing demand.
At their peak, the company was selling
728,000 packs of loom bands a week, which
the firm imported from China. However,
some Poundland stores ran out of stock and
had to wait for more deliveries from across
the globe.

In the meantime, desperate customers
shopped elsewhere for loom bands and by
the time many stock orders arrived, the
craze was already over leaving Poundland
with a vast amount of unwanted stock.

Be the Business Advisor

1

Which form of stock
control do you
believe is the best
option for
Poundland?

Justify your answer

Points to ponder…

1.

Think about context - Poundland operate in a highly competitive market as
customers have choice of where to shop. Can you name some of its
competitors?

2.

Effects of insufficient stock -

3.

Nature of the business – what are they selling?

4. Which form of stock control? Impact on business.

1

Answer

1.

Think about context - Poundland operate in a highly competitive market
as customers have choice of where to shop. Can you name some of its
competitors?

2.

Effects of insufficient stock - If customers find Poundland does not hold
the products they want, they will simply shop elsewhere.

3.

Nature of the business - Poundland is known for stocking products that
are not perishable, therefore if the business has sufficient levels of stock,
its products will not quickly perish.

4.

Which one? Poundland should ensure it holds enough stock to meet
customer demand and as such ‘Just in Case’ or holding stock may be
the best option; this will mean a quantity of stock is kept in store to
safeguard against unforeseen shortages in demand.

Be the Business Advisor

2

What problems
could Poundland
face if it does not
have sufficient stock
to meet customer
needs?

Points to ponder…

Potential problems
❖ Customers will become dissatisfied when the goods they seek

are not in stock and may complain to the store (or worse, tell
people they know) resulting in a poor reputation for
Poundland. (reviews)

❖ Customers may not wish to wait until stock comes in, which

means they may go to competitors. If they prefer the
competitor, they may continue to shop with them in the
future (and not with Poundland), resulting in reduced future
revenue for Poundland and increased customers for its rivals.

2

Be the Business Advisor

3

What problems
could Poundland
face if it holds
too much stock
or are unable to
sell unwanted
stock?

Points to ponder…

❖ Holding too much (or unwanted) stock leads to wasted space,

which could be used as space for items that sell quickly.

❖ If Poundland spend considerable cash in buying stock which

does not sell, it means it may suffer from cash flow problems
(as it may not sell goods until after they have been paid for).

❖ Holding too much stock is also unwise for products that are

highly fashionable, as they may become obsolete, as can be
seen in the loom bands example. This means Poundland may
not sell the products at all and suffer a loss. It may also incur
further costs having to pay to dispose of unsold items.

3

Context corner

“A Beauty and the
Beast-themed purse from
Primark - costing £4 - has
sold out in stores across
the country as parents (and
grown-up Disney fans)
snap up this item for their
kids.”

Discuss the benefits and drawbacks of Primark using a system of
just in time stock control rather than choosing to hold stock.

Remember to contextualise your answer!