Business Economics

WEEK 4W/C 4th March 2013

INTRODUCTION

Course 17832 Advanced Diploma Management

Week Chapter TopicsOne (1) Ch 16 – Purchase

controlIntroduction- Course overview- Objectives- AssessmentThe time value of moneyPurchasing - Intent

Two (2) Ch 16 – Purchase control

Supply strategies (make or buy?)OutsourcingPurchasing strategies

Three (3) Ch 16 – Purchase control

Supplier analysisPurchasing processesPurchase simulation exercise

Four (4) Ch 17 – Stock management

What does a company want to achieve?Stock mgmt – IntentStock adv vs disadv.Stock ordering methods

Five (5) Ch 17 – Stock management

OPV methodsOPV calculations Conundrum – People/Profit/Planet

Six (6) Ch 17 – Stock management

Case study tasksTrivia – Pop Quiz Course review

Homework tasks last week

• Please complete 16.9 • How did you go?

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Assessment

• Update and review.• How goes progress?• Any problems or questions

Assessment• For the company you are to complete the following:

– A brief back ground on the company.

– The method you would use for the procurement of goods i.e. make or buy.

– The purchase strategy you would implement i.e. cooperation or differentiated or a hybrid.

– The risks associated with the points # 2 and 3.

– Contingencies to mitigate the identified risks.

– Recommended stock management method.

– An analysis of which one the company focuses on Profit/People/Planet.

• The research must be thorough and contain a good analysis to support developed answers. In other words you need to argue or present your case and support it with evidence.

• Anticipated written report length 4-6 A4 pages (est. 500 words per page).

Assessment

• Update and review• Next week 5-7 minute in class presentation –

initial findings• One or two members can present.

Stock control

Production & operations:• There are three types of stock that a business can

hold:• Stocks of raw materials (inputs brought from

suppliers waiting to be used in the production process)

• Work in progress (incomplete products still in the process of being made)

• Stocks of finished products (finished goods of acceptable quality waiting to be sold to customers)

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Stock control

• What are some of the aims of stock control?

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Stock control

• The aim of stock control is to minimise the cost of holding these stocks whilst ensuring that there are enough materials for production to continue and be able to meet customer demand.

• Obtaining the correct balance is not easy and �the stock control department will work closely with the purchasing and marketing departments.

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Stock control

• The marketing department should be able to provide sales forecasts for the coming weeks or months (this can be difficult if demand is seasonal or prone to unexpected fluctuation)

• Stock control managers have to judge the type, quantity and timing of stocks needed.

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Stock management

• http://www.youtube.com/watch?v=Mi1QBxVjZAw• http://www.youtube.com/watch?v=zYbtZ0x9_SA• http://www.youtube.com/watch?v=ncli94xodm8• http://www.youtube.com/watch?v=-ZpHiMTwOdM

• Logistics Bureau• http://www.youtube.com/watch?v=qkZQxXJuqKo

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Types of stock

Production companies• Raw materials, ancillary materials and components• Goods in progress• Finished goods

Trading companies• Finished goods (commodities)

Service companies�• No stock• If required some ancillary materials

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Why is stock necessary?

Increasing the stock means (all else being equal) Decreasing the stocks means (all else being equal)

- Faster deliveries- A higher level of stock service- Better observation of delivery deadlines- Better delivery reliability- Better delivery flexibility- Less negative delivery information

- Slower deliveries- A lower level of stock service- Poorer observation of delivery deadlines- Poorer delivery reliability- Poorer delivery flexibility- More negative delivery information

Increasing the stock means (all else being equal) Decreasing the stock means (all else being equal)

- Higher stock costs- Lower packing costs- Lower transport costs- lower administrative logistics costs- Lower cost of lost sales

- Lower stock costs- Higher packing costs- Higher transport costs- Higher administrative logistics costs- Higher cost of lost sales 6

The connection between stock size and delivery service

The connection between stock size and logistics costs

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Stock management

• Good stock management by a firm will lower costs, improve efficiency and ensure production can meet fluctuations in customer demand.

• It will give the firm a competitive advantage as more efficient production can feed through to lower prices and also customers should always be satisfied as products will be available on demand.

• Poor stock control can lead to problems associated with overstocking or stock-outs.

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Stock management � Poor stock control can lead to problems associated with overstocking or stock-outs.

• If a business holds too much buffer stock (stock held in reserve) or overestimates the level of �demand for its products, then it will overstock. 4

• Overstocking increase costs for businesses as holding stocks are an expense for firms for several �reasons.

– Increases warehouse space needed

– Higher insurance costs needed

– Higher security costs needed to prevent theft

– Stocks may be damaged, become obsolete or perish (go out of date)

– Money spent buying the stocks could have been better spent elsewhere

– The opposite of an overstock is a stock-out. This occurs when a businesses runs out of stocks. This can have severe consequences for the business:

– Loss of production (with workers still having to be paid but no products being produced)

– Potential loss of sales or missed orders. This can harm the reputation of the business.

– In these circumstances a business may choose to increase the amount of stock they hold in reserve (buffer stock). There are advantages and disadvantages of increasing the stock level.

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VMI

Link Solutions• http://

www.youtube.com/watch?v=iV735Fe8Fus&NR=1&feature=fvwp

HK PL Solutions• http://

www.youtube.com/watch?v=8cMjyGgYI28

Stock management

Two methods:• Purchasing at a specific reorder point– Identifying the minimum stock– Order new consignments from supplier when stock falls to

minimum– The same volume is purchased every time

• Periodic purchasing– Ordering products at specific intervals ( once a week, once

a month)– The volume purchased depends on the sale since last order

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Stock methods

• What are some examples where business would use one type or the other or a combination of both?

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Reorder pointWith buffer stock

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Periodic purchasing With buffer stock

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Simplified stock model

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Supply chain

• Future supply chain – 2016• http://

www.youtube.com/watch?v=US5lO1HfmEo

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Homework tasks

• Please complete 17.1 and 17.3 from the textbook chapter.

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