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Business

Study Notes

Inventory (Stock) Control Charts

Level:
AS, A Level
Board:
AQA, Edexcel, OCR, IB

The overall objective of inventory (stock) control is to maintain inventory levels to that the total costs of holding stocks is minimise. A popular method of implementing stock control is through the use of inventory (stock) control charts and algorithms that automate the process.

An example of a traditional stock control chart is shown below:

The key parts of the stock control chart are:

Maximum level

  • Max level of stock a business can or wants to hold
  • Example chart: 800 units

Re-order level

  • Acts as a trigger point, so that when stock falls to this level, the next supplier order should be placed
  • Example chart: 400 units

Lead time

  • Amount of time between placing the order and receiving the stock
  • Example chart: just under a week

Minimum stock level

  • Minimum amount of product the business would want to hold in stock.
  • Assuming the minimum stock level is more than zero, this is known as buffer stock

Buffer stock

  • An amount of stock held as a contingency in case of unexpected orders so that such orders can be met and in case of any delays from suppliers

Factors Affecting When / How Much Stock to Re-order

Lead-time from the supplier

  • How long it takes for the supplier to deliver the order
  • Higher lead times may require a higher re-order level

Implications of running out (stock-outs)

  • If stock-outs are very damaging, then have a high re-order level & quantity

Demand for the product

  • Higher demand normally means higher re-order levels

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