Btec Physical resources include Essay

Physical resources include:
Location Storage facilities – e­commerce Buy or rent?
Plant, Machinery and Equipment
When to purchase Buy or lease?
Materials and Stocks
Efficient purchasing Just – in – Case Stock Control Just – in – Time Stock Control © Business Studies Online: Slide 1
Premises: Location The Choice of location will depend upon the type of business being set up:
Local estate agents can give details of costs and availability of business premises Offices
E.g. Solicitor
Will often be located near to workers
E.g. Clothes Shop
Must be located near to customers
E.g. Shoe Manufacturer
Often located near to good transport links
© Business Studies Online: Slide 2
Plant, Machinery & Equipment: When? Acquiring machinery and equipment requires a careful planning process It must be done in conjunction with the cash flow forecast
There will be a tendency to buy all the equipment at once However financially this would be unwise As such it is important to consider the following factors when deciding when to buy equipment: Which pieces of equipment are necessities? How much will they cost to buy AND maintain? How much money is available? © Business Studies Online: Slide 3

Materials & Stocks: Stock Control The word “stock” can refer to a number of things: Raw materials and other components
things that go into the production process
products that are not yet finished, but where the production process has
started Finished goods
products that have been completed to the right quality – and are waiting to be delivered to customers Spares
in case of machinery break down
© Business Studies Online: Slide 4
Problems of Holding Too Much Stock Businesses want to hold as little stock as possible due to Higher insurance costs
Since the value of the company on paper is higher
Instances of theft are less noticeable
Stock may go out of date, or be superseded by new technology Storage Costs
Stock must be stored – so larger warehouses are needed
Many firms buy supplies using trade credit. If the stocks are not sold before payment is due it could create cash flow problems Opportunity Cost
Money tied up in stocks cannot be used elsewhere
© Business Studies Online: Slide 5
Problems of Holding Too Little Stock If insufficient stock is held a business may encounter: Lost Sales
Customers are likely to go elsewhere, and may not return!
Loss of Goodwill
Business will get a reputation for being unreliable
Longer Lead Times
Customers will be expected to wait if they don’t go elsewhere This problem can be overcome in 2 ways: The use of EPOS
Common in retail industry
The use of Stock Control Charts
© Business Studies Online: Slide 6
Stock Control Charts These are used to maintain favourable stock levels They are based upon 3 assumptions: All deliveries are made correctly and on time There are no faulty stocks Stock is used up at a constant rate The chart will show:

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The Maximum Stock Level – the most stock a firm wants to hold The Re­Order
Level – the level at which a new order is placed The Minimum (Buffer) Stock Level – the least stock a firm wants to hold Re­Order Quantity – the number of items that are ordered Lead Time – the time between placing the order and receiving it © Business Studies Online: Slide 7

Stock Control Charts A typical stock control chart will look like this: 300
Maximum Stock Level (eg 300 units)
Re-Order Level (eg 200 units)
Minimum Stock Level (eg 100 units)
Lead Time (eg 2 weeks)
Buffer Stock (eg 100 units)
© Business Studies Online: Slide 8
Stock Levels
Just-In-Time Stock Control An idea developed by the Japanese at Toyota in the 1950s
They recognised that efficiency could be maximised if stocks were always at an absolute minimum It therefore involves deliveries taking place just as stocks are required It has become very popular, particularly in the automotive industry