Physical resources include:PremisesLocation Storage facilities – ecommerce Buy or rent?Plant, Machinery and EquipmentWhen to purchase Buy or lease?Materials and StocksEfficient purchasing Just – in – Case Stock Control Just – in – Time Stock Control © Business Studies Online: Slide 1Premises: 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 OfficesE.g. SolicitorWill often be located near to workersShopsE.g.
Clothes ShopMust be located near to customersFactoriesE.g. Shoe ManufacturerOften located near to good transport links© Business Studies Online: Slide 2Plant, Machinery & Equipment: When? Acquiring machinery and equipment requires a careful planning process It must be done in conjunction with the cash flow forecastThere 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 3Materials & Stocks: Stock Control The word “stock” can refer to a number of things: Raw materials and other componentsthings that go into the production processWorkinprogressproducts that are not yet finished, but where the production process hasstarted Finished goodsproducts that have been completed to the right quality – and are waiting to be delivered to customers Sparesin case of machinery break down© Business Studies Online: Slide 4Problems of Holding Too Much Stock Businesses want to hold as little stock as possible due to Higher insurance costsSince the value of the company on paper is higherShrinkageInstances of theft are less noticeableObsolescenceStock may go out of date, or be superseded by new technology Storage CostsStock must be stored – so larger warehouses are neededFinanceMany firms buy supplies using trade credit. If the stocks are not sold before payment is due it could create cash flow problems Opportunity CostMoney tied up in stocks cannot be used elsewhere© Business Studies Online: Slide 5Problems of Holding Too Little Stock If insufficient stock is held a business may encounter: Lost SalesCustomers are likely to go elsewhere, and may not return!Loss of GoodwillBusiness will get a reputation for being unreliableLonger Lead TimesCustomers will be expected to wait if they don’t go elsewhere This problem can be overcome in 2 ways: The use of EPOSCommon in retail industryThe use of Stock Control Charts© Business Studies Online: Slide 6Stock 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:The Maximum Stock Level – the most stock a firm wants to hold The ReOrderLevel – 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 7Stock Control Charts A typical stock control chart will look like this: 300200100Maximum Stock Level (eg 300 units)Re-Order Level (eg 200 units)Minimum Stock Level (eg 100 units)Lead Time (eg 2 weeks)JanFebBuffer Stock (eg 100 units)TimeMarApr© Business Studies Online: Slide 8Stock LevelsJust-In-Time Stock Control An idea developed by the Japanese at Toyota in the 1950sThey 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