What’s it all about?
Making sure that you’ve got stock to sell when you need it and raw materials/components available when you need to make something. Also allows you to reduce the amount of money you have to have tied up in stock and reduce wastage.
We’ve considered the three categories of Direct Cost in outline (Direct Materials, Direct Labour and Direct Expenses), now we are going to look at Direct Materials in more detail.
Firstly, how you make sure you don’t run out, then how you decide what cost to take for the materials when prices change regularly and how and why we monitor the ‘stock turnover’
We want to know the cost of our direct material (whether raw material or a component or bought stock) so that we can
- Set Prices
- Value our stock
- Make decisions
All our examples in class are fairly straightforward with a limited number of Direct materials. Reality could be much more complex.
As normal, our worked examples in class will be straightforward and only involve a few items. In reality, you may be working with a considerable number. The principles are the same, the practice is a bit more complicated.
How many parts in this Second World War aircraft?
A B24 Liberator,a n American aircraft, contained 1,550,000 separate parts. Fancy keeping track of all of those?
Max Hastings. Armageddon: The Battle for Germany. p367
Stock Levels.
Why you need to understand this…So you won’t run out of something and bring production to a halt (costing you a fortune).
It could be pretty disastrous if you run out of some materials.
Not only might you have to stop production, but you could breach a contract by not supplying on time and face legal consequences, your factory might even physically break down if production stops.
So we need to have techniques for monitoring stock levels to ensure that we don’t run out.
We try and cheer ourselves up while in lock down. You can check how long your supplies of toilet paper are going to last with this tool.
Further Reading.
I keep other materials worth reading at this location: http://linoit.com/users/Jonathanrooks/canvases/Materials%2C%20resources%20etc.
Just In Time.
It’s from Viz, so don’t take it too seriously!
Watch this
A worked example of the Reorder Quantity (ROQ)/ Economic order Quantity calculation.
http://opentuition.com/acca/f2/inventory-control-part-a-example-1-2/
JIT in action.
The manufacturing strategy which aims to remove inventory (material stored in warehouses) by ensuring the materials and components are delivered as required.
It is a strategy employed by Airbus, but it is at risk when customs/border process post-Brexit mean that delivery from British manufacturing plants is slowed down on its way to European plants.
Will Airbus increase its stocks or move its manufacturing to Europe?
Machines ordering their own parts.
I’ve read a number of times of fridges that order milk for you as you run out (and not taken it very seriously), so it’s good to come a cross a real example of technology ensuring I get what I need when I need it.
So, my printer knows when I am running low of ink and sends an order through to the ink supplier which sends it to the University.
It even marks up the package as being for my specific printer and room number!
It doesn’t get delivered to my room (it could be) for the sensible reason that I am not in my office all the time, so I go and get it from the ‘Stationery Cupboard’.
Look at how small this is now. Once it was a small room full of spares of four different colours for the hundreds of printers in the University.
So now there are frequent small deliveries to the University reducing the number of cartridges that need to be made and stored at any particular time.
We need to take warehouse costs into account in calculating overheads as well as determining stock levels and re-order quantities. Interesting to see a warehouse in action.
http://www.shdlogistics.com/news/timelapse-street-cranes-stock-a-high-capacity-steel-coil-warehouse
Read these.
How stock is managed in practice.
An advert, but also an explanation of how the use of software allows companies to reduce the space and money they need to hold stock.
If you can reduce the stock you hold by being more efficient in ordering, delivery and warehousing you can save the company a lot of money.
Look at how Tesco have substantially reduced the amount of money they ahve to invest in stock.
http://www.logisticsmanager.com/2015/10/tesco-takes-stock-out-of-supply-chain/
Spring 2019 and half of the growth in the economy is down to companies stockpiling ahead of BREXIT! Manufacturers had to make more to provide the materials for stockpiling. In a few months they will have to make correspondingly fewer as the stockpiled materials/products are used up.
Switzerland maintains stockpiles of products as a nation, but has decided coffee is no longer vital.
Possible Written Questions.
(No indication of marks – the more marks a question gets, the more you are expected to write – detail that is, not just words!) If you can’t answer these, you need to do some more reading. I do ‘find’ questions elsewhere, so these aren’t all questions I have used myself.