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
Why you need to understand this…So you won’t run out of something and bring production to a halt (costing you a fortune).
Not only might you have to stop production, but you could breach a contract by not supplying on time and face legal consequesnces, 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.
I keep other materials worth reading at this location: http://linoit.com/users/Jonathanrooks/canvases/Materials%2C%20resources%20etc.
A worked example of the Reorder Quantity (ROQ)/ Economic order Quantity calculation.
JIT in action.
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.
How stock is managed in practice.
An advert, but also an explanation of how the sue 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.
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.