PROFESSIONAL EDUCATION
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The Management Stocks.
Almost every company carries stocks of some sort,even if they are only stocks of consumables such as stationery.For a manufacturing business,stocks ( sometimes called inventories),in the form of raw materials, working progress & finished goods,may amount to a substsntial proportion of the total assets of the business.
Some business attempt to control stocks on a scientific basis by balancing the costs of stock shortages against those of stock holding.
The "scientific"control of stock may be analyzed into parts;
Almost every company carries stocks of some sort,even if they are only stocks of consumables such as stationery.For a manufacturing business,stocks ( sometimes called inventories),in the form of raw materials, working progress & finished goods,may amount to a substsntial proportion of the total assets of the business.
Some business attempt to control stocks on a scientific basis by balancing the costs of stock shortages against those of stock holding.
The "scientific"control of stock may be analyzed into parts;
The economic order quantity ( EOQ ) model can be used to decide the optimum order size for stocks which will minimize the costs of ordering stocks plus stock holding costs.
If discounts for bulk purchases are available , it may be cheaper to buy stocks in large order size so as to abtain the discounts.
Uncertainty in the demand for stocks & /or the supply lead time may lead a company to decide to hold buffer stocks ( there are by increasing its investment in working capital ) in order to reduce or eleminate the risk of stock-outs ( running out of stock ).
Stock Costs.
Stock costs can be conveniently classified into four (4) groups;
Holding costs.
Procuring costs.
Shorage costs.
The cost of the stock itself.
Stock Models.
There are several types of stock model & these can be clissified under the following headings
Deterministic Stock Model.
Stochastic Stock Models.
A deterministic stock model is one which all the "parameters"are known with certaily.In particular the rate of demand & the supply lead time are known.
A Stochastic model is one in which the supply lead time or the rate of demand for an item is not known with certainly.However, the demand or the lead time follows a known probability distribution ( porbably constructed form a historical analysis of demand or lead time in past ).
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