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The Nature of Production - Stock Control

In order to produce goods, a business will need raw materials. Some firms will order large quantities of the raw materials they need and keep them somewhere so that they can get easy access to them when they need them.

Managing the amount of stock the firm has is important. Having too much stock uses up a lot of money. Having too little means you cannot produce enough to satisfy your customers. © Photolibrary Group

One problem with this method is that the cost of buying and storing these raw materials can be very expensive and uses up cash that they firm could use for other things.

The business will have to balance the need to have stocks of raw materials with the cost of storing them. This process is called 'stock control'.

Some firms have adopted a strategy to manage their stock called 'just in time' (JIT). A good way to understand the principle of JIT is to think of it in this way:

This in effect is what JIT means - stock is delivered 'just-in-time' for when it is needed.

You may be thinking that this is a good idea in principle but very difficult to operate in practice. Who would deliver one CD? Of course this is just an example but in reality many firms adopt this system. They carry just enough stock to maintain output but receive regular deliveries of new supplies throughout the day.

To operate a JIT system, there have to be excellent communication links between the business and its suppliers. The location of the business in relation to its suppliers has to be carefully planned. Many businesses now use this technique of managing their stock and production.

You can get some history of JIT by going to the Toyota Motor Manufacturing Web site(http://www.toyotageorgetown.com/history.asp). Toyota are credited with being the company who came up with this idea.

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