W 1: Stocking Up - How Much Should We Do?

This worksheet looks at the various different types of stock control system, and looks at which may be appropriate to a company like Cameron Balloons. For more information about the work of the purchasing department at Cameron Balloons you may want to look at the purchasing explanation section.

A printable version of this worksheet is available for filling in answers.

Step 1 - Stock control - a contradiction in terms?

Either look up in your textbook (or library) or go to the purchasing theories section, and find out about the following different types of stock control system. Write a short paragraph detailing how they work.

• Economic order quantity
• Fixed re-order level
• Fixed re-order quantity
• Just-in-time

Step 2 - Which is it to be?

There has been a lot of emphasis in recent years on just-in-time stock control systems. What advantages and disadvantages does this sort of system have?

Would a system of this sort work for Cameron Balloons? Justify your answer. (N.B. For more information on the particular stock control problems they face, you may want to look at the purchasing explanation section.)

Which of the other stock control systems could Cameron Balloons use? Justify your answer.

Step 3 - To stock or not to stock?

Many of the raw materials required to build a balloon are bulky. In the table below are a selection of those raw materials. Which do you think will be the most difficult to store? Try ranking them from 1-5 (1=most difficult).
(N.B. If you aren't sure what any of them are, click on the link to go to the glossary.)

Because of these bulky raw materials and some long lead times for these products, Cameron Balloons have to carry quite substantial stocks of many of them. What problems may this cause for the firm?

Some of the problems that you have put above should be financial ones. Carrying high levels of stocks will have significant effects on the firm's finances. The table below splits these into 3 different types - the effect on the balance sheet, the profit and loss account and cash flow. For each item see if you think it will be higher or lower or the same as a result of higher levels of stocks.