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Ch 23

Ch 23

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Published by: meelas123 on Sep 16, 2010
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Improving Operational EfficiencyCh 23
(Stock Management, Lean Production)Stock 
Materials and goods required in order to produce for, and supply to the consumer iscalled stock.
Categories of Stock 
Raw material and components
Work in process
Finished goods
Stock Management
The purpose of stock management is to reduce stock cost into minimum level.Stock management involves;
Purchasing of stock and their delivery
Storing and control of stock 
The issue and handling of stock 
Disposal of surpluses
Providing information about stock 
Problems Due to Inefficient Stock Management
Insufficient stock is unable to meet unforeseen changes in demand of  product.
Out of date stocks – medicine etc
Stock wastage
High level of stock causes high storage cost
Poor management of stock purchasing can result in late deliveries, lowdiscounts from suppliers etc
Stockholding Cost
Opportunity cost
Storage cost
Risk of wastage and out datedStock-out CostLost salesIdle production resourcesSpecial order could be expensiveLoss of goodwillLoss of customer loyalty
Optimum Order Size
The purchasing manager must ensure that supplies of the right quality are delivered at theright time in sufficient quantities to allow smooth and unbroken production.
Economic Order Quantity (EOQ)EOQ is the attempt to calculate the optimum stock order level, given the deliverycosts compared with the cost of holding stock. The higher the delivery cost inrelation to the stock holding cost, the larger the order level should be (to minimizethe number of deliveries).(See figure 23.2 on page 360)
Re-order Level
Levels of stock when new order for stock is placed is called re-order level. We havedifferent methods;
Fixed reorder interval- placing an order for stock after a specific time
Fixed reorder level- placing an order for stock after reaching a fixedamount of stock 
Two bin system – dividing stock into two bins when one is empty thenorder for new and use second one.
Buffer stock- minimum stock level to meet unforeseen demand and to cover break in supplies.
Lead time – the time between the order and delivery of goods.
Stock pile - keeping the stock level which will fulfill demand till next few monthson any special event like Eid.(See figure 23.3 on page 361)
Just in Time (JIT) stock control
A stock control system which is designed to minimized the costs of holding stocks in raw material, work in process and finished goods by very carefully planned scheduling and flow of resources through the production process.
It requires no buffer stock, just order raw material when you need, anddelivered finished goods as soon as they are completed.
It requires a very efficient ordering system and delivery reliability.
Important Requirement for JIT
Excellent relationship with suppliers and employees
Multi skilled production staff 
Flexible machinery
Strong infrastructure
Political stability
Lean Production
“Lean production is an approach to operations management aimed at reducing thequantity of resources used up in production”.
Key Features of Lean Production
Simultaneous engineering instead Sequential engineering – all necessaryactivities should start at same time instead of one after another or in sequence.This approach will increase the speed of work.
Flexibility – to handle technological advances and changing consumer tastes there should be flexibility in these three areas;
Flexible employment contracts – allows to change in workforceaccording to the change in demand.
Flexible machinery – that can be quickly change from one designto another.
Multi skills worker 
Kaizen –continues improvement
Kaizen is a Japanese term meaning continues improvement in productivity.It is difficult to look for continuous improvement all the time. Japanese tried to solvethis problem by introducing PDCA (plan, do check action) cycle. It is a series of activities that lead to improvement.
Plan- business must identify that where improvement is needed. Data must begathered and used to develop a plan which will result in improvement.
Do – the plan should be implemented by workers, on the production line
Check – check whether or not there has been an improvement. This task may be carried out by inspectors.
Action – if plan has been successful, it must be introduced in all parts of the business.
Conditions necessary for Kaizen
Team working

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