#Immediacy on speech making

This does sometimes happen but riot very often, and is normally a ...

This does sometimes happen but riot very often, and is normally a plucky 'accident'. The other costs Apart from the opportunity costs, there are other, more obvious, costs associated with holding stock. These include: • Warehouse rent and rates Insurance; • Obsolescence; • Pilferage and deterioration Labour; • Maintenance and repair of buildings; Heating and lighting; sometimes refrigeration.

All this can add up to a substantial total and applies to all items stored, whether raw materials, goods in process or finished products. Why store goods at all? Before looking at ways and means to reduce stock-holding costs, let us consider the purpose behind stock holding in order to be clear about the' need. Ideally, a business would receive its raw materials in the morning, make the product and sell it in the afternoon. Sadly, life is rarely so simple.

There are a variety of reasons for stock holding including the following: Raw materials To keep the production process continuously supplied avoiding costly idle time; - To protect against any unexpected shortages of raw materials, eg as a result of strikes; - To ensure that one stage of production is not held up when another suffers some delay or calamity; - The unavoidable build-up resulting from a stage of manufacture being normally and properly completed finished products; To have a stock available to meet orders which arrive in a random fashion; - To accumulate goods in anticipation of delivery to satisfy a known requirement, eg an order already placed for delivery at a specific time in the future; and - Goods in process, Goods will normally be purchased or manufactured to meet most of the above requirements and it is essential, as a first step, to be clear as to the reason Having decided the reason for the stock holding it is possible to move on to use one or more techniques for reducing the stock held to a minimum and hence to minimize the costs. Reducing the quantity and the cost RAW MATERIALS AND FINISHED PRODUCTS BOUGHT FOR :RE-SALE The key element which determines the necessary minimum stock holding is the speed with which suppliers can deliver and their reliability. If, for example, a supplier is 100 per cent reliable and can deliver in one hour from receiving the order, then virtually no stock will be required at all.

It is more likely that delivery will take, say, two weeks, and there is a fair chance that one or two days will be added to that time, coupled with the chance of a short delivery The first stage in keeping stock-holding costs down in this unsatisfactory situation is to work out what is termed an Economic Order Quantity EOQ. For those who are interested there are, in websites on the Subjects of stock holding, some fairly complex mathematics involved in calculating the EOQ. For the purposes of this website, I have taken a simplified version which works well enough in practice. The easy method is to draw up a table of varying 'order sizes' and to enter a figure for the various costs associated with each. These costs will include: Opportunity cost, say 10 per cent of the value; Order costs, i.e. the clerical costs involved; Miscellaneous labour, unloading, carrying, checking Discount for quantity.

It will be seen that of the four alternatives considered it would be cheapest to order the quantity needed in two lots of 500 cartons. The EOQ is therefore 500 cartons, at which size of order the business is obtaining the best balance between the opportunity costs and other costs.

It could have been the case, if quantity discounts were larger or 'order costs' lower, that some other EOQ would have emerged. It is now necessary to look at consumption rate in order to determine when the orders should be placed. Too soon would result in the higher stocks we are trying to avoid; too late could result in a disastrous 'stock-out' situation.

Let us suppose that the business consumes 100 cartons of supplies per week and that the EOQ is 300 cartons.

A cheaper per annum ordering would work out so that just when the last carton is used up the next delivery arrives. This would ensure that at the same time as the business enjoys the financial benefits of an EOQ it would never have too much in stock or have it for too long.

With a 100-carton consumption the first load would be ordered for delivery ...

With a 100-carton consumption the first load would be ordered for delivery at the beginning of week 1, and this would last to the end of week 3, to be followed by another deli... read more

In some cases the nature of the business severely limits the choice ...

In some cases the nature of the business severely limits the choice of location a retailer stores his goods at least to some extent. <... read more

The answer is to decide realistically again. the level of service needed ...

The answer is to decide realistically again. the level of service needed and to work through methodically the costs of the alternatives. The decision will the