9609 · 4.2.1
Managing inventory flashcards
Revision flashcards for Cambridge 9609 Managing inventory (syllabus 4.2.1). Flip, recall, then mark a real past-paper question.
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Three stock types?
Raw materials, work-in-progress (WIP), finished goods.
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Why hold stock?
Meet demand spikes, bulk-buy discounts, avoid production stops.
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Holding costs?
Warehouse rent, insurance, security, spoilage, opportunity cost of cash.
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Buffer (safety) stock?
Extra inventory above expected need — covers delivery delays.
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Reorder level?
Stock level that triggers new purchase order.
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Stock-out cost?
Lost sales, idle production, damaged reputation.
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Link to 5.1 finance?
High inventory reduces working capital available (5.1.2).
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Alternative to high stock?
JIT (4.2.2) — minimal inventory.
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What is 'opportunity cost' in the context of inventory management?
The financial return that is lost because capital is tied up in holding stock, instead of being invested in the next best alternative, such as earning interest in a bank or funding a new project.
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Define 'lead time' on a stock control chart.
The time period between placing an order for new stock with a supplier and that stock being delivered and ready for use.
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What is the primary purpose of 'buffer stock'?
To act as a safety reserve to protect the business against unexpected increases in customer demand or unforeseen delays in receiving deliveries from suppliers.
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Identify the three main types of inventory.
1. Raw materials: Inputs awaiting use in the production process. 2. Work-in-progress (WIP): Partially completed goods. 3. Finished goods: Completed products ready for sale.
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What is a 'stock-out' and what is its main commercial consequence?
A stock-out occurs when a business runs out of an item of inventory. Its main commercial consequence is lost sales, as customers are unable to make a purchase and may go to a competitor instead.