2.4.

3 Stock control graphs

A firm sells 40,000 units a month. It receives monthly deliveries. Its maximum stock level is
50,000 and minimum (buffer) stock is 10,000. After two months (eight weeks), it decides to
switch to weekly deliveries.
1. Construct a 12-week stock control graph to illustrate this situation. Assume the firm
starts the first week with 50,000 units of stock. (4)

2. Explain one short-term problem the firm may face in switching to weekly deliveries.
(4)
A short-term problem the firm may face by switching to weekly deliveries is that the
firm may run out of stock and not be able to fulfil orders. This is because if there is a
sudden increase in demand for the product, this will lead to higher volume of sales
from the company, if this level exceeds 20000 units within a week, this would mean
the firm would run out of stock. If it runs out it would need turn customers away
from the company, this could lead to the firm losing customers in the future due to
customers believing the firms ability to supply is unreliable.
1. Which one of the following is least likely to be stock held by the business? (1)
a. Paint and parts used when assembling the model
b. Semi-finished models that need painting
c. Damaged models that have been returned
d. Finished models ready to be sold

2. Using the diagram, identify the number of models that Cara and Cole hold as buffer
stock (1)
20,000

3. Use the diagram to calculate how many weeks it will take for stock of dinosaur
models to arrive after reordering (4)
Lead time = Delivery time – Re-order time
Lead time = 2 – 0 = 2 weeks

4. Explain one advantage to Cara and Cole of holding large stocks of models (4)
One advantage to Cara and Cole of holding large stocks of models is that they will
not run out if there is an unexpected rise in demand. If there is a rise in demand, this
would increase the sales of the company therefore leading to a larger than usual
reduction in stock, but because they hold a large stock they will still be able to fulfil
these sales. This is an advantage as competitors may not be able to hand the
presumably market wide increase in demand, so customers will leave those
unreliable companies and buy from Cara and Cole who can fulfil orders, thus
increasing sales further, and so revenue will be higher meaning higher profits and so
more money to reinvest into the business to further grow and expand.