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Building a Boeing 747
The manufacturing of a Boeing 747 is done in seven
stages, which take on average six months to complete in
total. The engines are bought from a supplier (Rolls
Royce) in time for the sixth stage as buying them and
storing inventories for five months would be expensive.
The engines cost approx $10 million each.
Generally, Boeing can sell a 747 for $200 million.
By the end of this chapter, you should be able to:
explain the difference between just-in-case (JIC) and just-in-time
(JIT) stock control
recognize the need for optimum stock levels; prepare and analyse
explain different stock control methods and analyse the
appropriateness of each method in a given situation
explain outsourcing and subcontracting, compared with provision
by the firm itself
make appropriate calculations to support a decision to make or buy
Controlling inventory levels is very important for a business. The
business has to get the balance between not holding a certain level
of stock because of emergencies (just in case, or JIC) and holding
minimal levels and only ordering stock (just in time, or JIT). There
are arguments in favour of each method but the trend at the
moment is in favour of JIT methods.
Stock is only brought in from suppliers as and when it is required.
The aim is to hold low (even zero) levels of stock.
Stock is brought in and stored with a reserve (the buffer stock)
kept back from daily use just in case of need.
improves the cycle of money that the business needs for its day-to-
day activities, which is known as working capital
reduces pressure on the cash fl ow
reduces costs (storage and wastage)
reduces costs (by buying in bulk)
reduces the chance of holding obsolescent or unsellable stock
means that you can meet sudden changes in demand
means less chance of damage or ruined stock
provides spare parts should the need be to can