Managing Stock: Bar Gate Graphs and JIT

A bar gate stock graph shows stock levels over time. Time runs along the horizontal axis; the quantity of stock held is measured on the vertical axis.

The line slopes down as materials are used or goods are sold. A steeper downward slope means faster stock usage. When a delivery arrives, the line jumps vertically upwards because stock is added at that moment. Repeated falls and jumps create the characteristic saw-tooth pattern.

Several measurements help a business plan its orders:

• Maximum stock level: the highest amount normally held, influenced by available space and money.
• Reorder level: the amount remaining when the next order is placed.
• Minimum stock level, or buffer stock: the reserve intended to protect against unexpected demand or delays.
• Lead time: the time from placing an order to receiving it.
• Reorder quantity: the quantity delivered, shown by the height of the upward jump.

The reorder level is normally above the buffer stock level because stock continues to be used while the business waits for delivery. Buffer stock is a safety reserve, not a physical limit: an unexpected delay can force a business to use it.

Following an order cycle

The graph represents a shop selling 200 units each week. Its maximum stock level is 1,000 units, its buffer stock is 200 units and its supplier takes one week to deliver. It orders when stock reaches 400 units.

Data for An illustrative bar gate stock graph

Starting at week 0, stock falls from 1,000 units to the reorder level of 400 units at week 3. The shop places its order then, rather than waiting until its shelves are nearly empty.

During the one-week lead time, another 200 units are sold. At week 4, stock reaches the 200-unit buffer level just before delivery. The delivery raises stock from 200 to 1,000 units, so the reorder quantity is 800 units. Notice that this is different from the 400-unit reorder level.

The horizontal distance from week 3 to week 4 shows the lead time. The vertical jump at week 4 shows the delivery quantity. The cycle then repeats, assuming sales and delivery times remain unchanged.

Using the graph to make decisions

If sales become faster, the downward line becomes steeper. Keeping the same reorder level could leave too little stock to cover the wait for delivery. The business may need to reorder at a higher level. A longer supplier lead time can also make earlier ordering necessary.

A line reaching zero indicates a stock-out. Falling below the planned buffer level warns that the safety reserve is being used. However, holding a reserve has a cost even when it is not used: the business must weigh that cost against the protection it provides.

Ordering larger quantities less frequently may allow bulk-buying discounts, but means more storage space and more money tied up in stock. There is no single ideal stock level for every business.

How just-in-time stock control works

Just in time (JIT) aims to have materials and components delivered when they are needed for production, rather than storing large quantities beforehand. For example, a car manufacturer might arrange for components to arrive shortly before they are fitted.

This requires careful coordination between production plans and deliveries. The business needs accurate information about its requirements, close communication with suppliers and dependable deliveries of the correct quantity and quality. With little reserve stock, a late delivery or unusable components can quickly halt production.

Choosing whether JIT is suitable

JIT reduces stockholding costs and frees storage space for productive use. Less money is tied up in unused stock, which can improve cash flow. Holding fewer goods also reduces exposure to deterioration or obsolescence.

However, frequent smaller orders can increase ordering administration and reduce opportunities for bulk-buying discounts. A sudden rise in demand is harder to meet when there is little spare stock. Disruption to deliveries can stop production and delay customer orders.

JIT is therefore more attractive where demand can be planned and supplies are reliable. Where demand fluctuates sharply or deliveries are uncertain, keeping a buffer may provide valuable protection despite its cost.

• Horizontal axis: time. Vertical axis: stock quantity.
• Downward slope: stock used or sold; steeper means faster usage.
• Vertical rise: delivery arrives.
• Maximum: highest planned stock level.
• Reorder level: when the next order is placed.
• Buffer/minimum: reserve against unexpected demand or delays.
• Lead time: order-to-delivery time.
• Reorder quantity: size of the delivery jump.

Faster usage or a longer lead time may require a higher reorder level. Zero stock means a stock-out.

Stockholding trade-off

More stock protects production and sales, but increases storage costs, ties up cash and risks deterioration. Less stock reduces these costs but increases the risk of shortages.

Just in time

Materials arrive when needed, with minimal stockholding.

Requires: coordinated production and ordering, accurate requirements, reliable suppliers and correct-quality deliveries.

Benefits: lower storage costs, less cash tied up, space released and less risk of obsolete stock.

Risks: delivery problems can halt production; unexpected demand is harder to meet; frequent ordering adds administration and reduces bulk-buying opportunities.