2. Managing stock effectively is important for any
business,
because
without
enough
stock,
production and sales will grind to a halt. Stock
control involves careful planning to ensure that the
business has sufficient stock of the right quality
available at the right time.
3. Stock can mean different things and depends on
the industry the firm operates in. It includes:
- Raw materials and components from suppliers
- Work in progress or part finished goods made
within the business
- Finished goods ready to dispatch to customers
- Consumables and materials used by service
businesses
4. In order to meet customer orders, product has to
be available from stock – although some firms are
able to arrange deliveries Just in Time. If a business
does not have the necessary stock to meet
orders, this can lead to a loss of sales and a
damaged business reputation. This is sometimes
called a ‘stock-out’.
5. It is important therefore that a business either
holds sufficient stocks to meet actual and
anticipated orders, or can get stocks quickly
enough to meet those orders. For a retailer, in
practice this means having product on the shelves.
6. However, there are many costs of holding stock, so a business
does not wish to hold too much stock either.
The costs of holding stock include:
- The opportunity cost of working capital tied up in stock
that could have been used for another purpose
- Storage costs – the rent, heating, lighting and security costs
of a warehouse or additional factory or office space
- Bank interest , if the stock is financed by a loan
- Risk of damage to stock by fire, flood, theft etc; most
businesses would insure against this, so there is the cost
of insurance
- Stock may become obsolete if buyer tastes change in favour
of new or better products
- Stock may perish or deteriorate – especially with food
products
7. What is Stock Management?
Every business needs to keep track of the items
that it manufactures or sells (the stock). The system
that monitors the items in stock is called the stock
control system.
E.g. in a store, the stock includes all of the items on
the shelves and out the back in the storeroom.
8. Data in a Stock Control System
A stock control system is basically a database.
Each record (row) of the database is identified by
an item code (the primary key).
9. Other fields in each record would include:
•Description
•Item price
•Stock level (the number of items held in stock)
•Minimum stock level (when stock falls below this, it
needs to be reordered)
•Reorder quantity (how many items we should order
each time)
10.
11. Receiving New Stock
When items are added in to stock (because a delivery
has arrived) this is recorded in the stock control
system.
12. The code of the new items is input to the system
(usually using a barcode scanner, or similar
technology). The record for the item is found in the
stock database, or a new record is created, and the
stock level is increased.
In many stores, the system is directly linked to the
stock control system, so that stock levels are
adjusted as soon as an item is sold.
13. Selling / Delivering Stock
When items are taken from stock (because they
have been sold, or delivered somewhere) this is
recorded in the stock control system.
14. The code of the item is being sold/delivered
is
input
to
the
system
(usually
using
a barcode scanner, or similar technology). The
record for the item is found in the stock
database, and the stock level is decreased.
In many stores, the system is directly linked to the
stock control system, so that stock levels are
adjusted as soon as an item is sold.
15. Automatic Re-Ordering of Stock
Stock control systems make it very easy for stock levels
to be monitored, and for stock to be reordered when it
is running low.
16. The stock control system regularly goes through all the
records in the stock database and checks if the stock
level is less than the minimum stock level.
If the stock is too low, it is reordered from the supplier.
The quantity that is ordered is read from the stock
database (larger amounts for more popular items)
17. Why a business keeps stocks?
A. To ensure sufficient goods are available to meet demand
B. To provide a buffer between production processes
C. To meet any future shortages
D. To take advantage of bulk-purchasing discounts
E. To allow production to flow smoothly and efficiently
F. As a necessary part of the production process
(work-in-progress)
G. As an investment (during times of raw material inflation
or possible shortages)
H. To provide customers with a wider choice of products
18. What costs might incur as a result of
holding stocks?
A. Storage costs (e.g. rent, lighting & heating of a
warehouse)
B. Payroll costs of staff who look after stocks
C. Interest costs - where stocks tie up finance on which
interest has to be paid
D. Insurance costs - the larger the value of stocks held,
the greater nsurance premiums are likely to be
E. Obsolescence costs - the longer stock is held, the more
likely that it is no longer useable or saleable
F. Stockout costs - which arise if stocks are kept too low
(e.g. loss of margin from sales, loss of customer goodwill)
19. Why a business might want to order stocks
using fewer, larger deliveries?
A. Obtain bulk discounts
B. Reduce the costs & disruption of handling stock deliveries
C. Reduce the amount of administrative work
20. What factors a business ought to take into
account in deciding what the optimal level of
stock should be?
A. Demand - is it growing, stable or declining? How volatile is demand in
the short-term?
B. Nature of the product - is it fast-moving, complex, likely to become
obsolete?
C. Nature of the stock - is it perishable? Is it bulky? Does it require
special stockholding facilities? (e.g. air-conditioned)
21. D. Financial resources of the business - can it afford to finance high
values of stocks?
E. Type of production process - is production able to receive stock at
regular
intervals? Are buffer stocks required to keep production flowing?
F. Cost of stock outs - what is the opportunity cost if the business
runs out of stock?
