Stock control

Managing and storing stock effectively is important for a business in order to maintain production and sales.

WHAT IS STOCK?

Stock is any item stored by a business for use in production or sales. Stock can be:

• Raw materials and components waiting to be used in the manufactoring process. e.g: tyres stored by a car factory.
• Finished goods held in store so that a customer oder can quickly be met from stock.

Holding stock incurs warehouse storage costs and ties up working capital. Funds must be found to pay for materials, components and unsold goods with interest.

Running out of one item of stock could bring the whole factory to a halt. Staff must still be paid even though they do not have the parts to carry on production.

Stock control aims to hold sufficient items on site to enable production while minimising stock holding costs. There are two methods of stock control - just in case and just in time.

The just in case method of stock control is best explained using a diagram called a bar gate stock graph. You need to understand the meaning of:

Bar gate stock graph:

• Maximum stock level: the largest amount of items to be stored on site (500).
• Minimum stock level: the lowest amount of items to be stored on site (100).
• Reorder level: the amount at which new stock is ordered. 400 items are ordered and it takes two weeks lead time for ordered stock to arrive. There is always a buffer stock of 100 items held in case deliveries are held up or there is an unexpected large order.

Just in case stock control is costly. To reduce spending and improve competitiveness, a business can switch to an alternative method of stock control called just in time. With just in time, a business holds no stock and instead relies upon deliveries of raw materials and components to arrive exactly when they are needed. Instead of occasional large deliveries to a warehouse, components arrive just when they are needed and are taken straight to the factory floor.

The benefits of reduced warehouse costs must be balanced against the cost of more frequent deliveries and lost purchasing economies of scale from bulk buying discounts.

Benefits:

• Lower warehousing costs
• Lower security and insurance costs
• Lower opportunity costs
• Greater focus on quality

Problems:

• Lose bulk discounts
• Vunerable to difficulties with suppliers
• Vunerable to industrial action
• May struggle to meed sudden major

Businesses need to be able to rely on suppliers to deliver goods at precisely the right time. They cannot afford delays as the halts production. Also the goods must be prefect quality: the manufacturer has no stocks to replace faulty supplies. A firm must be able to trust its suppliers completely.