Stock Control

Stock Control

Today you will know what stock control is.

You will understand the importance of stock control in businesses.

You will be able to apply this to the case study

What is Stock Control?

Stock control is the management process that makes sure stock is ordered, delivered and

handled in the best possible way.

An efficient stock control system will balance the need to meet customer demand against

the cost of holding stock.

Manufacturing businesses rely on stocks being brought in from other firms. These

stocks can be in the form of raw materials or components. They are part of the inputs

that are processed into outputs.

What is Stock Control?

The purchasing function acts as a service to the rest of the business. Its main objective is to meet the needs of those running the internal operations of

the business.In the retail sector poor purchasing can lead to empty shelves or an over-full stockroom. In order

to avoid this, the purchasing function of a business will try to ensure that:

A sufficient quantity of stock is available at all times… …but not so many as to represent a waste of resources Stocks are of the right quality Stocks are available when they are needed in the

factory The price paid for stocks is as competitive as possible Good relationships with suppliers.

Stock Management Explained

Stock Management is how firms control stock within the Business The word “stock” refers to:

Raw materials and other components – things that go into the production process

Work-in-progress – products that are not yet finished, but where the production process has started

Finished goods – products that have been completed to the right quality – and are waiting to be delivered to customers

Businesses will want to hold as little stock as possible because: Holding stock costs money, e.g. storage and risk of theft Stock may become out of date

There is an opportunity cost, holding more stock increases costs, however this is set against the cost holding too little stock, such as not being able to meet customer demand.

Stock Rotation

Stock RotationMany businesses use a stock rotation system.

This is the process of ensuring that the older batches of stock are used first rather than the newer batches, in order to avoid the

possibility that the older stocks will become obsolete or go past their sell-by-date.

This is often referred to as a First In First Out (F.I.F.O) system, to encourage the older

batches of stock to be used first, therefore avoiding the possibility that the older stock

will be left in a warehouse, possibly becoming unusable.

Stock WastageStock Wastage

This is the loss of stock in either production or a service process. Any wastage is a cost to the firm as it has paid for stock it will not use.

In a manufacturing process, the main caused of stock wastage are: Materials being wasted I.e. scraps being thrown away The reworking of items that were not done correctly the first time Defective products that can not be put right

In a retail shop, the main causes of stock wastage will be: Products becoming damaged due to improper handling or storage Stealing from the shop, whether by staff or customers Products such as food passing their sell-by dates.

In all these cases, sound management and administrative techniques could reduce or even eliminate the problem of stock wastage.

Wastage is a cost to the business, and procedures need to be in place to prevent such losses.

Using A Stock Control Chart

One way a firm can analyse its stock situation is by using STOCK CONTROL CHARTS. The following key terms are used on a

stock control chart. Maximum Stock Level

This is the most stock that a firm is able or willing to hold Re-Order Level

The stock level at which a new order will be sent to the supplier

Minimum Stock Level (Buffer Stock) If stock falls below this level then the firm is in danger of

running out of supplies Re-Order Quantity

This is the number of items that are ordered. This is shown by the straight line on the stock control chart

Lead Time The time between an order being placed, and the goods being

received

Stock Control ChartsSome businesses use these to help control stocks. They show:

Sto

ck

Levels

Time

Minimum Stock Level (eg 100 units)

Maximum Stock Level (eg 300 units)

Re-Order Level (eg 200 units)

Jan Feb Mar Apr

100

200

300

Stock Control ChartsLead Time: This is the time between an order being

placed, and the goods being received

Sto

ck

Levels

Time

Minimum Stock Level (eg 100 units)

Maximum Stock Level (eg 300 units)

Re-Order Level (eg 200 units)

Jan Feb Mar Apr

100

200

300

Stock Costs…The initial purchasing of stock is only one cost associated with

a firm’s stock holding. A firm can hold too much or too little stock. Both cases will add

to the costs of the firm.Too much stock can lead to:

Opportunity Cost: capital tied up in stock can prevent it form being spent in other areas such as on new machinery.

Cash flow problems: stock that is slow to move could cause insufficient cash to pay suppliers

Increased storage costs: As well as the physical space it is the cost of labour, heating and insurance.

Increased finance costs: If the capital needs to be borrowed, the cost of that capital (the interest) will add to the annual overhead

Increased stock wastage: the more stock is held, the greater the risk of it going out of date or deteriorating.

Stock Costs…The costs of holding too much stock do not mean however that the business is free to carry very low stocks. Businesses can face the cost of holding too

little stock too. Too little stock can lead to:

Workers and machines standing idle. The cost to Workers and machines standing idle. The cost to the business is loss of output and wages being the business is loss of output and wages being paid for no work.paid for no work.

Lost orders, as customers with a specific delivery Lost orders, as customers with a specific delivery date will go elsewheredate will go elsewhere

Orders not being fulfilled on time, leading to Orders not being fulfilled on time, leading to worsening relations with customersworsening relations with customers

The loss of the firms reputation any goodwill it has The loss of the firms reputation any goodwill it has been able to build up with customers.been able to build up with customers.

IT and Stock ControlThe production process and stock control systems in a

business can be assisted by the use of Information Technology (I.T).

Sophisticated software packages can enable a business to keep detailed and accurate records on its purchases of stock

and its sales to customers, using such systems as Electronic Point of Sale (E.P.O.S).

This records every transaction made by a business and can, therefore, enable it to monitor its stock levels and sales of

products to a 100% level of accuracy. This system can automatically re-order stock when numbers fall to a certain level in the warehouse, as well as monitoring the quantity of

each component that is used in the production process.

This enables a tight control to be kept on both costs and waste, as well as recording the amount of revenue received from

customers and any outstanding customer debts.

Advantages Disadvantages

A greater risk of running out of stock and therefore

disappointing customers.

More orders of smaller quantities pay be placed, so costs of this and transportation may rise.

Businesses could also lose out of bulk buying discounts.

Stock rotation and wastage become lesser issues. This save the business time and money.

Storage space can be used for something else, this can allow

for more sales space.

Just In TimeJust In Time (JIT) is the process when stock is

ordered only at the time they are needed. Therefore they are only there when they are

required. This helps to reduce wastage and allows firms to operate with only a small amount of stock

Activities…

Main Activity

Task 1: Sloppy Stock Management @ JessopsRead the case study and complete questions 1 -4

Extension Work

Task 2: B2: Data Response Bakery @ Wigan

Read the case study and complete questions 1 – 4

Task 3: B3: Data Response Is JIT always the best option?


Activities…

On page 312 and 313 and complete the following case

studies:

B2: Data Response Bakery @ Wigan


B3: Data Response Is JIT always the best option?


Documents

Stock Control