• Stocks are goods which have been produced
or are in the process of being produced but
which have not been sold yet.
Types of Stock
Stocks can take a variety of forms:
– Raw materials and components –
waiting to be used in the
production process
– Works in progress or unfinished
goods – goods in the process of
being manufactured
– Finished goods – goods produced
and ready to be sold.
Holding stocks
Holding stocks is important to firms because they are often
needed to maintain production and to meet customers’
 A business can produce at any time and has goods available
for customers.
However, holding stocks can be expensive and risky. The more
stocks a business has:
The greater the warehousing space needed
The more money there is tied up in stocks
The higher the security costs to protect the stocks
The greater the risk
Firms must hold sufficient stocks of items for a number of reasons.
Costs of zero stock
Raw materials and work
in progress
To meet production
Idle time (worker and
machine); knock-on
effect of delayed
Finished goods
To meet customer
Loss of goodwill and
orders; financial
penalties for missing
Consumables, spares,
To support sales and
Idle time (worker and
machine); delayed
Buffer stock
• The buffer stock is the minimum stock a firm wants to
hold at any moment.
• Several factors influence the level of buffer stocks a
business holds:
The rate at which stocks are generally used
The warehousing space available
The nature of the product
The reliability of suppliers
The supplier’s lead time. ( The lead time is the time it takes
for an item to arrive from the moment it is ordered.)
• The maximum stock that a firm will hold
depends on:
– How much space a firm has
– The opportunity cost of having money tied up in
Stock Control
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.
Buying stock in bulk
to achieve discount
and ensure supply
Avoiding the costs
of holding large
quantities of stock
Managing stock usage
• Stock rotation = method of organising stocks so
the oldest supplies are used first.
• Computer-based stock control
– EPOS (Electronic Point of Sale) assists in the tracking
of stock. Barcode monitors sales and movements of
stock in the store.
• Reducing the overall level of stock
– Minimise the amount of stock kept to reduce costs of
high stockholding