Stock Control
LO: To know how this is managed and
controlled
Purchasing
• Essential part of the business, need to order stock for
manufacturing or retail. MUST ENSURE • Sufficient quantity is ordered (not too much)
• It is the right quality
• Available where they are needed in the factory
• Price must be competitive
• Good relationships built with suppliers
Suppliers – Things that must be
considered
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Quality checked through samples or visit to factory
Do they have ISO 9000?
Price can be negotiated especially when purchasing in bulk
Can discuss credit periods
Will they be consistent and on time?
Is the financial position of the firm safe?
If the needs of the buyer changes, can the supplier react?
Should we place large orders occasionally or small orders
frequently?
• Should we accept lower quality stock at a lower
cost?
• Should we use only one supplier?
Types of stock
• Raw materials and components – comes from outside suppliers and
will help to make the finished product
• Work in progress – Things that have been started to be processed
• Finished goods – May keep goods for a while after they are made as
they have to be sold, may be in batches or individually. Especially
true with the stockpiling before Christmas.
Stock management
• Stock rotation – Use oldest stock first, makes sure nothing is
out of date or obsolete.
• Stock wastage – Loss of stock in production or process, main
causes:
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Materials wasted and thrown away
Reworking of items not made correctly
Defective products that cannot be corrected
Damaged due to handling or storage
Stealing by customers or staff
Passing use by dates
Stock control charts
• Look at the level of stock over time to help to manage it
Charts show the following things:
• Stock levels – vertical line when a delivery is made but then
slowly goes down
• Maximum stock level – Shows the largest amount you can
store
• Re-order level – A trigger point when the new order should be
sent to the supplier
• Minimum stock level – Need to keep a certain minimum level
as a buffer so you have something should you need it
The costs of stock – Too much
• Opportunity cost – Holding stock means money is wrapped up
and cannot be used elsewhere
• Cash flow problems – Less money to pay things
• Increased storage costs – larger premises needed, more
labour, security etc.
• Increased finance costs – If capital needs to be borrowed
• Increased stock wastage – More
chance of stock getting damaged
or turning bad
The costs of stock – Too little
• Workers and machines may stand idle
• Lost orders as the orders cannot be fulfilled in time
• Orders not being fulfilled on time causing a bad relationship
with customers
• Loss of the firms reputation and goodwill from customers
Need to balance these costs for optimum stock control
IT and stock control
• Stock control made easier by the use of IT
• Databases used to hold details about stock
• Systems control stock so it is re-ordered as soon as it is used –
usually done using barcodes
• RFID (radio frequency identification) often used today to see
exactly where the stock is in the warehouse
• Allows you to know exactly what you store
JIT – Just in Time
• Allows firms to hold very little stock
• Stock is to arrive at the factory just as it is needed so that it
does not have to be held
• Must have a very good relationship with the suppliers
• Deliveries must be made frequently
• Would only be established over time as holding no stock is a
massive risk
Advantages and Disadvantages of
JIT
ADVANTAGES
• Improves liquidity
• Costs of holding stock
reduced
• Storage space converted
into something more
useful
• Stock wastage and
rotation are less of an
issue
• Response times are
speeded up as
components can be
ordered instantly
DISADVANTAGES
• Break in supply causes
problems to production
• Costs of processing
orders may be increased
• The reputation of the
manufacturer is placed
in the hands of the
supplier
Some questions
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What businesses may rely the most on good stock control?
How will internet shopping change stock control?
When might it be good for a firm to run out of stock?
Where does the idea of JIT come from
Should all firms use JIT?
Revision exercises
• Page 263
• Answer the B revision exercises