MANAGEMENT OF
OPERATIONS
STOCK MANAGEMENT
LEARNING INTENTIONS AND
SUCCESS CRITERIA
LEARNING INTENTIONS: SUCCESS CRITERIA:
• I can describe the DIFFERENT
STOCKS a business may hold.
I understand what is
• I can explain the costs of
involved in effective
OVERSTOCKING.
stock management.
• I can explain the costs of
UNDERSTOCKING.
• I can describe the different
activities that are involved in
the STOCK CONTROL
PROCESS.
WHAT IS STOCK MANAGEMENT?
STOCK MANAGEMENT is all about trying to
make sure that the business has a STOCK LEVEL
that prevents OVERSTOCKING PROBLEMS and
UNDERSTOCKING PROBLEMS.
Let’s find out what some business experts
think about stock management:
http://www.bbc.co.uk/learningzone/clips/a-shortintroduction-to-production-methods/10966.html
WHAT IS STOCK?
Stock in any business is an UNUSED AMOUNT of
something, and the main types of stock are:
• RAW MATERIALS (basic parts still to be used
in production)
• WORK IN PROGRESS (products that have
been started but not yet finished)
• FINISHED GOODS (products that are complete
and ready to be sold to consumers)
OVERSTOCKING
Overstocking means that a business has bought in MORE
stock than it regularly needs and so will face the following
problems due to extra unnecessary stock:
• High labour costs for security staff to prevent theft of
stock
• High labour costs for warehouse staff to manage
stocks
• High storage costs for large premises to store stock
• High costs of insurance for large amounts of stock
• Less chance of wastage or theft being noticed and
dealt with
• Risk of losing money on stock that becomes obsolete
eg if trends change (social factor)
• Money is tied up in stock that could be used for other
purposes within the business eg buying new equipment
to increase production
UNDERSTOCKING
Understocking means that a business has NOT bought in
enough stock to continue with its ordinary activities and so
will face the following problems from a lack of stock:
• Production may have to stop
• Stockouts may occur (this means there is no stock for
customers) leading to decreased sales and profits, less
customer loyalty and a damaged business reputation
• Unexpected customer orders cannot be met
STOCK CONTROL
Once a business has decided how much
stock to have (to prevent over or under
stocking), then it will have to make sure that
stock is re-ordered when necessary and is
looked after to prevent wastage or theft.
Businesses will do this through a process
known as STOCK CONTROL.
STOCK CONTROL SYSTEMS
The work to keep track of what is happening
to stocks can be done either MANUALLY
(by hand using a record known as a STOCK
CARD) or by COMPUTER eg using a simple
Spreadsheet or sophisticated stock control
software.
STOCK LEVELS
A MAXIMUM STOCK LEVEL is set in line with consumer
demand and storage space available. This should prevent
overstocking.
A MINIMUM STOCK LEVEL is set in line with normal
demand and lead times from suppliers. This should prevent
understocking.
A RE-ORDER LEVEL is set between the maximum and
minimum levels taking account of the minimum level, lead
time and normal demand. This should prevent stock-outs.
STOCK DIAGRAM
Stock levels can be shown in a chart as
follows:
ADVANTAGES OF COMPUTERISED
STOCK CONTROL
• Computers can accurately calculate stock figures quickly and these
can be updated continually if the system is linked to an EPOS sales
system
• Computers may be able to replace staff in stock control which saves
on wages
• Computers can automatically remind staff when the reorder level
has been reached
• Reminding staff of when to reorder should lower the chance of
running out of stock
• Computers can automatically reorder stock to prevent any chance of
staff forgetting
• The information gathered from computerised stock records can help
with decision making about stock eg if products are not selling well,
use a special promotion
• The need for physical stock checks is minimised, although they still
need to be done at least once a year to check the accuracy of the
computerised data which will not show events such as theft or
damaged stock.
USE OF BAR CODES
Bar codes are now used to identify products and
the contents of boxes of products being delivered.
This makes the checking of stock when it is
delivered much quicker as the bar code will be
scanned and this will automatically update the
computerised stock records.
When items are sold or removed from stock, they
can be scanned again to automatically reduce the
amount in the stock records.
JUST-IN-TIME STOCK CONTROL
Some manufacturers use the Just-in-Time system of stock
control eg car manufacturers. Here there is no storage of
stock at all, thus saving money on warehousing and all its
Associated costs. Stock is ordered just in time for when it
is needed in the manufacturing process. This system could
not work without very reliable suppliers that are located
close to the manufacturing base.
Although money is saved on warehousing, due to frequent
small orders, bulk-buying discounts will be unavailable and
administration costs will be higher.
JUST-IN-TIME STOCK CONTROL
Let’s watch a video clip about how JIT stock
control works in practice:
http://www.bbc.co.uk/learningzone/clips/justin-time-delivery/11381.html
TASK
Complete Worksheet 33 in your jotters.