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STOCK AND INVENTORY CONTROL


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Datamatrix - Stock and Inventory Control

Suite 706

STOCK AND INVENTORY CONTROL


Types of Stock
Stock Value
Stock Control Methods
Stock Control Systems
Stock Security
Quality Control
Country Links

Please note that the information provided herein is not intended to be absolute. It is a compilation of information which has been harmonized to adhere to the foundation of principles as put forth by The UN, the United States and the Commonwealth so it is important that you should check current details with your particular government.

Stock control, otherwise known as inventory control, is about how much stock you have at any one time, and how you keep track of it.

It applies to every item you use to produce a product or service, from raw materials to finished goods. It covers stock at every stage of the production process, from purchase and delivery to using the stock and re-ordering.

Efficient stock control will mean you have the right amount of stock in the right pace at the right time. It ensures that capital is not tied up unnecessarily, and protects production when there are problems with the supply chain.

706.01 TYPES OF STOCK

Everything you use to make your products, provide your services and to run your business is part of your stock.

There are four main types of stock:

  • Raw materials and components – ready to use in production
  • Work in progress – stocks of unfinished goods
  • Finished goods ready for sale
  • Consumables – for example, fuel and stationery

The type of stock can influence how much you should keep.

Stock levels will depend on the type of stock.

There are four main types of stock:

Raw materials and components

Ask yourself some key questions to help decide how much stock you should keep:

  • How reliable is the supply?
  • Are the components produced or delivered in batches?
  • Can you predict demand?
  • Is the price steady?
  • Are there discounts if you buy in bulk?

Work in progress – stocks of unfinished goods

Keeping stocks of unfinished goods can be a useful way to protect production if there are problems down the line with other supplies.

Finished goods ready for sale

You might keep stocks of finished goods when:

  • Demand is certain
  • Goods are produced in batches
  • You are completing a large order

Consumables

How much stock you keep will depend on factors such as:

  • Reliability of supply
  • Expectations of price rises
  • How steady demand is
  • Discounts for buying in bulk

706.02 STOCK VALUE

You can categorise stock further, according to its value. For example, you could put items into low, medium and high value categories. If you feel your stock levels are limited by capital, this will help you to plan expenditure on new and replacement stock.

You may choose to concentrate resources on the areas of greatest value. However, low-cost items can be crucial to your production process and should not be overlooked.

How much stock should you keep?

Deciding how much stock to keep depends on the size and nature of your business, and the type of stock involved.

Keeping little or no stock

________________________________________________________________

Advantages                                                         Disadvantages
________________________________________________________________

 

Efficient and flexible. You only have what            Meeting stock needs can become
You need, when you need it.                               Complicated and expensive.

Lower stock and storage costs                            You might run out of stock if
                                                                             there’s a Hitch in the system.

You can keep up-to-date and develop
Without wasting stock.

________________________________________________________________

This might suit your business if it's in a fast-moving environment where products develop rapidly, the stock is expensive to store, the items are perishable or replenishing stock is quick and easy.

Keeping lots of stock

________________________________________________________________

Advantages                                     Disadvantages
________________________________________________________________

Easy to manage                               Higher stock, storage and insurance costs

Low management costs                   Certain goods might perish.

You never run out.                           Stock may become obsolete before it is used.

                                                        Your capital is tied up
________________________________________________________________

This might suit your business if sales are hard to predict (and it is hard to pin down how much stock you need and when), you can store plenty of stock cheaply. The product is unlikely to go through rapid developments or take a long time to re-order.

706.03 STOCK CONTROL METHODS

There are several methods for controlling stock, all designed to provide an efficient system for deciding what, when and how much to order.

You may opt for one method or a mixture of two or more if you have various types of stock.

  • Minimum stock level- you identify a minimum stock level, and re-order when stock reaches that level. This is known as the Re-order Level (ROL).
  • Stock review – you have regular reviews of stock. At ever y review you place an order to return stocks to a maximum level.
  • Just In Time (JIT) – this aims to reduce costs by cutting stock to a minimum. Items are delivered when they are needed and used immediately. There is a risk of running out of stock, so you need to be confident that your supplier can deliver.

These methods can be used alongside other processes to refine the system. For example:

Re-order lead time – allows for the time between placing an order and receiving it.

Economic Order Quantity (EOQ) – a standard formula used to arrive at a balance between holding too much or too little stock. It's quite a complex calculation, so you may find it easier to use stock control software.

Batch control – managing the production of goods in batches. You need to make sure that you have the right number of components to cover your needs until the next batch.

If your needs are predictable, you may order a fixed quantity every time, or at a fixed interval – say every week or month. This works a bit like a direct debit arrangement and needs regular monitoring.

First in, first out – a system to ensure that perishable stock doesn't hang about deteriorating. Stock is identified by date received and moves on to the next stage of production in strict order.

706.04 STOCK CONTROL SYSTEMS

Keeping track manually

Stocktaking involves making an inventory, or list, of stock, and noting its location and value. It's often an annual exercise – a kind of audit to work out the value of the stock as part of the accounting process.

Codes, including barcodes, can make the whole process much easier but it can still be quite time-consuming. Checking stock more frequently – a rolling stocktake – avoids a massive annual exercise, but demands constant attention throughout the year.

Any stock control system must enable you to:

  • Track stock levels
  • Make orders
  • Issue stock

The simplest manual system is the stock book, which suits small businesses with few stock items. It enables you to keep a log of stock received and stock issued.

It can be used alongside a simple re-order system. For example, the two-bin system works by having two containers of stock items. When one is empty, it's time to start using the second bin and order more stock to fill up the empty one.

Stock cards are used for more complex systems. Each type of stock has an associated card, with information such as:

  • Description
  • Value
  • Location
  • Re-order levels quantities and lead times (if this method is used)
  • Supplier details
  • Information about past history

More sophisticated manual systems incorporate coding to classify items. Codes might indicate the value of the stock, its location and which batch it is from, which is useful for quality control.

Keeping track using computer software

Computerised stock control systems run on similar principles to manual ones, but they are more flexible and information is easier to retrieve. You can quickly get a stock valuation or find out how well a particular item of stock is moving.

A computerised system is a good option for businesses dealing with many different types of stock.

Other useful features include:

  • Stock and pricing data integrating with accounting and invoicing systems. All the systems draw on the same set of data, so you only have to input the data once. Sales Order Processing (SOP) and Purchase Order Processing (POP) can be integrated in the system so that stock balances and statistics are automatically updated as orders are processed.
  • Automatic stock monitoring, triggering orders when the re-order level is reached.
  • Identifying the cheapest and fastest suppliers.
  • Bar coding systems which speed up processing and recording. The software will print and read bar codes from your computer.

The system will only be as good as the data put into it. Run a thorough stocktake before it goes “live” to ensure accurate figures. It's a good idea to run the previous system alongside the new one for a while, giving you back-up.

Choose a system

There are many software systems available. Talk to others in your line of business about the software they use, or contact your trade association for advice.

Your needs might include:

  • Multiple prices for items
  • Prices in different currencies
  • Automatic updating, selecting groups of items to update, single-item updating
  • Using more than one warehouse
  • Ability to adapt to your changing needs
  • Quality control and bath tracking
  • Integration with other packages
  • Multiple users at the same time

Avoid choosing software that's too complicated for your needs as it will be a waste of time and money.

706.05 STOCK SECURITY

Keeping stock secure depends on knowing what you have, where it is located and how much it is worth – so good records are essential. Stock that is portable, does not feature the company logo, or is easy to sell on is at particular risk.

Thieves and shoplifters

A thief coming in from outside is an obvious threat. Check the security around your premises to keep the risk to a minimum. In a shop, thieves may steal in groups – some providing a distraction while others take goods. Teach your staff to be alert and to recognise behaviour like this. Set up a clear policy and make sure your staff are trained in dealing with thieves.

Offering to help a customer if you are suspicious will often prevent a theft. Avoid using confrontational words like “steal” if you do have to approach a suspected thief, and avoid getting into a dangerous situation.

Theft by staff

Employee theft can sometimes be a problem. To prevent this:

  • Create an honest culture among your staff. Training about the cost of stock theft will help, as many people aren't aware of the implications for company turnover and job security.
  • Set up procedures to prevent theft. Staff with financial responsibilities should not be in charge of stock records.
  • Restrict access to warehouses, stockrooms and stationery cupboards.
  • Identify and mark expensive portable equipment (such as computers).
  • Don't leave equipment hanging around after delivery. Put it away in a secure place, record it and clear up packaging.
  • Put CCTV in car parks.
  • Regularly change staff controlling stock to avoid collusion or bad practice.

706.06 QUALITY CONTROL

Quality control is a vital aspect of stock control –especially as it may affect the safety of customers.

Efficient stock control should incorporate stock tracking and batch tracking. This means being able to trace a particular item backwards or forwards from source to finish product, and identifying the other items in its batch.

Goods are checked systematically for quality, faults identified and the affected batch weeded out, enabling you to demonstrate the safety of your product.

With a good computerised stock control system, this kind of tracking is relatively straightforward. Manual stock control methods can also use codes to systematise tracking and make it easier to trace particular batches.

Stock control administration

There are many administrative tasks associated with stock control. Depending on the size and complexity of your business, they may be done as part of an administrator's duties, or by a dedicated stock controller.

For security reasons, it's good practice to have different staff responsible for finance and stock.

Typical paperwork to be processed includes:

  • Delivery and supplier notes for incoming goods
  • Purchase orders, receipts and credit notes
  • Returns notes
  • Requisitions and issue notes for outgoing goods

Stock can tie up a large slice of your business capital, so accurate information about stock levels and values is essential for your company's accounting.

Figures should be checked systematically, either through a regular audit of stock –stocktaking – or an ongoing programme of checking stock – rolling stocktake.

If the figures don't add up, you need to investigate as there could be stock security problems or a failure in the system.

Health and Safety

Health and safety aspects of stock control are related to the nature of the stock itself. Issues such as where and how items are stored, how they are moved and

Who moves them might be significant – depending on what they are.

You might have hazardous materials on your premises, goods that deteriorate with time or items that are very heavy or awkward to move.

Information systems

Exploiting a larger market will require your business to have comprehensive and sound information on what is happening; this means that your information systems (IS) must be up-to-date, appropriate for your needs and make good use of the information they hold. With more competition, your use of information systems will increasingly make the difference between competitive success or failure.

Does your information systems strategy support your business strategy?

What new requirements will you have in the single market for gathering, processing and communicating information?

Are your present IS systems capable of meeting growth in demand from the wider market?

Do you need to recruit new staff?

Should you consider changing, or extending, your operating bases, or opening new ones?

CANADA

Listings and links to all sections

Of the Canadian Government:

http://www.canada.gc.ca/depts/major/depind_e.html

The following link will provide the individual information

on each Province in Canada .

http://www.bsa.cbsc.org/gol/bsa/interface.nsf/vSSGBasic/su10000e.htm

IRELAND

The Government of Ireland Official Gateway

http://www.irlgov.ie/

Irish local government Council websites:

http://www.oultood.com/localgov/eire.htm

AUSTRALIA

Australian Commonwealth Government Gateway

http://www.australia.gov.au/

General Information

http://gov.info.au/

Federal, State and Local Government

http://www.nia.gov.au/oz/gov/

UNITED KINGDOM

Gateway to United Kingdom business advice.

http://www.hse.gov.uk/

NEW ZEALAND

The Government of New Zealand Gateway

http://www.govt.nz/

The E-Government site for New Zealand

http://www.e.govt.nz/

Note: Although this site is a compilation of information from various countries we would like to particularly acknowledge the support of the United Nations, FirstGov of the United States Government and Business Link of the United Kingdom for the use of their text which is provided by permission and protected by their individual copyrights. A more complete list of acknowledgements with their official links can be accessed in this site through: Acknowledgements

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