Stock Control

1. 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

2. 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.

3. 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.

4. 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as little stock as possible because: • Holding stock costs money, e.g. storage and risk of theft • Stock may become out of date • There is an opportunity cost, holding more stock increases costs, however this is set against the cost holding too little stock, such as not being able to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.

5. Stock Rotation Stock Rotation Many 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.

6. Stock Wastage Stock 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.

7. 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

8. Stock Control Charts Some businesses use these to help control stocks. They show: Maximum Stock Level (eg 300 units) 300 Stock Levels Re-Order Level (eg 200 units) 200 Minimum Stock Level (eg 100 units) 100 Jan Feb Mar Apr Time

9. Maximum Stock Level (eg 300 units) 300 Stock Levels Re-Order Level (eg 200 units) 200 Minimum Stock Level (eg 100 units) 100 Lead Time Lead Time Jan Feb Mar Apr Time Stock Control Charts Lead Time: This is the time between an order being placed, and the goods being received

10. 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.

11. 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 the business is loss of output and wages being paid for no work. • Lost orders, as customers with a specific delivery date will go elsewhere • Orders not being fulfilled on time, leading to worsening relations with customers • The loss of the firms reputation any goodwill it has been able to build up with customers.

12. IT and Stock Control The 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.

13. Just In Time Just 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 Advantages Disadvantages Stock rotation and wastage become lesser issues. This save the business time and money. A greater risk of running out of stock and therefore disappointing customers. Storage space can be used for something else, this can allow for more sales space. 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.

14. Activities… Main Activity Task 1:Sloppy Stock Management @ Jessops Read 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? Read the case study and complete questions 1 – 4

15. Activities… On page 312 and 313 and complete the following case studies: B2: Data Response Bakery @ Wigan Read the case study and complete questions 1 – 4 B3: Data Response Is JIT always the best option? Read the case study and complete questions 1 – 4