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• Stock may become out of date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
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 firms 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
A greater risk of running out of stock and
therefore disappointing customers.
Stock rotation and wastage become lesser issues.
This save the business time and money.
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.
Storage space can be used for something else,
this can allow for more sales space.
14
Activities

• Main Activity
• Task 1 Sloppy Stock Management _at_ Jessops
• Read the case study and complete questions 1 -4
• Extension Work
• Task 2 B2 Data Response Bakery _at_ 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 _at_ 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