Stock control and Inventory
This applies to every item you use, from raw materials to finished goods to use the product or service. It covers stock at every stage of the production process, from purchase and distribution to stock use and re-ordering.
Efficient stock control allows you to have the right amount of stock at the right time right moment.
This ensures that capital is not unnecessarily tied up, and protects production when problems arise along the supply chain.
- Types of stock
Everything you use to make your products, provide your services and run your business is part of your stock.
There are four main types of stocks:
- Raw materials and components
- Work in progress - Unfinished stock of goods in production
- Finished goods ready for sale
- Consumables - for example, fuel and stationery
How much the type of stock can affect you - see the page in this guide on how much stock you should hold.
Share price
You can further classify the stock according to its value. For example, you can place items in low, medium and high price categories. If your stock level is limited by capital, it will help you plan spending on new and replacement stocks.
You can choose to focus resources on areas of greatest value.
However, low cost items can be important to your production process and should not be ignored.
How much stock should you keep?
Deciding how much stock to keep depends on the size of your business and the type of stock. If you have less space, you may be able to buy the stock in bulk and then pay your supplier a fee to store it, calling it when needed.Keeping little or no stock and negotiating with suppliers to deliver stock as you need it
Stock control methods
Stock control systems - keeping track manually
This guide explains different stock control methods, shows you how to set one up and tells you where to find more information.
Everything you use to make your products, provide your services, and run your business is part of your stock.
Raw materials and components - ready to use for production
Work in progress - Unfinished stock of goods in production
Finished goods ready for sale
Consumable components - for example, fuel and stationery
How the type of stock can affect you - See the pages in this guide on how you should hold stock.
Share price
You can further classify the stock according to its value. For example, you can place items in low, medium and high price categories. If your stock level is limited by capital, it will help you plan for spending on new and option stocks.
You can choose to focus resources on the areas of greatest value.
However, low cost items can be important to your production process and should not be ignored.
Advantages
Low storage costs.
You may keep up-to-date and develop new products without wasting stock.
Disadvantages
meeting stock when you need it can be complicated and expensive.
If there is a bottleneck in the system then you can run out of stock.
You depend on the efficiency of your suppliers
It can adapt to your business if it is in a fast-growing environment where products evolve quickly, it is expensive to buy and store stocks, items are deteriorating or stock is quick and easy to replenish.
Keeping lots of stock
Advantages
Easy to manage
Low management
Bulk buying may be cheaper
Disadvantages
high storage and insurance costs
costs may spoil some goods
Stock can never become obsolete before you use it
Your capital is tied up
It can be suitable for your business. If sales are difficult to predict (and how much stock you need and when is hard to pin down), you can store a lot of stock cheaply, the components or materials you buy. Rapid growth or loss is unlikely. They take a long time to reorder.
Stock level depending on the type of stock
There are four main types of stocks:
Raw materials and components
To help you decide how much stock to keep, ask yourself some important questions:
- Are the components produced or distributed in batches?
- Can you predict the demand?
- Is the price stable?
- What is the discount on buying in bulk?
Work in progress - stock of incomplete goods
Keeping stock of incomplete goods can be a useful way to save production if there are problems in line with other supplies.
Finished goods ready for sale
You can keep stock of finished goods when:
- Demand is certain
- Goods are produced in batches
- You are completing a big order
Consumables
For example, fuel and stationery. How much stock you hold will depend on factors such as:
- Supply reliability
- Price expectations go up
- How stable is the demand
- Bulk discount
Stock control methods
There are several methods to control stock, all designed to provide an efficient system for deciding what, when and how much to order.
If you have a wide variety of stocks, you can opt for a method or a mixture of two or more. For more information, see the page in this guide on stock types.
- Minimum Stock Level - You identify a minimum stock level, and re-order when the stock has reached that level. This is known as the re-order level.
- Stock Review - You have regular stock reviews. In each review, you order a return of stock at a predetermined level.
Just in time (JIT) - It aims to reduce costs by minimizing stock. Items are delivered when needed and used immediately. There is a risk of running out of stock, so you should be confident that your suppliers can deliver on demand.
These methods can be used in conjunction with other processes to refine stock control systems. for example:
Re-order lead time - allows time between placing and receiving an order.
Economic Order Quantity (EOQ) - A standard formula used to balance between holding too much or too little stock. This is quite a complicated calculation, so you may find it easier to use stock control software.
Batch control - Management of 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 requirements are predictable, you can order a certain amount of stock every week or month, every time you place an order, or at a fixed interval. In fact, you are placing a standing order, so you need to keep the quantity and prices under review.
First, first out - a system to ensure that the spoilage stock is used efficiently so that it does not spoil. The stock is identified by the date received and moves through each stage of production in strict order.
Stock control systems - keeping track manually
Stocktaking involves making a list or list of stock, and noting its location and value. It is often an annual practice - a type of audit to work out the value of a stock as part of the accounting process.
Code, including barcodes, can make the whole process a lot easier but it can still be quite time consuming. Checking stock more often - a rolling inventory - avoids a large-scale annual practice, but demands constant attention throughout the year. Radio frequency identification (RFID) can provide a simple and efficient way to maintain a continuous check on tagging inventory using handheld readers. See the pages in this guide on using RFID for inventory control, stock security and quality management.
Any stock control system you should be able to:
- Track stock level
- Place an order
- issue shares
The simplest manual system is the stock book, which is suitable for small businesses with few stock items. This enables you to keep a log of the stock received and the stock issued.
It can be used with a simple re-order system. For example, a two-bin system works by having two containers of stock items. When one is empty, it is time to start using the other bin and order more stock to fill the empty stock.
Stock cards are used for more complex systems. Each type of stock has an associated card, such as information:
- description
- value
- place
- Re-order level, quantity and lead time (if this method is used)
- Supplier details
- Information about past stock history
More sophisticated manual systems incorporate coding to classify items. The codes can indicate the price of a stock, its location and the batch that is useful for quality control.
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