Stock Control
Stock control, also known as inventory control or inventory management, refers to the process of monitoring and managing the stock or inventory levels of products or materials within a business. The primary objective of stock control is to ensure that there is an optimal amount of stock available to meet customer demands, without incurring unnecessary costs or tying up too much capital in excess inventory.
Effective stock control can help businesses:
- Minimize Costs: Holding too much stock can result in increased storage costs, wastage (especially if the products have a shelf life), and cash flow problems, as money is tied up in unsold goods.
- Maximize Profits: Having sufficient stock on hand ensures that businesses can meet customer demand, resulting in steady sales and revenue streams.
- Avoid stockouts: Running out of stock can result in lost sales and damage to a business’s reputation.
- Optimize Storage Space: Effective stock control ensures that valuable storage space is not wasted on excess or obsolete stock items.
Key Elements of Stock Control:
- Stock Review: Regularly checking and reviewing stock levels. This can be done manually or through automated inventory management systems.
- Minimum Stock Level: The least amount of stock that should be held to ensure that there are no interruptions in production or sales.
- Reorder Level: The stock level at which a new order should be placed. This level considers the lead time (time taken for the stock to be delivered) and the rate at which stock is used.
- Reorder Quantity: The quantity of stock to be ordered once the reorder level is reached. This takes into account factors like bulk-order discounts, delivery costs, and storage capacity.
- Maximum Stock Level: The maximum amount of stock to be held at any given time. Holding more than this can lead to increased holding costs.
- Lead Time: The time taken between placing an order for stock and the stock being delivered and ready for use.
- Economic Order Quantity (EOQ): A formula used to determine the optimal order quantity that minimizes the total cost of ordering and holding stock.
Many businesses nowadays use sophisticated inventory management software to automate many of these processes, provide real-time insights into stock levels, and help in making informed purchasing decisions. Proper stock control is crucial for businesses to ensure efficient operations, customer satisfaction, and profitability.
Example of Stock Control
Let’s consider a fictional example of stock control for a small business named “Healthy Bites,” a local store that sells organic juices and smoothies.
Background: “Healthy Bites” uses fresh fruits and vegetables to prepare its offerings. Given the perishable nature of their primary ingredients, efficient stock control is crucial to minimize waste and ensure the availability of ingredients for daily production.
Stock Control Measures:
- Stock Review: Every evening, the manager, Lisa, reviews the inventory levels of fruits and vegetables. She makes note of items that are running low or nearing their expiry.
- Minimum Stock Level: For daily operations, Lisa knows she needs at least 20 pounds of bananas, 15 pounds of strawberries, 10 pounds of spinach, and so on. These are the minimum stock levels for her main ingredients.
- Reorder Level : Since it takes two days for her supplier to deliver, Lisa sets a reorder level slightly above the minimum stock level to account for any unexpected increase in sales. For instance, if she has only 25 pounds of bananas left and knows she will use 20 pounds the next day, she places an order to ensure continuity.
- Reorder Quantity: Lisa usually orders bananas in batches of 50 pounds, as this quantity gets her a bulk purchase discount.
- Maximum Stock Level: Due to limited storage space and the perishable nature of her stock, Lisa never orders more than 100 pounds of bananas at a time.
- Lead Time: Lisa’s lead time is two days. Hence, she always ensures that her stock will last her at least two days when she places a new order.
- Economic Order Quantity (EOQ): Over time, Lisa calculates her EOQ for various ingredients. This ensures she orders optimal quantities, balancing ordering and holding costs.
Scenario: On Wednesday evening during her stock review, Lisa notices that she’s down to 23 pounds of bananas. Considering she will use 20 pounds on Thursday and her supplier takes two days to deliver, she decides to place an order immediately. She also observes that she’s nearing the reorder levels for strawberries and spinach. By assessing her expected sales for the next few days, she places orders for those items as well.
On Friday, the stock of bananas and other ingredients arrives just as she runs out of her existing stock, ensuring no disruption in her store’s operations.
Outcome : By implementing effective stock control measures, “Healthy Bites” minimizes wastage due to spoilage, ensures the consistent availability of fresh ingredients for its customers, and optimizes costs related to inventory management.
