Stock Control or Inventory Control it was a bit complicated
Stock control, otherwise known as
inventory control, is used to show 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 and
re-ordering the stock.
Efficient stock control allows you to have the right amount of stock
in the right place at the right time. It ensures that capital is not
tied up unnecessarily, and protects production if problems arise with
the supply chain.
This guide explains different stock control methods, shows you how to set one up and tells you where to find more information.
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 in production
- finished goods ready for sale
- consumables - for example, fuel and stationery
The type of stock can influence how much you should keep - see the page in this guide on how much stock you should keep.
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 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. If you are short of
space, you may be able to buy stock in bulk and then pay a fee to your
supplier to store it, calling it off as and when needed.
Keeping little or no stock and negotiating with suppliers to deliver stock as you need it
| Advantages |
Disadvantages |
| Efficient and flexible - you only have what you need, when you need it |
Meeting stock needs can become complicated and expensive |
| Lower storage costs |
You might run out of stock if there's a hitch in the system |
| You can keep up to date and develop new products without wasting stock |
You are dependent on the efficiency of your suppliers |
This might suit your business if it's in a
fast-moving environment where products develop rapidly, the stock is
expensive to buy and store, the items are perishable or replenishing
stock is quick and easy.
Keeping lots of stock
| Advantages |
Disadvantages |
| Easy to manage |
Higher storage and insurance costs |
| Low management costs |
Certain goods might perish |
| You never run out |
Stock may become obsolete before it is used |
| Buying in bulk may be cheaper |
Your capital is tied up |
This might suit your business if sales are
difficult to predict (and it is hard to pin down how much stock you need
and when), you can store plenty of stock cheaply, the components or
materials you buy are unlikely to go through rapid developments or they
take a long time to re-order.
Stock levels depending on 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 and are alternative sources available?
- 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
For example, fuel and stationery. 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
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. For further information, see the page in this
guide on 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.
- Stock review - you have regular reviews of stock. At every review you place an order to return stocks to a predetermined 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 suppliers can deliver on demand.
These methods can be used alongside other processes to refine the stock control 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 of stock every time you place an order, or order at a
fixed interval
- say every week or month. In effect, you're placing a standing order,
so you need to keep the quantities and prices under review.
First in, first out - a system to ensure that
perishable stock is used efficiently so that it doesn't deteriorate.
Stock is identified by date received and moves on through each stage of
production in strict order.
Stock control systems - keeping track manually
Any stock control system must enable you to:
- track stock levels
- make orders
- issue stock
- Expiration Date
- Quality
- Quantity
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 stock 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.
The system will only be as good as the data put into it. Run a thorough
inventory
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 a
back-up and enabling you to check the new system and sort out any
problems.
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.
Make a checklist of your requirements. For example, 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 batch tracking
- integration with other packages
- multiple users at the same time
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 business' 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 store,
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 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.
Protect your stock
- Identify and mark expensive portable equipment (such as
computers). If possible, fit valuable stock with security tags - such as
Radio Frequency Identification tags - which will sound an alarm if they
are moved.
- Don't leave equipment hanging around after delivery. Put it away
in a secure place, record it and clear up packaging. It is a good idea
to dispose of packaging securely -leaving boxes in view could be an
advertisement to thieves.
- Take regular inventories.
- Put CCTV in parking lots and other key locations.
Theft by staff
Theft by employees can sometimes be a problem. To prevent this:
- Train staff about your security systems and your disciplinary
policies and procedures. 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.
- Regularly change staff controlling stock to avoid collusion or bad practice.
Control the quality of your stock
Quality control is a vital aspect of stock control - especially as it
may affect the safety of customers or the quality of the finished
product.
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 finished product, and identifying the other items in the
batch.
Goods should be checked systematically for quality, faults identified
and the affected batch weeded out. This will allow you to raise any
problems with your supplier and at the same time demonstrate the safety
and quality 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.
Radio Frequency Identification (RFID) can be used to store
information about a product or component's manufacturing date, to ensure
that it is sold or processed in time. The system can also be used to
trace faulty products quickly and efficiently. See the page in this
guide on using RFID for inventory control, stock security and quality
management.
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 program of checking stock -
rolling inventory.
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.
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