Managing Stock

  • Managing stock, or inventory, is critical in business operations as it ensures that a firm has sufficient goods to meet customer demands while avoiding overstocking which can lead to wastage, increased storage costs, and obsolescence.

  • Stock control methods include the traditional or ‘just in case’ approach, where companies keep large quantities of inventory to cover all eventualities, and the Just-In-Time (JIT) method, where stock is ordered or produced just as it is needed.

  • Just-In-Time system, pioneered by Toyota, can reduce storage costs and minimise waste, but it relies on effective supply chain management and can leave the business vulnerable if the suppliers fail to deliver on time.

  • Benefits of effective stock management include increased efficiency, cost reduction, and improved cash flow. Drawbacks of poor stock management may include deadstock, cash flow problems, and customer dissatisfaction due to stockouts.

  • Stock turnover ratio is a key performance indicator that measures the number of times a company sells and replaces its inventory over a certain period. It provides insight into a company’s operational and financial efficiency.

  • Businesses use various types of technology to manage stock - Enterprise Resource Planning (ERP) systems and Electronic Point of Sale (EPOS) systems are key examples. These technologies help track stock levels in real-time and aid in sales forecasting.

  • Efficient stock management can support lean manufacturing - a systematic method for waste minimization within a manufacturing system.

  • Stock control charts such as the ABC analysis which categorises items into three categories: A- high value with low frequency, B- moderate value and frequency, and C- low value but high frequency, can help businesses prioritise their stock management efforts.

  • Other essential concepts related to inventory management include lead time (the period between placing an order and receiving it), reorder level (the level of stock at which a new order should be placed), and economic order quantity (the number of units that a company should add to inventory with each order to minimise the total costs of inventory—such as holding costs, order costs, and shortage costs).

  • An understanding of these principles is essential as inventory management plays a critical role in meeting customer service goals and influencing the success of any business operation.