Inventory for a business is more than just materials and goods that are kept in a warehouse. Inventory plays a significant role in a company’s physical assets. It represents a financial investment that if not used properly, can really drain a company’s cash flow. To make sure that they do not just throw their money away on stock, a company spends quite a bit of manpower and resources on monitoring their stock. The process of monitoring inventory is known as stock management.
Stock management is basically a series of processes for keeping up with rotating stock. This includes tracking, shipments, handling of goods, and ordering to resupply the current levels of inventory. Successful stock management can make or break a company. If not implemented correctly, a company can waste a lot of money on excess inventory or they could be short on supplies which slow down production.
What Is Stock Management?
A company’s inventory is made up of a number of different products and materials. Having a good method of stock management is in understanding the different levels of stock and its dynamics. For instance, how much of one particular inventory item does a company use? Do they use one item more than others? When should additional inventory be reordered?
There are several factors that play a role in stock management and the amount of stock that is used. Influences on inventory demand are either internal or external. Purchase orders are designed to keep all the chaos that is inventory in good working order.
Stock management is mostly governed by inventory software. The computer keeps track of what comes in and goes out of the inventory. There are numerous third party companies that provide stock management software for a variety of businesses. The best systems are those that are compatible and capable of monitoring multiple stocks in several locations along with several users.
Common Methods of Stock Management
A structured method is needed to make sure that inventory levels are optimized for production and cost. An automated method is preferred over the old fashioned manual method which consists of several disadvantages such as higher costs and inventory error.
A successful system for stock management ensures that a company has enough supplies of raw materials for their production. A faulty or inadequate management system can slow down production if not enough raw materials are kept on hand. If production slows then there is a shortage of finished products which means lower sales. When a company runs completely out of stock, it is called a stockout. Stockout can hurt customer service and company image. A company that continually experiences stockout will lose customers to the competition.
The same is also true of having too much stock. An inadequate stock management system can order too much raw materials which results in overstock. This is stock that will just sit there, taking up space, and waiting until it can be used. If the stock has an expiration date, it may go bad before it can be used in production.
To prevent too much stock or not enough, stock management systems use one of two different methods to avoid these blunders. They are Buffer Stock and Just-In-Time Stock.
Buffer Stock is an additional amount of stock that is held in reserve during times of re-ordering. It works like this. Normally, stock is held at certain levels. When it drops below those levels, the management re-orders more stock to bring it back up to that desired level. However, there is a waiting period between the time stock is ordered and when it is actually delivered. Meanwhile, stock is still being used. Buffer stock is kept in case the delivery takes longer and supplies get low. Buffer stock keeps a company from running out of stock while they wait for a delivery.
The benefit of Buffer Stock is that profits will increase as the price rises. Stock that was purchased at a lower price can be sold at current market levels that have risen. Buffer Stock also ensures the company has an inventory of supplies in case of emergencies.
Just in Time Stock was developed by the Japanese in order to minimize holdings of stock. How this works is distributors deliver the needed supplies at the exact time the stock is required. Finished products are completed only so far as the next phase of production. The deliveries arrive at such regular times that a company does not have to deal with storage of production supplies. Also, a company does not have a build-up of finished products to distribute and try to sell. They are only produced as they are needed.
The benefit of Just in Time Stock is that there is less risk of stock becoming obsolete or going past its expiration date. Also, more space is available because there isn’t a large amount of stock taking up valuable space. This also provides a lower maintenance cost. The method promotes flexibility in a company’s workforce. This flexibility is essential is problem-solving and increasing product quality.
A successful stock management system can be achieved from several approaches. The first is the manual method. This is where all of a company’s stock is manually inspected and counted. Mosty companies do their inventories once a year. There are even third parties who can come in and calculate stock for the company. While the manual method works well for many small businesses, it is quite impractical for large companies.
Another element to successful stock management is stock rotation. This is the practice of using up older stock first. This is especially important for stock that has an expiration date such as produce and groceries. The older stock is moved to the front so that it may be used next. The newer stock is placed at the rear of the chain. This is an ongoing process.
A computerized system is the most accurate method of keeping up with stock. For larger companies, it is also the most practical. It would be far too costly in manpower and resources to try to manually keep up with thousands of different items when a computer can do it faster, cheaper, and more efficiently. The use of a bar code makes a computerized system much easier than any other method.