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Home > Operations Management Checklists > How to Optimize Stock Control

Operations Management Checklists

How to Optimize Stock Control


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Checklist Description

This checklist explains how to control stock, and thus optimize the possibilities for business expansion.

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Definition

Stock control is how an organization ensures that its stocks are at levels that meet predetermined standards of service and allow funds to be released as working capital. Stock control, also known as inventory control, determines how much stock a company has at a given point in time and how it keeps track of it. It applies to every item used to produce a product or service, from raw materials to finished goods, and refers to any kind of stock at every stage of the production process, from purchase and delivery to using and reordering the stock.

Effective practice in stock control requires effort and resources to introduce a system which offers maximum advantage at a reasonable cost and takes into consideration the cost of finance, storage, insurance, handling, obsolescence, and theft. Efficient stock control ensures that a company has the right amount of stock in the right place at the right time, and that minimum capital is tied up. It also helps to protect production should any problems arise with the supply chain.

Holding too much stock can result in a company having too much cash tied up in stock, but holding too little can lose clients. Efficient stock control facilitates “just in time” stock management, with an order schedule that forecasts stock reordering requirements for a period of time ahead, based on factors such as open sales orders, open purchase orders, and the required-by date.

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Advantages

  • Good stock control reduces costs and improves efficiency, while ensuring that a company can meet fluctuations in customer demand.

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Disadvantages

  • Overstocking increases costs, and there is a risk of overestimating the level of demand for products.

  • Held stock may become damaged or obsolete, or perish.

  • Poor stock control can lead to a potential loss of sales or missed orders, and large stocks may be subject to theft.

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Action Checklist

  • Choose a suitable stock control system, from simple ledger books and card indexes to highly computerized systems, that will provide knowledge of current stocks on a regular basis and record supplies received and sales, deliveries, outputs, and usage.

  • Use common sense—the cost of the system and its operation should not be greater than the cost of the problem it is intended to solve.

  • Identify current stock levels, record receipts/dispatches, and identify reordering levels and quantities.

  • Establish a regular pattern of auditing and stock checking.

  • Analyze usage of all items in terms of volume and strategic/nonstrategic stock.

  • Identify key products that must be available on demand.

  • Classify products in terms of importance to overall turnover but not in big product families or in other broad product groupings.

  • Focus attention on the items that produce the most revenue.

  • Identify the level of stock that must be held to avoid the risk of missing core opportunities or failing to supply basic needs.

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Dos and Don’ts

Do

  • Plan your storage area carefully, locating the most frequently used items in an accessible place, and choose appropriate stacking methods such as pallets, shelving, or bins. Instigate an appropriate labeling system for easy stock identification.

  • Implement a stock rotation system and ensure that availability meets requirements.

  • Pay attention to environmental conditions, high/low temperatures, and humidity.

  • View stock as money.

Don’t

  • Don’t rule out the possibility of pilferage, excessive waste, or other forms of shrinkage.

  • Don’t view stocktaking as an annual chore, but do it regularly on a partial basis.

  • Don’t hold on to stock just to fill the warehouse.

  • Don’t store every item in the same environment.

  • Don’t buy speculatively.

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Further reading

Books:

  • Baily, Peter, Gerard Tavernier, and Richard Storey. Stock Control Systems and Records. 2nd ed. Aldershot, UK: Gower, 1984.
  • Emmett, Stuart, and David Granville. Excellence in Inventory Management: How to Minimise Costs and Maximise Service. Cambridge, UK: Cambridge Academic, 2007.
  • Wild, Tony. Improving Inventory Record Accuracy: Getting Your Stock Information Right. Oxford: Butterworth-Heinemann, 2004.

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