Lesson 1, Topic 1
In Progress

2.1. The need for stock control is explained with reference to fraud, theft, carelessness and ensuring sufficient stock.

ryanrori January 13, 2021

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Poor stock control and over-investment in fixed assets can mean your capital is tied up unnecessarily.

Poor stock control

Efficient stock control (inventory) will mean you 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 when there are problems with the supply chain.

Poor stock control can tie up capital unnecessarily. You need to put systems in place to keep close track of stock levels and values. Taking control will allow you to free up cash, while also having the right amount of stock on hand.

There are a number of ways you can approach stock control. You can:

  • re-order when stock reaches a minimum level
  • carry out regular reviews of stock
  • use just in time (JIT) delivery to avoid excessive stock build up

Two different ways of managing stock are explained with reference to records and stocktaking.

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.

  • Minimum stock level – you identify a minimum stock level, and re-order when stock reaches that level. This is known as the just in time method.
  • 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 for immediate use. This means that less storage is needed however there is a risk of running out of stock, so you need to be confident that your suppliers can deliver on demand.

Stock control systems – keeping track manually

Stocktaking involves making an inventory, or list, of stock, and noting its location and value. It’s often an annual exercise – a kind of audit to work out the value of the stock as part of the accounting process.

Codes, including barcodes, can make the whole process much easier but it can still be quite time-consuming. Checking stock more frequently – a rolling stocktake – avoids a massive annual exercise, but demands constant attention throughout the year. Radio Frequency Identification (RFID) tagging using hand-held readers can offer a simple and efficient way to maintain a continuous check on inventory.  Any stock control system must enable you to:

  • track stock levels
  • make orders
  • issue stock

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.

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

Avoid choosing software that’s too complicated for your needs as it will be a waste of time and money.

Using RFID for inventory control, stock security and quality management

Radio Frequency Identification (RFID) allows a business to identify individual products and components, and to track them throughout the supply chain from production to point-of-sale.

An RFID tag is a tiny microchip, plus a small aerial, which can contain a range of digital information about the particular item. Tags are encapsulated in plastic, paper or similar material, and fixed to the product or its packaging, to a pallet or container, or even to a van or delivery truck.

The tag is interrogated by an RFID reader which transmits and receives radio signals to and from the tag. Readers can range in size from a hand-held device to a “portal” through which several tagged devices can be passed at once, eg on a pallet. The information that the reader collects is collated and processed using special computer software. Readers can be placed at different positions within a factory or warehouse to show when goods are moved, providing continuous inventory control.

Using RFID tagging for stock control offers several advantages over other methods such as barcodes:

  • tags can be read remotely, often at a distance of several metres
  • several tags can be read at once, enabling an entire pallet-load of products to be checked simultaneously
  • tags can be given unique identification codes, so that individual products can be tracked
  • certain types of tag can be overwritten, enabling information about items to be updated, eg when they are moved from one part of a factory to another

The costs associated with RFID tagging have fallen over recent years, and continue to do so, to bring the process within the reach of more and more businesses. The benefits of more efficient stock control and improved security make it particularly attractive to retailers, wholesalers or distributors who stock a wide range of