In business, the most important thing which is necessary to be controlled is its stock or also known as inventories. It has been considered that a company can run its business automatically without its employees but not without adequate stocks which may lead to loss of customers when their demand is not met. We all have heard about stock management in business. Every business needs to maintain the stock of their services or products for avoiding stock out.
The main purpose of stock control is to decrease the stock as well as the expenses of holding stocks while keeping in mind that the business has sufficient stocks to meet the demands of the customers. It shows how much stock a company has at a time and the ways it keeps track of these stocks. Stock control refers to the control covering stocks at all the stages of the production process of your business including purchase as well as delivery to use and re-ordering.
Everything a business use to make the products from raw materials to finished good is processed by stock control and stock management. It makes you able to have a sufficient amount of stocks at the right time and the right place. Stock control is something that comes very first in mind in the business for the wholesale distributors. Therefore, it is essential for the managers to keep a track of the necessary inventories using the control mechanisms that will be discussed in this article.
The challenges due to the shortage of your products or services can harm your business’s supplies. The stock control issues can completely take your significant customers to some other suppliers who have adequate sources to manage their inventories. If organizations have control over its stocks, it can serve to the maximum satisfaction of the customers as well as provide much more satisfactory customer services.
This also gives a clear idea about what are the demands of the market and what the customers may not prefer. On the other hand, this does not mean that you do need to have excess stock unnecessarily which will lead to prompt loss of profit. The fundamental key to stock control is to better understand about the demands of the products and the preferences of the customers.
Thus, the key purpose of stock control is to track as well as account for the products the organizations manufacture and sell. It confirms that expenses are not tied up without necessity and prevent problems that may occur in the supply chain.
Thus, it can be said that the shortage of stocks or inventories might lead to huge loss in business as well as loss of customers to the rival companies. It will now be necessary to discuss about the diverse stock controls and the mechanism used for inventory management. Now our experts from Online Assignment Help will explain you about various types of Stocks.
Types of stocks
A business has stocks all over its production of products or services. There are mainly four kinds of stocks and these are:
- Raw materials
- Work in progress
- Finished goods
Raw materials stocks refer to those components which are brought from the suppliers and ready to be used for manufacturing the products. This is one of the most important stocks because, if there is no stock of raw materials or there is a shortage, the company will fail to meet the demand of the customers at specified time.
For this stock, the companies must know the reliability of the supply as well as accessible alternative sources. If the managers are predicting the demand in the future and product are to be delivered in batches, there should be a stock of raw materials. Work in progress stocks are those stocks that are unfinished and still in the process of production. This can be a useful method for protecting production in the case of problems occurring with other supplies. Finished goods are those stocks that are ready to be sold in the market and used by the customers.
The businesses can have the stock of finished goods when there is certainty in demand or it is working for large orders or products are made in batches. A consumable stock refers to stocks that are necessary for the day to day running of the company and requires updating. This type of stock depends on various factors such as consistency of the supply, nature of demand, an expectation of a rise in prices and discount for purchasing in bulk.
The categories of the stocks can be further divided according to the value of the products including low, medium as well as high-value categories. This is applied when the stock levels depend on limited capital.
How Much Stock Should A Business Keep?
This is one of the most important purposes of stock control to determine the quantity of sock that a company must have. For the efficient running of the business, the companies should be aware of its stocks in the production. An organization must also know how much stocks should be kept in provision in cases of any emergency.
Keeping lots of stocks is easy to manage and have lower management expenses. The business will never run out of products and buying in bulk could be less expensive. On the other hand, it requires higher storage as well as insurance expenses. Your capital may be tied up and some of the certain goods may reach its expiry date and even become outdated before they are sold.
Keeping a little stock or no stock at the time of maximum demand, asking and negotiating with the suppliers to distribute will make your business flexible as well as efficient as the company will have to buy only what it need at that time.
This requires lower expenses for storage as well. It will be able to keep the stocks updated as well as produce new goods devoid of wasting stocks. But at the same time, meeting the required stocks demand can be more expensive and complex. The company needs to be dependent on its suppliers and there could be a shortage of stocks if there is a delay in the process.
Importance of Stock control
Stock control is a significant part of any business and with the growth of the business, it becomes more and more important to have adequate stock control measures that enable the firm to gain a competitive edge in the market. The stock control enables a business to understand the various types of stocks and acknowledge the need for those stocks.
This helps in keeping the stocks at a rational level while managing the need for excess supplies with the demand and maximizes free- capital. It helps in meeting customers demand and managing stocks. It is used to derive maximum economy and minimum wastage of resources as well as avoid losses. This makes the balance between “out of stock and overstock”.
It is important to have the right quantity of stocks in the company’s warehouse. It prevents fluctuation in demand. It helps in providing better services to the customers as well as a smooth course of aids along with the raw materials in the operations of productions. It checks as well as maintains the right quantity of stocks and minimizes the risks of loss and wastage.
It makes a company able to use free capital by avoiding the situations of hoarding or overstocking. It increases the efficiency and proficiency of the business and save time along with money. It creates a well-organized warehouse developing the accuracy of orders for stocks. Besides this it overall increases the demand for the products or services among customers. Now our expert from Assignment Expert will tell you about the types of stock control mechanism.
Types of Stock Control Mechanisms
There are primarily two types of stock control mechanisms:
a) Perpetual stock control system
b) Periodic stock control system
Further, there is mainly two stock control management system within the stock control mechanism and they are:
a) Barcode system
b) Radio frequency identification (RFDI) system
Perpetual Stock System
Some business opted for this stock system as it delivers day to day stock details as well as better deal with the minimal physical stock counts. This system is used to track stocks. This type of stock control system is the best to use in association with the management of the database of stock as well as location updates by the workers of the warehouse.
Periodic Stock System
This stock control system is not used for tracking the stock information day to day basis but enables organizations to get information about the beginning and ending stock stages during a specific phase. These types of stock control mechanisms track stocks using the physical stock counts.
Stock management systems utilizing the barcode technology are much more efficient and accurate than adopting the manual processes. When the employees scan the stocks either with a barcode scanner or a mobile device, barcode systems automatically keeps informed stock levels. It gives the exact records for the whole stock transactions.
This system eliminates mistakes that might ascend during manual data entry. In addition to this, it facilitates the progress of stocks within the warehouse as well as among several locations including receiving as well as picking, packaging and delivery or shipment.
Radio Frequency Identification (RDFI) System
These types of stock control systems work using the active as well as passive technologies to maintain the stock movements. Technology related Active RDFI utilizes set tag readers all through the warehouse passing to the readers and then progress is recorded in the stock control management software. This system is used by those organizations that need real-time stock tracking; whereas, for monitoring the movement of stock, passive RDFI technology is used by handheld readers.
After reading a tag, the stock management system records and obtains data. While selecting a stock control system for your business, you must decide that whether a periodic or a perpetual stock system is best for the business. Thereafter, select an appropriate system whether RFDI or barcode system as per the requirements which is in line with the main stock control system.
Method of Stock Control
Management of stocks is crucial for the success of any business. Overstocking can lead to insufficient liquidity while products going out of stocks can make it unfeasible for the company to meet the customers’ demand. Various methods for stock control are used by the companies to estimate the demands of customers and the needs of the company. Companies can use one method or a combination of two or more methods if the business has a variety of stocks.
These methods help decide what, how much and when to order. Some of the methods for stock control are setting a safe level of stock, stock review, batch control, basic forecast, just in time, ABC analysis, economic order quantity, fixed time recording, batch control, stock control software, fixed order quantities, and many others.
Setting a Safe Level Of Stock
Stock control management can be made easier by setting a balanced level for your products. This is the minimum amount of stocks that must be with you all the time. When it lowers, you require ordering new stocks.
The company requires having regular stock reviews regarding ensure that whether the new stocks are needed or not. Many companies operate for a stock of the minimum level where before ordering the new stocks, the lower end of the stock is needed to be sold.
Just In Time
This stock control refers to the method of ordering the stocks on the time of demand. You must be have confidence of reliability in the suppliers to deliver the stocks at the high time
This method is used to determine the priority of a product over other products. By this, you will be able to divide out the products that need more attention to those products which does not. This separates the high-value goods with a small rate of sales, moderate value good with a reasonable level of sales and low-value goods with a high rate of sales.
Economic Order Quantity
This method refers to a complicated mathematical formula which purposes to keep stocks at the most favorable stage depending on sort of firms as well as industries in which it operates. You either need to consult an expert or adopt software-related stock management to easier this complexity.
Batch control divides the production and stock management into batches. It minimizes the complication in the process of production and ensures that targets are completed in a short period. It also helps to keep the expenses lower as you only require the raw materials as well as components to meet the need of an individual batch.
Vendor- Managed Stock
This is comparatively one of the newest models of stock control. It focuses on the mutual risks between the suppliers and buyers. The buyers inform the suppliers about their stocks supplies and then suppliers are accountable for managing a specified intensity of stocks at a particular location. This not only minimizes the chance of stock-outs but also decreases the period stock needs in the process supply chain.
First In First Out
This is one of the most popular methods among those businesses that work for consumable stock and ensures stocks do not become outdated before use. The stocks that have been entered first will be released first.
Last In First Out
This method follows the principle that the stock entered at a later stage will be released first. Therefore, this method helps in providing the organization with an opportunity to offer its customers the required product with latest technologies as desired.
So, this article helps to know about the purpose of stock control and its necessity in business management as well. The article gives a clear picture about the ideas and reasons behind the necessity of adopting an appropriate stock control method and mechanism.
Having adequate quantity of stocks helps in meeting the demand for the goods, whereas, during stock outs, it becomes significant for the managers to have an idea about the quantity necessary to be kept at all times. This in turn enables the company to maintain its competitive position in the market along with sustainability in the long-term.
Managing the inventories at the right level has always been a tedious task; however, it is of utmost importance for an organization to keep an account of its inventories and an up to date stock control mechanism so as to handle the situations of stock out and over stocks.
The level and the quantum of stocks highly depend on the capacity of the organization as well as the demand of the customers. Thus, it becomes important for an organization to have full control over its stocks so as to avoid any unnecessary delay or any inconvenience at the last minute.
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