Stock control is the regulation of stock levels, one aspect of which is putting a value to the amounts of stock issued and remaining. The stock control system can also be said to include ordering, purchasing and receiving goods and keeping track of them while they are in the warehouse.
Now the question here is, why to hold stock?
Its because the costs of purchasing stock are usually one of the largest costs faced by an organisation and once obtained, stock has to be carefully controlled and checked. More reasons can be summarised as;
- to ensure sufficient goods are available to meet expected demand.
- to provide a buffer between processes
- to meet any future shortages
- to take advantage of bulk purchasing discounts
- to absorb seasonal fluctuations and any variations in usage and demand
- to allow production process to flow smoothly and efficiently
- as a necessary part of the production process (such as when maturing cheese)
Holding costs are associated with high stock levels, the reasons they occur care as follows:
(a) Costs of shortage and stores operations: larger stocks require more storage space and possibly extra staff and equipment to control and handle them.
(b) Interest charges: holding stocks involves the typing up of capital (cash) on which interest must be paid.
Costs of obtaining stock:
Ordering costs are associated with low stock levels, because if low stocks are maintained it will be necessary to place more frequent orders. The costs included in ordering costs are transport costs, production run costs and clerical administrative costs.
Stocktaking includes counting the physical stock on hand at a certain date and then checking this against the balance shown in the clerical records.