The minimum stock level must also be known. This is an agreed lower limit below which stock should not fall. Its purpose is to cushion the effect of delay and disruptions in supply. My minimum stock level is 15.
To maintain a balance between minimum and maximum levels must be maintained.
The re-order level is the level at which stock should re-ordered. For my business the re-order level is
20. Fixed re-order level. This method involves setting a fixed order level. The order
is then repeated at varying time intervals
The order quantity is the quantity required to return stocks to their maximum level.
The delivery date needs to be known so the business can hold reserve stock if
needed. Orders of various sizes are placed at fixed time intervals. This method
ignores the economic order quantity, but ensures that stocks are ‘topped up’ on a
regular basis. This method may result in fluctuating stock levels.
Delivery times need to be known so my suppliers know when to deliver. I need to consider this so that
I have got sufficient amount of stock and not run out before the next delivery
Sales are the mount of stock sold at the end of the day/week/month.
Opening stock is the amount of stock that I start of with at the beginning of the day/week/month. It is
usually the amount of stock held by a business at the beginning of a financial year. The
opening stock will usually be the closing stock in the previous year’s trading
accountant.
Closing stock is the amount of unsold stock/goods held by a business/me at the end of its financial
year. This usually shown on a trading accountant. For my business it will be the unsold
goods at the end of the month/year
The effects of too much and too little stock:
Too much stock
- Storage, insurance, lighting and handling costs will all be high if too much stock is held.
- Large stock levels will occupy space in the premises.
- The opportunity costs will be high as money tied up in stocks could be used to buy fixed assets, for example
- Large stock levels might result in unsold stock. If there is an unexpected change in demand, the firm may be left with stocks that it cannot sell.
Too little stock
- The business may not be able to cope with unexpected increase in demand if its stock is too low. This might result in lost customers if they are let down too often
- If deliveries are delayed the firm may run out of stock and have to halt production. This might lead to idle labour and machinery while the firm waits for delivery.
- The firm is less able to cope with unexpected shortages of materials.
My Business and stock-control
I am running a sports shop. For my sports shop I need clothes, sports equipment and some health food. For my stock card I am going to have to choose one item. I have chosen tracksuit bottoms to sell which will be sold to me by the supplier in batch because the size and colours will vary. But there will be more of the smaller sizes because my market research showed that the children buy more tracksuit bottoms because the area that I opened my business in was a very young with a lot of children. My questionnaire proved my findings.
Firms keep information about each item of stock on a stock card or a computer. It is necessary to decide:
- The maximum quantity of stock which can be held (based on the total storage space, likely sales etc.); and
- The minimum amount to which stock should be allowed to fall, so that the firm does not run out of goods.
- I have to decide when I need new deliveries, this usually happens when my closing is a lot less than my max stock
- My business has to decide the re-order quantity. My business does this by subtracting the closing stock for that day from the max stock and the answer will preferably be the re-order quantity for the next day if the sales are doing well, or any number to the nearest 5 to that number.
- The re-order level will be the level at which the stock should be re-ordered. This should be a suitable number.
Stock must be re-ordered before the minimum level is reached to allow time for delivery.
I will be using a computerised stock control:
Computerised stock control and my business
I have chosen computerised stock control because computers improve the use of stock control. I have decided to hold details of my entire stock on computer databases. All additions to and issues from stocks are recorded and up to date stock levels can be found instantly. Actual levels of stock should be the same as shown in the computer printout. I will carry out regular stock checks to identify differences.
My system is programmed to automatically order stock when the re-order level is reached. Access to stock levels is useful when manufacturers are dealing with large orders. The firm might need to find out whether there are enough materials in stock to complete the order. If this information is available, then the firm can give a more accurate delivery date.
SPREADSHEET FORMULAS
When controlling stock in a business, a spreadsheet is often used to clearly show the business knows when it needs to re-order and when not to. To enable the spreadsheet to do this, the IF command is used
For example:
If (E5<20, “Restock”, “In stock”)
This equation means: If the number in E5 is less than 20, re-stock otherwise in stock. This formula tells me if I need to restock automatically. Restock or In stock will be placed in to the cell according to the formula.
2.
=IFE5< 10, “yes”, “no”)
This equations means that if the number in E5 is less than 10 then re-order otherwise don’t re-order. This formula also tells me if I need to re-order. A ‘yes’ or ‘no’ will be placed in that cell according to the result of formula.
3.
=IFE5<10, J5, “0”)
This equation tells me how much to re-order. It says that if the number in E5 is less then 10 then put the copy the number in J5 into the cell otherwise ‘0’.
4.
=E5+B6
This equation tells me my opening stock. To find out my opening stock the computer has to add the closing stock (E5) to the delivery (B6).
5.
=C6-D7
This equation tells me the closing stock. To find out the closing stock, the computer must subtract D7 (Sales) from C7 (Closing stock).
6.
IF (E5<10, G5 –E5, “0”)
This equation tells me how much stock to re-order. To find out this out, the computer decides if E5 is less than 10. If the number is less then 10, the computer works out E6 (Closing stock) minus G5 (Max stock) and places the answer in the cell otherwise put ‘0’ in the cell.
Stock Control spreadsheets and instructions
If I had more time on the spreadsheet, I would use a real copy of data, from a sports shop to put in the cells instead of making them up myself. I would use more days as well, to show a more realistic and accurate set of data. I would also put the formulas in all the correct cells for the formula spreadsheet.
With my last spreadsheet, (formulas for stock control spreadsheet), people found it hard to understand, so I was advised to print out the spreadsheet showing the actual cells and explain the formulas and what they do instead.
PART 1
Sketch a typical spreadsheet, highlighting a row, a column, and a cell (indicating the actual cell reference ).
PART 2
An extremely useful feature of spreadsheets is the ability to automatically calculate items such as profit / loss, or averages.
Outline the steps a spreadsheet operator would carry out in order to have his / her spreadsheet carry out this process.
Discuss one situation where spreadsheets would be used for each of the following :
- individuals
- communities
- institutions / organizations
PART 3
Design a spreadsheet using spreadsheet software with which you are familiar for stock control of sports goods items.
Your spreadsheet should contain the appropriate headings - item, stock reference number, size, color, quantity in stock, unit cost, quantity sold.
You should also add a 'reorder' heading. For each stock item in this column you can enter an 'IF' function which will indicate whether an item needs to be reordered.
Example: =IF (B5<10, "Yes","No")
- What this function does is to 'look at cell B5', and IF the contents are less than 10, then it will indicate 'yes' (the item should be reordered) OR 'no', the item does not need to be reordered.
You should insert a minimum of 5 different items in your stock control spreadsheet, and ensure that the layout is well designed ( bold / colored headings ), cells containing prices are formatted as 'currency' etc.
PART 4
Set up the following spreadsheet in a spreadsheet program with which you are familiar (NOTE : the entries in column B are all formulae ) :
NOTE : Carry out the equivalent calculations manually and compare your final result with what appears in cell B5...
Actual levels of stock should be the same as shown in the computer printout.
Evaluation
I found out that there are some advantages and disadvantages to stock control and these also correspond with just-in-time manufacturing.
- With stock control holding stocks is a safeguard against price increases.
- The company will have reserves to allow production to continue, even if delivery from suppliers is delayed.
- It improves cash flow since money is not tied up in stocks
- Links with and the control of suppliers are improved
- The motivation of workers is improved. They are given more responsibility and encouraged to work in teams.
Disadvantages:
- Cost of rent and rates of warehouse facilities
- The wages warehouse staff
- Perishable goods will deteriorate if held for too long.
- Difficult to cope with sharp increases in demand
- Advantages of buying in bulk
I have also found out that it will be the job of the stock control section to decide on what raw materials and components need to be kept in stock, the quantities of each item which is to be held in stock, how much to order and when an order should be placed.
In recent years stock management has become more important for many firms. Careful control of stock levels can improve business performance. Having too much stock may mean money is tied up unproductively, but inadequate stock can lead to delays in production and late deliveries. One of the reasons why stock control is so important is because the costs of holding stocks can be very high:
- There may have been an opportunity cost in holding stocks. The money used to purchase stocks could have been put to other uses, such as new machinery. This might have earned the business money.
- Storage can prove costly
- Spoilage costs. Some stocks quality may deteriorate over time.
- Out-of-stock costs. These are costs of lost revenue, when sales are lost because customers cannot be supplied from stocks
Just in time manufacturing
A quite recent improvement in manufacturing techniques in Europe and America is JUST-IN-TIME manufacturing. This system was developed in Japan in the 1950s and 1960s in the shipbuilding industry. It is a production which is alert to customer demand and involves keeping stock to a minimum. I will use just-in-time manufacturing because it is a process which makes sure that the right amount of stock is delivered to me/buyer at the right time.
This method greatly benefits those buying in bulk like the Japanese car industry but other industries are also now adopting the method. In some cases the production begins only when an order is placed. Supplies of raw materials and components are delivered as they are needed on the production line. The system requires high levels of managerial and organisational skills and reliable suppliers so time, care and a lot of thinking and research is needed before making any decisions.
