Page 13 - 8025 - Controlling and locating stock Learner Guide.docx

ADVANCED

RISK MA
3. Economies of scale - Ideal condition of "one unit at a time at a place where user needs it, when
he needs it" principle tends to incur lots of costs in terms of logistics. So Bulk buying, movement
and storing brings in economies of scale, thus inventory. By keeping stock it means that the
business does not keep only one item at a time and then when that item is sold, orders another.
Buying in bulk means that the organisation saves on transport and purchasing costs.
Businesses hold stocks in a variety of forms:

 raw materials
 work-in-progress

 finished goods
 consumables

 plant and machinery spares.

Maintaining Stock
It is essential that your warehouse has stock available to meet customer's orders. If the level of stock
runs out, then you customers will become dissatisfied with your service. Setting a stock level tries to
make sure that there is always stock available to meet customer’s orders.
There are advantages and disadvantages to holding a large quantity of stock in reserve.

Advantages

 The stock level provides a buffer when delivery cannot match usage
 Stock is available if demand increases unexpectedly

Disadvantages
 Money tied up in holding large quantity of stock

 Stock may deteriorate or reach the expiry date.
 A lot of room is required to store excessive stock levels

 There is a cost in operating a storage area.

Ordering Stock

When you receive goods in a wholesale or retail organisation, it could be due to one of three stock
ordering methods:
Where head office sends you goods without you having to order

This could happen in a clothing retailer, for example, where the buyer decides what stock goes to
which store. Or, if head office has entered into an agreement with a supplier to run a special on one
or more products.

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