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Stock or stock inventory is the collection of all the materials and goods stored, whether for use to complete the production process or for sale to the customer. Efficient management of warehouse stock is a challenge for logistics companies or companies that have a warehouse or distribution centre since the management of the stock inventory stored will largely depend on the business’s profitability.
Stock accumulation and storage is important because, firstly, having stock avoids any shortage in the product the company works with; secondly, the more units, the lower the unit cost of the product in general; and thirdly, having the product stored enables immediate availability to meet the customer’s demand.
What’s more, stock management is just as important as the stock itself. Any imbalance (depletion of stock, excess stock, etc.) in the amount of stock stored may reduce the company’s competitiveness.
Before addressing the keys to stock management, we will look briefly at the current different types of stock or inventory:
Stock management is the way of organising stock flows in the warehouse. It is highly important for the competitiveness of companies. It must be primarily focused on having an adequate level of stock in the warehouse to competently meet customer demand at an optimal cost for the company.
These are the main variables that affect the stock or inventory management of a warehouse:
These are the main inventory or stock management systems that logistics companies use:
With the FIFO stock management system, the first goods to leave the warehouse racks will be the first ones that entered it. It enables optimum stock rotation and is perfectly adapted to the storage of perishable products.
Some of the industrial racking systems that are adapted to this management method are the live storage systems for pallets and the drive through compact system. The pallet shuttle system is also adapted to this method. To determine whether this is the appropriate method for managing your warehouse stock, discover the advantages of the FIFO system.
With the LIFO inventory management method, the last unit load to enter the warehouse will be the first one to leave it. It is an ideal method for non-perishable products, that do not expire or lose value over time. The stock is stacked accessibly on the racks, with easy access to it when required without having to move the rest of the unit loads.
The push-back racking or drive in pallet racking systems are ideal solutions for applying the LIFO stock management method in the warehouse. The shuttle system offers plenty of versatility and can also be applied in this stock management system. See more key aspects about the LIFO system.
In the ABC stock management method, stock is classified into three categories: A, B and C.
Generally, these products occupy the lowest positions of more direct access on the industrial racking.
It is placed at an intermediate height on the racking or in another less central area of the warehouse.
Generally, it is replenished as soon as it leaves the warehouse. It normally occupies the highest parts of the racking or other less central areas of the warehouse.
Any organisation that is managed by the Just in Time (JIT) inventory management model has the just the right amount of raw materials for each moment of the production process, with minimal storage needs. It requires very strict organisation to avoid delays or cause stock depletion. The automotive sector is the clearest example of this.
Wilson's model for stock management determines the volume or quantity of the order to be placed, so as to optimise the stock management system. It is calculated when and in what quantity it is necessary to order the stocks. The mathematical formula takes into account the annual demand for the raw material, the cost of the order and the cost of storage.
A variable to be taken into careful consideration in warehouse stock or inventory management is the cost of managing the stock to the company, which will greatly affect the return.
There are 4 main types of stock costs:
This is essentially the amount paid to suppliers for each order made. Generally, this amount will be reduced if the quantity of goods is greater, and will increase if small orders are made.
This category includes the administrative and management costs of each order made by the company.
This cost must include revenues not generated for not having been able to meet a customer’s demand, but may also imply other types of indirect costs that affect a company’s credibility and potential future lost orders.
The mere fact of having product in stock in the warehouse generates a cost for companies which will make it necessary to include staff costs, warehouse management system costs, storage system installation costs, the rental or purchase of the warehouse and its monthly expenses, depreciations and insurance and the possible depreciation of stored stock.
In conclusion, warehouse stock management is a differentiator in an organisation’s performance and there are many factors to consider when deciding how to manage the flow of goods: the type of stock, resources to control it, planning and forecasting of purchases, relationship with suppliers and the storage capacity of the facilities.