Businesses maintain a stock of raw materials, business supplies, works in process and finished products to create products and function on a day-to-day basis. Companies use stock control to maintain an appropriate level of materials on hand to meet customer demand. Maintaining a balance involves planning and forecasting, which may include preparing for unforeseen events such as failure of suppliers to meet the company’s deadlines.
For a company to do business, it must have raw materials available to build or create products for customers. Stock outs occur when materials are not available to produce customer products or meet a higher than normal demand, and can result in a loss of sales for a company or damage to the business’s reputation. Stock control puts in place a system for ensuring the appropriate level of stock in all situations.
One solution to avoid stock outs is maintaining a high level of inventory, but this can cause problems for a company as well. Stock, such as raw materials and supplies, ties up the business’s capital, which it may have otherwise used for another purpose. Also, the excess materials must be stored somewhere, which may require additional warehousing costs. Finally, the materials may become outdated or obsolete before the business can use or sell them.
Meeting Customer Demand
Stock control allows the company to determine the amount needed to meet customer demand with as little delay in delivery as possible. When a company continuously fails to meet customer demand due to stock outs, customers may choose a competitor with a better delivery record. A business must have the ability to determine the level of stock needed for actual customer demand as well as anticipated demand.
Stock management must include an inventory control system to ensure the accuracy of inventory records. The company will not have the ability to make purchasing decisions without accurate inventory quantities. The marketing department, sales and purchasing must work together to determine the appropriate levels of stock to have on hand. Sales and marketing provide information such as sales forecasts to predict the amount of materials the company needs to meet demand. Purchasing must then consider lead times and supplier reliability when ordering materials for the company.