Definition and Explanation:
The materials purchased by a concern may be
classified as stock items which are taken into store and held until
required, or as direct deliveries to the point of consumption. The control
of those materials which are stock items is known as stock control.
The function of stock control is to obtain
the maximum stock turnover consistent with the maintenance of sufficient
stocks to meet all requirements. Stock turnover is the ratio which the cost
of the materials used per annum bears to the average stock of raw materials.
Discussions with regard to the quantity of materials stocked are reached
after may consideration such as:
- The availability of capital for the
provisions of stocks
- The storage space available
- The cost of storage
- Risk of loss due to fall in prices,
deterioration, obsolescence, theft etc.
- Economic order quantities
- Delivery delays
For effective control of materials, it is
important to decide upon different levels of materials. These levels are
maximum limit or level, minimum limit or level and re-order level or
ordering point or ordering level. Maximum, minimum and re-order levels are
not static. They must be varied to suit the changing circumstances. Thus,
alteration will take place if the usage of certain materials is increased or
decreased. If the re-order period changes, or if, in the light of a review
of capital available, it is decided that the overall inventory must be
increased or decreased.