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.