Stock Control

Stock levels are maintained in such a way that there is no overstocking, so that chances of loss through damage, deterioration in quality, risk of obsolescence, etc. are avoided along with unnecessary blocking of capital or paying interest on borrowed funds. At the same time, there shall be no stock-out situation, leading to interruption of production and loss of sale and profit.  The production planning and control or material control department looks after this aspect of stores-management by fixing maximum, minimum and ordering level and reorder quantity for stock items i.e. standardised items of regular use. Within these guidelines noted in each bin card/stock control card, the storekeeper places requisitions with the purchase department for replenishment of stock. But, how these levels are determined?

Reorder level

This is the level at which the Scorekeeper initiates purchase requisition for fresh supplies of materials. Reorder level takes into account the maximum consumption during lead time and unexpected delay in receiving fresh supply. Lead time means time necessary to obtain delivery of materials from date of order. In case of unusual delay, stock should not reach zero level.  Reorder level is, therefore, calculated as maximum reorder period multiplied by maximum consumption.

Minimum level

This represents a level which the stock will reach with fresh delivery of material provided the fresh delivery is made within the reorder period and usage remains normal during the period.  Stock is normally not allowed to fall below this level. This is considered as buffer stock for use in emergency. If however stock level falls below minimum level it will be called Danger Level, when emergency measure should be taken to replenish stock. Otherwise, there will be stock-out situation, with consequential loss of production. Minimum level is, therefore, computed as reorder level less normal consumption during normal reorder period.

Maximum level

This represents stock level above which stock should not be allowed to rise. The main purpose of this level is to ensure that capital is not blocked up unnecessarily in stores. The maximum stock level is computed as reorder level plus reorder quantity minus minimum consumption during reorder period. This level is a control indicator and if the stock exceeds this level, the consumption pattern and reorder period should be reviewed. The maximum stock level is fixed after considering the following factors also:

• Storage facilities available.
• Cost of maintaining stores including insurance cost.
• Availability of funds.
• Possibility of loss by deterioration, evaporation, etc. and risk of obsolescence.
• Possibility of price fluctuation. For instance, in case of seasonal materials, price may be low in season and high in off-season.
• Government restriction on import or procurement.
• Economic order quantity.