Lesson 10
Stores Management
Objective: After reading this lesson you will be able to understand basics of Stock, Definition, Codification, Stores Records, Classification & Functions of Stores management and Management of control of stores Department.
Structure:
10.1. Introduction
10.2. Stores records
10.3. Codification of materials
10.4. Functions of Stores Department
10.5. Conclusion
10.6. Summary
10.7. Key Terms
10.8. Questions
10.9. References
10.1. Introduction:
The fundamental objective of any organization is to utilize fully its available means in order to make a profit and to make an increased rate of profit. The matrix of management functions require different inter-inked channels of services, accelerated throughout the whole body of management dividing the work into missions carried our in accordance with the system and principles, established to reach the company’s clear objective through projected plan of actions.
Definition:
The term ‘STOCK’ means the material having any one of the following characteristics:
1. It may be sold in the market;
2. Directly usable in the manufacturing process of the concern;
3. Ready to send to the outside parties for making usable / salable products out of it;
4. Usable indirectly in the manufacturing process of the undertaking.
In short, the stock may be defined as the material, which is either salable in the market or usable directly or indirectly in the manufacturing process, and it includes the items, which are ready to make finished products by some other process or by composing them either by the concern itself and / or by outside parties.
Classification of stock:
The stock may briefly be classified as:
1. Raw Materials – Materials primarily required for manufacturing finished (or usable for finished) products obtained through:
(a) Purchases from suppliers / outside parties;
(b) Produced by other manufacturing units of the same concern taken into stock, crediting full value to other units.
It is to be noted that the raw materials of one industry are the finished products of another.
2. Packing Materials – Materials required for packing the finished products in accordance with the nature and quantity and the ways and means or the distribution of the finished products after packing.
3. Finished Stock – Where all sorts of manufacturing processes including packing upto salable condition in accordance with the concern’s own packing specification, condition and manner completed in respect of the stock waiting for dispatch to the distribution department, sale depots, agents and / or customers.
10.2. STORES RECORDS:
The records that are usually kept by the stores department have broadly two characteristics;
1. Quantitative, i.e. only quantities are shown in records/ documents.
2. Regularity, i.e. daily balancing of each material.
The necessary records and documents of the stores department are:
- Bin Card/ Stock Card
- Stores/ Inventory Ledger
- Stock Identification Card
- Material Received Note
- Material Requisition Slip
- Material Returned Slip
- Material Transfer Note
It is to be noted that stores department as previously told should keep minimum records having less clerical jobs but with accurate figures drawing balance regularly.
- progressive concern should have a policy to review its stock levels at regular intervals in order to check and consider of the following points:
- Stock levels should not at any stage, until otherwise needed, be overstocked as it causes the consequences of __
(a) Considerable amount locked up unnecessarily.
(b) More storage space covered which may cause to lesser or no space for other materials.
(c) Increased cost of storage i.e., insurance, handling, etc,
(d) Deterioration of materials specially in the case of the bags placed on the first rack or the floors/ wooden platforms. In practice, these bags are not issued due to the new receipts being kept upon them and issues are made generally form the top.
10.3. CODIFICATION OF MATERIALS:
The human element is one of the most important t factor in dealing with materials. It is considered valuable to materials management and to all other persons dealing with materials to have ‘Symbols’ or ‘Codes’ instead of ‘Description of materials’ at the time of dealing with the materials. The progressive concerns, with modern principles of business management and construal therefore that up the course of symbolizing or codifying of materials having benefited themselves with its various merits. Briefly they are
(a) To have more strictness in keeping the ‘business secrets’ of elements and percentages, the modern management thus recommends the codification of materials. Even if the percentages are disclosed, it is not possible for an outsider to know the mix-ups fully well unless he comes to know the description of the material against each ‘code’.
(b) The codification is the best tool of mechanized system to express the facts and figures, the relation and position, of business transactions about materials and men employed.
(c) The persons dealing directly with materials sometimes fell themselves in a precarious position and take a long time to make the other people understand, specially for those who are not at all familiar with the nature and condition of the materials, regarding the exact nature of the materials. In that case, codification carries so much common and basic understandings that the non-technical persons can easily understand what the speakers want to mean by it.
(d) It is again an advantage to the persons dealing directly or indirectly with the materials that the codification is made in such a way that any one whether technical or non-technical, can easily remember it, which is very much useful in dealing with the business transactions everyday.
(e) Codification gives the ways and means of grouping system. It helps considerably at the time of control and accounting of the materials by groups.
(f) Last but not least an important advantage of the codification is that it needs much lesser space than that required in case of writing description of materials and so to say it saves time and labour.
In spite of the above advantages, the modern management asks more and more control and becomes cautious for the application of the codification of materials due to various reasons. The demerits of the system may be summarized.
10.4. Functions of Stores Department:
The stores department’s functions – follow up of the related documents, and accounting aspects of material arrivals have been dealt with in this chapter. Mostly for accounting purposes, the principles have been recommended for two broad business set-ups, one for the big concerns and the other for medium and small concerns.
Any arrival of materials has a direct link at least with three departments of purchase who makes the contract to the suppliers, stores, who takes the material in stock and accounts, who accounts the related transaction and pays for the arrivals to the partly concerned. Therefore, if any mistake happens at any corner and if that is untouched, it means the whole thing a ‘mess’.
Not only that stock arrivals indicates ‘cash’ transforms to ‘stock’. But also it affects and likely to make a change of the rates at which the material changed to production or in other Words, the valuation of issues, the stock level, working capital, insurance, overdraft position, where stock hypothecated to banker, and finally the cost of the finished product using that particular material.
Arrivals means purchases which seeing form all conceivable angles should be right quantities of graded quality at agreed price to be delivered in scheduled time at proper place. And all these require a sound management policy on ’arrivals’, so to say, purchase or material as it costs and pays only to earn and to receive more in return.
Stock level:
In western countries the accumulation of stock is comparatively lower than that of India. The idea behind it is to minimize the capital locked up in stock on one hand and on the other hand to increase the velocity of investments in order to ensure an effective material control. The factors with regard to stock level should be considered thoroughly and in such a way that a customer should not be lost in any way and at the same time investments on stock should be minimum. Calculation with regard to stock level differs form one store to other due to movement of stocks in the store.The stock level should be checked up after each transaction and where needed necessary information should be passed to the appropriate authority form the stores department. Arithmetical accuracy and correctness of posting along with the promptness in application of the stock balances are the minimum requirements of a ledger keeper.
Dealing of accounts:
The two ends of the pendulum of the accounting of materials are the arrivals and issues of materials. The accounting of arrivals is necessitated for the stocks taken into account in stock ledger and for the payment of bills which is ultimately noted in the general ledger stock account through purchase register. The accounting of issues is needed for the stock consumed noted in the stores ledger and for necessary credits given to the general ledger stock account through journal vouchers. It is to be pointed out that the difference between the net issues. i.e.., issues les returns to stores department and the consumption through production, process sheets prepared by the production department, is either the plant stock or plant loss or both. The efficiency of the production department is also measure through the input-output analysis. The account for the wastage of materials should be presented by Accounts Department through statistical statements showing the standard and actual wastages. Except standard rate basis of stock accounting, the accounting of arrivals is calculated and taken into account as per the purchase rate, whereas the sale price of materials is accounted on any basis of FIFO, LIFO, average rates, etc.,
Physical check up:
The two broad divisions of control measures with regard to stock are documentary control and physical checking. The physical count of stock is taken in order to minimize the effect of mistakes in trading results and production performances. Stock checks are either carried out at the end of the concern’s financial year or in continuous manner throughout the whole accounting year. To ensure that the annual stock taking is carried out expeditiously, it must be carefully planned. Instructions in details should be issued as it may so happen that the extra hands taken for the job may not be associated with the stores. The perpetual or continuous stock taking generally operated in big concerns should also be carefully planned so that each item is cheeked within the normal working hours by the stock verifier without any extra hand and that the results of such stock checking is obtainable within a short period.
Stock audit:
Stock audit is the verification of the correctness of stock accounts and of the adherence to the stock accounting principles and procedures followed by the concern. Stock audit is the verification of the closing inventories both quantity and rate per unit so to say, the valuation of closing stock, the valuation of accrual stock, i.e., materials arrived but payment is not made, loan given to other concerns, materials in transit both inward and outward sent to braches/ sales depots, etc. The comments by the internal auditor on the nature of management in administration and infractuous expenditure with regard to stock purchases and accumulation are a guiding factor for future operation. The value of each category of closing inventories is guided generally by the principle of cost or market price whichever is lower, calculated either per individual either item or as a total value of each category of stock.
Wastage of materials:
The material losses in production process affect the cost per unit of finished product where such material wastages are normal and unavoidable. In each and every store generally the following material losses are found:
(i) In stores department, the wastages named as storage/ warehouse loss due to storing of materials.
(ii) Both in stores and production departments, wastage of materials due to handling of materials.
Profitability:
Profitability is a management concept with regard to finished product / services for its manufacturing or operation processes, forces and factors and it is trading in the market. It is also a comparative long-term concept based on which production elements are utilized to make more profit. It relates to the cost-sales-profit relationship and signifies the cost reduction on the hand and sales turnover and selling price on the other hand. The principal factors are to be considered in details in every phase of control such as material, labour, shop facilities, sales, finance and management actions, in order to achieve the better results compared to last period or action. An improvement of overall sales performances is required and the corrective measures should be taken through different types of management tools such as, accounting ratios, cost reduction programme, improved planning, control of channels of distribution, etc.
10.5. Conclusion:
Stores management in a retail organization should ensure optimum utilization of investment in various stores items in view of scarcity of financial resources . The inventory investment in the retail organization should be neither high nor low. If it is high it amounts to blocking up of capital unnecessarily in the form of inventory which can be used profitability otherwise. If the investment is too less, it amounts to loss of customer and loss of goodwill among the customers. A customer should not be dissatisfied for non – availability of a required item. A stores manager should therefore balance these two extremes and carry inventories accordingly.
10.6. Summary:
The fundamental objective of any organization is to utilize fully its available means in order to make a profit and to make an increased rate of profit. , the stock may be defined as the material, which is either salable in the market or usable directly or indirectly in the manufacturing process, and it includes the items, which are ready to make finished products by some other process or by composing them either by the concern itself and / or by outside parties. The stock may briefly be classified as Raw Materials Packing Materials Finished Stock.
The records that are usually kept by the stores department have broadly two characteristics; 1. Quantitative, i.e. only quantities are shown in records/ documents.
2. Regularity, i.e. daily balancing of each material. The necessary records and documents of the stores department are Bin Card/ Stock Card, Stores/ Inventory Ledger, Stock Identification Card, Material Received Note, Material Requisition Slip 6.Material Returned Slip, Material Transfer Note.
The human element is one of the most important factors in dealing with materials. It is considered valuable to materials management and to all other persons dealing with materials to have ‘Symbols’ or ‘Codes’ instead of ‘Description of materials’ at the time of dealing with the materials. The key functions of the human in retail stores to manage the stock are maintaining stock level, dealing of accounts, Physical check up, Stock audit, eliminating Wastage of materials, improving Profitability. Stores management in a retail organization should ensure optimum utilization of investment in various stores items in view of scarcity of financial resources
10.7. Key Terms:
Stock: may be defined as the material, which is either salable in the market or usable directly or indirectly in the manufacturing process, and it includes the items, which are ready to make finished products by some other process or by composing them either by the concern itself and / or by outside parties.
Raw Materials: Materials primarily required for manufacturing finished products.
Packing Materials: Materials required for packing the finished products.
10.8. Questions
1. Define Stock and Classification of Stores Management?
2. Explain briefly Management control of Stores Management?
3. Define inventory control techniques of management of Stores?
10.9. References:
1. Michael Levy, Barton A Weitz; Retail management; Fifth Edition; Tata Mc Graw-Hill Publishing Company Limited.
2. Barry Berman, Joel R. Evans; Retail management; Eighth Edition; Pearson Education Asia.
