A typical firm has about 70 percent of its capital invested in inventory. Because inventories may represent a significant portion of total assets, a reduction of inventories can result in significant increase in return on investment. According to stock refers to goods purchased for resale or use in production or maintenance process. Generally, stock also refers to any materials purchased to facilitate organization’s processes.
Types of Stock
Raw materials (Working stock)-These are the parts and components, which enter into the production during the production process.
Cycle Stock-This is the inventory that results from the replenishment process and required in order to meet demand and lead times perfectly e.g. if the rate of sales for product is constant at 200 units per day and lead time is always 5 days. No inventory beyond cycle stock will be required.
In-transit inventories -These are items that are being transported from one place to another. They may be considered part of the cycle stock even though they are not always for sale or shipment until they arrive at the destination.
Safety or Buffer stock- They are held in excess of cycle stock because of uncertainty in demand or lead times. This maintains smooth flow of materials without impairing with production.
Speculative stock –This inventory is held for reasons other than to satisfy current demand e.g. materials may be purchased in volumes larger than necessary in order to receive quantity discount or because of forecasted or anticipated price increase, materials shortage or protect against the possibility of a strike.
Dead Stock – This is a set of items for which no demand has been registered for some specified period.
Seasonal Stock – This are products that are stockpiled to allow for expected large increase in demand.
Maintenance, Repairs and Operating Stocks (MRO) – Refers to supplies consumed during the production process and generally do not form part of the produce itself e.g. oils, lubricant tools and fixtures.
Stock Control – Stock control is the function responsible for planning and maintaining the right quantity of materials for given production programme with minimum investment. It is the operation that ensures that store department invariably has sufficient materials for consumption purposes by the user departments. Stock holding refers to the practice of accepting adequate stocks within the store to ensure the present stock requirement is fulfilled.