Stock management- What is stock management?

Stock management is the practice of ordering, storing, tracking, and controlling inventory.

Stock management applies to every item a business uses to produce its products or services – from raw materials to finished goods. In other words, stock management covers every aspect of a business’s inventory.

Stock management may also be called stock control, inventory management, or inventory control.

Why is stock management important?

Inventory is a major asset that represents tied-up capital; managing stock effectively enables a business to free up capital.

Efficient stock control requires understanding the mix of different kinds of stock and acknowledging the demands on that stock. This helps keep stock at a reasonable level, balancing the need for surplus supplies with the need to reduce tied-up capital.

Different types of stock

There are four main categories of stock or inventory:

  • Raw materials and components: stock that is ready to be used in the production of goods

  • Work in progress: unfinished goods that are still in production

  • Finished goods: items that are ready for sale

  • Consumables: stock that will be used in the daily running of the business and will need updating, for example, fuel and stationery

You may choose to divide your stock into further categories. For example, if you categorise stock according to value, you could have categories for low, medium and high-value stock. This could help you plan for and fund the replacement of stock if cash flow is limited.

Perpetual vs. periodic stock management

For small businesses, there are two main approaches to stock management: periodic and perpetual stock taking.

  • Periodic stock management: this system of inventory valuation requires physical inventory accounts at specific intervals. This method is suitable for small businesses with minimal inventory and is much cheaper than electronic tracking systems. However, it’s not suitable for large companies with extensive inventories because physical stock takes are time-consuming.

  • Perpetual stock management: this system relies on electronic tracking and POS systems to record and track inventory on a continual basis. Whilst this is a more expensive system than physical inventory counts, it gives a more accurate and up-to-date indication of stock levels and removes the risk of human error.