STORES MANAGEMENT

We are quite familiar word with word store and its utility. Normally it is assumed that store is a place
where excess material is kept which will be used as and when required. Loss of items, deterioration,
obsolescence and inadequacy [of what is stored to what is needed] are treated as ‘part of life’.
Modern scientific management has no place for such defects built into the system as ‘part of life’. As
students of management we have to constantly look for Non Value Activities in the system and eliminate
them totally or minimize them. Let us look at stores as a function of modern management.
Objectives of store as a management function
In the chain of internal customers and suppliers stores has several internal customers. As a matter of fact all
functions of management are internal customers to stores. Customers as usual expect Quality Cost and
Delivery from every supplier. Stores also have to deliver these customer expectations. In the process of
discharging this obligation Stores perform some activities that are functions of Stores.
functions of stores
• Receipt
• Storage
• Retrieval
• Issue
• Records
• Housekeeping
• Control
• Surplus management
• Verification
• Interaction & coordination
1. Receipt: refer to the flow diagramme. Any item of goods or material that enters the organization always
enters through the stores. Similarly, every item unless specifically excluded, has to leave through the store.
Stores is the final account keeper of all materials. Material sent by any supplier after the security clearance
comes to the stores. Stores check the document carried by the carrier, known as Delivery Challan, against
the copy of the Purchase Order placed on the supplier by the organization. Once the adequacy is established
and quantity is verified the material is sent for testing for quality parameters. Some times quality control
teats are elaborate and time consuming. If the policy of receipt is to unload the material subject to quality
control acceptance, it is cleared for unloading. Unloaded material is kept on the hold if it not yet cleared by
quality control department. If the material is rejected it is sent back to the supplier after clear
documentation.
2. Storage: Once the unloaded material is approved by the quality control department, as per the quality
plan in the quality system, it is moved to a specific place in the stores layout. The material is so stored that
it becomes easy to retrieve and issue subsequently. Storage should also ensure protection against
deterioration, damage and pilferage. Detailed system is adopted for location and labeling of items while in
storage. Storage plan is made keeping in mind,
• nature of the product- physical state, toxicity, inflamability and other hazards
• volume and weight- heavy or light
• movement frequency- fast moving or slow moving
• point of use
3. Retrieval: Easy and quick retrievability of items that are demanded by the internal customers. Easy
identification, maximum space utilization and minimum handling are key factors to retrieval functions. It is
common knowledge in many of the companies that after hours of searching for the item is declared to be
out of stock. This causes hold up of production process and avoidable urgent purchase of out of stock
material. This function takes place as per established retrieval system.
4. Issue: Refer to the flow diag. Fulfilling customer demand for the item in minimum time, keeping quality
high and cost minimum is issue. An internal customer doesn’t pay the price but he has to fulfill requirement
of authorization for the demand. A duly authorized indent or requisition for the item is the key
5. Records: Maintaining records of receipt and issue. Updating the stock levels as per movement of
materials. Basic records of store are bin card and stock register. Bin card is placed on the bin in which
items are stored. This gives information about receipt, issue and balance. stock register gives all the
information in the bin card and also the value.
6. Housekeeping: Maintenance of spic and span cleanliness in the store and ensuring principle of Place for
Everything and Everything in its place is fully implemented. Good housekeeping ensures satisfactory work
practices
7. Control: Taking measures to ensure material plan is being adhered to. Any changes in consumption
pattern or replenishment pattern are closely monitored for corrective action. Material movement is watched
to identify nonmoving material for disposal. Effective control puts into effect management objective of ‘no
shortage and no excess’.
8. Surplus management: Effective disposal system for unneeded material to reduce inventory cost and
proactive measures to eliminate deterioration and obsolescence.
Ref. To the note on obsolete, surplus and scrap management.
9. Verification: Stock verification to eliminate gap between information and physical stock. In stores some
items are maintained as stock items. The stores triggers the procurement cycle for such items when a
predetermined reorder level is reached. Hence correct stock position through verification is critical to
ensure ‘no shortage and no excess’ for the item.
10. Interaction & coordination: Very close interaction between Purchasing, production, quality control
and engineering functions is obviously needed in the discharge of the functions discussed so far. It also
becomes necessary to coordinate the flow of material samples and information through a network of
departments for performance of stores functions. Besides, every management function being an internal
customer interaction is very important.
Stores organization
Store is a function of materials management in an organization. Hence it is generally found that stores
function reports to the materials manager. But in some situations stores function reports to the
production function.
The earlier type of arrangement is based on the concept that stores along with other functions of materials
management can be integrated into the materials organization. This will stream line all materials
management functions effectively.
The other arrangement is leaning on the fact that production function is very closely linked to stores. And a
common command can reduce cost and inrease effectiveness. And also keep material accounting outside
the scope of procurement function.
Centralized or decentralized stores organization
Centralized stores concept is to store all items at a central place and control materials movement from this
central place. Whereas decentralization concept is moving the material to the respective consumer function
or directly to the points of use.
Features of centralized stores organization
1. Effective supervision and control.
2. Issue at single point reduces cost of issue
3. Reduced personnel requirement
4. Efficient layout for stores
5. Better handling technology
6. Better inventory checks
7. Maintenance of optimum stores
8. Fewer redundant and obsolete items
9. Elaborate documentation
Features of decentralized stores organization
1. Reduced handling
2. Customer friendly
3. Diluted risk of fire
4. Fewer production stoppages
5. Visual management is easier
Stores Systems and Procedures
Stores Systems and Procedures operate the stores every day. Systems and procedures should undergo
continuous review to avoid redundancy and rigidity. Continuous review in the form of PDCA should
provide the benefit experience of implementation. Operation of stores is made up of number of activities
involving various functions inside and outside the organization. These activities are tied together by
procedures so that transparency comes in and variations due to individual personalities are limited.
The system should take care of physical flow of materials and flow of information.
Identification system: When one deals with large number of items depending on physical description of
the item becomes unreliable. Hence we need a system which provides a unique
identification for each item in the stores. Materials suppliers to stores follow their own
numbering system for identification. But the systems being unique to their companies they
are not unique to the stores of the buying organization. Hence it is primary responsibility of
stores management to develop a unique identification system to facilitate clear
communication internally.
1. Arbitrary approach: Go on assigning serial numbers in sequence to the materials as they arrive in the
stores. This is a unique system as every item will posses a unique identification number.
But it will not be possible to identify the family of parts to which this particular part
belongs. This type of numbering will not reveal any classification of the part.
2. The symbolic approach: This is a system using numerical, alphabets or a combination of both for
identifying a part or item.
Following is an example:
1 52 43 25
First digit 1, stands for general class to which this item belongs like say, raw material.
Second two digits indicate the generic class like say, bars.
Third two digits indicate steel rounds and the last two digits indicate the specific number.
Similarly alphabets or alphanumeric can be used in place of numbers.
3. Engineering drawing number: This is quite useful internally. But has a serious limitation that it is
applicable to manufactured parts only
Receipt system: Stores receive materials from various sources. Some of them are internal and some are
external. Receipt system is specific to the source. When materials arrive from an external source following
system handles the receipts.
Purchase function raises a PO on the source of supply a copy is sent to the stores. Stores are now advised
about the order. When the supplier on whom the order is placed supplies the goods he sends goods dispatch
note, giving information about carrier, value of the goods, date of dispatch etc. to the receiving stores. The
carrier sends a document called consignment note. These documents enable the store to make arrangement
for receipt of the consignment.[handling equipment, space etc.]
When the consignment arrives at the receiving section it is checked against the documents already received
with respect to the consignment. General condition of the goods also is checked. Rest of the system can be
understood from the Flow Diagram -1
When internal departments send material to stores a material return note, transfer note or scrap report is
enclosed.
Types of storage
In actual practice we come across different types of stores classified as per the nature of the products
stored, types of the materials stored and function of the storage.
As per types of the materials stored
1. Raw Materials store
2. Components store
3. Work in process store
4. Finished goods store
5. Semi finished goods store
6. Tools store, die crib
7. Consumable materials store
As per nature of the materials stored
1. LPG store
2. Chemicals store
3. Hazardous materials store
Refrigerated materials store
As per function of the storage
1. receiving store
2. central store
3. general stores
4. sub stores
Storage systems
Physical systems
physical storage of material is very important from the point of view of identification, retrieval and issue.
Various methods adopted for physical storage are mentioned below.
Closed door system: the stored material is held under lock and key. Entry into the store is restricted
authorized persons only. Physical movement of the material is only with authorized documents only.
Maximum security and tight control on movement are features of this system
Open stores system: In this system material is stored near point of use and there is restriction on
consumption. Control passes on to the operations department
Random access stores system: There is no fixed location for an item. Item occupies the available physical
slot when it enters the store.
Stores address is fixed to the occupying item electronically. For issue the item is located by this address.
This system facilitates maximum space utilization but electronic control is needed.
Stores record system
In stores management two types of records are fundamental one is called bin card or stock card and the
other is stores ledger.
Stock card or bin card: bin card, fixed on the bin shows the quantity received, issued and balances. Copy of
this record is maintained for reference by the stores in charge. This record also triggers purchase activity
when ROL of an item is reached
store ledger, contains value in addition to the physical stock which is also shown on the bin card.
Issue system
From the stores material is issued for internal consumption and some times issued to outside parties for
processing.
Issue to consuming department: Material is issued to consuming departments against a material
requisition slip which is duly authorized and made with reference to a work order for production. Quantity
needed for production is mentioned in the work order and stores employees are not authorized to issue
excess quantity. Hence an automatic control is exercised on consumption. The work order mentioned above
is raised based on the bill of materials for production.
rigid control on issue to processors outside
Issue to outside parties for processing: procedure is same but a rigider control is exercised
Stores accounting and verification systems:
Purpose of stores accounting is to know
1. cost of materials consumed in production
2. levels of wastage produced
3. value of material lying in stock
for ascertaining the above following factors are taken into account
1. material price
2. freight charges
3. insurance
4. duties
5. tax
6. packaging charges etc.
a. FIFO System:
First in first out system- when the material is issued it is assumed that the one which came first is going out.
Hence the rate pertaining to the first in is applied. To the stock latest price is applied.
When there are several price changes this system becomes complex
b. LIFO System:
Last in first out at the time of issue. When the material is issued latest entrant is assumed to be going out.
Hence latest prices is applied to the issue. And reciept price is applied to stock
c. Average cost system: an average is established with price of each item in every shipment taken into
account. Total items received and price paid for these items is calculated. And average price for each item
from this lot is calculated and applied to the issue and stock.
d. Market value system: while issuing current market price is applied. Stock value is calculated at receipt
price
e. Standard cost method: based on price trend a standard price is fixed for a particular period and this
price is applied
General guide lines for closing stock are apply market price or receipt price whichever is lower. Make
accounting provision for obsolescence and or deterioration.
Stock verification systems
Discrepancies invariably occur between physical stock and books in spite of good store keeping. Hence a
system is needed to locate this gap and apply correction.
Purpose of Stock verification is
1. to reconcile stock figures with books
2. to identify areas for tighter control
3. to keep a check on pilferage and fraudulent practices
4. to back up balance sheet stock figures
Systems of physical stock taking
Annual stocktaking: stock is checked once a year, generally at the end of financial year. This method is
quite popular among large number of engineering industries. Total stop is enforced on items entering and
leaving the stores and physical counting is done. This may necessitate stoppage of production for a few
days. Discrepancies are noted for management action. Nonmoving items are identified for action.
Main features of this system
1. correct position of stock is ascertained without any confusion about any item
2. Stoppage of production is generally required.
3. Final list of surplus or shortage items is prepared.
4. Final list of damaged or lost items is made.
Perpetual Inventory and Continuous Stock Taking System
When the firm is very large and no of items and quantity per item is huge annual stocktaking becomes
complicated and hence impractical. Production stoppage also may not be possible. Many firms follow
following simple method of continuous stocktaking. Inventory is divided into 52 parts and year also is
divided 53 weeks. Every week stocktaking is done. Discrepancies and damages etc. are identified and
corrected continuously.
Main features of this system
1. production stoppage is not required
2. method is simpler, hence accurate
3. corrections are applied regularly to flaws
4. action on slow moving items can be faster. No need of waiting for the year end
5. stock control is effective
Low point inventory system
Stocktaking is done only when the inventory level of the item comes to minimum level
20-08-03
Obsolete, surplus and scrap management.
Obsolete items are good in all respect but have no useful role in the company due to changes that have
occurred in the course of time. They have economic worth in the market.
Surplus items are those that have accumulated due to faulty planning, forecasting and purchasing. Hence a
usage value is associated with these items.
Scrap is wastage generated due to processes like turning, boring drilling etc. and also due to bad
manufacturing. it is said that in India nearly Rs. 2500 crores are tied up as obsolete, surplus and scrap
items.
Causes for their generation
Changes in product design – obsoletion
• Rationalization – initiative for variety reduction leads to surplus or obsolete items
• Cannibalization – parts of one idle machine are fitted on another machine needed urgently during
maintenance, results into obsoletion of parts and at times even scrap
• Faulty planning and forecasting – leads to excess procurement, surplus generation.
• Faulty purchase practices – sub-optimization in buying to utilize available discounts and transportation
economy, surplus and obsolete stocks are generated.
• Other causes – parts kept aside for insurance claims, bad storage system, bad material handling, bad
manufacturing and badly maintained machines are other causes for spoilage and scrap.