Day Two

Module - 2
Classify Inventory and Control Stock
Training Outcome
 Meaning of inventory
 Explain what classification and coding
of inventory is
 Explain the costs of inventory
 Explain the importance of correctly
identifying stock

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 1.1. What is inventory?
Inventory is stock for:

Production process
• Raw materials
• Work-in-process materials
Supporting activities
• Maintenance, repair, and operating supplies
(MRO)
Customer service
• Finished goods
• Spare parts
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There are 3 main reasons why we keep inventory:

1. Economies of scale - This can save money because it saves your

transportation

2. It provides protection against uncertainties - we do not know when,

what or how much will need.

3.It provides less “down time “ during processing or production -

deliver goods on time.

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 1.2. Identify And Classify Stock Itemsi

Item classification Item coding

Process of grouping Process of creating
and allocating a
• Items are first types of products
unique number or
together. E.g raw
classified and then materials, finished code to an item
coded goods

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1. Item classification: Manufacturing and non manufacturing stock items.

1.1. Manufacturing Stock

• Any material or part that is used in the manufacture processing
• Packaging material
• Raw materials
• Reject stock
• Work-in-process stock
• Finished products

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 1.2. Non-manufacturing Stock Items

Not part of the finished goods but supports the process

 Spare parts for production equipment
 Tools
 Gauges
 Jigs and fixtures

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 Item coding

• An item code is a unique number assigned to a stock item

• Computer systems are usually used to create these item
codes.
Used to:
 Identify where each item is located.
 Identify other products that may be used in conjunction with
a given item.
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 Types Of Coding Systems
1. Significant code
Means that certain characters or numbers will always have the same meaning.
For example:
001 = Finished product
002 = Raw material
The actual code can be either Numeric code, Alphabetic code or alpha-numeric
code

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2. Random item code :A computer system will allocate a number to the
item based on the next available number
o Numeric (numbers only): 0056789
o Alphabetic (letters only): FG-MB-BL
o Alpha-numeric

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3.Barcodes
 is bars and spaces on products
 readers such as scanners or cameras. Linear lines

squares, hexagons
Advantages of barcoding

• Faster data entry

• Better accuracy of data entry

• Improved data collection

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 4. Radio Frequency Identification (RFID)
• Uses electronic tags to store information.

• Does not need close proximity or line-of sight access.

Advantages of RFID over barcoding

• Hold more data
• Change the stored data as processing occurs
• Effective in harsh environments where bar code
labels are not suitable
• Many items can be scanned simultaneously
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 1.3. Inventory costs

• If a company has the right amount of inventory in

storage, inventory value may increase over time
because of inflation.
• If the company has the wrong inventory in storage, it
will have to pay interest on the money borrowed to buy
that inventory.

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Inventory is made up of different costs:

Inventory Ordering cost-

carrying
cost-keeping
the inventory in created when
storage order is placed.

Stock out cost- Intransit cost-

A stockout happens
when you do not have when inventory is
the inventory to deliver moved between
a customer order two storage points
(warehouses /
. distribution centres
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 Inventory costs and waste
• Waste in inventory can happen if we buy too much inventory or
manufacture more products than customers buy. There are four types of
costs to consider here:
1. Excess inventory: too much inventory without demand
2. Surplus inventory: produced more than what is needed
3. Obsolete inventories: has not been sold for a long time & not used in the future

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 1.4. Importance of correctly identifying stock

It is important that stock is correctly identified so that:

• The right stock is received from suppliers and stored in

the right locations

• The right stock is delivered to customers

 If stock items are not correctly identified:

o Production may need to be delayed or stopped
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 Group Discussion

1. What is inventory?
2. Discuss about stock items classification?
3. Types of item coding with example?
4. Discuss about different inventory cost?

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 Self-check
Reprt-2 (Next Day)

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 Perform Stock Control Activities

Training outcomes
 Explain the controlling of stockout
 Maintaining stock levels
 Stockout and consequences
 Understanding stock controller

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 2.1. stock control
• Stock control is defined as how much stock (materials or products)
is moved in and out of the warehouse.

Computer systems are useful to control stocks for:

• How much product is in the warehouse?
• When materials must be re-ordered.
• Where product is stored.
• When the last delivery was.
• Who the supplier is?
• The price of the product.

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If we want to have good control of our inventory, we need to consider some important
factors:

• The amount of inventory we have in storage

• Impact of shortages
• How long it takes to replenish inventory

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 2.2. Maintaining stock levels
Three departments play a role in determining how much inventory is carried.

1.Planning department - how much inventory is currently in storage

2. Production department - calculate how much material must be purchased to

manufacture the products that the customer needs.

3. Purchasing department - will order the required materials from the supplier(s) to ensure

production

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 Stockouts and consequences
• A stockout = A stockout happens when you do not have the enough inventory
• Fixing the out of stock situation will result in added expenses like:
o Overtime
o Shipping and delivery costs
o Increased handling costs

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 The stock controller
Function of stock controller
Monitor,
Provide control, and
accurate record
records of movement of
stock on hand stock into and
levels out of the
warehouse

Ensure right
Identify products are
potential available at
shortages the right
early Review quantities
stockholding when required
policies and
procedures

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 Group Discussion

1. What is stock control ?

2. Is there any difference between inventory and stock, pls discuss ?
3. Discuss about stockout and its consequences?

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Self-check

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 3. Co-ordinate and carry out stocktakes

Training outcomes
• Stock take definition
• Describe the purpose of stocktaking
• Stocktake and types
• Knowing and Solving courses of
discrepancies

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 3.1. A stock take
 A stock take is the process of checking your inventory – how much you have in stock, as well as
the condition of goods and recording the results in a report.

Purpose of stocktaking (Evaluation)

• To verify the accuracy of the stock records
• To verify that the amount of stock that is physically
• To identify the possibility of fraud, theft, or other loss in the company
• To reveal any weaknesses in the protection

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 … Cont’d
• Inventory is an asset and appears on the financial reports of every
company.
• Inventory records show exactly what you should have in stock and
how much of it you should have.
• Shrinkage can happen because of: Poor record keeping and
delivering wrong products in the wrong quantity.

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 Preparing for a stocktake
It is important to prepare the area properly for a stocktake.
Preparation for a stocktake (stock count) involves the following:
1. Housekeeping
 All stock items must be packed
 Make sure all aisles in the storage area are clear
 check the scanners to make sure they are working properly
 E.g . if a bag of maize says it weighs 5kg it cannot weigh 4kg. No more and
no less.

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2. Updating transactions
- All paperwork for the movement of materials and products in and out
must be recorded
3. Identifying products
 Check that all stock items have labels.
 If you find stock items without labels, print new labels

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4. Give clear instructions Types of stocktakes
• Before the count
• During the count
• After the count
Periodic

Perpetual (cycle counting)

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 Types in periodic stocktake
• Quarterly (every 4 months)
• Bi-annually (twice a year)
• Annually (once a year)

Steps in periodic stocktake

Identify items
Provide a Explain the
Assign to be
floor plan of Handout count counting process
counters to excluded in
count sheets to teams and
each location the count
locations responsibilities
process

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Counting Team

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 Cycle counting Cycle count process
Initialise the count
• Is a continuous programme of counting
by counting a few items every day Print the count sheets

• Avoids the need to stop operations while Assign count responsibilities

the stock count is being carried out
• Hiding discrepancies is more difficult Count the items

because items are counted randomly

Check the paperwork

Capture the count

Run the variance report

Post the variance 34

Purpose of Cycle Counting

Ways count stock s to

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 How to count and record the stock count
It is important that the counted stock is counted and recorded in the right way
under the unit of measure:
Individual products in packaging.
Packaging e.g. number of boxes.
Unit loads e.g. number of pallets.
Weight of the product.

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 Monitoring Count
• Counters will report directly to delegated person and receive their instructions.

• One of the most important functions of this position is controlling the counting sheets.

• Dos and Don’ts in monitoring and checking

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Differences Between Periodic And Cycle Counting

Periodic stock count Cycle count

Time consuming and labour intensive. Time and labour efficient.

Inventory problems are only picked up once Problems are continuously picked up and
or twice a year. resolved.

Warehouse shutdown is needed. No shutdown needed.

Takes place once or twice a year. Happens on a regular basis according to a

schedule for specific items.

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 Solving Discrepancies (Difference)

• Once the stocktake is finished, all the

count sheets must be collected,
accounted for, and handed to the data
capturers for processing.

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 … Cont’d

• If there is a difference between the computer stock levels and the number
recorded on the count sheets the following should happen:
1. The first step in this investigation will be to recount the specific item.
2. If this is not the cause of the problem the data captured will have to recheck
the figure they entered.

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There are two types of discrepancies:

•Deficit (or negative/shortage)

• Less stock than the computer
record - there is too little stock

•Excess (or surplus) stock

•More stock than the computer
record - that there is too much
inventory

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 Causes of discrepancies
• Counting procedure problems
• Counting equipment problems
• Untrained personnel
• Carelessness
• Poorly designed stock count sheets
• Poor document control

The process of solving these discrepancies is known as stock reconciliation

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 Post Stocktaking Housekeeping Functions

• The store must be put back to the what it looked like before
the stock take.

• This could be ladders, counting scales, scanners,

• We do not want anyone tripping over objects and hurting

themselves.

• Put materials handling equipment back into their storage

areas so that all aisles are clear.

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 Group Discussion

1. What is stock take?

2. Stock take types (the two) and discuss?
3. Discuss the ways to count stock?
4. Mention two types of discrepancies during stock take?

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 Self-check
Report -2 (Next Day)

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