Inventory Management and Stock Control
Inventory questions test stock records, reorder decisions, counting methods and shrinkage control. You should be able to calculate a reorder point, explain FIFO and FEFO, and choose the right action for slow, damaged or expired stock.
Core rules
- SKU is a unique stock-keeping unit defined by product, size, colour or pack.
- Reorder point = average daily sales × lead time in days + safety stock. Safety stock covers demand or delivery uncertainty.
- FIFO issues older stock first; FEFO issues earliest-expiry stock first, essential for food, medicines and cosmetics.
- Stock records must match physical stock. Use periodic stocktake, cycle counts and POS-linked records.
- Shrinkage is loss from theft, damage, expiry, admin error or supplier shortfall. Track by cause, not just total.
- Dead stock ties up cash; markdown, bundle or return it under policy rather than hiding it.
Worked example
A store sells 20 units a day, delivery takes 5 days, and safety stock is 40. Reorder point = (20 × 5) + 40 = 140. Current stock is 120, so raise an order now. Reasoning: without ordering, stock could fall below safety level before delivery arrives.
Traps
- Confusing reorder point with minimum stock.
- Counting damaged or expired units as saleable.
- Using FIFO for expiry-sensitive goods instead of FEFO.
- Adjusting records to make them match without investigating the cause.