Inventory, Stock Handling and Supply Chain Basics
What the exam tests
Numerical and procedural questions: reorder point, stock turnover, receiving checks, shrinkage causes and FIFO compliance.
Inventory concepts
Cycle stock covers normal demand; safety stock buffers demand or lead-time variation; seasonal stock is built ahead of festivals. Key measures: stock turnover ratio = cost of goods sold ÷ average inventory; days of inventory = 365 ÷ turnover; sell-through = units sold ÷ units received; shrinkage = value lost ÷ value handled.
Receiving and storage SOP
- Match purchase order, goods receipt note and supplier invoice - three-way match.
- Check quantity, MRP, batch, expiry and damages before signing.
- Record shortages and damage claims; raise a return-to-vendor note.
- Label with date of receipt, store by FIFO, keep the cold chain unbroken.
- Verify stock by cycle counting during the year and a full physical count at closure.
Reorder point
Reorder point = (average daily sales × lead time in days) + safety stock.
Worked example
Daily sales 40 units, supplier lead time 5 days, safety stock 60 units, current stock 300 units.
- Reorder point = (40 × 5) + 60 = 260 units.
- Current stock of 300 is above 260, so no order is due; place the order when stock touches 260.
- If sales rise to 55 a day, the reorder point becomes 335 and the shop is already short - reorder immediately and expedite. Reasoning: the reorder point moves with demand; a fixed number set once will cause stockouts.
Traps that cost marks
Counting damaged or expired stock as sellable; using LIFO for perishables; forgetting safety stock; signing the GRN before counting; ignoring expiry dates during receiving.