Inventory Management and Stock Control
Domain 6 tests inventory management: keeping stock available without excessive capital, recording movement, counting accurately and reducing shrinkage. It expects calculation of reorder points and use of control methods.
Stock control rules
- Reorder point equals average daily demand multiplied by lead time, plus safety stock. Safety stock buffers demand and lead-time variability.
- EOQ balances ordering cost and holding cost; it is an order quantity, not a reorder trigger.
- ABC analysis prioritises high-value lines for tight control; cycle counts supplement annual stocktakes.
- FIFO and FEFO rotate stock; GRN checks quantity, quality, batch and expiry on receipt; issue and return records keep the stock ledger true.
- Shrinkage includes theft, damage, expiry, paperwork error and supplier short supply. Control through access, reconciliation, audits and training.
Worked example
A store sells 20 units per day of a detergent; lead time is 5 days; safety stock is 30 units. Reorder point = 20 × 5 + 30 = 130 units. When stock reaches 130, raise a replenishment order. Reasoning: 100 units cover normal demand during lead time; 30 cover a demand spike or late delivery. If demand rises to 25 per day, reorder point becomes 25 × 5 + 30 = 155, so review parameters after trend changes.
Traps
Using EOQ as the reorder point; counting only shelf stock and ignoring the backroom; treating stocktake as a once-a-year clerical task; ignoring expiry in FEFO; adjusting records without investigating cause.