Inventory, Stock Control and Supply Chain Basics
This domain tests stock accuracy, replenishment maths, receiving discipline and the flow of goods from supplier to shelf.
Stock measures
Stock turnover = cost of goods sold ÷ average stock at cost. A high turnover frees working capital and keeps stock fresh, but pushing it too far causes stockouts. Safety stock covers demand and lead-time variation. ABC analysis groups items by value: A items are a small share of SKUs but most of the value and need tight control.
Replenishment
Reorder level = (average daily sales × lead time in days) + safety stock. Economic order quantity balances ordering cost against holding cost. At goods receipt, the GRN is checked against the purchase order and invoice for quantity, rate and condition, and discrepancies are recorded before signing.
Storage and shrinkage
Use FIFO for dated non-food and FEFO (first expiry, first out) for food and perishables. Shrinkage comes from theft, damage, expiry and paperwork error. Stocktakes are either a periodic full count or perpetual cycle counts.
Worked example
Daily sales are 40 units, lead time is 5 days and safety stock is 60 units. Reorder level = (40 × 5) + 60 = 260 units. With 240 units on hand, the store is below the trigger and must order now. Quantity ordered follows EOQ or the gap to maximum stock level, not guesswork.
Traps that cost marks
Using selling price instead of cost in turnover; mixing FIFO with FEFO for perishables; ignoring lead-time delays; signing a GRN without counting.
Key points
- Turnover = COGS ÷ average stock at cost
- Reorder level = daily sales × lead time + safety stock
- ABC analysis focuses control on high-value items
- FEFO for perishables, FIFO for dated non-food
- GRN is verified against PO and invoice