Inventory Management and Stock Control
The stock cycle
Indent → purchase order → goods receipt note (GRN) → put-away → shelf replenishment → sale → return to vendor or damage write-off. Every movement must be recorded, or book stock and physical stock drift apart.
Core rules
- FIFO - first in, first out - for stable goods; FEFO - first expiry, first out - for food, dairy and medicine.
- Perpetual counting updates stock with every transaction; periodic counting checks at fixed intervals; cycle counting checks a slice of SKUs daily so the whole store is covered over a cycle.
- Shrinkage = book stock − physical stock. Causes: theft (customer and staff), damage, expiry, supplier short-supply, and billing/admin error.
- Reorder point (ROP) = (average daily sales × lead time in days) + safety stock.
- Stock turnover = COGS ÷ average stock at cost; low turnover means dead stock is eating working capital.
Worked example
A store sells 20 units a day of a SKU; the supplier takes 5 days; the store keeps 30 units as safety stock. ROP = (20 × 5) + 30 = 130 units. Reasoning: 100 units cover demand during the lead time, and 30 buffer against a late delivery or a demand spike. Order at 130, not at 100, or the shelf empties before the delivery lands.
Traps that cost marks
- Confusing ROP with economic order quantity.
- Counting damaged or expired units as saleable stock during a count.
- Not updating stock after a GRN, so the system overstates availability.
- Using FIFO for dairy or medicines where FEFO is required.
- Forgetting that returns to vendor must also be recorded.