FM-AA-CIA-15 Rev.

0 10-July-2020

Study Guide in RETAIL MANAGEMENT Module No. 6

STUDY GUIDE FOR MODULE NO. 6

Chapter 6: Stock Management
MODULE OVERVIEW

Retail Stock refers to the goods stocked for future use. Every retail chain has its own warehouse to
stock the merchandise to be used when the existing stock replenishes. Retail Stock management refers to the
storage of products to be used at the time of crisis. The retailer keeps a track of the stocked goods and makes
sure there is surplus Retail Stock to avoid being “out of stock”. Such a process is called as Retail Stock
management.
Stock control, otherwise known as inventory control, is used to show how much stock you have at any
one time, and how you keep track of it. It applies to every item you use to produce a product or service, from
raw materials to finished goods. It covers stock at every stage of the production process, from purchase and
delivery to using and re-ordering the stock. Efficient stock control allows you to have the right amount of stock
in the right place at the right time. It ensures that capital is not tied up unnecessarily, and protects production if
problems arise with the supply chain.

MODULE LEARNING OBJECTIVES

After studying this unit, you should be able to:

 Define the term stock management

 Discuss relevance of stock management to retail operations
 Describe various types of stock checks
 Explain taking care of quality inside a store

LEARNING CONTENTS

Relevance of Stock Management to Retail Operations

A retailer can’t afford to lose even a single customer. It is important for the retailer to retain his existing
customers as well as attract potential buyers. The retailer must ensure that every customer leaves his store
with a smile. Unavailability of merchandise, empty shelves leave a negative impression on the customers, and
they are reluctant to visit the store in near future. Retail Stock management prevents such a situation.
The retailer must have sufficient stock to offer to the customers during the “lead time”. Managing Retail
Stock also helps the retailer during situations beyond control like transport strikes, curfews etc. The retailer
has ample stock because of judicious Retail Stock management even at the time of crisis.

 Important Terminologies Used in Retail Stock Management

1. SKU (Stock Keeping Unit): Every product available at the store has a unique code. This code which
helps in the identification and tracking of the products at the retail store is called as stock keeping unit
or SKU. The retailer feeds each SKU in the master computer and can easily track the product in the
stock just by entering the SKU Number.

Example: The example of “Numero Uno” which stocks denims, shirts, T-shirts and targets both men
as well as women.

SKU for Shirts

NU – M–40-FL-W
NU - M-38-FL-B

Where:
NU stands for Numero Uno
M - Men

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40 - Collar Size
FL - Full Sleeves
W - White (Colour of the shirt)

In the same way B in the second example would stand for Blue. Simply typing NU – M–40-
FL-W would let the retailer know whether the merchandise is available with him or not.
2. New Old Stock (Abbreviated as NOS): The stock which is never been sold by the retailer and now
not even being manufactured comprises the new old stock. Such products do not have takers and
may not be produced any more.
3. Stock out: Stock out refers to a situation when the retailer fails to fulfill the customer’s requirement
due to lack of merchandise. The merchandise is not available in the current Retail Stock and thus the
customer must return home empty handed.

 How Much Stock Should You Keep?

Deciding how much stock to keep depends on the size and nature of your business, and the type of stock
involved. If you are short of space, you may be able to buy stock in bulk and then pay a fee to your supplier to
store it, calling it off as and when needed. Keeping little or no stock and negotiating with suppliers to deliver
stock as you need it.

This might suit your business if it’s in a fast-moving environment where products develop rapidly, the
stock is expensive to buy and store, the items are perishable or replenishing stock is quick and easy.

Keeping Lots of Stock

This might suit your business if sales are difficult to predict (and it is hard to pin down how much stock you
need and when), you can store plenty of stock cheaply, the components or materials you buy are unlikely to
go through rapid developments or they take a long time to re-order.

Stocks level depending on type of stocks. There are four types of stocks:

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1. Raw Materials and Components. Ask yourself some key questions to help decide how much stock
you should keep:
 How reliable is the supply and are alternative sources available?
 Are the components produced or delivered in batches?
 Can you predict demand?
 Is the price steady?
 Are there discounts if you buy in bulk?
2. Work in Progress – Stocks of Unfinished Goods. Keeping stocks of unfinished goods can be a
useful way to protect production if there are problems down the line with other supplies.
3. Finished Goods – Ready for Sale. You might keep stocks of finished goods when:
 Demand is certain
 Goods are produced by batches
 You are completing a large order
4. Consumables. How much stock you keep will depend on factors such as:
 Reliability of supply
 Expectation of price rises
 How steady demand is
 Discounts for buying in bulk

Various Types of Stock Checks

There are several methods for controlling stock, all designed to provide an efficient system for deciding
what, when and how much to order. You may opt for one method or a mixture of two or more if you have
various types of stock. For further information, see the page in this guide on types of stock.

 Minimum stock level: You identify a minimum stock level, and re-order when stock reaches that
level. This is known as the Re-order Level.
 Stock review: You have regular reviews of stock. At every review you place an order to return stocks
to a predetermined level.

Just In Time (JIT) – This aims to reduce costs by cutting stock to a minimum. Items are delivered
when they are needed and used immediately. There is a risk of running out of stock, so you need to
be confident that your suppliers can deliver on demand.
These methods can be used alongside other processes to refine the stock control system.
For example:
Re-order lead time – Allows for the time between placing an order and receiving it.
Economic Order Quantity (EOQ) – A standard formula used to arrive at a balance between holding
too much or too little stock. It’s quite a complex calculation, so you may find it easier to use stock
control software.
Batch control – Managing the production of goods in batches. You need to make sure that you have
the right number of components to cover your needs until the next batch.

If your needs are predictable, you may order a fixed quantity of stock every time you place an order,
or order at a fixed interval – say every week or month. In effect, you’re placing a standing order, so
you need to keep the quantities and prices under review.

First in, first out – A system to ensure that perishable stock is used efficiently so that it doesn’t
deteriorate. Stock is identified by date received and moves on through each stage of production in
strict order.

Taking Care of Quality Inside a Store

Stock taking involves making an inventory, or list, of stock, and noting its location and value. It’s often an
annual exercise – a kind of audit to work out the value of the stock as part of the accounting process.
Codes, including barcodes, can make the whole process much easier but it can still be quite time-
consuming. Checking stock more frequently – a rolling inventory – avoids a massive annual exercise but
demands constant attention throughout the year. Radio Frequency Identification (RFID) tagging using
handheld readers can offer a simple and efficient way to maintain a continuous check on inventory. Any stock
control system must enable you to:

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 Track stock levels

 Make orders
 Issue stock

The simplest manual system is the stock book, which suits small businesses with few stock items. It
enables you to keep a log of stock received and stock issued. It can be used alongside a simple re-order
system.
Stock cards are used for more complex systems. Each type of stock has an associated card, with
information such as:

 Description
 Value
 Location
 re-order levels, quantities, and lead times (if this method is used)
 supplier details
 information about past stock history

More sophisticated manual systems incorporate coding to classify items. Codes might indicate the value
of the stock, its location and which batch it is from, which is useful for quality control.

 Stock Control Systems – Keeping Track Using Computer Software

Computerized stock control systems run on similar principles to manual ones but are more flexible and
information is easier to retrieve. You can quickly get a stock valuation or find out how well a particular item of
stock is moving.
A computerized system is a good option for businesses dealing with many different types of stock. Other
useful features include:

 Stock and pricing data integrating with accounting and invoicing systems. All the systems draw on the
same set of data, so you only must input the data once.
 Sales Order Processing and Purchase Order Processing can be integrated in the system so that
stock balances and statistics are automatically updated as orders are processed.
 Automatic stock monitoring, triggering orders when the re-order level is reached.
 Automatic batch control if you produce goods in batches.
 Identifying the cheapest and fastest suppliers.
 Bar coding systems which speed up processing and recording. The software will print and read bar
codes from your computer.
 Radio Frequency Identification (RFID) which enables individual products or components to be tracked
throughout the supply chain.

Choose a System

There are many software systems available. Talk to others in your line of business about the software
they use or contact your trade association for advice.
Make a checklist of your requirements.

Example: Your needs might include:

 multiple prices for items

 prices in different currencies
 automatic updating, selecting groups of items to update, single item updating
 using more than one warehouse
 ability to adapt to your changing needs
 quality control and batch tracking
 integration with other packages
 multiple users at the same time

Avoid choosing software that’s too complicated for your needs as it will be a waste of time and money.

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 Using RFID for Inventory Control, Stock Security and Quality

Management
Radio Frequency Identification (RFID) allows a business to identify individual products and components,
and to track them throughout the supply chain from production to point-of-sale.
An RFID tag is a tiny microchip, plus a small aerial, which can contain a range of digital information about
the item. Tags are encapsulated in plastic, paper, or similar material, and fixed to the product or its packaging,
to a pallet or container, or even to a van or delivery truck.
The tag is interrogated by an RFID reader which transmits and receives radio signals to and from the tag.
Readers can range in size from a hand-held device to a “portal” through which several tagged devices can be
passed at once, e.g., on a pallet. The information that the reader collects is collated and processed using
special computer software. Readers can be placed at different positions within a factory or warehouse to show
when goods are moved, providing continuous inventory control.
Using RFID tagging for stock control offers several advantages over other methods such as barcodes:

 tags can be read remotely, often at several meters

 several tags can be read at once, enabling an entire pallet-load of products to be checked
simultaneously
 tags can be given unique identification codes, so that individual products can be tracked
 certain types of tag can be overwritten, enabling information about items to be updated, e.g., when
they are moved from one part of a factory to another
 to prevent over-stocking or under-stocking a product or component
 for stock security, by positioning tag-readers at points of high risk, such as exits, and causing them to
trigger alarms
 for quality control, particularly if you make or stock items with a limited shelf life

 Stock Security
Keeping stock secure depends on knowing what you have, where it is located and how much it is worth –
so good records are essential. Stock that is portable, does not feature the business’ logo, or is easy to sell on,
is at particular risk.

Thieves and Shoplifters

A thief coming in from outside is an obvious threat. Check the security around your premises to keep the
risk to a minimum. In a store, thieves may steal in groups – some providing a distraction while others take
goods. Teach your staff to be alert and to recognize behavior like this. Set up a clear policy and make sure
staff is trained in dealing with thieves.
Offering to help a customer if you are suspicious will often prevent a theft. Avoid using confrontational
words like “steal” if you do have to approach a suspected thief and avoid getting into a dangerous situation.

Protect Your Stock

 Identify and mark expensive portable equipment (such as computers). If possible, fit valuable stock
with security tags – such as Radio Frequency Identification tags – which will sound an alarm if they
are moved.
 Don’t leave equipment hanging around after delivery. Put it away in a secure place, record it and clear
up packaging. It is a good idea to dispose of packaging securely – leaving boxes in view could be an
advertisement to thieves.
 Take regular inventories.
 Put CCTV in parking lots and other key locations.

Theft by Staff

Theft by employees can sometimes be a problem. To prevent this:

 Train staff about your security systems and your disciplinary policies and procedures. Training about
the cost of stock theft will help, as many people aren’t aware of the implications for company turnover
and job security.

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 Set up procedures to prevent theft. Staff with financial responsibilities should not oversee stock
records.
 Restrict access to warehouses, stockrooms, and stationery cupboards.
 Regularly change staff controlling stock to avoid collusion or bad practice.

 Control the Quality of Your Stock

Quality control is a vital aspect of stock control – especially as it may affect the safety of customers or the
quality of the finished product.
Efficient stock control should incorporate stock tracking and batch tracking. This means being able to
trace a particular item backwards or forwards from source to finished product and identifying the other items in
the batch.
Goods should be checked systematically for quality, faults identified, and the affected batch weeded out.
This will allow you to raise any problems with your supplier and at the same time demonstrate the safety and
quality of your product.
With a good, computerized stock control system, this kind of tracking is relatively straightforward. Manual
stock control methods can also use codes to systematize tracking and make it easier to trace batches.
Radio Frequency Identification (RFID) can be used to store information about a product or component’s
manufacturing date, to ensure that it is sold or processed in time. The system can also be used to trace faulty
products quickly and efficiently. See the page in this guide on using RFID for inventory control, stock security
and quality management.

Stock Control Administration

There are many administrative tasks associated with stock control. Depending on the size and complexity
of your business, they may be done as part of an administrator’s duties, or by a dedicated stock controller.
For security reasons, its good practice to have different staff responsible for finance and stock.
Typical paperwork to be processed includes:

 delivery and supplier notes for incoming goods

 purchase orders, receipts, and credit notes
 returns notes
 requisitions and issue notes for outgoing goods

Stock can tie up a large slice of your business capital, so accurate information about stock levels and
values is essential for your company’s accounting.
Figures should be checked systematically, either through a regular audit of stock – stocktaking or an
ongoing program of checking stock – rolling inventory.
If the figures don’t add up, you need to investigate as there could be stock security problems or a failure in
the system.

Health and Safety

Health and safety aspects of stock control are related to the nature of the stock itself. Issues such as
where and how items are stored, how they are moved and who moves them might be significant – depending
on what they are.
ACTIVITY

Review questions:

1. What is meant by retail stock?

2. Define the term retail stock management.
3. Define SKU.
4. Explain the Just in Time (JIT) technique.
5. Explain first in, first out method.

SUMMARY

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 Retail Stock refers to the goods stocked for future use.

 Every retail chain has its own warehouse to stock the merchandise to be used when the existing stock
replenishes. Retail Stock management refers to the storage of products to be used at the time of
crisis.
 The retailer keeps a track of the stocked goods and makes sure there is surplus Retail Stock to avoid
being “out of stock”. Such a process is called as Retail Stock management.
 The stock which is never been sold by the retailer and now not even being manufactured comprises
the new old stock. Such products do not have takers and may not be produced any more.
 Stock out refers to a situation when the retailer fails to fulfill the customer’s requirement due to lack of
merchandise.
 The merchandise is not available in the current Retail Stock and thus the customer must return home
empty handed.
 Effective stock control is essential in the retail industry. The more stock a store holds the greater the
amount of money that is tied up and this can Notes have a significant effect on company profits.
 Different stores have different ways of controlling and ordering new stock.
 Stock taking involves making an inventory, or list, of stock, and noting its location and value. It’s often
an annual exercise – a kind of audit to work out the value of the stock as part of the accounting
process.
 Codes, including barcodes, can make the whole process much easier but it can still be quite time-
consuming.
 Checking stock more frequently – a rolling inventory – avoids a massive annual exercise but demands
constant attention throughout the year.
 Radio Frequency Identification (RFID) tagging using handheld readers can offer a simple and efficient
way to maintain a continuous check on inventory

REFERENCES

Berman B. Evans J. R., (2004), Retail Management, 9th Edition, Pearson Education Berman, Barry. Evans, Joel R.
Mahaffey Tom (2005). Retail Management: A Strategic Approach, Pearson Education
Gopal, R. Manjrekar, Pradip (2010), Retail Management, Excel Books, New Delhi Notes Iyer, B. Sriram (2011). Retail
Store Operations, Tata Mc Graw Hill

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