5/21/2019 Stock Management

System
Chapter 1

Introduction

Semahegn Abebe
CNET SOFTFWARE TECHNOLOGIES PLC
Table of Content
1 STOCK MANAGEMENT DEFINITION ............................................................................................................... 3
2 RETAIL STOCK MANAGEMENT ....................................................................................................................... 4
3 IMPORTANCE OF STOCK MANAGEMENT ....................................................................................................... 4
4 STOCK TERMS ................................................................................................................................................ 5
5 WHAT IS STORE ............................................................................................................................................. 7
6 TYPES OF STORES .......................................................................................................................................... 7
7 STORES ORGANIZATION ................................................................................................................................ 9
1 Stock management definition
A stock management system (or inventory system) is a system that is used to manage the process by which
you track your goods throughout your entire supply chain, from purchasing to end sales. It governs how
you approach stock management for your business. Stock management is a systematic approach to sourcing,
storing, and selling stock—both raw materials (components) and finished goods (products). Thus, stock
management means the right stock, at the right levels, in the right place, at the right time, and at the right
cost as well as price.

Entrepreneurs, founders, and independent brands now live in a native commerce world where small-to-
medium businesses compete against global businesses.

As a part of your supply chain, stock management includes aspects such as controlling and overseeing
purchases — from suppliers as well as customers — maintaining the storage of stock, controlling the
amount of product for sale, and order fulfillment.

Naturally, your company’s precise stock management meaning will vary based on the types of products
you sell and the channels you sell them through. But as long as those basic ingredients are present, you’ll
have a solid foundation to build upon.

Small-to-medium businesses (SMBs) often use Excel, Google Sheets, or other manual tools to keep track
of stock databases and make decisions about ordering.

However, knowing when to reorder, how much to order, where to store stock, and so on can quickly
become a complicated process. As a result, many growing businesses graduate to a stock management
app, software, or system with capabilities beyond manual databases and formulas.
The procedures of stock management can even extend beyond basic reordering and stock monitoring to
be involved in tracking stock from end-to-end production and business management to lead time and
demand forecasting to metrics, reports, and even accounting.

2 Retail stock management

Retail is the broadest catch-all term to describe business-to-consumer (B2C) selling. There are essentially
two types of retail separated by how and where a sale takes place. First, online retail (e-commerce) where
the purchase takes place digitally. Second, offline retail where the purchase is physical through a storefront
or a salesperson.

Wholesale, on the other hand, refers to business-to-business (B2B) selling. Knowing the differences and
best practices of retail and wholesale is critical to success.

Most businesses maintain stock across multiple channels as well as in multiple locations. The diversity of
retail stock management adds to its complexity and drives home its importance.

3 Importance of stock management

For any goods-based businesses, the value of stock cannot be overstated, which is why stock management
benefits your operational efficiency and longevity. From SMBs to companies already using enterprise
resource planning (ERP), without a smart approach, you’ll face an army of challenges, including blown-
out costs, loss of profits, poor customer service, and even outright failure.

From a product perspective, the importance of stock management lies in understanding what stock you have
on hand, where it is in your warehouse(s), and how it’s coming in and out i.e. clear visibility of your stock
which helps to:

 Reduce costs
 Optimize fulfilment
 Provide better customer service
 Prevent loss from theft, spoilage, and returns

In a broader context, stock management also provides insights into your financial standing, customer
behaviors and preferences, product and business opportunities, future trends, and more.
When it comes to the CNET ERP Stock Management System, it provides services to manage stock starting
from acquiring till issuing with the following functionalities:

 Store Management – this is the registration and management of stores within the company. This
feature is very important because most of the transactions and summary reports are store dependent.
 Transaction Management – This feature is used to manage activities such as goods receiving,
goods transfer, disposal, etc operations that are used to move goods to and fro stores.
 Balance Management – balance is a key element in any store management system. Balance affects
the sales and order operations. The CNET ERP has a feature to compute balance at any point in
time.
 Article Lifetime Management – Article lifetime management is done by tracking goods
production batch and lifetime. This function protects goods from damage or spoilage.

4 Stock Terms
ABC Analysis ABC analysis is a stock management technique that determines the value of stock
items based on their importance to the business. ABC ranks items on demand, cost
and risk data, and stock mangers group items into classes based on those criteria.

Barcode scanner It is a device that reads barcodes. It is used to check in and check out stock at in-
house fulfillment centers and third-party warehouses.

Bin Card Bin card is the record maintained under the perpetual stock system by the stores
department and shows the quantities of materials received, issued and balance in
hand after each receiving and issuing. It is also known as stock card or bin tag.

Bundles Groups of products that are sold as a single product. Example, selling a camera, lens,
and bag as one.

Cost of goods All the costs that are occurred to get the merchandise into the inventory and then
sold (COGS) ready for sale

Deadstock Items that have never been sold to or used by a customer (typically because it’s
outdated in some way).

Economic order EOQ refers to how much you should reorder, taking into account demand, lead time
quantity (EOQ) and your stock holding costs and capacity
Holding costs Also known as carrying costs; the costs your business incurs to store and hold stock
in a warehouse until it’s sold to the customer.

Stock Closing Stock closing, also referred to as ending stock, refers to the amount of stock a
business has left on the shelves and in stock at the end of the accounting period.
Closing stock is counted in two different ways:

 To reflect the physical amount of products left in stock at the point of closing
 To reflect the monetary value of products left in stock at the point of closing

Landed costs These are the costs of shipping, transit storing, import and transaction fees, duties,
taxes and other expenses associated with transporting and buying stock.

Lead time The time it takes a supplier to avail and deliver goods after an order is placed along
with the timeframe for a business’ reordering needs.

Order Complete lifecycle of an order from the point of sale to pick-and-pack to shipping
fulfillment to customer delivery.

Order Backend or “back office” mechanisms that govern receiving orders, processing
management payments, as well as fulfillment, tracking, and communicating with customers.

Goods in Goods in transit refers to merchandise and other types of inventory that have left the
Transit (GIT) shipping dock of the seller, but not yet reached the receiving dock of the buyer.

Purchase order Commercial document from a buyer to the supplier that outlines types, quantities,
(PO) and agreed prices for products or services.

Reorder Level Set stock quotas that determine when reordering should occur, taking into account
current and future demand as well as lead time(s).

Safety Stock Also known as buffer stock; stock held in a reserve to guard against shortages.

Stock Ledger Stock ledger shows all stock transactions reflecting by how much the cost account
is affected.
5 What is store
Store is any physical or virtual space on which one or more stock movement operations can be carried out.

Store is best illustrated like a water tanker that can store goods for some time, has an inlet and outlet and is
refilled as the amount goes beyond the minimum level. Store automation enables stores to automatically
maintain its minimum level. It means that there is a need for reorder to bring the amount to the level of
Economic Order Quantity (EOQ).

6 Types of Stores
Broadly speaking, in the CNET Inventory System, there are two categories of stores – Physical Store and
Virtual Store. The physical store is any physical room, hall, open space or moving spaces such as item
delivery vehicles that are used to store physical entities. On the other hand, virtual store can be considered
as a well-defined imaginary store that is considered as a storage for the physical items and that allows stock
transactions such as Goods –In-Transit.

There are different kinds of physical stores. Below are some of the commonly used physical stores:

1. Main store – also called warehouse is responsible for acquiring and storing goods before they are
dispatched to other parallel or lower level stores for consumptions or sales. This store manages
procurement of goods and other supplier related activities. Depending on the business needs, this store
can be standalone or feeds other stores to facilitate store operations and logistics.
2. Buffer store – it is a contingent store to easily refilling sales outlet stores to maximize goods availability
that in turn maximizes sales revenue and customer satisfaction. Buffer stores are mainly required to
back up a high turnover stores such as supermarkets, pharmacies, and other similar retail businesses.
The following are some of the conditions that necessitates the use of buffer store:
  The main store is not closer to the sales outlet for timely refill
 The sales outlet store may not accommodate all the goods arrived from the main store due to
astatic and health impacts.
3. Sales Outlet store – This is the store from which sales transaction is carried out. Multiple sales outlets
can be set up in a multiple branch to address market accessibility. Sales outlets are refilled from a
central main store or intermediary buffer sore. In a single branch single store case the main store can
also be a sales outlet store. A company may have multiple sales outlet in a single branch due to product
specialization such as a pharmacy, a restaurant and supermarket can be set up in one location and will
be considered as multiple sales outlets. Most of the time, sales outlets exist at the lower level of store
hierarchies. Sales outlets with similar specialization can exchange goods horizontally using internal
store transfer voucher (ISTV).
4. Good in transit store – This store type is mainly used to account goods that are on a way to be acquired,
delivered or to be sold to the customer. This can be a physical or virtual store depending on the
application. In case of purchasing process that takes longer lead time to acquire goods, a virtual good
in transit (GIT) store will be used to know how much stock is coming. In case of transporting goods
from store to store or from store to door to door sales van, a physical GIT store can be used.
5. Consumption Store – This store is used to manage goods that are acquired for an internal consumption
purpose. Departments uses different goods such as stationary and other consumable goods for their
internal activities.
6. Damage Store – This store is used to collect damaged goods. Centralized damage stores and/or branch
damage stores can be used to collect damaged goods. The main purpose of the damage store is to clearly
show the active and usable stock by isolating damaged items. In the case both types of stores exist,
damaged goods will be collected to the central damage store from each branch. Item disposal can be
executed from damaged goods store after due inspection and management decision to do so. Items can
also be returned to the store they came from after recovery through maintenance or replacement.
7. Quarantine Store – This store is used to temporarily isolate and store goods for supervision purpose
before goods join the general stock for sales or production. Supervision includes quality check, any
legal or health requirement, etc. For example, bottled water cannot be sold before 24 hours after their
production due to health requirement. A freshly imported electric wire should be quarantined for
checking its quality and meets standard requirements.

The inventory system intensively uses the store and items and products data. Thus, before the preparation
of any of the vouchers, there is a need to maintain stores and articles. In the CNET ERP both stores are
maintained on Enterprise Management Console (EMC) while items and products are maintained on the
Back Office Client System. In this section we will discuss how store and articles i.e. products and items are
maintained.

As it was mentioned in previous sections, store is any physical or virtual space on which one or more stock
movement operations can be carried out. Most of the inventory system transaction documents refer to store.
In the CNET ERP store is considered as one part of the organization unit.

7 Stores Organization
In most company, stores are organized in a way that facilitates the flow of goods among different store units
that ensures smooth business operation with appropriate control and accountability. Often stores are
organized based on their specialization, geographic location, business needs and other logistics constraints.
Stores can be organized in their specialization such as main stores, specializes for procurement and
activities related with supplier. Distribution stores will specialize for the fill of lower level stores. While
outlet stores specialize in sales and customer related activities. Thus, stores can be organized in three ways
– single store, multiple parallel stores, and multiple hierarchical stores. In the following section each of
these organizations will be discussed briefly:

1. Single Store – As its term indicates if a company uses single store, it means it is a single store that
will be used to receive goods from the supplier and the retail is also done from that single store.
This is usually used in small and medium sized companies.

Store

2. Multiple Parallel Store – In such cases the company uses more than one store and each store has
the capability to receive, transfer and retail goods in any order. In this case we can say that there
are no dedicated stores for the supply i.e. peer stores can exchange goods in any direction as shown
on the following diagram:

Store#1 Store#2
3. Multiple Hierarchy Store – In this case we have main store that receives goods from suppliers
and distribute it to the other subordinate and subsidiary stores. A subordinate store can even
distribute to one or more other stores. In a normal circumstances lower level stores do not exchange
goods i.e. most supply is done from the higher level stores as shown on the following diagram:

Main Store

Distribution Store#1 Distribution Store#2

Outlet Store#1 Outlet Store#2 Outlet Store#3 Outlet Store#4