How To Improve Stock Control in Manufacturing

Having the ability to control stock in an effective way is, without doubt, a key trait of any successful manufacturing business. But what exactly is stock control, why is it so important, and what leads to poor stock practices?

We’ve answered these questions for you, provided some examples of stock management methods, and explained how the Advanced Business Cloud Essentials MRP solution can enhance the processes you may have in place.

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What is stock control in manufacturing?

Stock control is closely related to stock management. Maintaining order within your catalogue of products can be achieved as a result of good stock management.

This management includes the process of storing goods, and techniques used for monitoring quantity levels.

Why is stock control so important?

Manufacturers would simply be unable to fulfil orders if stock levels were too low. It’s important to be aware of the demand you’re likely to face going forward, otherwise, you won’t be able to provide a timely service for customers.

It’s also important to find a balance, as having excessive stock can lead to negative results. There can be costs associated with storing lots of items. There’s also a chance that some of this stock will become unnecessary (and go to waste).

It’s not an exaggeration to say that failing to manage stock in an appropriate way can be the difference between success and failure as a manufacturer. It’s crucial to understand what leads to poor stock management.

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What are the main causes of poor stock management?

Inability to predict demand
If a business has no sophisticated processes in place for predicting customer demand, there’s no way of knowing how many products should be on hand at any given time.

It’s hugely beneficial to have a grasp on demand trends. A lot of this information will be hiding in your own data. By analysing your sales, stock and production information from the past, it becomes easier to predict what will happen going forward.

A chaotic warehouse
The foundation of effective stock management is the space in which it takes place. If there’s no structure with regards to where items are kept, it becomes impossible to track the quantity levels. If certain products are forgotten amidst the chaos, they are more likely to eventually become damaged or outdated.

Manual stock control
There are some manufacturers that perhaps record stock data with paper-based techniques. And while there may be no perceived problems with this, there are undoubted risks.

There is a greater chance of human error with this kind of strategy, and it takes a substantial amount of time to complete. A smaller manufacturer may think that a spreadsheet will suffice, but even this method has limitations (especially if you’re looking to scale up substantially).

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Examples of stock management strategies

ABC analysis
The ABS analysis is a method used for grading your current stock. Items that are classified as ‘A’, usually make up a fairly low percentage of overall stock, but account for a large portion of total sales.

‘B’ items are middle of the range. And then ‘C’ products make up a high percentage of overall stock, but don’t contribute that well to sales. By analysing which stock is the most valuable, and which is possibly ‘dead stock’, it becomes easier to plan for what should be prioritised.

First in, first out (FIFO)
First in, first out (FIFO) is a stock management technique whereby the oldest stock is always sold first.

The idea behind this is to avoid waste. The longer an item is sitting in your warehouse, the more likely that it will become redundant. Newer produce simply has greater longevity.

Last in, first out (LIFO)
Last in, first out (LIFO) is the opposite of FIFO. The newest stock is sold first. This isn’t a highly popular method, as it is very specific for those that are looking to gain tax-related advantages.

The assumption is that prices are always rising, so items produced recently will be the most expensive, and will therefore generate the least profit. Lower profit means that less must be paid on income tax.

Just-in-time is a technique that is used in order to increase efficiency, but also comes with a fairly large risk. The idea is to always maintain the smallest inventory possible (whilst still being able to meet customer demand).

Doing this will improve cashflow and reduce storage costs. For this method to work in the desired way, manufacturers must have a strong relationship with suppliers that are reliable, as it requires a quick turnaround once an order is placed.

Set par levels
The set par levels method involves agreeing upon a quantity that is considered par for each product. The par level is the threshold for attaining more stock. If a product falls below the threshold, this is the moment to order more items.

Par levels should be different for each product (based on the demand they specifically generate), and should be re-evaluated at regular intervals.

Reorder point
Not too dissimilar from setting par levels, creating a reorder point is to put in place a safety net (so that stock never dips below a certain level). Your chosen reorder point can be specific for your requirements and predicted demand.

This can be used in conjunction with the safety stock technique too. Safety stock are any emergency items that are held in place for extreme circumstances (where even the reorder point may have failed).

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How to improve stock control

Ensure stock data is accurate

Data is one of the most powerful weapons in your arsenal, especially when it comes to stock. It’s important that data is accurate, up to date, consistent across departments, and accessible by all.

Once you’re sure your stock information is correct, you can gain valuable insights from it through data analysis. The results of this analysis can dictate decisions around stock control.

Regularly evaluate suppliers

It’s crucial to be partnered with suppliers that are competent. You should regularly evaluate how well suppliers are performing, so you can identify whether they’re affecting your ability to get hold of stock quickly enough.

It’s also smart to keep up to date with their situation as an organisation. If you learn that they’re facing financial struggles, you may need to decide whether to maintain the relationship (as this could have an impact on your operations).

Frequent audits

It’s sensible to carry out frequent stock audits, to ensure that the quantities displayed in your paper reports, spreadsheets or software, are completely synchronised with the true numbers of physical stock. An audit will iron out any mistakes, and give you even greater control of stock.

You should also regularly review any stock control methods in place (such as FIFO or Just-in-time), to ensure they’re still serving their intended purpose. It’s key to ensure employees are adequately trained for whichever processes are in place.

Use technology for tracking

Technology has made it far easier to track stock, regardless of whether it’s in the production process, being delivered by a supplier, sitting in the warehouse, or on its way to a customer.

Things like barcoding and scanning mean that an item can be digitally checked-in as soon as it arrives at your facility.

Remote technology has made it possible to keep track of stock without needing to be at your workplace too. Using mobile or Cloud-based systems means that stock can be instantly updated from home or on the road.

Adopt Manufacturing Software

Manufacturing Software makes it possible to implement all of these mentioned improvements and best practices, in one unified system.

This type of solution brings all of your separate functions together, ensuring that stock data is consistent, accurate and up to date for all departments.

With powerful reporting capabilities, the system allows you to extract real value from this information, making it easier to predict outcomes around customer behaviour and product demand.

With complete connectedness, much of the supply chain and stock management processes can be automated. If a customer makes a purchase online, this will feed through to stock data and influence your orders for new materials.

Functionality around production planning and tracking removes the stress that normally comes with manual stock control tasks. Automatic calculations of future stock requirements ensure you save you time, energy and money.

All of this added efficiency allows you to perform optimally with regards to stock management, and frees up resources, so you can really focus on growing quickly and sustainably.

This article is adapted from a blog written by Dan Docherty, Head of SaaS Operation at Advanced and provides insight on how manufacturing business can improve the way they manage stock to maximise cashflow, increase profitability and reduce wastage.

The HBP GroupWho Are We?

Our organisation consists of three companies; HBP Systems Ltd. Kamarin Computers Ltd and Jugo Systems. HBP are based in Lincolnshire, Kamarin in Cambridgeshire and Jugo in Hampshire. Between us we cover the vast majority of the UK and work under The HBP Group name to provide a seamless service between our northern and southern offices.

We specialise in providing Cloud MRP software solutions which help manufacturers increase efficiency, reduce waste, delight customers, improve reporting and give them the time to focus on running their own business.

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