Inventory Management: Receiving, Storing and Tracking Stock

What is inventory and why manage it?

Inventory (also called stock) is all the goods a business holds. A shop holds finished goods to sell. A factory also holds raw materials and half-made goods (work in progress).

Inventory management means planning and controlling this stock so that:

• the shop does not run out (a stock-out loses sales and customers),
• the shop does not hold too much (extra stock locks up money, needs space and may expire, break or go out of fashion),
• stock is not lost through theft, damage or errors (shrinkage).

Holding stock costs money: rent for space, electricity, insurance, staff time and the money that could have been used elsewhere.

Receiving stock

Receiving is the first check point. Steps:

1. Match the delivery with the purchase order (what we asked for) and the supplier's delivery note or invoice.
2. Count the items. Note any shortage or extra.
3. Inspect quality: damage, broken seals, wrong size or colour, expiry dates.
4. Accept good items and return or reject faulty ones.
5. Record what was accepted in a goods received note (GRN) and update the stock record.
6. Move the goods quickly to storage so they are not lost or damaged at the door.

Never sign for goods you have not checked: once signed, it is hard to claim from the supplier.

Storing stock

Good storage keeps stock safe and easy to find.

• Labels and codes: each product has a SKU (stock keeping unit, a unique code for one item in one size and colour) and a fixed place on a shelf or rack.
• FIFO (first in, first out): older stock goes in front and is sold first. Essential for food, medicines and cosmetics with expiry dates.
• Right conditions: cold items in fridges, heavy items low down, fragile items protected, chemicals away from food.
• Safety and security: clear walkways, locked stores for costly items, CCTV.

The back store holds reserve stock; the shop floor holds stock on display. Staff refill the shelves from the back store.

Tracking stock and the reorder level

Tracking means always knowing how much of each item you have.

• A stock card or computer record shows: opening stock + received − sold − returned to supplier = closing stock.
• Most shops scan a barcode at the billing counter (point of sale), so the record updates by itself. Some use RFID tags.
• Stock taking: count the real stock regularly (monthly, or a few items every day called a cycle count). If the count is lower than the record, the gap is shrinkage.

When to order again

Reorder level = average daily sales × lead time (days for a new delivery to arrive) + safety stock.

Safety stock (buffer stock) is a small extra amount kept in case sales jump or the delivery is late.

Many shops also use ABC analysis: A items (few items, most of the value) are checked closely; C items (many cheap items) are checked less often.

Key formulas and definitions

• Closing stock = opening stock + received − sold − returned
• Reorder level = daily sales × lead time + safety stock
• Shrinkage = stock in records − stock actually counted
• Stock value = units × cost per unit
• FIFO: first in, first out (old stock sells first)
• SKU: stock keeping unit, a unique code for one product variant
• GRN: goods received note, the record of goods accepted

Worked examples

Common mistakes

• Signing the delivery note before counting and checking the goods.
• Putting new stock in front of old stock, so old stock expires (breaking FIFO).
• Forgetting safety stock in the reorder level, so any delay causes a stock-out.
• Thinking more stock is always better. Extra stock locks up money and can spoil.