Businesses must manage their materials effectively. They have a choice between keeping additional stock or using just-in-time stock control. They are affected by the relationship with their suppliers.
Businesses need to manage their stock in the most effective and efficient way possible.
Stock can consist of:
raw materials waiting to be used in production
work in progress
finished stock waiting to be delivered
For example, a car manufacturer’s stock could include car parts and components waiting to be fitted (raw materials), partially built cars (work in progress) and completed cars waiting to be delivered to customers (finished stock).
If the stock materials are not managed efficiently, it could mean production has to stop. As a result, the whole factory production line could come to a halt.
Procurement means getting the right supplies from the right supplier. Effective stock control is important to both customers and businesses.
Customers expect to be able to go into a store and buy the products they desire.
Without appropriate stock control, businesses can run out of stock, which loses them sales and potentially customers. However, holding too much stock can also have negative consequences:
high storage costs, which may mean the business has to raise its prices
increased waste, if the products are perishableDecreases in quality over time., eg fruit and vegetables
reduced income, if the business needs to sell off excess stock at a reduced price
