Unit 4

Stores Management

By: Ms. Rashika

Assistant Professor
 Meaning
 As all the activities in any organization cannot be carried out at one
point of time, storage is an inevitable process

 The cost of capital blocked in inventories is substantial. If this part of

working capital is not properly managed the subsequent losses may be
enormous. The success of the business, besides other factors, depends
to a large extent on the efficient storage and material control

 Stores management is concerned with carrying the right kind of

materials in right quantity, neither in excess nor in short supply,
providing it quickly as and when required, keeping it safe against any
kind of deterioration, pilferage or theft, and to carry out the efficient
performance of all these functions at lowest possible cost.
 Objectives
 To facilitate a balanced and smooth flow of raw materials,
components, tools and equipments required to meet
production requirements
 To maintain optimum stock of materials
 To achieve efficient utilization of storage space
 To reduce usage of materials handling equipment
 To provide codification of stored items for easy recognition
 To enable flexibility in production schedules
 To facilitate quantity purchases at discounted prices
 To prevent damage, wastage and deterioration of stored
materials
 To maintain the record of all incoming materials and issue of
material to user department
Functions

 The major functions of the stores are as follows:

 a) Receipt: Receiving and accounting of raw-materials, bought out parts,

spares, tools, equipment and other items.

 b) Storage: Provision of right and adequate storage and preservations to

ensure that the stocks do not suffer from damage, pilferage or deterioration.

 c) Retrieval: Facilitating easy location and retrieval of materials keeping

optimum space utilization.

 d) Issue: Fulfilling the demand of consumer departments by proper issue of

items on the receipt of authorized purchase requisitions.
 e) Records: To maintain proper records and update receipt and issue of
materials.

 f) Housekeeping: Keeping the stores clean and in good order so that the
handling, preservation, stocking, receipt and issue can be done satisfactorily.

 g) Control: Keeping a vigil on the discrepancies, abnormal consumptions,

accumulation of stocks etc., and enforcing control measures.

 h) Surplus Management: Minimization of scrap, surplus and obsolescence

through proper inventory control, and effective disposal of surplus and obsolete
items.

 i) Verification & valuation: Verifying the bin card balances with the physical
quantities in the bins and initiating the purchasing cycle at appropriate time so as
to avoid the out of stock situations.

 j) Coordination and cooperation: To coordinate and cooperate with the

interfacing departments such as purchasing, manufacturing, production planning
and control, inspection, etc.
 Methods of stock valuation
 FIFO (first-in-first-out)
 LIFO (last-in-first-out)
 Average price
 Weighted average method
 Actual price
 Current market value/ market value
 Standard price/cost method
 Stock verification
 Some discrepancy is bound to occur between the actual and book
balances of inventory
 (i) periodic or fixed annual inventory- A periodic inventory system
only updates the ending inventory balance in the general ledger when
a physical inventory count is conducted. Since physical inventory
counts are time-consuming, few companies do them more than once a
quarter or year
 (ii) perpetual or continuous inventory - a reliable way to keep track
of inventory in real-time. A perpetual inventory system is an
inventory management method that records when stock is sold or
received in real-time through the use of an inventory management
system that automates the process. A perpetual inventory system will
record changes in inventory at the time of the transaction. works by
updating inventory counts continuously as goods are bought and sold
Factors to be considered in Stores location
 Cost
 Nature of material
 Value of material
 Near to the production unit
 Natural resources
 Profitability
 Easy availability of labor
 Factors to be considered in Stores layout
 Nature/type of material
 Volume/Quantity of material
 Availability of space
 Scope for future expansion
 Physical factors (lighting, safety, ventilation etc.)
 Centralized or decentralized stores
 Provisions for easy receipt, storage and
disbursement of materials
 Accessibility
 Classification and codification
 Classification is the systematic division,
grouping, or categorization of materials or
items based on some common characteristic.
 Classification of materials can be performed
on different bases (e.g., nature, manufacturing
process, value, and purpose). To identify
materials that are purchased and stored for
commercial purposes, they should be properly
classified.
A broad classification of materials is shown below, based on their nature,
use, and service.
•Raw Materials
•Purchased components
•WIP
•Finished goods
•Consumable Stores
•Machinery and Plant
•Factory and Office Equipment
•Inflammable Stores
•Chemicals
•Furniture and Fixtures
•Scrap Materials
•Packaging Materials
•General Stores
 Basis
Basis of Manufacturing Process
Based on the manufacturing process, stores are divided into:
 Pre-process Stock: These are items that are yet to be used in the manufacturing process and are obtained prior to the start
of production. They include raw materials, bought-out parts and assemblies, and stock in the pipeline of materials in transit.
 Intermediate Stock: Intermediate stock comprises the parts or assemblies that are manufactured within the factory for use
in the final product.
 Finished Goods or Finished Products: As the name indicates, finished goods are the items that have been duly
manufactured in the factory and are ready for shipment or sale to the customers.

Basis of Value
Based on value, stores may be divided into:
 Category A: Category A consists of materials which constitute 5% to 10% of the total items in the stores and represents
70% to 85% of the total stores value.
 Category B: This category consists of materials which constitute 10% to 20% of the total items in the stores and represents
10% to 20% of the total stores value.
 Category C: This category consists of cheap materials which constitute 70% to 85% of the total items in the stores and
represents 5% to 10% of the total stores value.

 Basis of use/ requirement (VED)

Vital
Essential
Desirable
 Advantages of classification
 1. Helpful in Grouping of Stores Items: Classification helps to group different items in the store.
Items that fall under a particular category can be stored in one location, ensuring optimal use of storage
space.

 2. Easy Location: Proper classification of stores items helps in the easy identification of the various
items. Storekeepers can easily find materials whenever they are required in the production departments.

 3. Proper Accounting: Record-keeping processes are easier when items are properly classified.
Furthermore, simplified record-keeping ensures accuracy in posting receipts and issues in the stores
records.

 4. Proper Care: By classifying items based on value, storekeepers can ascertain their relative
importance. Accordingly, a suitable degree of supervision and control can be exercised that is
proportional to the value of each item.
 5. Avoidance of Duplication: Proper classification helps to avoid the possibility of duplicate stock
items and materials.

 6. Standardization: Classification helps to standardize various items in the stores. Standardization

involves variety reduction using fixed sizes and types, leading to uniform standards for similar items.
 Codification
 After classifying and grouping the various
items in an organization’s stores, it is useful to
codify them.
 Codification is the process of assigning a
number or symbol to each store item, along
with a name, in order to make it easy and
convenient to identify.
 Advantages
 Avoidance of long and unwieldy descriptions
 Accurate and logical identification of items
 Avoidance of duplication
 Standardization of purchasing and storage
 Reduction of variety
 Efficient recording and accounting
 Systems of codification
i. Alphabetical
ii. Numerical
iii. Decimal
iv. Combined
v. Brisch system
vi. Kodak system
vii. Color codification
 Inventory control of spare parts
 Need
 random and unpredictable failure of machines and
equipments
Long lead time
High tendency for obsolescence
Not economical to manufacture when the requirement
is small
Stock out cost
 Classification of sparts
Based on usage rate
Regularly used
Irregularly used
Based on Movement analysis
Fast moving
Slow moving
Non-moving
Based on functional characteristics
 Capital spares
Repairable
Maintenance
 Problems of inventory control of spares parts
 Location of want
 Import policy
 Nature of plant & machinery
 Availability and lead time for procurement
 Uncertain failures
 Reliability of the spare parts
 Policies for optimizing spare parts inventory
 Identify whether to stock certain spare parts or not

 Choose a Method for Labeling Critical Components

 Keep Your Bill of Materials up to Date - in order to prevent inventory inaccuracies and
spare parts shortages and to better plan for preventative maintenance or servicing. Take
time to review your BOM on a regular or semi-regular basis to add or remove parts from it
as needed.

 Calculate Optimal Economic Order Quantity

 Focus on Inventory Control During Employee Training

 Invest in a Quality CMMS - A computerized maintenance management system (CMMS)

can make it easier to implement some of the spare parts inventory management best
practices listed above, as well as to analyze spare parts, to optimize reorder points, and
more.
 Warehousing management
 Warehouses are the godowns which take the responsibility of
keeping and storing the goods and providing ancillary services.

 Functions/ services offered

 Factors affecting location of a warehouse
 Cost
 Workforce availability
 Storage space requirement
 Nature of goods
 Volume of goods to be stored
 Access to Roads, Highways, Airport, Railway Stations &
Ports
 Markets & Local Environment Factors
 Proximity to Carrier Services: Consider your warehouse’s proximity to
carriers. If your warehouse is located near carrier facilities, it will streamline the process of
shipping your product(s) to your customer. The key is to find a good balance of a location that
offers both convenience and close proximity to your target customers, as well as a carrier service. 
 Factors to be considered in warehouse layout
 Timely customer service.
 Nature of goods
 Volume of goods
 Storage need
 Space & shape
 Purpose of warehousing
 Scope for expansion
 Physical factors (lighting, safety, ventilation etc.)