KNEC CERTIFICATE IN SUPPLY MANAGEMENT

COURSE OUTLINE: PRINCIPLES OF WAREHOUSING AND STOCK CONTROL

SN TOPIC SUB-TOPIC REFERENCE
1. Introduction To Warehousing  Meaning -Katoch S. (2000), Materials
 Roles of warehousing Management, PVT

 Organization of warehouse publishers, New Delhi.

 Types of warehousing
2. Receiving and Issuing  Meaning Nair N. K. (2000),
 Factors to consider in receiving goods Purchasing & Materials

 Preparations for receiving Management, Tata McGraw

 Methods of issuing Hill, New Delhi.

3. Classification and coding  Meaning Anton, J. J. and Yao, D. A.
 Importance 1989. Split Awards,

 Classification of materials Procurement, and Innovation

 Efficient coding system

4. Stock location  Meaning Katoch S. (2000), Materials
 Purposes Management, PVT

 Methods of stock location publishers, New Delhi.

5. Stores layout  Meaning Seshadri, S. et al. 1991.
 Factors to consider Multiple Source Procurement

 Types of stores layout Competitions, Marketing

 Features of a good stores layout Science, (10):246-263.

6. Packaging  Meaning Seshadri, S. et al. 1991.
 Purposes Multiple Source Procurement

 Types of packaging Competitions, Marketing

Science, (10):246-263.

7. Material handling  Meaning Dasgupta, S. and Spulber, D.

 Objectives F. 1990. Managing

 Importance Procurement Auctions,

 Factors to consider in selecting Information Economics and

Policy, (4):5-29.
8. Stock control  Meaning Dasgupta, S. and Spulber, D.
 Reasons for stock holding F. 1990. Managing

 Importance of stock control Procurement Auctions,

 Factors to consider in stock control Information Economics and

 Policy, (4):5-29.
9. Stock recording  Meaning Anton, J. J. and Yao, D. A.
 Importance of stock recording 1989. Split Awards,

 Factors to consider Procurement, and Innovation

10. Stock taking  Meaning Anton, J. J. and Yao, D. A.
 Forms of stock taking 1989. Split Awards,

 Importance Procurement, and Innovation

11. Safety and security  Meaning Nair N. K. (2000),
 Importance Purchasing & Materials

 Factors to consider in relation to Management, Tata McGraw

security and safety Hill, New Delhi.
 TOPIC ONE
WAREHOUSING
Meaning of Warehousing
Warehousing refers to the activities involving storage of goods on a large-scale in a systematic and
orderly manner and making them available conveniently when needed. In other words, warehousing
means holding or preserving goods in huge quantities from the time of their purchase or production
till their actual use or sale.
Need for Warehousing
Warehousing is necessary due the following reasons.
i. Seasonal Production- You know that agricultural commodities are harvested during certain
seasons, but their consumption or use takes place throughout the year.
Therefore, there is a need for proper storage or warehousing for these commodities, from
where they can be supplied as and when required.
ii. Seasonal Demand- There are certain goods, which are demanded seasonally, like woolen
garments in winters or umbrellas in the rainy season. The production of these goods takes
place throughout the year to meet the seasonal demand. So there is a need to store these
goods in a warehouse to make them available at the time of need.
iii. Large-scale Production - In case of manufactured goods, now-a-days production takes place
to meet the existing as well as future demand of the products. Manufacturers also produce
goods in huge quantity to enjoy the benefits of large-scale production, which is more
economical. So the finished products, which are produced on a large scale, need to be stored
properly till they are cleared by sales.
iv. Quick Supply - Both industrial as well as agricultural goods are produced at some specific
places but consumed throughout the country. Therefore, it is essential to stock these goods
near the place of consumption, so that without making any delay these goods are made
available to the consumers at the time of their need.
v. Continuous Production- Continuous production of goods in factories requires adequate
supply of raw materials. So there is a need to keep sufficient quantity of stock of raw material
in the warehouse to ensure continuous production.
vi. Price Stabilization- To maintain a reasonable level of the price of the goods in the market
there is a need to keep sufficient stock in the warehouses. Scarcity in supply of goods may
increase their price in the market. Again, excess production and supply may also lead to fall
in prices of the product. By maintaining a balance of supply of goods, warehousing leads to
price stabilization.
Types of Warehouses
- On the basis of structure.
- On the basis of ownership.
 - On the basis of service rendered.

a) On the basis of Structure

Warehouses are built in different ways to meet the special requirement for storage. Different
warehouses are constructed for specific goods. While selecting the types of warehouse, one has to
take into consideration the factors like the nature of goods, the quality and the climatic condition.
From the point of view of structure, the following types of warehouses are found:
- Classical warehouse: It is a big hall of single storey building divided into various big or small
rooms to store of general nature.
- Silo: It is a vertical structure room equipped with mechanical devices. The loading and
unloading functions are effected through mechanical devices.These are generally in the shape
of big tanks or bunkers.
- Bins: Bins are small cylindrical cabins of different sizes meant to store varieties of products.
These are manually operated and provide bulk storage facility.
- Elevator: Elevator is a big vertical premise and are of craned types. These are used for lifting
and de-lifting of products. From the elevator goods are directly discharged from wagons.
- Portable warehouse: It is a type of temporary warehouse which can be removed or set in a short
time. These warehouses have enough capacity to withstand rains and winds.
b) On the basis of Ownership
From ownership point of views, there are different types of warehouses:
i. Private Warehouses
ii. Public Warehouses
iii. Government Warehouses
iv. Bonded Warehouses
v. Co-operative Warehouses
1) Private Warehouses- The warehouses which are owned and managed by the manufacturers or
traders to store, exclusively, their own stock of goods are known as private warehouses.
Generally these warehouses are constructed by the farmers near their fields, by wholesalers and
retailers near their business centers and by manufacturers near their factories. The design and the
facilities provided therein are according to the nature of products to be stored.
Advantages
a) Better control, flexibility and cost
b) Operating policies and procedures can be adjusted to meet individual’s needs.
c) Firms with specialized customers or products often develop their own warehouses.
d) Less costly then public warehousing because private facility costs do not have a profit
mark-up
 e) Private warehouse produces a customer’s perception of responsiveness and stability thereby
providing a firm with a marketing advantage over other enterprises.
f) They relief their owners of storage costs incurred by hiring storage facilities
g) They can be used by their owners for as long as is necessary
h) They ensure security of the goods from theft and physical damage
i) They are a source of employment to people employed to manage or work in them

Disadvantages
a) The owners of such warehouses must meet all costs of running them such as labour cost,
security and repairs
b) Due to expansion and growth demand, they may not fully meet the needs of their owners
c) Since they are under the direct control of their owners, there may be difficulties in their
management such as the need to employ specialized workers
d) There may be cases of pilfering of items by employees.
2) Public Warehouses - The warehouses which are run to store goods of the general public are
known as public warehouses. Anyone can store his goods in these warehouses on payment of
rent. An individual, a partnership firm or a company may own these warehouses. To start such
warehouses a license from the government is required. The government also regulates the
functions and operations of these warehouses. Mostly these warehouses are used by
manufacturers, wholesalers, exporters, importers, government agencies, etc.
Advantages
a) They generate revenue for their owners
b) They are usually very large and hence provide ample storage space to businesses.
c) Provide financial flexibility and greater operating and management expertise since
warehousing is their core business
d) They relief people wishing to store goods of the burden and cost of running their own
warehouses.
e) They ensure goods are safe from physical damage
f) They ensure goods are secured from theft
g) May have lower variable cost as compared to privately operated facilities due to lower pay
scales; enter productivity and economies of scale.
h) Due to high volume operations, fixed cost get spread over and justify more efficient
handling operations
i) Transportation economies are leverage by delivery of loads representing various customers.
For example, rather than having vendor A and Vendor B each deliver to a retail store from
their own warehouse serving both vendors could deliver a single combined load more
efficiently
 Disadvantages
a) Hiring them for use may be expensive to individual as well as businesses.
b) Public warehouses may not always have the appropriate equipment to handle different types of
goods
c) The owner of the goods is detached form their handling which may lead to their damage or
loss.
d) Most public warehouses are located in places that may be inconvenient to their potential users,
e.g. exit or entry points of country.
e) It is costly to run such warehouses as skilled personnel and equipment must be employed
f) Public warehouses may be used to store illegal goods by dishonest traders thus putting the
owner of the warehouse in trouble with the law.
g) Owners of public warehouses may face the burden of having to auction goods off when traders
do not collect them within the agreed time.
3) Government Warehouses -These warehouses are owned, managed and controlled by central or
state governments or public corporations or local authorities. Both government and private
enterprises may use these warehouses to store their goods.
4) Bonded Warehouses- These warehouses are owned, managed and controlled by government as
well as private agencies. Private bonded warehouses have to obtain license from the government.
Bonded warehouses are used to store imported goods for which import duty is yet to be paid. In
case of imported goods the importers are not allowed to take away the goods from the ports till
such duty is paid. These warehouses are generally owned by dock authorities and found near the
ports.
A warehouse licensed to keep imported goods awaiting clearance because of non-payment of custom
duties is called a bonded warehouse. These warehouses are maintained by port trust and custom
authorities. These warehouses are situated near the port.
Advantages
 Storage of goods gives the importer time to get money to pay duty.
 Goods are stored safely until they leave the warehouse
 Goods can be sold to third parties while in storage at the warehouse
 Goods can be prepared for sale by the importer while they are still in the warehouse
 If goods are sold while in ‘bond’, the importer passes the burden of paying the duty to the
purchaser
 Duty can be paid in part and hence part of goods can be released for sale
 A government is assured of revenue in form of the customs and exercise duties on bonded
goods
 While goods are in ‘bond’, the government can scrutinize them to know their nature, quantity
and quality.
  Records maintained in bonded warehouses provide important trading statistics to the
government on imported or locally manufactured goods.
 Through bonded warehouses the government has an opportunity to comprehensively collect
taxes in form of customs and exercise duties.
Disadvantages
 Failure to pay duty on bonded goods results in loss to the owner as the goods are auctioned off by
the government.
 The owners of goods in bonded warehouses must meet strict schedules of payment set by the
customs authority to have their goods released
 The charges for goods stored in bonded warehouses are based on the number of days the goods
are kept there. The longer they stay, the more the charges.
 Bonded warehouses are privately owned hence limiting government control over the nature of
goods stored in them.

c) Co-operative Warehouses- These warehouses are owned, managed and controlled by co-
operative societies. They provide warehousing facilities at the most economical rates to the
members of their society.
d) On the basis of Service Rendered
From the point of view of service rendered, there are different types of warehouses like:
- Specific Commodity warehouses: These warehouses are meant to store specific goods like
cotton, petroleum products and wool. These warehouses are specially constructed to
accommodate the above articles.
- Cold Storage: These are meant to store agricultural products of perishable nature. Perishable
goods like fruits, vegetables, eggs and butter are stored in these warehouses.
- Bank warehouses: These warehouses are maintained by banks to keep goods as securities. The
goods received by banks against credits or loans are kept in these warehouses.
- General Merchandise warehouse: Goods which do not require any special storage facility are
stored in these warehouses.
Characteristics of Ideal Warehouses
1) Warehouse should be located at a convenient place near highways, railway stations, airports and
seaports where goods can be loaded and unloaded easily.
2) Mechanical appliances should be there to loading and unloading the goods. This reduces the
wastages in handling and also minimizes handling costs.
3) Adequate space should be available inside the building to keep the goods in proper order.
4) Ware houses meant for preservation of perishable items like fruits, vegetables, eggs and butter
etc. should have cold storage facilities.
5) Proper arrangement should be there to protect the goods from sunlight, rain, wind, dust, moisture
and pests.
6) Sufficient parking space should be there inside the premises to facilitate easy and quick loading
and unloading of goods.
7) Round the clock security arrangement should be there to avoid theft of goods.
8) The building should be fitted with latest fire-fighting equipment to avoid loss of goods due to
fire.
Functions of Warehouses
a) Storage of goods- The basic function of warehouses is to store large stock of goods. These goods
are stored from the time of their production or purchase till their consumption or use.
b) Protection of goods- A warehouse provides protection to goods from loss or damage due to heat,
dust, wind and moisture, etc. It makes special arrangements for different products according to
their nature. It cuts down losses due to spoilage and wastage during storage.
c) Risk bearing - Warehouses take over the risks incidental to storage of goods. Once goods are
handed over to the warehouse-keeper for storage, the responsibility of these goods passes on to
the warehouse-keeper. Thus, the risk of loss or damage to goods in storage is borne by the
warehouse keeper. Since it is bound to return the goods in good condition, the warehouse
becomes responsible for any loss, theft or damage, etc. Thus, it takes all precautions to prevent
any mishap.
d) Financing- When goods are deposited in any warehouse, the depositor gets a receipt, which acts
as a proof about the deposit of goods. The warehouses can also issue a document in favour of the
owner of the goods, which is called warehouse-keeper’s warrant. This warrant is a document of
title and can be transferred by simple endorsement and delivery. So while the goods are in
custody of the warehouse-keeper, the businessmen can obtain loans from banks and other
financial institutions keeping this warrant as security. In some cases, warehouses also give
advances of money to the depositors for a short period keeping their goods as security.
e) Processing - Certain commodities are not consumed in the form they are produced. Processing is
required to make them consumable. For example, paddy is polished, timber is seasoned, and
fruits are ripened, etc. Sometimes warehouses also undertake these activities on behalf of the
owners.
f) Grading and branding- On request warehouses also perform the functions of grading and
branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also
provides facilities for mixing, blending and packaging of goods for the convenience of handling
and sale.
g) Transportation- In some cases warehouses provide transport arrangement to the bulk depositors.
It collects goods from the place of production and also sends goods to the place of delivery on
request of the depositors.
Advantages of Warehousing
a) Warehousing offers many advantages to the business community. Whether it is industry or trade,
it provides a number of benefits which are listed below.
b) Protection and Preservation of goods - Warehouse provides necessary facilities to the
businessmen for storing their goods when they are not required for sale. It provides protection to
the stocks ensures their safety and prevents wastage. It minimizes losses
c) Endorsement: Transfer of any document or instrument to another person by signing on its back or
face or on a slip of paper attached to it. Warehousing from breakage, deterioration in quality,
spoilage etc. Warehouses usually adopt latest technologies to avoid losses, as far as possible.
d) Regular flow of goods- Many commodities like rice, wheat etc. are produced during a particular
season but are consumed throughout the year. Warehousing ensures regular supply of such
seasonal commodities throughout the year.
e) Continuity in production- Warehouse enables the manufacturers to carry on production
continuously without bothering about the storage of raw materials. It helps to provide seasonal
raw material without any break, for production of finished goods.
f) Convenient location- Warehouses are generally located at convenient places near road, rail or
waterways to facilitate movement of goods. Convenient location reduces the cost of
transportation.
g) Easy handling- Modern warehouses are generally fitted with mechanical appliances to handle the
goods. Heavy and bulky goods can be loaded and unloaded by using modern machines, which
reduces cost of handling such goods. Mechanical handling also minimizes wastage during
loading and unloading.
h) Useful for small businessmen- Construction of own warehouse requires heavy capital investment,
which small businessmen cannot afford. In this situation, by paying a nominal amount as rent,
they can preserve their raw materials as well as finished products in public warehouses.
i) Creation of employment - Warehouses create employment opportunities both for skilled and
unskilled workers in every part of the country. It is a source of income for the people, to improve
their standards of living.
j) Facilitates sale of goods- Various steps necessary for sale of goods such as inspection of goods
by the prospective buyers, grading, branding, packaging and labeling can be carried on by the
warehouses. Ownership of goods can be easily transferred to the buyer by transferring the
warehouse keeper’s warrant.
k) Availability of finance- Loans can be easily raised from banks and other financial institutions
against the security of the warehouse-keeper’s warrant. In some cases warehouses also provide
advance to the depositors of goods on keeping the goods as security.
l) Reduces risk of loss - Goods in warehouses are well guarded and preserved. The warehouses can
economically employ security staff to avoid theft, use insecticides for preservation and provide
 cold storage facility for perishable items. They can install fire-fighting equipment to avoid fire.
The goods stored can also be insured for compensation in case of loss.
Selecting a Suitable Location
Factors to consider when locating a warehouse
1. The storehouse should be as near as possible to the geographical center of the area to be served,
or to the biggest store consuming unit.
2. The site must have good road access like on or near a trunk road with good cross country
communication.
3. Where rail traffic is to be handled, the storehouse should be near a main line and the site must be
sufficiently extensive and level enough to allow for the construction of adequate sidings.
4. The land should be not too expensive.
5. Where direct access to sea going ships is necessary, the building will have to be on the docks at a
port.
6. The site should be reasonably level, well drained and not too far from essential services such as
water and electricity.
7. The site ought to be of sufficient size for its intended purpose with adequate space for
maneuvering vehicles, an area available for an outside stockyard if required and some extra room
for possible future expansion.

Warehouse Selection
Factors to consider:
- Nature and characteristics of goods to be stored;
- Nature of handling equipment available;
- Duration of storage needed  i.e. Short term or long term;
- The need for other activities, e.g. Repackaging, labelling, kitting, etc;
- Access and parking for vehicles;
- Number of loading docks required; and
- Secure compound.
Warehouse Preparation Planning
Space layout
The areas that should be planned are both the general storage areas and the areas for goods receipt,
consignment picking and goods dispatch. It is also desirable that space should be set aside for the
following activities:
- Equipment maintenance and parking;
- Charging of equipment batteries such as pallet trucks;
- Refueling of trucks;
- An area for garbage disposal e.g. Empty packaging;
 - A quarantine area for keeping rejected goods, goods to be sent back or destroyed;
- An employee rest area;
- Washroom; and
- An administration office.
 Planning
It is worth keeping these requirements in mind during the planning of the main operating areas.
Planning consideration needs to be given to the following:
- Allocate space for each type of product and locating number;
- Allow sufficient space for easy access to the stacks for inspecting, loading and unloading.
Stacks should be one meter from the walls and another meter between stacks;
- Sizing the goods receipt and dispatch area;
- Allow space for storage of cleaning materials and supplies;
- Allocate areas for damaged items by consignment number;
- Allow sufficient space to repackage damaged items and place it in separate stacks;
- Sufficient free space is needed to operate a warehouse effectively. When planning the size of a
warehouse consider:
o Planning on having about 70-80% utilization of available space, whilst considering:
o Throughput rate
o Handling characteristics of items, etc.
Aspects to consider when managing Warehouse Operations
- Planning the workload - Disposal of goods
- Allocating resources - Pest control
- Space utilization & handling, - Security
- Receiving goods; - Inventory management
- Storing goods. - Handling and stacking techniques
- Assembling consignments - Occupational health and safety
- Dispatching consignments

Centralized versus decentralized warehouses

Advantages of centralizing inventory 
- Reduced Cost; - Constructing, staffing, securing and managing a warehouse is a major expense,
and multiple warehouses multiply this expense. If you run a manufacturing business, an on-site
central warehouse can make use of existing land and put your production facility close to your
inventory and distribution center, removing the need to transport goods from one to the other.
- Staffing; - A business with a central warehouse also sees an advantage in terms of staffing. Even
if a centralized warehouse needs to be very large to replace multiple regional warehouses, it will
 still require fewer workers than needed when staffing multiple locations. This is true for security
personnel, management, inventory control staff and workers who load, prepare and unload
inventory. Fewer workers mean a slimmer payroll and additional cost savings.
- In addition, staffing a centralized warehouse allows you to target inventory managers with a
greater degree of experience or expertise. Since you will need fewer inventory managers, you
may be able to hire those that command a higher salary but promote greater efficiency.
- Simplicity; - Centralized warehouses simplify inventory management. Customers will know how
long orders take to ship regardless of what they order. Company-wide inventory is also easier to
track, with a single facility to examine rather than multiple inventory reports that you must
compile, compounding the chance for error.
- Economy in storage space
- Speedy communication with purchase department & various suppliers
- Provides opportunity for standardization
- Avoid duplication of efforts
- Reduced need for working capital and inventory holding
- Lower outbound transport cost (assuming load consolidation)
- Potentially better use of Intermodal capabilities
   Disadvantages of centralizing inventory
 Increased inbound transport costs
 Customer perception that product are shipped from outside their own countries
 A centralized facility may need to be larger and more sophisticated in order to handle the
needs of multiple countries or markets.
 Not sensitive to the need of individual user departments
 May not be located at the optimum location & thus increased transportation costs
 Improper control procedures may result to inaccurate shortages
 More internal documentation
 Risk is centralized in case of natural or manmade calamities such as fires
Advantages of Decentralized Warehousing
- Local business events;-Staff at a warehouse understand local factors and upcoming business
events. If there is a promotion, for instance, staff are well positioned to play an effective role
that is local in nature and ensure success.
- Marketing; -A decentralized warehouse is closely linked to marketing functions in the supply
management system. If members of a staff at a regional warehouse are well-trained in inventory
management, they can make quick decisions without waiting for decisions from the central
management that benefit the business as a whole. It is they who are closer to the problem and
actions in a warehouse. So, they understand customers better.
- The logic behind decentralized warehousing is often that distribution is very closely tied to the
marketing function, and marketing is usually nationally focused in order to cope with things as
differences in taste and language.
- Another disadvantage of decentralized warehousing is that if ne area-warehouse holds stock
unsold while in another area they cannot sell the same product because of stock-outs

REVISION QUESTIONS
1. Identify the advantages of Decentralized Warehousing
2. Discus the aspects to consider when managing Warehouse Operations
 TOPIC TWO
RECEIVING AND ISSUING GOODS

Receiving goods
This is the last step in purchasing activity and the first link in the stores function. It is undertaken in
the receiving section which deals with the function of receiving & physically handling delivered
materials & verifies that the nature & quantity as per specified in purchase order.
Inspection of incoming materials ranges from simple counting to elaborate laboratory testing &
statistical tests. All incoming supplies are received, checked & duly inspected before further
processing of storage or use. The section is also called the good inward section.
Sources of Incoming Goods
1. Suppliers through receiving section on goods inward note (GIN)
2. The production Department – the finished goods, the semi-finished goods, the unused
materials and scrap.
3. User departments that return surplus stock, obsolete stock & scrap on Materials Return Note.
4. Transfer from other stores on Stores Transfer Notes
5. Equipment received after maintenance & repair on store Credit Note or Completion Slip.
6. Goods rejected by customers
7. Outside parties of sub contracted goods
Functions of the Receiving Section
1. Receiving incoming materials
2. Physically check received materials
3. Arrange for speedy & proper inspection
4. Raise goods inward note
5. Notify user departments about availability of non-availability of materials requisitioned by
them.
6. Inform purchase section regarding excess supply, shortage or defective supply.
7. Deliver materials to appropriate stores for storage
8. Prepare record keeping.
Preparation for the Receiving Function
The task of goods inwards start even before the materials enters the store. When a purchase order is
placed one copy of the same is sent to stores. The copy informs the stores incharge about the items
description, the quantity/grade/type and delivery date, supplier name etc.
It is the task of the receiving section incharge to classify such purchase orders as per a suitable
base/batch such as type of item, supplies delivery date etc.
This copy of purchase order helps to pre-plan for labour to receive & unload the materials, make
adequate arrangements for separate space & inform inspection department about probable schedule
for inspection.
Once the supplier dispatches the goods through their carrier they arrange to send an advice note to
the receiving stores. Such an advice note provides information about;-
- Date of dispatch
- Carrier details
- Description of consignment
- Reference of correspondence purchase orders etc
The advice note is sent in sufficient advance to help make suitable arrangement & expedite clearance
of goods & related documents. On receipts of goods those are physically, verified & tallied with the
consignment note sent by the carrier.
Thus three documents:-
- Purchase order copy
- Advice note – by supply
- Consignment note – by customermust tally with each other & with the received consignment.
The Receipt Procedure
It differs from one organization to another.
Requisition for stores is submitted to the Purchase Department for placing order with supplier. The
order placed, a copy of which is sent to the Materials Control Department and stores
Department/Receipt Section. The time of delivery is generally mentioned in the order.
The supplier delivers the materials to the Receipt Section of the stores Department along with a
supplier’s advice Note. If purchased from outstation, the goods will be carried by some transport
agency which will give a Carrier’s Consignment Note to the supplier who will be send it to the
purchaser for taking the delivery of the consignment from the transport agency. The supplier may
send a supplier’s Packing Note to the purchaser detailing the packages and their contents. This
facilitates the verification of the goods purchased with the help of the purchase order.
As soon as the materials are received the receipt clerks signed the delivery note in testimony to the
fact that he has received the materials recorded in the document. The receipt Clerk then, records the
receipt in the Material Receipt Book or Order Inwards Book.
Contents of MRB or OIB
- Date & time of receipt
- Name of the supplier
- Name of the carrier
- Item details & description
- Quantity & value of items
 - Purchase order reference
- Carrier details(lorry number, registration number)
- Goods inward note reference
- Rejected memo reference
- Received by
- Inspected by
The next step is to prepare Daily Receipt Voucher &/or the Materials Receipt Note in triplicate.
Other four notes prepared along with the DRN are Damage Report, Shortage Report, Excess Report
and Package Slip.
Physical verification n;- Immediately after receiving and recording the materials in the MRB & DRV
the storekeeper proceeds to check the quantity of the materials with the help of the copy of the
purchase order and with the documents which have been supplied to him along with the materials by
the supplier. He does so by counting, weighing, or measuring and tallying the outcome with the
delivery note and purchase order. Any discrepancy detected is reported through the above-
mentioned notes with an intimation to the Purchase Department for necessary action at its end. In
some organizations, a separate department known as Claims Department, functions in addition to the
Purchase Department which deals with such matters.
A damage report is prepared in four copies when packaged/goods are received in damaged condition
sent to
- the supplier,
- the Purchase /Claims Department,
- transport agency/carrier driver
- retained for office copy record
Likewise, Shortage and Excess Report is prepared in case the materials received have been short or
excess. They are also prepared in four copies. One proforma is prepared to combine the Damage,
excess and Shortage columns. This is to reduce the number of proforma & lessen the working time.
After completing the various records as above the Receipt Incharge proceeds to open the different
packages received. Then after the DRV is prepared and the goods are sent to inspection Department
for inspection along with the voucher for reporting back the suitability, non-suitability and
recommending the acceptance/rejection of the materials. In the meantime, the receipt Section
prepares the package slip.
Inspection of Materials
It is a detailed scrutiny of the materials in respect to quality and nature or types of the goods. The
main aim is to prevent the production of non-standard items. Both the quantity and quality is
thoroughly inspected. The objectives of inspection are:
1. To maintain the standards of the quality of the product by accepting materials only of
prescribed specifications as per purchase order.
 2. To receive only the right quantity of materials
3. To make the supplier ever careful in supplying the right quality and quantity of materials
4. To utilize the money rightly and
5. To make the purchase and store staff always watchful against any irregularity.
Advantages of Inspection
If properly done the following advantages are expected to accrue from inspection;-
1. Use of quality materials having been assured because of inspection it will be possible to
maintain a steady rate of development and high standard of living.
2. The good will in the market will be enhanced because of high quality production, that too, at
a comparatively lower cost, since inspection will assure the quality of materials going to
production department.
3. Feeding the production department with standardized items will reduce the cost of
depreciation and cut down repairs and renewal costs.
4. Standardization of goods is achieved

Inspection Results
Materials put up for inspection are either rejected or accepted. If accepted, they are received in
the storeroom on the basis of proper acceptance note or inspection certificate granted by the
competent authority of the Inspection Department
If items are rejected, the representative of inspection department either signs at the appropriate
place on goods receipt note as rejected, indicating reasons for rejection on the inspection
certificate or prepare Rejection Note /report/Form
GIN acts as a certificate to the accounts department for clearing payment of goods whenever due
and for debiting the stores with the value of goods received. It is also an information to
purchasing section regarding the receipt of goods, & an advice to the stores to take the materials
into stores to take the materials into its custody & record them in their book.
GIN (goods inward note) Contents
- Date of preparation of the GIN
- Date of the receipt of the Materials
- Consignor
- Suppliers name and Challon number or invoice number
- Purchase order reference
- Mode of transport
- Stores to which materials will be sent
- Class and code number, description of materials
- Quantity received undamaged & number of packages
- Quantity received, accepted, rejected etc.
 - Transport and related charges paid
- Damage/short/excess /remarks
- Inspection report or rejection note or discrepancies report note number
- Signature of the inspector
- Signature of the receipt clear
In either case, the storekeeper segregates such items and keeps them in a ‘Suspense Cell’ pending
decision regarding their return to the Inspection Department in respect of rejected or sub-standard
deliveries which may follow the courses as given below;-
1. Outright rejection;- if the materials do not conform to the specifications given in the order and
it is realized that they cannot be effectively put to use without jeopardizing the quality and
standard of goods to be produced, such materials are returned to the supplier at his expense.
2. Return for replacement; - The materials are returned for replacing them generally in case of
fabricated parts, etc. This procedure can also be used for other materials
3. Technical or Engineering Adjustments;- It is general practice that a qualified representative of
the supplier comes to the buyer’s plant/go-down to make necessary adjustments on faulty
equipment or to assist in working out a satisfactory application of materials that do not
conform to the buyer’s expectations and the mutual agreement.
4. Price adjustments; - If the materials are useable, though not strictly in accordance with the
purchase specification, a price adjustment in line with the value actually delivered may be the
simplest and most satisfactory means of dealing with such materials though it does not
actually correct the condition of the materials so supplied.

Inspection Methods
a) Visual; - a very rudimentary method for checking stationery items, croceriesetc.
b) By touch;- applied incase of textile fabrics, agriculture produce etc.
c) By smell:- chemicals, powder, oil,
d) By comparison;- with samplesgiven by suppliers during negotiations for award of contracts
e) By actual testing; - metrological equipment use.

Issuing of goods/materials
Issue implies the normal supply of materials from stores to various user departments. Efficient issue
of materials from the store is the benchmark to judge the performance of the store function. Most
user departments judge the effectiveness of the stores by the service levels of the store. The function
is carried out in the Materials Issue Section.
The materials stored in the stock room are issued to various jobs or production departments against
the authorized materials requisitions. The issues are recorded in the store ledger and the respective
jobs or production departments are debited with the price of the material issued. As the time of
purchase and the time of issue are mostly different and the market price of the materials tends to
vary, the problem of pricing the materials issued necessitates certain policy formulation. It is an
important consideration not only under stores management but also for costing and pricing policies.
The fundamental consideration is whether to price the issues at historical price i.e. the original
purchase price, at the replacement price i.e. the prevailing market price at the time of issue or at
some other price.
Authorization of Issue
Stores in stock represent money, and should not be misappropriated, wasted or improperly used. For
this reason, issue cannot be made indiscriminately and before goods can withdraw from a store
house, there must be some authority for the transaction.
Identification of Requirements
The user requiring the goods fills a requisition note describing the goods and the store codes. The
store keeper is expected to find out exactly what is wanted and see that it is supplied and it is
therefore important that they master the vocabularies; spare-parts list and catalogues so that they
have the means of identifying requirement without relying entirely on memory.
Timing of Issuing
To avoid delay in busy storehouses, there will be routine to provide for a smooth and even flow of
work. Arrangements may be made for issues to some department to be handled in the morning and
some in the afternoon; workmen requiring stores should attend at the storehouse during certain
hours, and so on. However, this should not be overdone, because it must be remembered that the
watchword is service. The storekeeper should try to meet the convenience of users, and restricted
times of issue should be applied only to avoid uneconomical peak loads of work in the storehouse,
and to prevent waiting time on the part of those sent to collect materials.
Issuing Documentation
Materials will be withdrawn from store and exchanged for a duly authorized document, the name of
which will vary depending on the nature of the organization and the type of issue. Some of the name
used are;-
- Stores requisition - Demand Note
- Requirement voucher - Kit marshal list
- Stores Indent - Picking list/note
- Issue ticket/note/voucher - Stores Schedule
- Stores order

Methods of Issuing Stores for Internal Use

Issue must be organized to correspond with the needs of the enterprise and several different methods
may be employed in one concern at the same time for various kinds of stores. For example, materials
and components for the production shops can be supplied in accordance with prearrangement
schedules to meet the planned output, tools and gauges can be issued to machine operators on a
replacement system, and special equipment used by fitters and electricians on maintenance jobs dealt
with on a loan basis.
The following are some of the methods used:
I. ISSUE ON REQUEST
This is the simplest method, & there are three variations:-
1) Immediate issues on presentation of an issue note by hand
2) Issues made after the receipt of an issue note by post
3) Immediate issues on verbal request only
A. ISSUES ON REQUEST – METHOD 1. The orthodox form of issue- this is where the user comes
to the storehouse and presents a properly authorized issue note or similar voucher giving details
of what is required. The storekeeper then selects the items wanted, & hands them over in
exchange for the document.
Issue notes may be prepared in any number of copies to suit the individual needs, but the
following is typical:-
- Copy No. 1. Original – handed to the storekeeper, then passed to the stock record section for
entering the quantity records; then to the store accounts section to credit the stock control
accounts and debit cost code chargeable.
- Copy No. 2. Handed to the storekeeper and retained by him as his evidence of having made
the issue
- Copy No. 3. Retained by the user department as evidence of demand
Note:
1) serial numbers;- this are used for the purpose of controlling the documents and their check after
action will immediately indicate if any are missing from the sequence, thus providing a check on
vouchers lost or misplaced. Subsequently if queries are raise dafter the issue the note can be
easily traced by its number. The serial number can be inserted by the storekeeper but in modern
stores records they are automatically pre-numbered before they are supplied to the user
departments.
2) Job Number or cost code number; - it is the duty of the user to provide this information. When
the issue notes arrives in the stores accounts section, they are sorted into job or cost –code order,
and the value of the materials is charged to the appropriate job number or cost code. This is the
basic mechanics of Materials costing.
3) Vocabulary number;- This is the stores code number and is used to identify the goods accurately.
The user is normally expected to insert this number but, where he neglects or is unable to do so,
it is for the storekeeper to see that it is recorded.
4) Issued by;- This space is for the signature or initials of the storekeeper making the issue. In the
event of any subsequent query it serves to indicate who dealt with the transaction, but it is not
always considered necessary, especially if a receipt signature is obtained.
5) posted to stock records;- this provides for the initials of the storekeeper or clerk to confirm that
he has entered on the stock records or computer file the appropriate details from the issue note,
and its purpose is to check that the posting has, in fact, been made.
6) Received;- here the recipient of the goods should sign to provide evidence of receipt. As
mentioned above, if this space is completed, it may not be necessary for the storekeeper to sign
the ‘issue by’ section. Conversely, if the storekeeper signs his part, a receipt may not be required.
7) Classification summary;- the information given here shows the number of the stock control
accounts to which the values of the items appearing on the documents are to be credited.
8) Place;- if the stock records are kept in quantity and value, this amounts is entered by the record
section. If the records are in quantity only, the value is normally calculated by the accounts are to
be credited.
B. ISSUE ON REQUEST – METHOD 2- the issue note is sent in by hand or by post and the
physical handing over of the stock take place later either when the user calls for them at
prearranged time or when they are loaded for delivery by the store keeper. The storehouse staff
get adequate time for selecting and marshalling the stock while the recipient have the advantage
of not having to wait as the store keepers finds and assembles what is required. It is a convenient
method when the customer is at some distance from the storehouse. It is also useful where the list
of requirements is lengthy or complicated as, for example, with spares for machinery overhauls.
C. ISSUE ON REQUEST – METHOD 3- Issue of materials on verbal demand where the person call
at the issuing counter and states his requirements. The storekeeper then selects the items wanted
and hands over. A procedure of this kind is normally employed only for items of comparatively
small value which are required at short notice, such as hands tools, nuts and bolts, cleaning
materials, lubricants, emery paper and other consumables. The storekeeper would be expected to
know all callers by sight and would not, therefore, make any issues to a stranger without some
inquiry.
II. SCHEDULED ISSUES TO PRODUCTION
In mass production concerns, with the cooperation of the production control department or some
other technical planning office, production materials are issued in quantities and at times to
correspond with the manufacturing programme. The goods concerned are usually collected into a
marshalling area in the first place. Thereafter they may be dealt with in several different ways:
a) Collected from the storehouse by the production department.
b) Delivered by the storehouse staff to the point on the production lines at which the process of
manufacturing is to commence.
 c) Transferred into ‘open-access’ stores within the production shops. Open access stores are
storage areas on the shop floor which are not enclosed and are fitted with bins or racks
containing materials which are taken and used by production personnel without
documentation.

III. ASSEMBLIES AND KITS

There are instances where composite issues of a standard nature are required at frequent intervals.
This is most commonly encountered in the assembly stores of production factories where balanced
sets of parts are required for assemblies or subassemblies included in the manufacturing programme.
For example, the piston assembly for a diesel engine might consist of the following list of separate
parts:
Number off Name of part Stores code number
4 Piston Head 25/02/3410
8 Compression ring 25/02/3411
4 Scraper ring 25/02/3412
8 Small-end bush 25/02/3413
4 Small-end pinion 25/02/3414
4 Connecting rod 25/02/3415
4 Big-end bearing 25/02/3416
8 Big-end nut and bolt 25/02/3417
8 Tab washer 25/02/3418

In practice, the documents presented to the storehouse by the production department quotes simply
the required number of piston assemblies and it is the duty of the storekeeper to see that all the
individual parts are forthcoming in the appropriate numbers. In a similar way, tools or gauges for
special jobs may be issued as complete kits. Sometimes the translation of complete kits. Sometimes
the translation of complete kits into components is a very complicated operation involving technical
interpretation in respect of variable items, e.g. radio equipment for the Armed Services. In these
circumstances, the work is normally done by the stock control section instead of the storekeeper.
IV. IMPREST ISSUE
This is whereby a list of certain types of materials in given quantities is approved to be held either in
sub-store or on production line or elsewhere. At the end of a given period, say a week or month, the
user concerned prepares a list of the materials consumed during that time, and presents an
appropriate issue documents at the main storehouse for replacement goods to bring the imprest stock
up to the same level as it was at the beginning of the period. The arrangement is often used for
supplying parts and materials to technicians who travel about in vans providing after-sale service or
repair facilities to customers.
V. REPLACEMENT SSUE
For certain items, e.g. tools and gauges, operators may be required to present a used article to the
storekeeper before a new one can be issued. This can be done with or without issue notes.
 VI. LOAN ISSUES
It should not be encouraged although sometimes it is unavoidable. e.g. in maintenance department, a
number of comparatively expensive tools or pieces of equipment are required for short periods of the
use at frequent intervals. Such items are ammeters, surveyors’ chains, instruments, electric hand
lamps, tap& die set special tools and so on.
These may not be in the store charge but are controlled and kept by the storekeeper when not in use.
It is important to maintain records for the equipment and a register showing all loans made in date
order. Workmen sign the register for everything issued to them and sign again when items are
returned to store. The storekeeper inspects the register regularly, makes inquiries about anything
which has been out on loan for a protracted period and reports to the appropriate supervisor any
doubtful case. As an alternative to signing the loan register, users are sometimes provided with metal
or plastic discs (known usually as ‘tallies’). These discs bear the man’s name and /or works number
and are handled over in exchange for loaned equipment.
VII. ISSUES TO EMPLOYEES ON REPAYMENT
Sales to employees from stock are often encountered in respect of tools, protective clothing,
firewood, etc. Storekeepers concerned with these sales are instructed in writing as to the articles
permitted and the persons to whom they may be sold. Payment is made either in cash or by deduction
from wages, but storekeepers do not normally handle cash.
Lists of sales are kept showing the date of the transaction, the employees’ name and number, and the
vocabulary number, description and quantity of goods sold. The purchaser signs for the wages office
to arrange deductions from wages, as the case may be. Another copy is used for posting the stock
records and subsequently passed to the accounts section. A third copy is retained by the storekeeper.
VIII. ALLOCATED ISSUES
In accordance with manufacturing schedules, some materials may be received on programmed –
delivery basis and kept for use only on the production line for which they have been purchased. This
is done to make sure that there will be no interruption of production and the storekeeper will check
that issue are not made elsewhere. For example 20 mm diameter bright –steel bar to a given
specification may be allocated to the production of component ‘XYZ’.
REVISION QUESTIONS
1. State 3 methods of inspection
2. Highlight 5 advantages of inspection
3. Outline functions of the receiving section
 TOPIC THREE
MATERIALS PRESERVATION
This means protection of stores from all kinds of damage so as to maintain the original value of the
materials which have been carried into store.
It may be defined as “the maintenance of the original value and quality of the materials so as to
maintain the storage cost, production cost, and production quality”. Proper preservation shall be
ensured by storekeeper/custodian who shall work under guidance of user departments. User
departments shall also extend full cooperation in thisregards and visit stores from time to time to
assess implementation and advice in thematter.
Aims of preservation.
a) To keep the materials safe from all kinds of damage and spoilage
b) To protect the materials so as to maintain their value and quality.
c) To see that the materials which have been carried into the stores are made available,
whenever they are required, in perfect and serviceable condition.
Importance of Preservation
a) It assimilates in itself the function of making available the materials not only in serviceable
condition but also according to the requirement of the department which has requisitioned
them.
b) It promotes the efficiency and smooth running of the organization
c) It helps in lowering the investment rate and volume leading to less costs of storage which
ultimately lowers the costs of production
Factors to consider when selecting materials for preservation methods.
a) components for manufacturing of the articles
b) the degree of temperature required for its preservation
c) the duration for which an item is to be stored
d) The cost of storage equipment
Preservation methods
1) Drying
2) Smoking
3) Oiling/greasing
4) Painting
5) Packaging
6) Refrigeration
7) Room temperature
Factors influencing deterioration:
The stores/equipment are made of particular materials with specific characteristics. With passage of
time and sometime due to unfavourable storage conditions, those characteristics of qualities tend to
change or deviate from their properties and making them sometime unfit for use. This change in
characteristics of stores is referred to as deterioration. Due to deterioration, materials or stores
manufactured their-from, may not be able to fulfill intended functions. Provision of proper storage
conditions for items, treating them with preservatives and packing them properly reduces
considerably the rate of deterioration.
The agencies, which cause deterioration, may broadly be classified
a) Biological and
b) Non-biological.
Damages due to biological process:
Damages are caused to stores by organism such as white ant, mildew, rat etc. These are living
organism and this type of damages is usually referred as biological damages. Items like wooden
poles, bamboo, furniture, stationery, textiles, leather goods, timber, food grains etc. are prone to loss
by these agents of deterioration.
Preventive measures:
a) Immersion of bamboo and wood poles in a mixture of creosote and mustard oil for a period of at
least twelve hours.
b) Injection of some oil mixture like creosote and mustard oil in to hollow of timbers followed by
swabbing of the entire outer surface.
c) Painting and washing of timber stores.
Damages due to non-biological causes:
Under this section is included various types of damages not caused by any living organism. Rusting
of iron stores, corrosion, cracking of paints, hardening of rubber, cracking of timber and such like are
common experiences and these are some of the most important types of non-biological damages to
general stores.
Corrosion:
Corrosion relates to deterioration of metal surfaces due to reason other than mechanical ones and
deliberate destruction of iron parts and even pitting of aluminum utensils are example of corrosion.
Corrosion is usually caused when one of more of following conditions prevails:
i. When materials are exposed to harmful gases in the industrial town.
ii. When materials are in continuous contact with water in the presence of air.
iii. When materials are exposed to solutions of acids, alkalis or salts.
Rust
Rust is compounding formed by the oxidation of iron in the presence of moisture. The term “Rust” is
restricted to iron and steel only. While the term “Corrosion” is applicable to all metals.
Preservation:
Applying some preservatives to the metal surface, by making a barrier between the atmosphere and
the metal, prevents corrosion damage to metals. Before a preservative is applied, the metal surface
must be cleaned and free from grease. The surface should be de-rusted, if it is corroded and must be
made completely dry.
Cleaning and degreasing
Washing with water, scrubbing with rags or rubbing with sand paper or emery cloth may carry out
cleaning and degreasing. Cleaning and degreasing may also be done by chemical methods such as:
i. Dissolving the grease in chemicals such as carbon tetrachloride, kerosene oil or white spirit.
ii. Immersion of dirty and greasy articles in solution of caustic soda or soda ash.
Preservative coating
Metals other than iron and steel do not normally require any protective coating. In case they are to be
kept under corrosive conditions for long period, they should be given a protective coating of Mineral
Jelly, Beeswax or grease and wrapped in grease resisting paper. Before a preservative method is to
be adopted, it should be first ascertained if the protection to be given is for short term or long term.
In case a short protection, the preservative can be easily removed and some cases do not interfere
with the serviceability of the stores.
Some of these preservatives are mineral oils and greases and mineral jelly. In such cases, unless the
value of the stores demands stringent controls, the cost of the preservatives is to be given due weight
age. If the items are very huge, even waste oil (from garage) could be explored for use.

Effect of Temperature:
Temperature may be extremely low, high, optimum for the growth of microorganism and insects or
diurnal variation in temperature may take place.
Freezing results in bursting of container filled with aqueous materials due to expansion. Rubber,
certain polymers and metal like molybdenum and zinc die-casting become brittle at low temperature.
A high temperature aging and chemical changes like oxidation become rapid and are particularly
detrimental to rubber and certain drugs.
High temperature may also impose strains on the containers. Diurnal changes in temperature may
induce stress due to differential expansion and result in failure of stores where two or more materials
are used. Diurnal changes in temperature may also result in dew formation and subsequent corrosion
and fungus. Dew formation results in failure of electrical/electronic equipment. In case optimum
temperature prevails, damages due to microorganism or insect may take place.
Effect of Light; - The effect of light alone or in presence of oxygen can be quite marked on
chemicals, drugs, and photosensitive materials/polymers. They may form explosive peroxides or
result in free radicals leading to actinic degradation
Effect of moisture; - Loss of moisture may change the characteristics of the item and reduce its
serviceability i.e. in leather goods, abrasive papers/clothes etc. increase in moisture may cause
corrosion of metallic parts, may encourage biological/chemical deterioration or organic materials and
may cause loss in insulation of electrical/electronic instruments/equipment.
Effect of Oxygen and ozone: - Oxygen and ozone cause oxidation and oxidation degradation in many
compounds. These reactions are accelerated in presence of moisture and light.
Effect of environment generated by interaction:
a) Impact: - Packages are exposed to side and end impacts during handling and transit may
cause damages to delicate parts of instruments i.e. pointers and suspensions and optical
alignments etc. containers can be dented, glassware and others fragile materials may break,
perishable may be crushed.
b) Vibration:- During its journey by road, rail, sea or air, the packages are subject to sustained
vibration, which may result in failure of the equipment or instruments i.e. incandescent lamps
element, weakening of container themselves i.e. wooden boxes.
c) Compression: - During storage or transit, packages are stacked as high as possible to utilize
maximum possible vertical storage space. Packages at lower layers are subjected to
compression under the load of upper packages. If the container is not strong enough, the
compression is transmitted to the contents.
d) Tension, Tear etc:- Condition of tension, shear, torsion and tear result from the action of
stresses on materials kept inside the container. Tension may be produced by suspending
container from the top, shear and tear can be caused by the interaction of divergent stresses.
Torsion and distortion do occur by exertion of stresses, which are not collinear, and not
necessarily in a horizontal or vertical plane.
e) Gases and vapours:- These may be present in industrial /polluted atmosphere and inside
storehouses because of presence of volatile substances. Increased amount of ozone may also
be present in smog area. These may cause contamination and deterioration due to corrosion
or other chemical reactions.
f) Chemical pollution:- Environments are greatly influenced by the nature of chemicals stored
and handled and cause deterioration in other stores. Some chemicals are inactive and
unstable, explosive or inflammable. Special storage precautions have to be taken for these.
g) Electromagnetic Radiation:- Electro-magnesium is an important phenomenon to consider
whenever electrically operated equipment is used. Memories generated in modern
sophisticated electronic equipment can be erased or distorted by those stray electromagnetic
radiation. Barriers have to be provided for this radiation. Stray current produced in metallic
parts of the stores may cause corrosion.
h) Static Electricity;- It is caused by movement of electrons that occurs, when dissimilar
substances in contact with each other are separated. If this is not neutralized or eliminated as
rapidly as it is produced, it will eventually develop energy enough to jump as a spark to some
nearby grounded or less highly charged object. The spark can ignite nearby combustible
materials or vapours. While generation of static electricity cannot be prevented, its dangerous
 accumulation can be prevented by conducting away the electric charges as fast as they are
produced.
Storage Hygiene
a) Cleanliness:- All Stores rooms must of swept daily and cobwebs are removed. Cracks and
crevices must be filled up. If possible saw dust shall be spread over the floor before sweeping.
It stops spreading of dirt and dust in the air and subsequently accumulating on the storage racks
and materials lying on them.
b) Ventilation;- Air must be allowed to circulate freely throughout the storage area. The only
exception is in respect of rubber articles where ventilation has to be restricted to a slow natural
circulation of air. Free aeration helps in keeping the stores and stores rooms dry, and prevent
accumulation of heat within the stocks, bundles and stores.
c) Segregation of infested stores:- Stores damaged by biological agencies should be segregated
immediately the damage is noticed and given suitable treatment.
d) Disinfestations of Godowns:- Stores rooms in which stores infested by micro- organism have
been kept should be periodically disinfested as shown below especially before the stores rooms
are utilized for stacking uninfected materials.
i. The room should be emptied of all infected materials and thoroughly cleaned
ii. The wall should be white washed.
iii. The floor should be washed with phenyl or creosote liquid. If the stores room contains
stores infected by insects the following measures should be adopted.
iv. The room should be emptied of all infected materials and cleaned thoroughly.
v. The room should be fumigated with Gammaxine smoke generators and kept closed for 12
hours of if the walls have not been freshly white washed for 15 days after the fresh white
wash of walls 5% DDT solution or emulsion should be sprayed on the floor and on the
walls up to a height of about 10 feet.
Revision Questions
1) Explain the meaning of materials preservation
2) Explain the importance of preserving materials
3) Highlight factors to consider in selecting materials preservation method
4) Explain the materials preservation methods
 TOPIC FOUR
CLASSIFICATION AND CODING
STOCK IDENTIFICATION
It is necessary to have some logical basis of identification which is more precise and less
cumbersome. This can be done first by classifying the stock and assigning a code for each specific
stock item.
Stocks Identification and Classification
Classification means systematic arrangement in groups or categories of stocks according to end use.
It is the grouping of items into groups according to their similarities. The important principles of
stock classification are the like should be associated with the like; simplicity and ease of
understanding of the stocks should be given paramount consideration.
Classification may be in any of the following ways:
 Classification by nature
 Classification by usage / purposes
 Stages in processing etc.
When goods are classified according to their nature, one may need to consider the inherent
characteristics. According to usage one will have to consider the use to which items are put in an
organization. When stages in processing are used goods are categorized as raw materials, W.I.P &
finished goods.
After classification is done, there is a need to give a code to every category & further sub divide
every category to the specific items. This will ensure easy identification of items.
Stores Coding
Because of the complexity of the modern industrial organization, the range & type of items held in
stock are correspond complex. Therefore a system has to be developed that can identify & classify a
wide range of items in stock quickly & efficiently.
A Code – This is a system of symbols designed to be applied to a classified set of items to give a
brief accurate reference facilitating entry, collation and analysis.
Coding – Systematic identity of items by putting them according to their similarities by use of letters,
numerals or both. It is the use of symbols to identify a specific set of items done to help in immediate
identification of materials e.g. size, types, origin etc.
A code is a system of symbols or numbers or a combination of symbols and numbers used for
representing data for purposes of communication or for storage or for processing information.
Each type of stock should be given number or letter or a combination of numbers and letters, which
prevent it from being mixed with other types of stocks. Some of the requirements for stocks coding
are the following:
(a) One stock type should not be mistaken for another
(b) The coding should preferably tell the type of stock
(c) The coding system should be simple and easy to understand
(d) The coding system should be flexible and able to take any reasonable increase in the number of
stocks
Why Classification and Coding
Classification and coding are necessary for the following reasons.
a) To avoid repeated use of long descriptions in all stores documents which entail more clerical
labor and confusion
b) Accurate identification of all stock items
c) Prevention of duplication, since similar items will be group together and once an item is coded
should not be given any alternative code number
d) Codes assist in standardization, which is the most important use of stock code. Standardization
of stock is the process of reducing the number of varieties stocked, to a controlled workable
minimum. The classification of like items makes it easy to examine the complete range of any
given type of stock and consider whether the number of varieties held can be reduced and
standardized. Without standardization, there is little to prevent random purchasing and supply
decisions
e) It serves as storehouse location and allocates the storage space
f) It provides as a base for sorting stock documents like receipts and issues
g) Coding simplifies computerization and data processing
h) The classification/code system can be used as a means of physical control for location and
storage of stocks.
Procedures for Developing Coding System
The procedures to develop the system of identification include the following.
a) Visit all store houses and stock records so that their current system for identification of stock is
inspected, and record in full the system of identification of stock. List all the stock items and if
available their yearly consumption. This can be easily obtained from the bin cards or other stock
documents. Emphasis is only on stock item
b) Classify all the items on major following the classifications as given in figure 1 of this part.
Assign the four digit number code for each major classification.
c) Reclassify each classification in to sub classes. For example uniform further be classify into
uniform, clothing and bedding. The sub class is assigned three digits from 001 to 999. There is
no hard and fast rule for regrouping of each item. The important thing to consider is the number
of line items used by each public body. It is also important to know that the degree of detail in
sub classification depends on the benefit you obtain from the information. If it is too detail it can
only understood by experts and leads to confusion.
d) Reclassify each classification in to sub classes. For example uniform further be assigned three
digit number from 001-009 to the specific item.
e) Consult the procurement unit, the accounts/finance unit and the users departments to get their
agreement.
f) Once you get the agreement, complete the stock code and distribute copies to the units really
have need of it.
g) Amendments are published at least yearly, in accordance with the original distribution. Changes
are not made in classifications unless there is a change in FGE chart of accounts.
Types & Forms of Coding
Each organization has its own needs & resources & this will influence the type of coding system
employed.
1) Coding by the nature of the item. - This involves the consideration of items by reference to their
own inherent characteristics. The first stage is to collect similar items into a series of main groups
such as raw materials, bought out parts, tools machinery spares etc. Each of this group is then
subdivided into subgroups or sections as far as the circumstances require. This method is found
in many different concerns & is very popular in practice. The grouping employed in any
organization will be arranged to suit that organization only.
Advantages
a) It can be used to cover every item in stock regardless of the type or complexity.
b) It is ideal for complex & bug organization with variety & range of stock items
c) Because of its logical step by step formulae. It can easily be translated into item full name by
store keeper & other department who use & work with the code.
d) The flexibility of this method ensures that any new type or range of item introduced in the
store can be covered & coded by this system.
e) It meets the needs of the organization because of its ability to be as complex or be simple as
required by the type of organization involved.
2) Coding by End Use – under this method, a code is arranged to correspond to the purpose for
which the various items are eventually employed. A product is coded by its actual use in terms of
the operation or product.
3) Colour Coding – this is a system based on use of colour to code & identify items held on stock. It
is commonly used in chemicals & timber stores e.g. Green for iron, blue for steel, black for
aluminum, red for copper etc.
4) Supplier code – this is coding in reference to the source of supply. The store employs the coding
system of supplier of the goods. With items like the technical spares, the suppliers may have
already coded their spares & an organization may use the maker’s part number as the last part of
the stores code.
5) Common user items – these are items not manufactured by a supplier. They could already have
been included in the user vocabulary in some other classification because they are also in use for
other purposes. Items such as bolts, ball & roller bearings are such items. User organization
 should indicate them as common user because they could be bought more cheaply from the
actual manufacturer than from supplier of main equipment and thus treat as bought out parts.
Principles /Characteristics of an Efficient Coding System
1) Exclusive - one code for one item. The code assigned to an item of stock should only be used for
that item & no sharing of codes between or among different items.
2) Certainty - should be specific for specific item. It should be certain ion terms of the items they
represent or identify to avoid any confusion.
3) Briefness – as short as possible. Description should be brief & accurate & specifications quoted
where possible. The essence of any code is to avoid the full name description of an item of stock.
4) Uniformity & consistency – equal in nature, structure etc. the number of letters or digits should
be constant for all items (consistent format).
5) Elasticity – i.e. the system should be flexible to allow new entries if possible. It must be able to
accommodate increases in stock & range in scope.
6) memorization:- it should be easy & possible to remember & understand the code numbers
7) Useful – classification & description should be designed to meet the needs of the organization
8) Simplicity – The coding system should be simple for the user departments & the stores house
staff. This will ensure quick training of the new users.
Using Code Symbols
Whatever method of coding is followed, the symbols used are either alphabetical (e.g. ACFG),
numerical (e.g. 05/06/1234) or alpha – numerical (e.g. PE.7261). Where letters are included in the
code, some attempt may be made to have a mnemonic system whereby the letters themselves are an
abbreviation of part of the description of the item- for instance, SMF meaning Steel, Mild, Flat. Such
an arrangement can have only a limited application in materials coding; in all but the smallest
concerns the variety of items stocked is such that duplicate meanings of letters very soon arise &
make any wide spread application of mnemonics impracticable.
Straight numerical codes may be referred to as ‘Decimal System’/ the numbers being
segregated into groups of two or three – for example, 12.27.63.51 or 832.617. The use of decimal
points in this way makes the number easier to read & also tends to reduce errors in transcription.

Self-Validating Codes
This is devising or adopting a coding system to add extra digit or digits to the item number. These
extra digits convey no information whatsoever about the item itself, & are therefore sometimes
called redundant digits. Their purpose is to provide protection against errors in the transcription or
inputting of items numbers. This purpose is reflected in another commonly used name for these
digits, ‘check digits’. These kinds of codes are known as self-validating codes
Factors to Consider When Introducing a Stores Code
a) The range & types of stock to be coded. The more complex & variable the item held in stock are
the more flexible & complex the code should be
b) The staff & sources available. A very complex system will need a great deal of time of skills to
introduce & maintain a store code.
c) Whether the system is computerized or manual. The role of computer in stores management is a
faster moving one & numerical stores coding is essential for efficient computer data storage.
d) The size of the organization. If the business is big then the more the items that it likely to store. A
stores code that is flexible in nature must be introduced to meet the need of the organization.
e) Financial status of the organization. The coding system to be introduced should be the one that is
affordable to the organization financial position.
Advantages of Coding
1. Avoid repeated use of long descriptions titles . It is easy see that if full and accurate description
were used on all stores documents, the clerical labour involved would be immense. Even
abbreviated descriptions are cumbersome and soon lead to confusion
2. Accurately identification of all items. As a separate code symbol is available for every
individual type of item in all the different sizes, indication whether there is an approved
specification & any special characteristics.
3. Prevention of duplication of items. All items are arranged in some logical order. It therefore
follows that similar stores will be grouped together and when an item is coded once it should
not be given any alternative code number.
4. Assists in standardization & the reduction of varieties . This is one of the most important and
profitable use of code. The grouping of like items together makes it easy to examine the
complete range of any given type of items and consider whether the number of varieties used
can be reduced & standardization achieved on the minimum number of the most suitable types.
5. Provides a foundation for an efficient purchasing organization . A part from the fact that a code
by improving stock recording and control enables buying instructions to be conveyed easily
and quickly, grouping of items in the code facilitates the organization of the purchasing
department into commodity sections, each engaged on buying of particular range of stores.
6. Forms a convenient basis for the sorting and recording of documents . The presence of a code
number on receipt notes, issues notes, stocktaking sheets, in fact, all basis material documents
enables them to be sorted into code number order. Then they are easily posted to the records,
which are arranged in the same order.
7. Simplifies mechanical recording and data processing. It would be practically impossible to
employ computers for materials recording in the absence of a coding system. The limitations of
the equipment prohibit the use of long descriptions, because of the time it would take to input
the necessary data.
 8. It is convenient for central analysis of unit storehouse records . Where there are a number of
outlying storehouses, and records are kept at a central point, a code is a necessity to make sure
that the same item has the same identification in every unit.
9. Simplifies pricing and costing. Price lists consisting only of description are cumbersome and
reference to them is difficult and slow. The use of codes numbers automatically provides
reliable index for all items. This feature of coding is emphasized by the use of makers’ parts
lists by purchasing departments.
10. May be used as a storehouse location system . It is clearly desirable that goods in the storehouse
should be kept in some logical order. One way of doing this is to arrange the items in the
sequence of the stores coding system, as far as practicable. Some difficulties may be
encountered, especially with vehicle and machinery spares, where the arrangement of the parts
list may have little or no relation to the size of the item.
Revision questions
1. Outline advantages of coding
2. Describe factors to consider when introducing a stores code
3. State characteristics of an efficient coding system
 TOPIC FIVE
STOCK LOCATION
Those operating in the warehouse should be able to access bin and retrieve materials at the shortest
time possible. Binning of materials is made to provide a logical ways of identifying where each of
the materials held are located in the warehouse. This is necessitated by the fact that it is not
practically for the stores operators to memorize the location of all items held in the storehouse.
Therefore we need a logical & systematic ways of identify where each type of stock is held in the
storehouse in order to increase speed in the warehouse.
The stock location system acts as an address for each item stored in the storehouse. Through this
system it would be possible for anybody operating in the storehouse to easily identify where each
item is located and retrieving materials when there is need to issue them to the customers without a
proper stock location system, it might not be easy for store staff to operate effectively whenever they
are called upon to.
Types of Stock Location Systems
There are three types of stock location systems which are;-
a) Fixed/ Static Stock or Location System
b) Zonal Stock Location System
c) Random Stock Location System
1) Fixed Stock Location System
Materials are assigned to different section of the warehouse reserved for them strictly. Therefore
each item of stock will have its own location & that would be where it would be held forever. In
this system materials are never shifted from one position to another because its empty for the
vacant position is reserved for its own materials.
It is most suitable to accommodate materials which are small in number & where the volume of
operation is low. It is a type that is commonly applied in strong leaving materials in libraries or
bookshops.
Merits
a) It is easy to learn & understand for new employees
b) Item of stock having similar characteristics are usually kept to each other.
c) The process of binning & retrieving materials is easy
d) Materials held in the storehouse can easily be seen thus control of their movement is easy.
Demerits
a) In case there are no materials at a given time then there will be uneconomical utilization
of space
b) This bringing system is only appropriate to a certain type of material.
c) The system does not consider the rate of movement with different materials
 d) For bulky materials there will be need for extra-large space for loading & off-loading
materials
2) The Zonal Stock Location System
This system caters for materials that are unique in nature. The stock location are devised
according to either source of supply, the stage of manufacturing, the nature of material, the
customer to be served etc. in this system certain region within the storehouse will be set aside to
handle materials falling within that category.

3) The Random Stock Location System

In this system no item is given a permanent location. The operation of this system requires that
any vacant space is to be given any item that has been delivered. The binning of materials in this
system need to be very highly coordinated to ensure there is no double binning. The system
somehow appears to be disorganized but the fact is that it is very organized under a systematic
way of binning materials.

The organization of the random stock location system is based on utilization of the available
space in the warehouse. Materials are binned in any immediate available space & details are
passed in the stock records in order to assist the operators to trace them therefore materials will
be kept on moving within the storehouse without having a specific point to be held.

A successful implementation of the random system requires the warehouse to be computerized

such that stock identification and location can easily be done through the computer. In such
arrangements whenever, materials are received the person in charge will have to consult the
computer to provide any available vacant space in which new deliveries would be binned.

The organization of the storehouse in this system will require the provision of adequate
gangways in order to facilitate material handling by both manual & mechanical material handling
equipment.

In advanced organization the binning & retrieval of the materials may be done automatically by
programming materials handling systems to be operated automatically thus computerizing the
whole warehouse operations. As the bin location are numbered & entered into the computer so is
the case of both materials handling equipment gangways & isles.

Merits
a) This system allows maximum utilization of space in the storehouse
b) The system permits computerization of storehouse operations effectively
 c) Due to the use of computers, identification of vacant location, whenever items are located
it becomes faster
d) The system is versatile that it permits the use of different facilities &equipment in
handling materials

Demerits
a) Determination of where materials are located & binned in the storehouse can only be located in
the computer
b) The cost of installing the system is high
c) The system requires highly skilled & competent staff to operate
d) The materials received at times may not fit appropriately in the immediate available location

Factors to consider when selecting the type of stock location to use

1. The types of materials being held in stock; - whether perishable or durable, bulky or compact etc
2. The size of the warehouse;- if the warehouse is big enough then fixed stock location can be used
while a small warehouse need the application of random stock location to allow for the use of the
vacant space.
3. The skills, experiences and abilities of the staff will determine the type of location systems as
some systems like random stock location system requires computer knowledge, material handling
equipment operating knowledge and quick decisions making abilities on the vacant space
allocation.
4. The availability of capital to install and operate the system
5. The general trend in the organization e.g. the policies in place on stock control. Organization
policies are the guiding principles of its operations and should therefore be considered when
deciding the location system to adopt.
6. The service level expected to be provided to the customers
7. Security of materials to be stored
8. Type of materials handling equipment to be used

Characteristics/Features of an Effective Stock Location System

1. It should provide easy access to all materials in the storehouse
2. It should be able to provide maximum utilization of the available storage space.
3. It should have only one stock location for every stock
4. The stock location system should be capable of being operated easily by the staff
5. It should be cost effective to operate the system
6. It should be able to accommodate different types of materials appropriately
7. Should be able to accommodate future expansion
Revision Questions
1. Explain the meaning of stock location
2. Highlight the purpose of stock location
3. Explain factors considered in selecting stock location method
4. Explain the different methods of stock location
5. Explain the importance of stock index
6. Explain the procedure for locating materials in the warehouse.
 TOPIC SIX
STORES LAYOUT
A store layout is the design in which a store's interior is set up or internal arrangement of a stores
depot is known as layout. Store layouts are well thought out to provide the best exposure possible.
The effectiveness of a storekeeper is determined by how and in what way the internal arrangement is
planned.
A good layout aims at the following;-
a) Maximum utilization of the available space
b) Great efficiency of the stores depot
c) Easier accessibility to all the materials
d) Maximum security of all the materials carried and records maintained
e) Greater economy and use of lesser time in the receipt, movements, placements and issue of
materials
f) Minimization of spoilage, damaged and other kinds of losses

The objective of layout strategy is to develop an economic layout that will meet the firm’s
competitive requirements

Layout Considerations
1. Higher utilization of space, equipment, and people
2. Improved flow of information, materials, or people
3. Improved employee morale and safer working conditions
4. Improved customer/client interaction
5. Flexibility

Flow

Line and horse/U Flow

Here the product (or products) follows a fixed path through the production resources. The resources
are arranged to minimize the material movement required. This type of layout is typical for an
assembly line where a single product, or a few very similar products, passes through the line in a
continuous fashion. Because of the high volume of production, the machines on the line can be
designed with a high level of fixed automation, with very little manual labor. Direct labor will be
much less than for the job shop, but there will be high costs for maintenance. Setup costs and work-
in progress will be low for this arrangement.
The line, in general, is not flexible to product or volume changes. It is very sensitive to failures that
cause the entire line to shut down.
The arrangement is also appropriate for a flow shop that may have a number of products that all pass
through the machine centers in the same order. In this case, the machines implementing the system
may or may not be automated depending on the product mix and volume, but one would expect a
higher level of automation than for the job shop.

Factors to Consider
1. Effective use of space - space needs to be used effectively, with all the areas planned properly
to break up the store into logical and functional areas such as pos, back office, chaging rooms,
pantry, toilets, etc. 
2. Inviting customers - layout is designed to attaract the targeted audience. It should speak on its
own and guide customers to all the areas of merchandise. 
3. Interiors - interior arrangements - appearance, walls, sections, areas should be planned and
positioned well. Lighting and music arrangement needs to be taken into consideration while
planning a layout. It should be placed to suit the kind of shopper. These arrangements can be
changed during different hours in a store.
Factors affecting warehouse layout & planning
External factors
 Size & configuration of site: must be adequate to accommodate the required equipment
 Site access: must be adequate for the types of vehicle and volume of traffic using that
particular site
 Local authority plans: the proposed warehouse can be greatly affected by the government
development plan
 Site details: characteristics of the facilities found in the site such as drainage and ground.
 Financial considerations: consider about the rents, costs of ownership, investments grants
Internal factors
 Flow of goods in the warehouse: ‘U’ flow or through flow
 Movement of people and equipment
 Access to stock and minimize congestion
 Identification of stock and codes
 Stock location, rotation( FIFO)
 Stock checking requirements
 Stock replenishment
 Handling of goods in and out of the warehouse
 Supervision, safety, stock security
Some areas should also be set aside for other warehouse activities. These include:
  Areas for loading and unloading vehicle
 Staging or temporary storage areas
 Office space, washroom and lunch rooms
 Area for repacking, labeling, marking
 Area for equipment storage and maintenance Hazardous or high-value items
 Building factors: existing building to be use as a warehouse.
Revision questions
1. Explain factors affecting warehouse layout & planning
2. Highlight warehouse layout considerations
3. What does a good layout aims at achieving
 TOPIC SEVEN
PACKAGING
Definition
- Packaging is the science, art, and technology of enclosing or protecting products for distribution,
storage, sale, and use. Packaging also refers to the process of design, evaluation, and production
of packages.
- Packaging can be described as a coordinated system of preparing goods for transport,
warehousing, logistics, sale, and end use. Packaging contains, protects, preserves, transports,
informs, and sells. In many countries it is fully integrated into government, business, and
institutional, industrial, and personal use.
- Packaging refers to the process of wrapping the materials for the intentions of protecting them
during the transit or storage. Packaging is important to every organization & it should be carried
out effectively by ensuring that proper packages are used & also ensure that the materials are
properly protected.
The organization should therefore arrange to have the appropriate packaging materials which can be
used for the packaging of the goods before the transit.
Importance of Packaging Products before Transportation & Storage
There are various reasons why packages should be carried out on product before storage or
transportation. These includes the following;-
1. To protect the materials against damages during the transit or storage especially for the fragile
items.
2. Some packages assist in the preservation of the materials by installation of preserving devises
like refrigerators in the containers.
3. Packaging is also used as an aid f advertisement in order to attract the customers increasing the
sales
4. Packaging enhances easy materials handling since the materials will be properly protected
against damages making the application of mechanical handling system easier.
5. It creates some unitization in the materials being transported since they can be handled as one
load therefore becoming very convenient & cheaper to move & transport the materials as one
load than where each of them is transported separately
6. Packaging also enhances the security of the goods during transit e.g. by protecting these
materials against pilferation proper packaging discourages the pilferation since the package will
be properly sealed
Types of Packages
There are two categories of the packages namely;-
a) Returnable packages &
b) Non-returnable packages.
Returnable packages are those that are used for several deliveries to several destinations. This means
that the returnable containers are to be returned to the supplier once goods have been delivered. This
will help to cut down the operating costs leading to improved profits.
Advantages of returnable packaging;
1) Reduces cost. Export packaging  is typically used once and then thrown away. The cost of this
package is added into the product unit cost. Returnable packaging eliminates this recurring
cost. If your packaging will remain constant for a long period, returnable containers and
tonnage are frequently lower in annual cost than expendables. The Initial investment will be
much higher, however. Over a period of time, the cost of a returnable container system is
typically much less than that of expendable one-way packaging.  
2) Improves product protection.  Returnable containers are constructed to support heavy loads
and to provide excellent resistance to impact, resulting in better protection of the product
carried inside.
3) Improves workers safety.  Returnable containers and pallets provide handles and smooth
grasping areas for ease of use and reduce worker injuries. A returnable can often be fitted with
material-handling features, like handles, that would not be economically feasible with an
expendable container.
4) Improves housekeeping.  Returnable packaging eliminates dirt, dust, and the trash clean-up
associated with expendable packaging.
5) Improves space utilization. Returnable packaging is typically built to support heavy loads and
stack high in the warehouse and trailer, saving space and eliminating the damage from crushed
product.
6) Improves environmental impact. Returnable packaging reduces the amount of trash going
into the landfill. A package reused is one less package that will wind up in the solid waste
stream.
Disadvantages of returnable packaging;
1) Large capital expense. Initial cost is probably the largest deterrent to the wide use of
returnable. Savings over time have to be significant to justify the capital expense. On the other
hand, by the experience we have had, Pay-Off-time for the Investments are normally <1 year,
which means the Investment is quickly covered.
2) Increased transportation expense. Returnables have to be returned and the return trip is
usually not free. The cost must be factored in. Our experience shows that the return cost is
normally dominating over other costs. The degree of “collapsibility” or “nestability” of
containers and tonnage is of key importance and increases with shipping distance.
3) Cost for tracking and accountingBecause returnable packaging is relatively expensive, it´s
important that they don´t get lost in the return system. A loss rate of 10% losses per trip will
 give the result of complete system loss in just 10 cycles (10% loss x 10 cycles results in 100%
loss). On top of this cleaning might sometimes be an issue.
4) Storage space for emptiesIt typically takes more space to store empty returnable packaging
than to store expendable packaging due to strength and design.

Non-Returnable Containers
The non- returnable packages are only used once which means that the operating costs in terms
packaging could be very high. The packaging materials are one of the stocks held by the organization
in its warehouse. This is to ensure that the goods are packaged before storage or before
transportation.
Factors to Consider When Selecting packages for Materials
1. The nature of the product/Characteristics of the product;- Products are either in liquid, gas or
solid form, they could also be either compact or bulky, durable or perishable, light or heavy etc.
All these should be considered as the packaging material and packages are in different nature for
different products.
2. The cost of packaging;- The cost of the packing materials should be reasonable i.e.
commensurate with the value of the products and the financial ability of the organization. The
availability of these materials in the market should also be considered.
3. Distance to be moved;- As a protective aspect during transportation, packaging of goods for
transport will require consideration of the distance to be moved.
4. Legal aspects and the government regulations;- The law as well as the government regulates
packaging of certain products to ensure safety e.g. gasses, flammable, petroleum products, food
substances etc.
5. Customer’s preference;- Customers satisfaction entails meeting their preferences including the
packaging of the product. Their tastes and preference on the colour, nature and size of the
package should be considered.
6. The purposes of the packaging;- A part from offering protection to the products, packaging is
used for other purposes like material handling, advertisement, communication of instruction,
identification etc.
7. Environmental effects;- Disposal and manufacturing of the materials for packaging should
conform to the organization and government regulations on the environment effect.

Types of Packages
i. Drums; - These are made of metal or plastics and are used to store liquid products.
Advantages
a) They can be reused as returnable packages
b) The can accommodated large volume of materials
 c) They can withstand hard environmental conditions hence guarantee safety of the products
d) Material handling exercise is facilitating as some are designed in consideration of the
material handling fact.

Disadvantages
a) They are non-repairable in case they wear out or torn-out
b) Some may not be reused in packaging different products e.g. petroleum products
c) Due to the large volume of the contents material handling must be mechanical
d) In case of damage the packed liquid may never be saved

ii. Boxes/Cartons; - They are made of wood paper, metal or plastics to stores solid and liquid
products already packed in containers.
iii. Crates; - These are returnable containers used to store and handled liquid products stored in
bottles e.g. sodas. They are made of plastic or wood.
iv. Sacks /bags; - These are made of sisal or polythene and are especially used to store grains.
v. Containers; - They are made of plastic, glass, or metal and are used to store liquid products.
vi. Wrappers; - are made of sponge and polythene and are used to protect fragile items.
Packaging Design
When designing a package, be aware that it serves four basic purposes in distribution of goods from
source to destination.
1. Goods must be contained throughout the distribution process.
2. Contents of the package must be protected from the hazards in distribution for safe arrival at
destination.
3. Packaging should assist in other ways to facilitate distribution and use of contents, including
ease in handling, storage, transportation, and unpacking.
4. The package must communicate required information, including contents, destination and any
special handling warnings.

For transport packaging, the designer should achieve the following objectives during the design
process:           
- Product protection from all distribution hazards
- Use of environmentally responsible materials and systems
- Minimizing shipping costs, effective use of space in transport vehicles
- Ease of handling and storage in distribution
- Efficient use of labor in packing
- Meeting customer needs
Packaging Design Process
There are certain steps in transport package design that should always be included.
These are as follows:
1. Be knowledgeable of the product characteristics- Fragility with respect to shock and vibration;
ability to hold compressive loads; susceptibility to corrosion or abrasion; as well as dimensions
and weight.
2. Obtain marketing and distribution requirements- Knowledge of possible transport modes, types
of distribution systems, potential customers, and quantities required per package, expected daily
and annual volumes, etc.
3. Determine what hazards may occur in distribution- Any or all of these may occur during one
shipment- rough handling, compressive forces, vibration in transit, high humidity, temperature
extremes,   concentrated impacts, puncture impacts, high altitudes, etc.
4. Evaluate potential alternatives for both packaging and unitizing- avoid considering only those
methods or materials presently used; evaluate others used successfully in the industry.
5. Design the shipping container, interior packaging, and unitizing (if required)- Starting with
information from the above research, one can scientifically design transport packaging by
utilizing information from suppliers, textbooks, and further research for technical data on each
component of the packaging system. Standard tests such as shock, vibration, compression
should be conducted to identify any weaknesses and improvements required during the design
process.
6. Check the adequacy of packaging by performance testing- When the design is completed,
subject the transport package to a performance test consisting of a sequence of anticipated
hazards/tests in the laboratory.
7. Be prepared to redesign if the performance test fails- Even experienced engineers may find their
design has failed the performance test, and a redesign and retest is required.
8. Consider redesign of the Product if performance tests fail- Sometimes it is more expedient and
less costly to redesign the product as a means of passing performance tests, rather than adding
cost to the packaging.
9. Methods of packaging are needed- Methods of packing products in transport packages and of
arranging the packages in unit loads should be developed. Complex multi-piece packaging
requires documented methods for correct and consistent packing. Sometimes redesign of the
package is required to optimize overall cost of materials and labor.
10. Documentation of the above is essential- Specifications of packaging materials and unitizing
should be documented and also packing methods and testing results.
Revision questions
1. Explain the meaning of packaging
2. Explain the purpose of packaging materials
 3. Highlight the factors to be considered in selecting of packaging materials
4. Identify types of packages for materials
5. Worldstate Ltd. Intends to export its products to a foreign country. Explain the factors that the
firm should consider when packaging the products for export market.
TOPIC EIGHT
MATERIAL HANDLING
Definition
It is the art of coordinating different activities often in different departments of an organization and
sometimes different organization so as to optimize the cost of assembling storage & transporting
materials from the point of storage.
It is the act of involving movement, packaging, and storage of materials in may form by means of
gravity, manual, effort of power activities machines.
It involves three stages;
1. Selection of materials from their place of storage
2. Movement of materials form one place to another
3. Placement materials in their required place & position
Materials handling are preparation, placing and positioning of materials to facilitate their movement
for storage. Materials handling do not add to the value of product but it adds to the cost of the
products.
Main Aims of Material Handling
 to ensure that there are no damages caused to the goods
 to reduce the handling cost especially by having goods being handled in bulks
 to avoid waste of time that could lead to the delays in other activities e.g. production
Material handling system
To carryout the material handling activities in the warehouse during distribution, there are two main
handling systems that could be used
a) Manual Handling system
b) Mechanical handling systems

Manual Handling system

This involves the use of human labour to move goods from one place to another & also to assist in
loading & unloading of the goods.
Factors that influence the material handling process
i. Where goods are handled in smaller quantities
ii. Where the nature of the goods do not permit the use of the mechanical handling system e.g.
Fragile items
 iii. If the warehouse layout cannot accommodate the equipment to be used e.g. A warehouse with
very narrow entries & very limited space inside the warehouse
iv. Lack of funds to run the system mechanical
Disadvantages
1) It is a slow method of material handling and therefore can easily lead to delays in the material
handling activities e.g. The loading and unloading of goods which might result into delays in
the transportation of the goods
2) The goods cannot be handled in bulk which leads into double handling costs. This means that
when system is not the most appropriate to use when handling large quantities of the material
3) It is expensive in terms of labour costs especially where the goods are to be handled in large
quantities.
4) It is a health hazard to the handling staff especially if they are involved in handling very heavy
loads
Mechanical Handling System
It involves the use of machines &equipment in the material handling activities. The mechanical
handling system consists of two categories of equipment; the hand operated equipment which only
functions through the human force through push & pull e.g. wheel barrows, trolleys etc.
The power operated equipment which consists of those equipment that only function with the
availability of power (electricity & fuel) e.g. forklifts, cranes, tractors, trucks, conveyors belts etc.
Factors influencing the use of mechanical handling system
i. The layout of the warehouse i.e. If there is adequate space to accommodate the equipment
ii. Mode of transport to be used
iii. The nature of the goods being handled e.g. If they are very heavy loads & also where the
goods are handled in very large quantities (bulk)
iv. Where there is some urgencies that requires the goods to be handled faster
Advantages
i. Leads to faster handling of goods and therefore no waste of time in the material handling
activities.
ii. It creates some economies savings in utilization of the storage space in the warehouse making
it possible to store and retrieve the goods from the highest positions of the warehouse
iii. It is capable of handling heavy materials that cannot be manually handled
iv. Few numbers of employees are hired since only the operators are needed and even to some
extent the goods may be loaded and off-loaded through automatic machines.
v. It results to a less health hazards to those operating the equipment.
Disadvantages
i. It is expensive to the organization in terms of the acquisition costs, running costs and
maintenance costs etc.
 ii. it requires a skilled manpower for its operation and therefore these can be extra expense to
the organization in either training the available staff or recruiting newly qualified staff
iii. The goods are usually handled in large quantities and there are high risks of loss to the
company through damages, in case of any breakdown to the equipment
iv. The system may also increase the storage space expenses since it is required for the
equipment.
v. poorly arranged materials may cause damage in case they fall due to the high positions in the
stores
vi. It is only ideal to be used/applied in a big organisation with large quantities of goods/
materials to be handled.
Factors to consider when deciding on the appropriate material handling system
1) Production system
2) Type of product to be handled
3) Type of building; - The number of floors has a direct effect on the devices which should be used.
Single storey building lead to use of lifts trucks and conveyors and conveyors. Multi-storey
building use gravity flow with pipeline as the most economical method of materials handling.
4) Cost of material handling device
5) The size of the organization;- The bigger the organization size the most complicated system
should be adopted and vice versa
6) Space available
Objectives of Material Handling
1) Reduction in wastage of machine time
2) Reduction in manufacturing cycle time
3) Avoiding disruption in production in production schedule
4) Bring safety to workers and provide for safer working conditions
5) To bring customer satisfaction
6) To enhance productivity and avoid high cost efficient materials handling system results in
reduction in cost through various steps as discussed above and result in higher productivity.
Principles of Materials Handling
a) Avoid placing the materials on floor without a pallet or other support underneath.
b) Assure adequate storage space at the work place for the proper amount of material, both
ahead of and following the operation being done.
c) Provide necessary clearance in and around each work place – for proper handling of materials
and for maneuvering handling equipment
d) Arrange for instruction for each operator in the correct method
e) Plan for correct location of materials supply and disposal in work area
f) Provide adequate means for scheduled scrap removal
 g) Do make judicious use of Manual Handling
h) Plan to minimize walking

Suggestions to improve flow of materials:

a) Avoid congestion
b) Remove obstacle if possible (rather than go around item)
c) Keep handling restrictions in mind.
d) Avoid backtracking and zigzagging where possible.
e) Arrange alternative paths where possible, in case of emergencies.
f) Plan for sufficient working place.
g) Remove work as soon as possible after it is finished.
h) Plan for waste removal.
i) Use the right equipment available for the job.
Unit loads: - Increase the size and mass of unit load where possible. The larger the unit load, the
lower the operating cost. Unit load may be defined as “A number of items (or items of bulk
materials) arranged such that they/it may be handled (picked up or moved) as single object.
Saving can be made in
- Handling time
- Handling cost
- Handling labour
May include items such as:
a) Several boxes on a pallet.
b) Many small items in a bin
c) A single large and heavy item on a pallet.
d) Many items inside a container.
Advantages of unit loads:
a) Permits handling of large loads. g) Minimizes time in tracing stray
b) Reduces handling cost. items.
c) Allows faster movement of goods, h) Reduces product damages.
d) Reduces time for loading and i) Reduces transportation cost.
unloading. j) Reduces time and expenses of
e) Reduces packing cost. labeling individual items.
f) Make use of cubic space.
Main disadvantages are:
a) Cost of unit load supports (pallets etc)
b) Securing of unit loads.
c) Handling equipment of bigger capacity needed
d) Increase the mass of supports
 e) Returning empty containers or pallets.
General Causes of industrial Accidents
I. Unsafe conditions, environmental causes
a) Inadequate guarding (conveyors, trucks, etc)
b) Unguarded equipment
c) Defective conditions of equipment
d) Hazardous arrangement – stacks of material, pallet loads, arrangement of trucks, etc
II. Unsafe acts of persons
a) Operating without authority
b) Operating at unsafe speed
c) Making safety devices inoperative eg. Governors
d) Unsafe loading – machines, conveyors , cranes, trucks , etc
e) Taking unsafe position of posture – in stacking, in trucks, etc.
f) Taking unsafe position or posture – in stacking, in trucks, etc
g) Working on moving equipment – trucks, conveyors, etcc.
h) Working on moving equipment – trucks, conveyors etc
III. Unsafe personal causes
a) Improper attitude – taking chances, disregarding instruction
b) Lack of knowledge – poor instruction, new man, unskilled
Always make sure that handling system chosen is safe for example ensure that:
a) Install adequate guards and safety devices on handling equipment
b) Keep handling equipment in good operating condition.
c) Furnish mechanical handling equipment for difficult, hard, hazardous handling activities and
to handle dangerous materials
d) Do not permit handling equipment or devices to be overload or operated over rated capacity
e) Keep isle clear and uncluttered
f) Install adequate lighting
g) Maintain floor in good condition
h) Avoid crowded conditions
i) Provide good house-keeping
j) Stacks material carefully
k) Be sure operations are properly instructed in method and/or use of equipment
l) Provide mechanized part feeding and removal devices
m) Plan for removal of undesirable dust fumes, smoke, etc
n) Isolate inherently dangerous equipment, operations, etc.
o) Allow liberal factor of safety.
 Principle of standardization:’- Standardizing as much as possible on equipment is beneficial because
it:
a) Reduces range of spares to be stored for maintenance.
b) Allows for better bargaining.
c) Reduces training requirements.
d) Allows efficient record keeping.
e) Allows standard containers and pellets.
Materials handling equipment:
Free path equipment (Continuous movements)
- Forklift trucks - Reach trucks
- Tractors - Hand pallet trucks
- Sack trucks - Overhead mobile cranes
Apart from some type of cranes, most free path equipment relies on wheel, which can be split
into two categories.
i. Manually operated wheeled vehicles.
ii. Powered wheel vehicles.
a) Manually operated wheeled vehicles:
- Sack trucks - Trolleys
- Mobile stillage trailers - Dollies -Wheel Barrows
Revision questions
1) Explain the meaning of materials handling
2) Highlight the objectives of materials handling discuss factors to consider in selecting
materials handling equipment
3) Explain the materials handling methods
4) Describe the principles to be observed when handling materials
5) Describe different types of materials handling equipment
 TOPIC NINE
STOCKS AND STOCK CONTROL
Stocks/Inventory
Inventory is defined as a stock or store of goods. These goods are maintained on hand at or near a
business's location so that the firm may meet demand and fulfill its reason for existence.
Types of Inventory/Stock
Here is a quick guide to the different types of inventory. There are two basic types: merchandising
and manufacturing. Manufacturing is further divided into three more components: raw material,
work in process and finished goods.
1. Merchandise inventory: If you buy items from other artists and crafters to sell in your own
gallery or shop, you'll have a merchandise inventory. Remember though - any items in your shop
on consignment are not part of your inventory.
2. Manufacturing inventory: If you make your own arts and crafts, you'll have a manufacturing
inventory. The term 'manufacturing' might not seem to fit a hand crafted type of business, but a
quick review of the classifications within the term, will make the relationship clearer.
A manufacturing inventory consists of three different parts: raw materials, work in process and
finished goods.
Using a leather crafting business as my sample craft company, here are definitions and examples of
the three:
1. Raw materials: Everything the crafter buys to make the product is classified as raw materials.
That includes leather, dyes, snaps and grommets. The raw material inventory only includes items
that have not yet been put into the production process.
2. Work in process: This includes all the leather raw materials that are in various stages of
development. For the leather crafting business, it would include leather pieces cut and in the
process of being sewn together and the leather belts and purse etc. that are partially constructed.
In addition to the raw materials, the work in process inventory includes the cost of the labor
directly doing the work and manufacturing overhead. Manufacturing overhead is a catchall
phrase for any other expenses the leather crafting business has that indirectly relate to making the
products. A good example is depreciation of leather making fixed assets.
3. Finished goods: When the leather items are completely ready to sell at craft shows or other
venues, they are finished goods. The finished goods inventory also consists of the cost of raw
materials, labor and manufacturing overhead, now for the entire product.
Reasons for Holding Stock/Inventory
1. To meet expected demand. A business must ensure that it has adequate supplies to meet expected
demand for its goods, regardless of whether it is a retailing or production environment.
2. Anticipated price increases may necessitate early buying for storage
3. Unable to find dependable supplier, delivering materials of the right quality on the right time.
4. To guard against shortages. Holding inventory can act as insurance against future shortages.
Unexpected shortages in the supply of raw materials or finished goods can affect the production
run of a business or its ability to meet demand.
5. Bulk purchases may lead to economic procurement /To benefit from discounts. Suppliers often
offer trade discounts for bulk purchases, once those purchases are above a certain amount. A
business can reduce the unit cost of materials and it’s ordering costs (delivery, import duties) by
purchasing a large amount of goods/ raw materials to hold in stock.
6. To deal with variations in usage or demand. "Usage" refers to production consumption in a
manufacturing process. Increased usage can increase the demand for materials. This is the result
of either increased inefficiency or increased production levels.
7. To facilitate the production process. Stock can allow the manufacturing process to flow smoothly
and help the business to respond quickly and effectively to contingencies.
8. In times of high inflation/ supply shortages. Holding vast supplies of inventories can be a
deliberate strategy in response to unusual or difficult economic circumstances. In times of high
inflation, a business might not wish to purchase stock at increasingly higher prices.
9. Some processes require holding work in progress. Inventory can also include work in progress.
Some products might have longer production cycles than others (like wine or cheese for
instance). It is necessary to hold a high volume of inventory to cater for the inherent nature of
production in some business contexts.

Less praise reasons for holding stock

1. Obsolete items retained in stock
2. Poor or non-existence of stock control system resulting to over large orders, replenishment
orders being out of phase with production etc.
3. Inadequate or non-existence of stock records
4. Poor liaison between the production control, purchasing & marketing departments.
5. Sub-optimal decisions making e.g. production department might increase work-in-progress.
Stocks unduly so as to ensure long production runs.
Extend of Holding Stock.
1. Operational needs – the user’s desire is for immediate availability of all materials, stores and
spares which may be required under any circumstances, with no risk whatever of failure of
supply. From the operational point of view the efficiency of the stores department is judged by
whether materials are forthcoming or not when it is required. In the event of a ‘stock out’ (i.e. no
stock available in store), the consequences may be very serious.
2. Delivery time/lead time – some goods can be obtained ex stock from suppliers but, in many
cases, weeks or months must elapse between the date of order and receipt. Delivery time can be
regarded as the period which a supplier requires to make a delivery, whereas lead time is the
 period between recognizing the need for replenishment and the new supplies actually arriving at
the storage fixture. Lead time has been succinctly summarized as ‘Min to Bin’, and includes the
time spent in preparing and placing the order, and in checking and placing incoming goods in the
store.
3. Availability of capital – goods in stock represents working capital, and the business will have to
provide this capital either out of its own resources, or by borrowing from a bank or elsewhere.
Capital is never unlimited and, from a financial point of view, it is most desirable to restrict the
amount held up in stock as far as circumstances will permit. Efficiency in this respect is normally
judged by ‘stock turn’. The stock turn is the value of issues for any given period divided by the
average value of stock in hand during the period.
4. Cost of storage – the factors comprising the cost of storage are as follows:
 Interest on the value of stores in stock (i.e. loss of interest on capital tied up in this
way), or the benefits which could be gained from employing the money more
productively within the organization
 Operating expenses of storehouses, including wages, depreciation, rent, rates, repairs,
healing, lighting, etc.
 Loss & deterioration of stock
 Obsolescence
 Insurance
 Stock checking
 Recording & accounting.
These costs are substantial, & investigations made in various industries have shown that
the annual cost of storage may be of the order of 20% - 30%
5. Reliability of estimated requirements – naturally, the longer the period for which an estimate is
made, the less dependable the figure is likely to be; it is not too difficult to forecast what will be
required for the next month, but next year is more difficult.
6. Available storage accommodation– deliveries are not supposed to exceed the available storage
space so as to avoid open air storage or extra cost for rent.

Stock/Inventory Control
Definition
Inventory control, or stock control, is concerned with how much stock you have at any one time, and
how you keep track of it. Effective inventory control applies to every item you use to produce a
product or service, from raw materials to finished goods. It covers stock at every stage of the
production process, from purchase and delivery to using and re-ordering the stock.
Responsibility in Stock
It is the prime responsibility of a stock controller to control the stock of the organization with which
he is employed.

Controlling Stock Comprises a Number of Tasks, including:

- ensuring that stock is properly stored to prevent damage;
- ensuring that proper security measures are in place so that unauthorized persons do not have
access to stock;
- preparation of requisitions and other paperwork for ordering new stock;
- controlling a back-order file and releasing stock accurately and timeously on receipt;
- checking documentation, amounts and condition of new stock;
- returning damaged stock to suppliers;
- establishing when unused stock needs to be disposed of;
- payment of suppliers;
- Control of the stock control department's budget.

Requirements for Efficient Stock Controller

A stock controller should:
- Be responsible and dependable;
- Have numeracy skills;
- Have organizational skills;
- Be able to communicate well;
- Work accurately.

Required Skills for Effective Inventory control

Specific skills are required to achieve the performance criteria in this unit. In addition to the generic
skills identified in the Key Competencies section of this unit, assessment needs to obtain evidence of
the ability to:
- Identify and interpret trends from inventory records
- Read, interpret and apply inventory information
- Apply diagnostic techniques
- Apply inventory system relationship to manufacturing process
- Record and report on management of inventory systems
- Maintain accurate records
- Communicate, orally and in writing, with a range of stakeholders
- Demonstrate safe working practices
- Work within standard operating procedures.
Stock Management
Good stock management by a firm will lower costs, improve efficiency and ensure production can
meet fluctuations in customer demand. It will give the firm a competitive advantage as more efficient
production can feed through to lower prices and also customers should always be satisfied as
products will be available on demand.
Overstocking increase costs for businesses as holding stocks are an expense for firms for
several reasons.
 Increases warehouse space needed
 Higher insurance costs needed
 Higher security costs needed to prevent theft
 Stocks may be damaged, become obsolete or perish (go out of date)
 Money spent buying the stocks could have been better spent elsewhere
The opposite of an overstock is a stock-out. This occurs when a businesses runs out of stocks. This
can have severe consequences for the business:
Loss of production (with workers still having to be paid but no products being produced)
Advantages
a) Can meet sudden changes in demand
b) Less chance of loss of production time because of stock outs
c) Can take advantage of bulk buying economies of scale
Disadvantages
a) Costs of storage – rent and insurance
b) Money tied up in stocks not being used elsewhere in the business
c) Large stocks subject to deterioration and theft
Cost of Inventory
Controlling inventory is an important activity by virtue of its critical objectives. Inventory control
ensures that a business does not hold an inordinately high level of raw materials or a dangerously
low one. Either extreme would expose the business to additional costs. Therefore, inventory control
is really a cost control mechanism for an enterprise. The primary objectives of inventory control are
to preserve optimal levels of inventory that minimize the following costs:
 Holding Costs
 Ordering Costs
 Stock out Costs (costs of running out of inventory)

1. Holding Costs/ Carrying Costs. There are costs of storing the materials. Such costs would include
rent, utilities, taxes, insurance, stores operations and personnel. Holding costs also include the
risk of holding stocks of raw materials, namely, obsolescence (particularly with technology) and
deterioration. The opportunity cost of holding inventory, in terms of the capital forgone is also a
valid consideration. Generally, holding costs are most burdensome when the inventory levels are
 too high. If that is the case, the risks of deterioration (or damage) and obsolescence increase and
there is the additional burden of managing higher quantities of stock.
2. Ordering Costs. Once a business stocks materials, it would have to replenish such stocks every so
often. The costs incurred in obtaining inventory for storage are ordering or procurement costs.
The most obvious ordering cost is the cost of transport. Other ordering costs include the
overheads associated with it and the potential for production interference as well. Generally,
maintaining high inventory levels reduce ordering costs. Ordering costs are higher when
inventory levels are too low. This means that orders would be more frequent and that would lead
to payment for transport for each small shipment, instead of a larger batch shipment.
3. Stock Out Costs - Stock out costs includes financial and non-financial costs of running out of
inventory. When this happens, the production run might be delayed, customers might be
dissatisfied (loss of customer’s good will), and labour frustrations over stoppages and costs
would be incurred to cover emergency shipments. These are only some of the effects of a stock
out— something that inventory control desperately seeks to avoid.
Objectives of Inventory Control
1. To ensure the availability of goods when required
2. To account for the purchased goods
3. To reduce storage cost as much as possible
4. To avoid over or under stocking
5. To maintain accurate records
6. To minimize wastage or theft
7.
Importance of Stock Control in an Organization
The stock control activities will have the following advantages to the organization
1. It helps in maintaining a continuous flow of the materials into the company. This means there
will be some continuous production and also effective distribution activities which may result
into an increase in the demand for the company product.
2. It ensures that the materials are held in the right quantities required. One of the stock control
activities is to determine the quantity to hold in a warehouse. This means through effective stock
control the organization will have the right quantities minimizing overstocking & understanding
cases.
3. The materials will also be obtained on time without any delays which also leads to effective
services to the customers on time hence improving organization goodwill.
4. It leads to improved profits to the organization. This is because every activity carried out in an
effective stock control system will be profitable to the company and with effective distribution
activities it may lead to an increase in demand & hence improved profits.
5. There will be minimum operating expenses to the company e.g. in acquiring cost and also
holding cost. This could also result into the improved profits.

Advantages
 Efficient inventory control allows you to have the right amount of stock in the right place at the
right time.
 Keeping an optimum amount of stock, rather than too much, frees up capital that would
otherwise be tied up in stock.
 It guards against your customers being disappointed and taking their business elsewhere.
 It prevents stock from deteriorating or simply falling out of fashion.
Stock Control Techniques
The materials purchased by a concern may be classified as stock items which are taken into store and
held until required or as direct deliveries to the point of consumption. The control of those materials
which are stock items is known as stock control.
1. Re-Order Level System/Two Bin System/Fixed Order quantities
This is that level of materials at which a new order for supply of materials is to be placed. In
other words, at this level a purchase requisition is made out. The order level is the quantity to be
used during the lead replenishment time plus a reverse. This level is fixed somewhere between
maximum and minimum levels. Order points are based on usage during time necessary to
requisition order, and receive materials, plus an allowance for protection against stock out.
The order point is reached when inventory on hand and quantities due in are equal to the lead
time usage quantity plus the safety  stock quantity.
The two bin system is used to establish a connection between the order and reorder procedures.
As mentioned above, from the point of view of a producer, uneven supply of stock and odd
consumption is not very healthy. Such unevenness is sorted by two-bin system. In such a system,
the stock is sorted into two bins, or piles. The first stock (bin 1), is the larger of the two and is
used up between the time period that lasts from purchase of stock till the reorder. The second
stock (bin 2), can be used from the time when the reorder is placed till the order is actually
received. The second stock, has a considerable amount of stand by that can be used for
emergencies.
Advantages
a) Lower level of stocks than with periodic review system stocks on average
b) Items ordered in Economic quantities via the EOQ calculation
c) Somewhat more responsive to fluctuations in demand
d) Automatic generation of a replenishment order at the appropriate time by comparison of
stock level against re-order level
e) Appropriate for widely differing types of inventory within the same firm
Disadvantages
a) Many items may reached re-order level at the same time, thus overloading the re-
ordering systems
b) Items come up for re-ordering in a random fashion so that there is no set sequence
c) In certain circumstances ( eg variable demand, ordering costs etc), the EOQ calculation
may not be accurate.

2. Periodic Review Systems

An item inventory position is reviewed periodically rather than atr a fixed order point. The
periods or intervals at which stock levels are reviewed will depend on the importance of the stock
item and the cost of holding that item. A variable quantity will be ordered at each review to bring
the stock level back to maximum- hence, the system is sometimes called the ‘topping – up’
system.
Advantages;
a) Greater chance of elimination of obsolete items due to periodic review of stock
b) The purchasing load may be spread more evenly, with possible economies in placing of orders.
c) Large quantity discounts may be negotiated when a range of stock items is ordered from the same
supplier at the same time.
d) Production economies, due to more efficient production planning and lower set-up costs, may
result from orders always being in the same sequence.
Disadvantages:
a) On average, larger stocks are required than with fixed order point systems as reorder quantities
must provide for the period between reviews as well as between lead times
b) Reorder quantities are not based on EOQ
c) If the usage rate changes shortly after a review period, a stock out may occur before the next
review date
d) Difficulties in determining appropriate review period, unless demands are reasonably consistent.
Choice of the system
 A fixed order point is more appropriate if a stock item is used regularly and does not conform
to the conditions for periodic review systems
 A periodic review system is most likely to be appropriate if orders are placed with and
delivered from suppliers at regular intervals, such as daily, monthly, or a number of different
items are ordered from and delivered by the same supplier at the same time.

3. Economic order quantity (EOQ)

This is the optimal ordering quantity for an item of stock that minimises cost.
 It is that size of the order which gives maximum economy in purchasing any material and
ultimately contributes towards maintaining the materials at the optimum level and at the
minimum cost.
In other words, the economic order quantity (EOQ) is the amount of inventory to be ordered at one
time for purposes of minimizing annual inventory cost.
The quantity to order at a given time must be determined by balancing two factors:
1) the cost of possessing or carrying materials and
2) The cost of acquiring or ordering materials.
Purchasing larger quantities may decrease the unit cost of acquisition, but this saving may not be
more than offset by the cost of carrying materials in stock for a longer period of time.
The carrying cost of inventory may include:
- Interest on investment of working capital
- Property tax and insurance
- Storage cost, handling cost
- Deterioration and shrinkage of stocks
- Obsolescence of stocks.
Underlying Assumptions of Economic Order Quantity:
1) The ordering cost is constant. i.e. the cost of placing an order is independent of the size of the
order – the delivery charges is also independent of the quantity ordered.
2) The rate of demand is uniform – that is certain, constant and continuous over time
3) The lead time is constant and certain
4) The purchase price of the item is constant i.e. no discount is available
5) The replenishment is made instantaneously the whole batch is delivered at once.

EOQ may be misleading for the following reasons

a) Annual demand is a forecast, so it is unlikely to be an exact figure
b) Order costs are assumed to be constant, but these may change due to use or the introduction of
e-purchasing
c) The interest rate is assumed to be constant, but, in practice, interest rates frequently change
d) Cost per item is likely to change in the course of the year, so we have to decide whether to use
average cost, replacement cost, and actual cost or anticipated future cost in the equation.
Many criticisms of EOQ derive from inaccurate data inputs, such as exaggerated carrying and
ordering costs. Many ERP packages also have built-in programs that calculate EOQs
automatically. Often these built-in programs need modification to deal with changes in usages and
products. While EOQs are not applicable to every inventory situation, they should be considered
for repetitive purchasing situations and MRO items.
 4. JUST-IN-TIME (JIT) CONCEPT The primary goal for the company is customer's satisfaction
and if company cannot reach perfection in this area then all the processes are worthless.

All parts of the value chain and everything in the enterprise must be healthy for realization of
competitive business processes. If the company wants strong and long lasting value chain all the
links within the chain must be prepared to overpass all existing problems.
One of the most important links inside that value chain is definitely logistics. Logistics is concerned
with the physical distribution and storage of products and services.
During the 20th century several approaches of implementation of logistics were developed. Surely,
one the most famous and most important logistics concept is the Just-In-Time concept.
Just-in-time (JIT) is “a philosophy of manufacturing based on planned elimination of all waste and
on continuous improvement of productivity”.  It also has been described as an approach with the
objective of producing the right part in the right place at the right time (in other words, “just in
time”).  Waste results from any activity that adds cost without adding value, such as the unnecessary
moving of materials, the accumulation of excess inventory, or the use of faulty production methods
that create products requiring subsequent rework. 
JIT (also known as lean production or stockless production) should improve profits and return on
investment by reducing inventory levels (increasing the inventory turnover rate), reducing
variability, improving product quality, reducing production and delivery lead times, and reducing
other costs (such as those associated with machine setup and equipment breakdown).  In a JIT
system, underutilized (excess) capacity is used instead of buffer inventories to hedge against
problems that may arise.
Some Key Elements of JIT
i. Reduce or eliminate setup times
ii. Reduce lot sizes (manufacturing and purchase)
iii. Reduce lead times (production and delivery)
iv. Preventive maintenance: use machine and worker idle time to maintain equipment and prevent
breakdowns.
v. Flexible work force
vi. Require supplier quality assurance and implement a zero defects quality program
vii. Small lot (single unit) conveyance

Advantages
Benefits that JIT concept can provide to the company are huge and very diverse. The main benefits
of JIT are listed below:
1. Reduced set up times in warehouse- the company in this case can focuses on other processes that
might need improvement;
2. Improved flows of goods in/through/out warehouse- employees will be able to process goods
faster;
3. Employees who possess multi-skills are utilized more efficiently – the company can use workers in
situations when they are needed, when there is a shortage of workers and a high demand for a
particular product;
4. Better consistency of scheduling and consistency of employee work ho urs - if there is no demand
for a product at the time, workers don’t have to be working. This can save the company money
by not having to pay workers for a job not completed or could have them focus on other jobs
around the warehouse that would not necessarily be done on a normal day;
5. Increased emphasis on supplier relationships- having a trusting supplier relationship is important
for the company because it is possible to rely on goods being there when they are needed;
6. Supplies continue around the clock keeping workers productive and businesses focused on
turnover- employees will work hard to meet the company goals.
Limitations
There are several problems which are connected within JIT concept.
The major problem with JIT operation is that it leaves the supplier and downstream consumers open
to supply shocks. With shipments coming in sometimes several times per day, the company is
especially susceptible to an interruption in the flow.
For that reason, some companies are careful to use two or more suppliers for most of theirs
assemblies. The hidden costs are present and they include labour union leverage, problems with
flexible manufacturing systems (FMS), problems developing for the flexible workforce, difficulties
with supplying commodities using JIT, increased expenses for suppliers.
JIT is more suitable for flow than batch production and may require a change from batch to flow
methods, with consequent changes in the systems required to support the new methods
JIT requires the provision of the necessary systems and methods of communication between
purchasers & suppliers, ranging from vehicles telephones EDI, so problems will arise if there is
inadequate communication both internally – from production to purchasing – and externally – from
purchasing to suppliers – and vice versa.

JIT and Purchasing

There are two essentials for successful implementation of JIT;
 All parts must arrive where they are needed, when they are needed and in the exact quantity
needed
 All parts arriving must be usable
Where these requirements are not achieved, JIT may easily become ‘just-too-late’. In achieving these
requirements, purchasing has the following responsibility;-
 1. Liaison with the design function. The emphasis should be on performance rather than design
specifications. Looser specifications enable suppliers to be more cost effective by being more
innovative with regard to the quality & function aspects of supplies. In JIT purchasing, value
analysis is analysis is an integral part of the system & should include suppliers.
2. Liaison with supplier to ensure that they understand thoroughly the importance of
consistently maintaining lead times & a high level of quality.
3. Investigation of potential of suppliers within reasonable proximity of the purchaser to
increase certainty of delivery & reduction of lead time.
4. Establishing strong, long-term relationships with suppliers in mutual efforts to meet the
supplier’s expectations regarding:
 Continuity of custom
 A fair price and profit margin
 Agreed adjustments to price when necessary
 Accurate forecast of demand
 Firm and reasonably stable specifications
 Minimizing order changes
 Smoothly timed order releases
 Involvement in design specifications
Prompt payment.
1. Establishment of an effective supplier certification programme which ensures that quality
specifications are met before components leave the supplier so that receiving inspections are
eliminated
2. Evaluation of supplier performance and the solving of difficulties as an exercise in
cooperation.
Benefits of JIT
1. Set up times are significantly reduced in the warehouse which will allow the company to
improve their bottom line to look more efficient and focus time spend on other areas.
2. The flows of goods from warehouse to shelves are improved. Having employees focused on
specific areas of the system will allow them to process goods faster instead of having them
vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand.
3. Employees who possess multi-skills are utilized more efficiently. This will allow companies to
use workers in situations where they are needed when there is a shortage of workers and a
high demand for a particular product.
4. Better consistency of scheduling and consistency of employee work hours are possible. This
can save the company money by not having to pay workers for a job not completed or could
have them focus on other jobs around the warehouse that would not necessarily be done on a
normal day.
 5. Increased emphasis on supplier relationships is achieved. No company wants a break in their
inventory system that would create a shortage of supplies while not having inventory sit on
shelves.
6. Supplies continue around the clock keeping workers productive and businesses focused on
turnover. Having management focused on meeting deadlines will make employees work hard
to meet the company goals to see benefits in terms of job satisfaction, promotion or even
higher pay.

Activity Based Costing/ ABC - ANALYSIS

The first step in determining an inventory situation is to use a technique called ABC analysis. It
is an inventory control method based upon a statistical principle discovered by a 19th century
economist, Vilfredo Pareto. He observed that a small number of situations in a population would
often dominate the results achieved. Therefore, controlling the vital few would go a long way to
controlling the whole. This observation is known as the “Management Principle of Materiality”
and is recognized today as Pareto’s Law.
When ABC analysis is applied to an inventory situation, it determines the importance of items
and the level of controls placed on the item. By dividing a company’s inventory into different
classifications– A, B, C; managers can focus on the items that account for the majority of the
inventory. The adaptation of Pareto’s Law of the vital few and trivial many follows a pattern:
- A inventory accounts for about 20% of the items and 80% of the dollar usage
- B inventory accounts for about 30% of the items and 15% of the dollar usage
- C inventory accounts for about 50% of the items and 5% of the dollar usage

These percentages are approximate and vary from company to company. Normally the
classifications are based upon annual dollar usage, but other criteria can be used, such as
transaction usage, unit cost, lead time, and others.

The steps in doing the ABC analysis:

1) determine annual quantity usage of each item,
2) multiply the annual quantity usage by the cost of the item to get the total annual dollar
usage,
3) add the total dollar usage of all items to get aggregate annual dollar inventory expenditure,
4) divide the total dollar usage of each item by the aggregate inventory expenditure to reach the
percentage of total usage for any item,
5) List the in rank order by percentage of aggregate usage, and review annual usage
distribution and classify items as A, B, or C.
When doing an ABC classification, separate analysis should be performed for different types of
inventory. ABC analysis provides the means for identifying those items that make the largest impact
on a company’s overall inventory cost performance. Different controls are used for each
classification to improve inventory performance. ‘A’ items have tighter controls on inventory records
and more frequent reviews of forecasting, demand requirements, order quantities, safety stocks, and
cycle counts. ‘B’ items have similar controls to ‘A’ items but reviews are less frequent. ‘C’ items
have the simplest controls. They are only important if there is a shortage of one of them. Thus, ‘C’
items can be ordered in larger quantities and have higher safety stocks.
ABC analysis puts emphasis on “where the value is”. By focusing efforts on higher value inventory,
a company can assign proper resources to attain the optimum inventory levels, reducing inventory
costs, and ensuring customers’ needs are met.
The Advantages of the ABC System of Inventory Control
The ABC inventory control method determines the importance of inventory items based on usage,
sales or costs criteria. This inventory control method provides companies the ability to give
individual stock keeping units (SKUs) different levels of inventory control based on the SKUs
relative importance. Companies perform a Pareto analysis to determine ABC item classifications.
The ABC inventory method offers advantages over non-classification methods in the areas of cost-
control, SKU level management and order fulfillment.
a) Control- Utilizing the ABC inventory method gives a company more control over the inventory
it stores. A company that uses annual costs of goods sold (COGS) as its basis for the ABC
classification method stocks less of the "A" class items (identified as having higher annual
COGS) and stocks more of the "B" and C" class items (identified as having lower annual
COGS). On the other hand, a company that uses annual usage as its basis for classification
stocks more of the "A" class items because of their higher usage and less of the lower use "C"
class items. Stocking a better mix of the right inventory allows a company to control over-
supply and under-supply of important SKUs.
b) Costs - Because the ABC inventory method makes use of Pareto's law (the basic 80/20 rule),
companies can focus on containing the cost of the 20% of items that make up 80% of a
company’s annual spend. Once a company has determined which items fall into each ABC
category it can establish cost-reduction initiatives at the SKU level. These initiatives can
include reducing the SKU's lead-time, reducing safety-stock levels and negotiating reduced
pricing with suppliers. Additionally, even without implementing cost-savings initiatives a
company experiences cost-reductions from eliminating excess stock for less important, but
sometimes-costly SKUs.
c) Improved service - One of the greatest benefits comes from the improvement in customer
service levels and order fulfillment. ABC analysis provides a company with information to
stock the right-mix of inventory. If a company uses customer demand as its basis for analysis, it
 ends up stocking a better mix of the items customers require. When a company has the right
inventory at the right time it reduces backorders and unfilled orders. This has a positive impact
on customer service and gives a competitive advantage to the company that uses this
methodology.
d) Warehouse - ABC inventory extends to warehouse management has well. Companies utilizing
ABC analysis in the warehouse give priority space to faster moving SKUs. This allows workers
to rapidly find, pick and pack fast moving items. Implementing ABC inventory management in
the warehouse reduces labor cost and increases productivity.
5. Stock levels
This is the basic method of controlling stock quantity by fixing, for each commodity, stock levels
which are recorded in the stock control systems & subsequently used as a means of indicating when
some action is necessary. Factors Affecting Setting of Stock Levels
1) The availability of capital for the provisions of stocks
2) The storage space available
3) Risk of loss due falling in prices, deterioration, obsolescence, theft etc.
4) Economic order quantities
5) Availability of the item. Easily available stock needs low stock level & vice versa
6) Lead time/Delivery delays. The longer the lead time the higher the level & vice versa. Lead
time is the time gap between ordering & receiving of stock.
7) Consumption rate. The higher the consumption the higher the level and vice versa.
8) Nature of the item (Durability/perishability). The more durable a product is the lower the stock
level & vice versa.
9) Stock holding cost (the cost of storage). The higher the stock holding cost the lower the level
of stock levels for cost effectiveness.
10) Trade discount. If advantageous to stock holding cost then higher discount will lead to higher
stock levels.
Types of Stock Levels
1. Minimum Limit or Minimum Level of Stock:
The minimum level or minimum stock is that level of stock below which stock should not be allowed
to fall. In case of any item falling below this level, there is danger of stopping of production and,
therefore, the management should give top priority to the acquisition of new supplies.
2. Maximum Stock Level
The maximum stock limit is upper level of the inventory and the quantity that must not be exceeded
without specific authority from management. In other words, the maximum stock level is that
quantity of material above which the stock of any item should not normally be allowed to go. This
level is fixed after taking into account such factors as: capital, rate of consumption of materials,
storage space available, insurance cost, risk of deterioration and obsolescence and economic order
quantity.
3. Re-order Point / level
This is that level of materials at which a new order for supply of materials is to be placed. In other
words, at this level a purchase requisition is made out. This level is fixed somewhere between
maximum and minimum levels. Order points are based on usage during time necessary to requisition
order, and receive materials, plus an allowance for protection against stock out.
The order point is reached when inventory on hand and quantities due in are equal to the lead time
usage quantity plus the safety stock quantity.
Revision Question
i. Explain the meaning of the terms stock and stock control
ii. Explain the reasons for holding stock
iii. Explain the importance of stock control
iv. Highlight factors to consider in selecting stock control method
TOPIC TEN
STOCK RECORDS AND STOCK RECORDING SYSTEMS
Definition of Stock records; - Refers to documents which give information on the situation of stock
i.e. for various types of stocks of either raw materials, work-in-progress & finished goods at all
times. They give information regarding the movement of stock at hand, Committed (allocated) to
firm-orders or to work-in-process, and on order. It often also includes history of the recent
transactions in each inventory item.
Purpose of Stock Records
1) To indicate the amount of stock of any item without it being necessary for the stock to be
counted physically.
2) Provide relevant information and enhance stock controls through monitoring & tracing the stock
movements, authorization & responsibility.
3) To establish the link between the physical stock and stores accounts. All receipts & issues of
stock cause adjustments to the stores accounts. At any time, therefore, if the records and
accounts are both up to date, the sum of all the quantity balance on the records when priced and
evaluated should equal the value balance on the corresponding stock control accounts.
4) To provide a means of provisioning i.e. determining how much should be ordered so as to
maintain stocks at the required level.
5) To supply information for stock taking exercise where by the quantities of all items in the
storehouse ascertained by physical checking are compared with the corresponding quantity
balance on the records.
6) To provide a method of informing store house staff the location of goods in the store house.
 7) To serve the purpose of price list where unit price is recorded. They can be used to price
transactions.
Stores Recording Systems
For the operation of stores function and control of stocks to be performed in an efficient manner,
there has to be some means of capturing and storing information, a facility for the analysis & use of
the information established in the organization. This is mechanism is known as stock recording
systems;
There are two types of stock recording systems;
a) Manual stock recording systems
b) Computerized stock recording system

Manual stock recording system

This is whereby information regarding particular stock is entered without the aid of a computer or
any other mechanical applied equipment.
Advantages
a) Simple to understand and apply
b) Cheap i.e. less costly as no equipment or specialists required to implement & maintain the
system.
c) Labour intensive hence require a lot of labour making it a source of employment
d) Suitable & appropriate for small organization
e) Requires little and less costly training to equip the staff with the skills
f) Not affected by power failure
Disadvantages
a) Not appropriate and reliable for big organizations with wide range of items to be stored.
b) Tedious & labourious due to increased paperwork
c) Fatigue due monotony of doing the same things repeatedly
d) Limited with regard to speed hence cannot be applied in wide range of items
e) Difficulty in coping up with competition in relation to the turn over
f) Insecurity leading to loss of data due to misplacements, destruction of fire, floods etc.
g) Inaccuracy may be high due errors
Computerized stock recording systems
It involves the use of electronic database it replaces a set of stock record cards by marinating set of
information on stock level, receipts, issues, etc. and carrying out adjustments as necessary when
directly instructed.
Advantages
1) Simplest application because it merely replaces set of stock record card by maintaining a set of
information on stock level & carrying out adjustment when directly instructed
 2) Future requirements might also be computed perhaps through the user of forecasting or
simulation routine within the systems software.
3) There is an increased tendering for fully integrated use of business software to be employed in
which all information record & flows are maintained by one set of records.
4) It assists firms and companies to respond to urgent orders due to high speed in analyses and
process of information
5) Accurate and up to date information is available for valuable decisions.
6) Large information can be processed, analyzed and stored with the aid of computer devices.
7) Security of information is guaranteed to a great extend due to the application of passwords,
codes & back-up systems.
8) Sores & stock control elements may be integrated with the purchasing routine as part of
material systems.
Disadvantages
1) It involves substantial capital outlays to design, develop & maintain hence some companies
may not afford them.
2) Results to unemployment due to reduced labour force required. This may not go very well
with the employees and their trade unions resulting to poor industrial relations.
3) Computers may be manipulated resulting to frauds
4) Information may be loss due to computer virus invasion
5) It relies on power and therefore cannot function in case of power failure
6) Requires skilled labour which is expensive
Factors to Consider When Selecting Stock Recording Systems
1) Cost – it should be borne in mind that any form of stock recording system costs money. The
system should conform to the organisation financial capability i.e. affordable. A computerized
system for instance requires a great deal of capital investment as compared to the manual
system.
2) The nature of the items in the stores their values, size, rate of consumption etc.
3) The size of the business organization and the subsequent variety & volume of items to be stock.
The bigger the organization the more the sophisticated the system should be applied to ease the
process.
4) Technological growth and changes requirements to put up with the competition in the market.
5) The availability of specialized personnel to develop, implement & maintain the system. In case
of a computerized system a specialist should be available to operate the system.
6) The movement of stores – if it is high then a faster system should be applied.
Features of Efficient Stock Recording Systems.
1) Up to date records – the system should facilitate updating of the information
2) Reliable in providing information required to meet the need of the organization
 3) The system should be cost effective i.e. should be worth its expenditure
4) Flexible to meet the future needs of the growing organization
5) Simplicity to use and understand by both the user departments and the stores staff
6) Should have a control, monitoring and evaluation aspects to ensure that it is efficient
7) Should provide security of information and records.
8) Ability to supply relevant & complete information for a wide use in decision making in
ordering, issuing, stock control, valuation of stock, etc.
Location of stock records
Records should be held together in or very near to the storehouse building. This arrangement has the
following advantages;
1) Contacts between the clerks keeping records and the stores house staff responsible for receipt,
issue & stock taking is easy.
2) Quarries or mistakes can be settled quickly without the need of telephone call or written inquiries
or explanation.
3) Transits of documents used is limited
4) Better opportunity of keeping the records up to date.
5) Less need for registration of incoming & outgoing forms so that documents are unlikely to be
misplaced or lost.
Stores Record keeping
There are three ways in which stock records can be kept;
1) Showing quantities only e.g. Bin card
Advantages
i. Simple to understand and use
ii. One can easily at a glance know the quantity
Disadvantages
i. It limits the use of the records because it shows only quantity

2) Showing quantities and unit price

Advantages
i. The records can be used as pricelists
ii. Assists in the preparation of cost analysis
iii. Save time in preparation of costing information due to the pricing of the stocks at the actual
time of receipts
iv. It makes it easy to compare physical stock with the corresponding stock control accounts
v. The list of the stock balance can be evaluated without reference to any other priced records
vi. It assists in effective provisioning whereby when unit prices are known more attention could
be placed on the more expensive items.
 Disadvantages
i. The use of values has weakness that additional operational are necessary to post the
records particularly where average price are involved
ii. It is expensive and time consuming
iii. Complicated hence it’s difficult to understand

3) Showing quantities, unit price, value of each transaction & the total value of the balance of the
stock e.g. ledger book

Advantages
In addition to the above disadvantages of showing quantities & unit price:
i. Comparison with the stock control account can be made by simple addition of the value
balances on the records.
ii. Total value being shown for every movement makes it easy for supervisors to investigate
major items where desirable

Disadvantage
i. Use of the value calls for an additional operation to post the records particularly where
average prices are involved.
ii. It is expensive and time consuming
iii. Complicated hence it’s difficult to understand
Assignment
Read & understand the format, uses & information & then make notes on the following stock records
& others;
i. Stores ledger
ii. Bin cards
iii. Stock review cards
Revision questions
1) Information contained in stock records originates from certain sources documents. Highlight
three such documents
2) A firm is considering whether to introduce a manual or computerized stock recording system.
Explain the factors that would influence its decision either way.
3) State reasons why an organization may adopt the computerized stock recording system in its
operations.
4) In relation to supplies management, outline three types of information that would be contained
in a stock list.
5) State advantages to an organization of using the manual stock recording system in its stores
operation.
 TOPIC ELEVEN
STOCK TAKING
This is the complete process of verifying the quantity balances of the entire range of items held in
stock. It means to check physically the stock items in order to ensure that stock quantities shown on
stock records and actual quantities are the same.
Stock checking; - this is any other check on physical quantities which may be applied either regularly
or intermittently.
Stock audit;- this is the process of reconciling stock records when an external agency is involved.
Purpose of stock taking
Physical stock taking is the process of counting, weighing or otherwise measuring all items in stock
and recording the results. The reasons for doing this are as follows;-
1) To verify the accuracy of stock control
2) To support the value of stock shown in the balance sheet by physical verification
3) To disclose the possibility of fraud, theft or loss.
4) To reveal any weaknesses in the system for the custody and control of stock
5) Identification of slow moving items of stock and obsolete items
6) To establish the ability of the staff as the outcome will reflect performance
7) Regular stock taking ensures that the staffs are placed on their toes (vigilant) as they are
aware that any time they may be appraised. This results to efficiency and accurate records for
decisions making.
Factors to consider when conducting stock taking
i. The nature of items in stock
ii. The size/volume of items in store
iii. The staff requirements, skills, qualification and experiences
iv. The organization policies and procedures
v. The rate of activities in the warehouse whether busy and normal
vi. The duration and timing of the stock taking
vii. The purposes of the stock taking
Preparations for stock taking
i. Documents;- stock taking sheets and forms
ii. Staff;- required in line with skills and experiences needed and the volume of stock items
iii. Date and duration;- To be set in advance and to be in line with the corporate policy on stock
taking especially at the year end
iv. Updating of stock records so as to establish the balances as at the dates
v. Return of loaned items to be incorporated during stock taking
 The size and number of surpluses and deficiencies revealed by stock taking is a good criterion of the
efficiency of store keeping methods, control and procedure generally. There are two main methods of
stock taking;-
1) Periodic Stock Taking
2) Continuous/Perpetual Stock Taking

i. Periodic Stock Taking

Under this method, the whole of the stock is covered at the same time at the end of the stock is
covered at the same time at the end of a given period usually the end of the financial year.
Theoretically, stock should be taken at the close of the business on the balance sheet date, but in
large concern, it may be quite impossible to do all the work in one day and the operation has to be
extended over several days. The stock taking need not be done only once a year; it may be carried
out as often as seems desirable. For a satisfactory stock taking, a good deal of preparation is
necessary:
a) A programme should be drawn up and agreed with all concerned, including the finance
department and the auditors
b) Stock taking sheets or cards have to be prepared in advance consecutively numbered & in
control of one individual.
c) All personnel concerned must be instructed in their duties.
The periodic stock taking cant avoids the closure of the business but makes it more difficult to
investigate discrepancies.
ii. Continuous/Perpetual Stock taking
This is the method whereby stock is taken continuously throughout the year in accordance with
predetermined programme so that each item is physically verified at least once in the course of the
year, or more frequently if required. It can only be done if complete detailed stock records are kept
showing receipts, issues and balances on hand (i.e. if there is a perpetual inventory). The programme
should be so designed that a certain number of stock items are taken on every working day. It may be
thought necessary to have certain valuable or fast –moving stocks examined more frequently than
other items.
The methods of physical check are the same as those employed for periodic stock taking but they are
significant differences in other respects as follows;-
1) There is no need to close down the stores or the work while stocktaking is in progress.
2) The normal posting of receipts and issues on the stock records can continue without interruption
3) The work can be done by a few specifically appointed experienced and trained stock takers
completely independent of the storekeeping staff
4) Stock taking results may be entered on the stock records from day to day as they arise and any
discrepancies disclosed can be thoroughly investigated in detail. This is an important advantage
 because one of the main weaknesses of the periodic stocktaking method is that all the
discrepancies are declared at once and time to deal with them properly is necessarily limited
5) Assuming that the continuous programme of stock taking has been satisfactorily completed
according to plan the balances on the stock control accounts can be accepted for balance sheet
purposes without any special year-end physical check and therefore need be delayed in the
preparation of the final accounts as far as stock is concerned.

Stock Taking Procedure

Blind Stock Taking
This is the name given to the system whereby the person taking stock is given no prior information
about the vocabulary numbers, description, stock –record balances or location of the items to be
checked, and is not allowed access to stock-record card or bin cards.
The theory is that the check will be more reliable as the stock taker has to locate and identify stores
for as themselves, is obliged to count every item, and is not open to any temptation to skip work by
accepting identifications of quantities as appearing on the stock record cards.
This system is labourious and slow, it requires more staff and unless the personnel concerned are
experienced and have a first –class knowledge of the physical characteristics of stock held errors are
likely to arise because of fault identification.
A modification of blind –stocking procedure is to provide the stock taker with locations and
identification but to withhold from them the quantity balance on the stock records. This is a
reasonable compromise and speeds up the work substantially.
It must be said however that if a major stock taking operation is to be done in a short space of time,
the quickest method is to give the stocker all available information including quantity balances on
stock records. This assumes, of course, that he or she is a conscientious and trustworthy employee.
Main Advantages
1) Where a stock taker finds major discrepancies on the first physical count, it can be rechecked
straight away
2) Where a trifling discrepancy is found, it can be ignored and unnecessary adjustments avoided.
3) It simplifies clerical work where the stock agrees with the card balance.
Team Work
It is a common practice for stock taking to be done by teams of two people, for the following
reasons;-
1) Where quantities are not large, the counting or weighing can be done by one person and
clerical work by another person.
2) Where large items have to be measured or weighed, two people can usually operate more
satisfactorily than one
 3) Where two people are concerned they will to some extent check each other’s work, thus
minimize errors.
Stock taking by storekeepers
It is advisable to enlist the help of the storekeepers in the process of stock taking, this is because of
their knowledge of stock and where they are kept, they are able to find and identify items quickly.
The ideal team is a storekeeper and another person who is not on the storehouse staff, thus
combining speed of operations with independence of check.
Occasionally storekeepers are required to take stock of their own store for balance sheet purpose
without outside assistance or supervision but this practice is not recommended. To make the
storekeepers responsible for their own stock taking not only exposes them to the temptation to
conceal genuine discrepancies to avoid criticism of their work but provide opportunities for
deliberate fraud. It is much more satisfactory to have the stock taking done by full-time stock takers,
internal auditors finance department staff or some other independent persons.
Discrepancies
This is the difference in quantity between the physical count and the record balances. The following
are some of the reasons for the discrepancies:-
i. Incoming material placed in the bin but GIN or MRN not posted
ii. Materials issued but requisition not posted yet
iii. Issued of incorrect quantities
iv. Errors in the quantities posted
v. Posting done on the wrong card
vi. Errors in addition and subtraction while posting
vii. Actual shortage and excess caused by the human element in receipts and issues.
viii. Pilferage
The percentage of discrepancies may vary according to a number of receipts and issues, commodity,
storage conditions, material handling methods, etc.
Among tools and general stone items, the discrepancies may be found to be comparatively lower.
Production hardware and small components when handed in bulk i.e. when not counted piece by
piece, may result in a higher percentage of discrepancies.
Treatment of Discrepancies
Surpluses and Deficiencies
When the amount of stock found by physical examination falls to agree with the balance on the stock
records, a discrepancy exists. If the stock found exceeds the recorded figure there is a surplus and
conversely, if the physical stock is less than the book figure, there is a deficiency.
Minor Discrepancies
There are limitations to the accuracy of stock –taking particularly where large numbers or quantities
are concerned, whether the check is by count, weigh or measurement. If therefore, discrepancies of
small proportions appear to be found in such circumstances it is often as well to leave the book stock
unaltered unless the amount of money involved is significant.
This point applies particularly where the methods of measurement are known not to be of great
accuracy e.g. the use of dipstick in large tanks.
REVISION WUESTIONS

a) State the reasons for the discrepancies in stock and records

b) Describe factors to consider when conducting stock taking
c) Outline purpose of stock taking
REVISON QUESTIONS
WAREHOUSING OPERATIONS AND STOCK CONTROL
Revision Questions
1. State three documents that a warehouse clerk may use to receive materials delivered by suppliers
2. Identify three symbols that an organisation may use in coding its materials
3. Outline three stores location systems that a firm may adopt in its warehousing operations
4. State four factors that an organisation should consider in selecting a stores layout system to adopt
5. Outline the importance of preserving materials in an organisation
6. Outline two materials handling methods that an organisation may use in its warehousing
operations
7. State four essentials of an efficient stock recording system in and organisation
8. State three reasons why an organization should conduct regular stock taking exercise
9. State four safety precautions that a warehouse officer should institute in a warehouse
10. Highlight three features of an efficient coding system
11. One of the methods of minimizing stock holding costs is by applying the Just-In-Time (JIT)
technique. State three circumstances that will favour the application of this techniques in an
organization
12. One of the methods of controlling stock is the periodic review method. Highlight four
disadvantages of this method
13. Outline three benefits of an organisation from computerizing its stock records
14. Outline three circumstances under which a stores department in an organisation may adopt the
fixed location system
15. Outline four benefits that an organisation would derive from the use of Economic Order Quantity
(EOQ) technique in controlling its stock
16. State three advantages to an organisation of using the manual stock recording system in its
operations
17. State two benefits that may accrue to an organisation from maintaining an efficient stock location
system
18. State two advantages of an organisation using wooden pallets in handling its materials
19. State four factors that a store manager should consider when choosing the location of a
warehouse for an organisation
20. State two factors that a stock controller would consider when establishing the re-order levels in
an organisation
21. Outline three factors that may influence demand of an item in an organisation
22. Identify three elements that constitute stock holding costs in an organisation
23. Identify two methods a store manager may use to conduct a stock taking exercise in an
organisation
24. State three disadvantages to an organisation of using the manual stock recording system in its
operations
25. The store keeper of Malipo Company has realized that there is excess stockholding for certain
raw materials in the warehouse. State two negative consequences that the company is likely to
experience as a result of the excess stock.
26. An organisation has decided to use the teamwork approach when conducting stock taking
exercise of its materials. Outline three reasons that may have led to the organisation to adopt this
approach
27. State two disadvantages to an organisation of using fixed location system in its warehousing
operations
28. Outline three features of a centralized storehouse in an organisation
29. Information contained in the stock records originates from certain source documents. Highlight
THREE such documents
30. Outline the limitations of using simple description to identify stock as opposed to codes
31. Highlight three factors that a stock controller should consider in determining the minimum stock
level for an item
32. State the types of inventory costs incurred in relation to each of the following activities
a) Tendering processing
b) Stock taking
c) Preservation
d) Rush purchases
33. state four types of arithmetical errors that might cause discrepancies between physical and
recorded stock balances
34. State three advantages of using fixed stock location system
35. State four disadvantages of over stocking in an organization
36. State four disadvantages of over stocking in an organization
37. State the nature of information that is contained in a stores requisition form
38. List two criteria that an organisation may use to code its materials
39. State three advantages of having an efficient materials handling system in a warehouse
40. Identify three types of costs that are associated with stock-out in an organisation

WAREHOUSING OPERATIONS AND STOCK CONTROL

Section B Revision Questions
1. (a). Explain factors that a storekeeper should consider when determining re-order levels of stock
items.
(b). Explain four limitations of using a computerized stock recording system in an organization.
2. (a). Highlight four advantages of using Economic Order Quantity (EOQ) as a stock control
technique
(b). A stock taking exercise undertaken by Kumu Company Ltd has revealed stock discrepancies
in the warehouse. Explain six possible causes of the stock discrepancies
3. (a). Highlight four ways in which a storekeeper would make efficient use of available storage
space.
(b). Highlight four advantages of using a wooden pallet as a material handling equipment
4. (a). Describe six features that an efficient stock location system should exhibit
(b). Explain four precautionary measures that a storekeeper should take to ensure the safety of
storage equipment
5. (a). Describe six features of an efficient stores coding system
(b). Mr. Yunis was recently hired by Ukulima Company Ltd to be in-charge of its warehouse.
Highlight six duties that Mr. Yunis would be expected to perform.
6. (a). Highlight four characteristics of a good materials classification system
(b). Highlight four advantages to an organisation of using returnable packages in its stores
distribution operations
7. (a). Highlight the criteria that a warehouse supervisor may use to classify materials
(b). Mass Salim has been directed by her manager to package goods to be dispatched to
customers. Highlight six methods that miss Salim may use to package the goods.
8. (a). Outline four objectives of materials handling system in an organisation
(b). Explain six reasons why it is necessary to control the movement of stock in an organization
9. (a). Explain four disadvantages of using two-bin system in controlling its stock
(b). Highlight six precautionary measures that a warehouse supervisor should take to minimize
cases of pilferation of materials in the warehouse.
10. (a). Explain four advantages that an organization may derive from centralizing its warehouse
operations
(b). Describe the procedure that a warehousing clerk should follow when conducting a stock
checking exercise in an organisation in checking exercise in an organization
11. (a). Explain measures that a warehouse officer should take to enhance the security of a
warehouse.
(b). An organization dealing in the manufacture of furniture has decided to establish a stock yard
to store its timber materials. Explain six factors that the organisation should consider in
determining the stock levels to be held in the stock yard.
12. (a). Explain five ways through which regular stock taking exercise would enhance the efficiency
of the stock control system in an organisation.
 (b). A stores manager intends to develop a coding system for materials in a newly established
firm. As a supplies management expert, explain four limitations that the stores manager may
encounter when undertaking this exercise.
13. (a). Some organizations apply the Economic Order Quantity (EOQ) technique in determining
their stock holding levels. Explain four limitations of the application of this technique in this
regard
(b). An organisation has established that stock out costs contribute significantly to its
manufacturing costs. Explain four measures that could be taken to minimize these costs.
14. (a). Pallets are commonly used as store equipment in the warehouse. Explain six safety measures
that a storekeeper should take in order to ensure safety in the use of these storage equipment in
the warehouse.
(b). Highlight six features of an efficient stock location system in an organisation