CHAPTER 6 The Purchasing Function

Learning Outcomes
 explain the role and importance of the purchasing function in a business
 relate each of the fundamental management functions to the purchasing function
 explain the centralisation and decentralisation issue in a business
 motivate why senior-level employees should perform the purchasing function in a business
 describe the key performance indicators (KPIs) that can be used to make purchasing activities
more efficient
 illustrate and explain the steps in the purchasing cycle
 explain quality issues in the purchasing of materials and services
 explain the issue of purchasing quantities and the control of inventories in a business
 explain the selection process and the factors influencing the selection of suppliers
 briefly explain purchasing prices as part of the total value package and the principal methods of
determining prices
 discuss the internal and external factors influencing the timing of purchases
 explain the importance of physical stocktaking and the ways in which stocktaking can be
approached
 describe how the purchasing function interacts with the other business functions
Before we start
discussing the
Purchasing Function
look at the video
called… “Purchasing
Manager and
Purchasing Function”
Consumers’ Needs in terms of
Purchasing
 Every day we make certain purchases to satisfy our
living needs. These can be short-term (usually
smaller purchases) like food and clothes OR fulfil
longer term needs (usually larger purchases) like
houses, cars, etc.
 Can you see yourself in the next slide? What do
you need and purchase?
 How often do you make certain purchases (small
and larger)?
 NEEDS LONG
DAILY
TERM

SMALL PURCHASES BIG

Businesses’ Needs in terms of
Purchasing
 Businesses also need to make certain purchases in
order to conduct business and produce products
 In the next slide, you will see the typical purchases
that a coffee shop would need to make. Can you
think of anything else that can be added to the list?
 NEEDS LONG
DAILY
TERM

SMALL PURCHASES BIG

Businesses which Provide Services
 Certain businesses (like an accountancy firm)
delivers a service to its clients, but does not sell any
products (like a PnP, for example). However, the
accountancy firm still needs to purchase items in
order to remain operational and deliver the service.
They buy stationery, refreshments, cleaning
products, printing machines, computers, etc.
 Which other examples can you think of?
Objectives of the Purchasing
Function
To buy materials:
 Of the right quality

 From the right source

 Delivered to the right place

 At the right time

 At the right price

Activities of the Purchasing Function
1. Select
Suppliers

7. Control 2. Arrange + purchase

Inventory transport for incoming
materials

6. Expedite delivery of
3. Prices acceptable?
materials, products and
Negotiate
services

5. Quality of 4. How much needed

material, product or of each material,
service right? product or service?
Importance of the Purchasing Function Important to keep a good balance
between purchasing + stock on hand.
Profit is linked If sales are slower than stock levels, it
to Expenditure could lead to cash-flow problems.
(how much money Purchasing costs are
a business spends) the largest expense
and Income (how
much money a for most businesses
business makes)
The aim of any
business is to
ensure
purchasing is
done right so
that the business Biggest Issue
makes a good = Cash Flow Problems
profit

Just-in-time
JIT = there should be enough material principle
(JIT) Purchasing contributes to successful
(right quantity, right quality + at the
marketing: Final products will then be
right time) to be able to manufacture
available in the right quantities, at
products AND so that there is enough
competitive price, and at the right
for customers to buy.
time to customers.
If the Purchasing Function is the
function that spends the most ‘money’
in a business…would it help if the
business could save on its purchasing
costs?
 PROFIT
90 % spent on
purchases
In the previous slide you saw that Walmart planned on
cutting out the “middle man” in the supply chain in order
to increase profits. Since each “middle man” requires
payment, it would make sense for Walmart to buy
certain items directly from certain suppliers themselves.

This would mean that Walmart would need to carefully

consider all the suppliers (and whether there are sub-
suppliers in the supply chain for that specific item) so
that they can identify for which products they need to
reconsider suppliers.
Managing the Purchasing Function
 Let’s revisit the management tasks/functions that
you learnt about in Chapter 1.
Managing the Purchasing Function

 PLANNING + the Purchasing

Function
 Overall
business objectives should be supported by the
purchasing objectives
 Consult with other functions:
 Marketing = Seasons and consumer needs (No use marketing
winter jackets in the summer)
 Finances =Budget (How much can be spent on materials?)
 Operations = Raw materials and machines required + when are
certain garments planned to be made to ensure that they are
available in shops?
 Business Objective of Mr Price = LOW cost and NEW trends

Purchasing Objective= Reduce number of suppliers and seek new items.

 PURCHASE
Availability of
products

MARKETI
NG FINANCE
Inform people about Availability of cash
the products
 s h o u ld
m e n t s ,
s e g a r M a y
I f t he l v e s i n
he s h e e d i n
e o n t o r d e r
b u l d b e l e
s h o a m p
they r y , f o r e x
Jan u a
Managing the Purchasing Function

 ORGANISATION of the Purchasing

Function
 Who buys what? Difference between small, medium and large
businesses
 Centralised + Decentralised
ORGANISING

P F
l i s e d l i s ed
nt ra tra
Ce F ec e n
P D
Centralisation vs Decentralisation
 Centralised purchasing means that the purchasing
manager of one office/branch of a certain business
buys products and then distributes it to the other
branches.
 Decentralised purchasing means that each branch
of a business does its own purchases in its own
environment. In most cases by anyone in the local
branch/office.
 Combination of the two: Some items are bought
centrally, while others are purchased by each
branch/office.
 Checkers stores across the
Game’s head office (Purchasing
A butchery would try and source country (Kimberley,
Manager) will do the purchases
its own produce as close as Bloemfontein, etc.) get toys from
and then send to other Game
possible to the butchery itself. the head office (Purchasing
stores (like Bloemfontein)
manager is responsible for
buying), but fresh produce like
flowers are often bought from
Centralised Decentralised local farmers in Bloemfontein
(not from Jhb head office)

• Done by 1purchasing • Each branch/ unit Combination

department performs their own
purchasing
• Centralised or
• Products of one kind
• Geographic spread- decentralised basis
are purchased from a
for purchasing
supplier local suppliers/
different activities
• Maximises BOTH
• Benefit:
• Benefit: sets of benefits
• Standardization=
cost advantages, • Closer contact
• Supplier relations with consumers
and suppliers
 Centralised Purchasing
Advantages of Centralised Purchasing
Standardisation of purchased materials and
procedures (cost advantage if bought in
bulk). Example: Same types of instant
coffee available at all PnPs across South
Africa and at the same price at all PnPs.
Advantages of Decentalised
Purchasers have close contact with
customers (know what they want in that
specific region) and local suppliers (good
relationship)
Reaction time is quicker. Shorter times
between ordering and delivery (also cost
advantage because of no additional
transport costs)
Why Senior Level Employees
should perform the Purchasing
Function
 When the value of the purchased materials in relation to the total
expenditure of the business is high, the contribution made by the
purchasing function to the success of the business is high.
 When the supply market consists of only one supplier (a monopoly)
or a few suppliers only, the purchasing function is performed by
staff in higher, managerial positions. This is because it requires skill
and experience to negotiate with a supplier in a market where there
is little or no competition.
 The position of the purchaser is determined by the nature of the
materials, products or services purchased and by the specialised
skills that a purchasing transaction demands of the purchaser. The
more specialised the purchased items or services, for example
special equipment or commodities such as agricultural products, the
more skills and knowledge are required from a purchaser. He or she
will be appointed on a managerial level.
 Management and the purchasing function

 CONTROL
 Determines whether objectives have been reached and
performance improved Performance Evaluation
 REMEMBER!!!

Just In
Time(JIT)
RIGHT quantity, quality, place, time etc.
 HOW ???
 Key Performance Indicators (KPI’s) are used to gauge the
efficiency of the purchasing activities.
 KPIs
• comparing actual prices with planned or market prices and the
Price number and amount of discounts negotiated for a certain period.

• determining the number of rejected orders, orders received late and

Supplier performance the number of times it was necessary to speed up orders.

• determining the number of orders indicated as urgent, the number of

Timeliness interruptions of operations and the number of purchases lost owing to a lack of
inventory
• comparing costs with those of previous periods and expressing administrative
Cost savings purchasing costs as a percentage of the monetary value of purchases, for
example.

calculating inventory turnover, inventory losses and obsolescence of

Inventory holding inventory.

Relationship performance with • using a supplier survey or scrutiny of supplier turnover.

suppliers
Relationship with other functions • monitoring the diligent execution of requests to the purchasing
in the business function

• looking at the number of orders and requisitions, for example .

Workload
Purchasing Management
(summarised)
 Purchasing function should be managed
 Plan + set objectives

 Work with other functions

 Performed on different levels and places in business

 Purchasing is a skilled position

 Purchasing should be monitored + controlled

 t or y
v en
f i n
s o t ?
yp e g e
a t t ou
h y
W do
 Unique Inventory Needs per Industry

Manufacturing Industry Retail Industry Service Industry

Classifications of Inventory
 Manufacturing (and related) industries
 Raw and supplementary materials
 Needed to manufacture the finished products
 Aluminium, wood, plastic...
 Classifications of Inventory
 Manufacturing (and related) industries
 Semi- finished goods
 In the process of being manufactured, but not yet completed
 Classifications of Inventory

 Manufacturing (and
related) industries

 Finished Goods
 Been through the full
manufacturing and
production cycle
 Ready to be sold and
used
Say whether the following
are…

Raw and supplementary materials OR

Semi- finished goods OR
Finished Goods
 D
A

B E

F
C G
Let’s see if you got it right?
 A = Semi-finished goods if you bought the muffin mixture in
a piping bag and only have to squirt it into the baking tin
 B = Finished goods (a fiberglass pool that was fitted and
finished)
 C = Semi-finished (cement is a ready-to-use mixture to which
water can be added + tiles are already made, they will just be
fixed to the wall with tile cement.
Let’s see if you got it right?
 D = Raw and supplementary (use eggs, flour, milk, butter,
etc. to bake a bread)
 E = Semi-finished (the steel mesh and cement compound
mixture is bought ready made, the contractor needs to use
these in order to build)
 F = Finished goods (this cake is ready-made and can be
enjoyed immediately)
 G = Finished goods (we buy a cell phone fully finished and
ready to be used)
 Classifications of Inventory

 The Retail Industry

 Deal only with the
FINISHED GOODS
 Buy goods from
manufacturers and
suppliers
 Offer goods in a
CONVENIENT way
Classifications of Inventory

 The Service Industry

 CANNOT be acquired,
stored and sold as
physical inventory

 Labour hours of
different levels
Purchasing activities
 Purchasing activities are performed in logical steps,
forming a cycle.
 This cycle is known as the elements of the
purchasing process or as the purchasing procedure.
 Some of these activities can be performed together
 A manual or computerized system will use the
same steps.

LET’S HAVE A LOOK AT THESE STEPS…

 1. Determine
the need
9. Close 2. Select
order suppliers

3. Determine
8. Pay
suppliers The price and
conditions
Purchase Cycle

4. Place
7. Handle
order or
errors
contract

5. Manage
6. Receive Great news!!! You
expedite and only need to
Goods
follow-up identify the steps.
You don’t have to
Quality of Purchased Goods
The main decisions in each purchasing transaction
are quality, quantity, delivery and the price-service
package offered by the supplier.

Which of these
decisions are the most
important?
Quality
Quality ofof Purchased
purchased goods Goods

What is quality? What is the RIGHT

quality?
All the features &
characteristics of a Quality that is purchased at
product that satisfies a the lowest price which
particular need. satisfies a specific need and
performs the function for
which it was purchased.

Direct Impact on marketing and operations

 Okay, so if quality is so important…
Which methods can be used to determine quality?
Think about your cell phone.
What are the quality aspects that stand out to you?
What is important when you consider a new cell phone?

Will some of the aspects you thought of be discussed

next?
 Methods to use to determine the
quality of purchased goods

1. Specifications
 Most general method of describing quality
 A specification is description of non-standard materials
that can perform certain functions
 Dimensions/ physical features like tolerances,
workability, uniformity and chemical composition can
be used to draw up specifications.

On the next few slides examples of products with

specifications will be displayed
All the dimensions and specifications of this
car are captured in drawings.

The manufacturer will know how to set-up

their machines to produce this model of a
car. The car dealer can tell the customer
about these aspects if needed and the
customer can make an informed decision
about a car purchase. Yes, it is not always
just about how something looks, the
specifications play a big role.
The manual of the
refrigerator stipulates al
the information needed
about this specific model.

Can you see the part

used specifically for
specifications?
A very good comparison between food products
 Methods to use to determine the
quality of purchased goods
2. Standardisation

 It is the process of making materials, methods,

practices and techniques uniform
 Standardisation implies that the characteristics of items
have to comply with a specific minimum acceptable
standard, but at the same time, the types, sizes and
grades of an item are limited.

Can you think of any examples?

 There are so many examples. Here is some examples
of standardisation.

Although we have 3 different types of lightbulbs displayed in the picture,

all the lightbulbs of a specific model e.g. 60 watt Incandescent, 14 watt
CFL or 12 watt LED will be the same. In other words it is a standard
product with regards to quality for a specific model.
Bread is another example… in this picture all Albany D’light bread should
weigh 500g.
 Methods to use to determine the
quality of purchased goods
3. Other forms of quality definition
Market grades, brands, SABS, samples
etc.
SABS – quality mark of a quality Brands – a clothing brand
institution

Market grades – a five star guesthouse Samples - flooring samples

Let’s use a cell phone as an example…
Specifications: e.g. IOS operating system or Android operating system

Standardisation: e.g. Colours of cellphone or software available on

cellphone as factory default

Other forms of quality: e.g. Samsung, I-phone, Hauwei or CE stamp

(the international stamp indicating quality)

What else did you think about?

Purchasing Quantities and Inventory
Costs
 Should a business hold Inventory?
 YES! Inventory holding is necessary.

I T T
I S N
HY TA
W POR
IM
 Marketing and operational budgets are only
ESTIMATES.
 Supply of material is UNRELIABLE regarding delivery
and quality.
Purchasing Quantities and Inventory
Costs
Need to consider:
Too little inventory,
shelves are empty.

VS
Too much inventory,
money is tied up.

 THEREFORE business aim for: Optimal Level of

Inventory
Purchasing Quantities and Inventory
Costs

How do a business achieve an

Optimal Level of Inventory?

1. Inventory control
2. Determining inventory quantities
3. Inventory control systems
Purchasing Quantities and Inventory Costs

1. Inventory control
Objectives:
 A scientific, factual method to simplify purchases (by using mathematical models)
needs to be created.
 There should be a reduction in possible losses as a result of obsolescence and
incorrect or excessive purchases should be.
 Dead or slow-moving inventory should be identified.
 Inventory control must serve as a source of information for management decisions.
 Losses should be prevented by controlling all incoming inventory with regard to
quality, quantity and the requirements as determined in the purchase order. This is
important, since it impacts directly on the quality of the finished product.
 Excessive variety should be avoided.
 Production should never be delayed because of a shortage of a certain inventory
item. Such delays make an extremely bad impression on the customer.
 Ordering the most economical quantities through an effective control system is
essential.
 All internal and external customers should be given good service.
Purchasing Quantities and Inventory Costs

2. Determine Inventory Quantities

 NB!!! To HOLD inventory
 Acquisition, alteration, storage, marketing & sales costs will be part
of the business = UNAVOIDABLE

 Need Efficient and Effective inventory management

 Determine ECONOMIC ORDERING QUANTITY

 Right quantity at the right price & best carrying costs.

Ordering Costs

Carrying Costs
Purchasing Quantities and Inventory Costs

2. Determining Inventory Quantities

The figure below displays where the economic order
quantity (EOQ) lies
Before we start
explaining the Economic
Order Quantity look at
the video called…
“Economic Order
Quantity (EOQ)”
Let’s have a look at the elements
in the figure…
Purchasing Quantities and Inventory Costs

Carrying costs:
Inventory ties up capital (less capital to spend on other things) and
this is known as carrying costs.
 Carrying cost can be divided into:
1. Direct inventory-carrying cost
The two direct-cost components are capital cost (interest or opportunity cost)
and holding cost. Holding cost refers to the cost involved in renting storage
facilities, warehouse equipment, electricity, insurance, security, handling,
bookkeeping, warehousing labour and damage.

2. Indirect inventory-carrying cost

These are the costs attached to obsolescence, record-keeping, physical
stocktaking, inventory planning and control by management. Other hidden
cost elements are the cost of production floor space utilised for work in process,
scrap and rework, as well as the cost involved in handling and
 What does the carrying costs line indicate?
The higher the number of units per order and delivery, the higher the carrying
cost.
Let’s look at the elements in the
figure…
 0671577442

Ordering costs:

 Cost incurred to place an order.

 An item may be ordered twice, three times or more per year –
even daily in Just-in-Time (JIT) systems.
 Examples of ordering costs: telephone calls, paperwork,
transportation costs, time and effort in checking and receiving
ordered inventory.
 What does the ordering costs line indicate?

Higher frequency of ordering (the more times you order within a certain time
period) = higher ordering cost
Lower frequency of ordering = lower ordering costs
Example: If you own a
coffee shop and you know
that it costs you a R50
admin + delivery fee each
time you order your special
coffee beans, you would
not be wise to have coffee
beans delivered daily. You
would rather plan your
orders carefully so that you
do not spend unnecessarily
on delivery and rather
order every second week
(lower frequency of
ordering = lower ordering
costs.
Let’s look at the elements in the
figure…
Purchasing Quantities and Inventory Costs

Total costs:

 Total cost indicates the balance between the

advantages and disadvantages of having too much
inventory and having too little inventory (inventory-
carrying costs) and the balance between the
advantages and disadvantages of a high or low
frequency of ordering and receiving inventory.
 What does the total costs line indicate?

Sum total of carrying costs and ordering costs

 NOW… to determine the economic order quantity

The point (the dot displayed in the figure) where the two cost lines (inventory-
ordering costs and inventory-carrying costs) intersect, given the minimum total
costs, is where the economic order quantity exists.
Still unsure…

Listen to the video

called… “Economic
Order Quantity (EOQ)”
again to hear how it is
explained
Purchasing Quantities and Inventory
Costs
3. Inventory control systems

We will look at 2 systems, namely the fixed-order quantity

system and the cyclical ordering system…

What can be the difference? Let’s investigate and see..

But before we
investigate look at the
video called…
“Managing Inventory_
Inventory Control
Charts” to provide
background on why and
how control systems can
be used
Fixed-order-quantity system - visually
Fixed-order-quantity system – explaining the figure

According to the fixed-order-quantity system, an optimum level for each

item in inventory is determined. A fixed order point (at a certain level of
inventory) and a fixed quantity to be ordered are determined for each
item according to a formula known as the Economic Order Quantity, or
EOQ.

The business uses or sells the inventory items and the inventory levels
drop (from A to B, D to E and G to H in Figure on previous slide). When
this level or point is reached (points B, E and H), a fixed quantity of items,
the EOQ, are purchased (EOQ = CD = FG = IJ). After the order has been
made, the business keeps on using or selling units of the specific item and
the inventory level drops further (from B to C, E to F and H to I). If the
EOQ was calculated correctly, the ordered material will reach the business
before or when the minimum inventory level is reached. Inventory will
then be replenished to more or less the maximum inventory level.
Fixed-order-quantity system – Let’s use an
example
 A stationery shop decided to keep a maximum of 160 boxes and a minimum of 10 boxes of
photocopy paper. The management team decided as soon as they have 100 boxes in inventory
left (order point B) they will have to place an order to ensure sufficient inventory is available.
How many boxes will be indicated on the order form (in other words what is the Economic
Order Quantity (EOQ)?
 Step 1: Draw the figure and indicate all the amounts provided on the figure
160 v

100 v

10 v
Fixed-order-quantity system – Let’s use an
example
 Step 2: Determine the EOQ…
It will be the difference between the maximum amount and the minimum amount.
= 160 – 10
= 150
 This means that before they have 10 boxes left (minimum inventory level) they expect to
receive the 150 boxes that will replenish the stock of paper to more or less the maximum level
(level A).160 v

100 v

10 v
Cyclical ordering systems - visually
 Cyclical ordering systems – explaining the
figure

With this ordering system, each item of inventory is checked at fixed intervals
(for example weekly or monthly) and an order is placed to replenish the
inventory level to its maximum level. The order times are, therefore, fixed,
but the order quantity varies (BC, DE, FG, HI and JK differ). The system is
suitable for seasonal materials used on an irregular basis, where the purchasing
of such materials can be planned far in advance on the basis of forecast, for
example clothing manufacturers or shops. This system is used in grocery
stores, where, at the end of a period (for example every week), stocktaking is
done for the specific item on the shelves and the order quantities adjusted
according to the quantity left on the shelves. For example, more tins of soup
are ordered with every order cycle in the winter than in the summer.
Purchasing Quantities and Inventory Costs

3. Inventory control systems

 Except for the two above-mentioned systems, there is also a

technique that managers can use to determine inventory levels.
This technique is called break-even analysis.
 Break-even analysis is a technique for determining the volume
where:
 Total revenues (income) = Total cost (expenses)
Or
 Total cost to produce = The total cost to buy.
Before we do a practical
example look at the videos
called… “Break-Even
Analysis - How to Calculate
your Safe Point”
 Break-even Analysis
 How do we calculate the break-even point?

 We use the following formula:

Q = F / (P-C)

Q = Quantity/Amount
F = Fixed Costs
P = Selling Price
C = Purchasing Cost
Break-even Analysis – Let’s do an example
Dairy Donkey produces milky ice-cream lollies and sells it to consumers at
R5 per lolly. The fixed cost per year is R 30 000 and the purchasing cost
is R3.50. How many milky ice-cream lollies should Dairy Donkey sell, in
order to break even?

Use the formula on the previous page and substitute the letters with the
numbers in the information provided:

Q = F / (P-C)
Q = 30 000 / (5 – 3.5)
= 20000
 i er s
p pl
S u
of
ti on
ec
S el
 Selection of Suppliers
 Selection of the RIGHT Suppliers
 Long-term relationships- right prices, quality and good
after-sales support
 Selection Process

Compile a list of Seek new

possible suppliers supplier
POOR
GOOD
Shortlist Evaluate
Select a Performance
specific
supplier
 Purchasing Prices

 Price should be regarded as only one of the

components of the total value package, together with
quality, delivery and cost of use.
 Sources of pricing information for purchasing:
 Price lists, brochures, etc. = Standard product
 Quotations= Non standard products/ large quantities
 Tenders= Construction
 Negotiations
When is the correct time
to purchase ?
 Timing of Purchases
 The aims of purchasing at the right time is to
ensure:
 The business is supplied on an ongoing basis with
materials, products and services required for it to
operate without interruptions
 To keep inventory holding at an optimum level.
By now you know that the purchasing function is the “big
spender” in most businesses and should be carefully
managed. Have a look at the two bullet points on this slide.
What will happen if the opposite of them were true? For
example, if inventory is NOT held at an optimum level?
 Timing of Purchases
 Internal factors influencing the timing of purchases
• Availability of funds
• Marketing and operations plans and strategies
• Physical facilities, such as storage space,
• 3 Types of internal policies also determine the scheduling of purchases.

1. Scheduling purchases 2. Advance purchasing 3.Minimum purchases

according to needs
Purchase materials when
the business needs them,
regardless of the price and
market conditions
Involves the purchase of
more materials than
required, the aim being to
ensure future availability.
Schedule purchases to
ensure that inventory is only
available for the immediate
needs of the business.
Inventory is kept to a
minimum and no buffer
inventory is held.
 Timing of Purchases
 External factors influencing the timing of
purchases

• Market conditions (for example, availability, recessions, booms and

exchange rates)
• Government regulations
• Seasons.
• Lead time (particularly important in the case of imported goods)
• Reliability of suppliers.
 The Importance of Physical Stocktaking

 Everything changed after computer technology – now we

have Integrated Information, BUT REMEMBER…

Rubbish in –
Rubbish out

Therefore, physical stocktaking is so IMPORTANT

Evaluate EFFICIENCY and EFFECTIVENESS of business
 Several ways to do stocktaking=
PHYSICAL VALIDATION of quantity and value of stock.
(At least ONCE a year)
 The Importance of Physical Stocktaking

Focusing on
critical
inventory

Sound Admin
and effective 4 Spot checks
cost- Approaches
accounting

Chaos vs.
order
The Importance of Physical Stocktaking

 Focusing on critical inventory items

Rubbish in –
 Inventory can be divided
Rubbish asout
follows:
 Different values of unit costs
 Top, average and poor sellers

 Focus more effort on high unit cost items

 Pareto Principle (80/20 principle)
 20% of stock, contributes to 80% of sales/profit
The Importance of Physical Stocktaking

 Doing spot checks during interim periods.

 Compare physical inventory to “administrative” stock
Rubbish in –
numbers
Rubbish out

 Assist in detecting serious errors and/or irregularities

in admin and security systems.
 Eliminate a standard repeatable system
 Avoid predictability
The Importance of Physical Stocktaking

 Choosing between chaos and order

 Untidy stock areasRubbish
causing in
confusion
– and irritation.
Rubbish out
 Problems:
 Lack of coding, lack of product identification
 Untidy shelves and store rooms
 Solution:
 Keep products neat and orderly by:
 Type by Type
 Size by Size
 Age by Age
 Supplier by Supplier
The Importance of Physical Stocktaking

 Sound administration and effective cost-

accounting practices.
Rubbish in –
Rubbish out
 Are product’s purchase prices indicated on the
shelves?
 Needed in order to determine value.
Remember to join us in our virtual consultations should you have any questions!