Collecting historical information

Stock is held either because it is convenient to buy in bulk, or because the item is required faster than the supply can provide it. In the latter case there is some uncertainty as to the quantity required, and so some safety stock is needed. In Chapter 2 the balance between the conflicting requirements of good service, low inventory costs and small operating costs were discussed. Now the means of achieving the controls can be examined.

The amount of safety stock held in an organization depends upon three main factors:

• the variability of demand

• the reliability of supply

• the dependability of transport.

The general approach to this situation is to set stock levels to cover the normal variability of demand and to adjust the other two variables so that they are relatively insignificant. Quality initiatives have improved the supply situation but it is usually found that the major uncertainty is caused by customers and their unpredictable requirements.

Store records show the movement of stock in and out of the warehouse and such historical information is essential for evaluating what level of stock to hold (unless the customer provides firm orders). However, the best guide to the appropriate stockholding is the amount of demand, rather than the number of issues.