3.1 Introduction

Stock is held in a business primarily to provide availability of product when it is required. When we go to a shop for consumer goods, we expect to be able to leave with the items we were seeking to purchase. If the shop does not have the items, then the likelihood is that, in most cases, we will go somewhere else; only if we have strong loyalty to the shop or the brand is it likely that we will place an order for collection or delivery later. For industrial products, availability is just as important. Companies need from their suppliers the products and materials to keep their operations running, be it food for airline catering, computer supplies for a bank or components for a manufacturer; they all need them on time and hence available.

If product is produced and supplied continuously then, in theory, we can provide continuous availability; we only need to hold stock to cater for the emergency situation when production or supply is interrupted. For this reason, we do not normally hold stocks of electricity in our homes and only have a tank of water just in case there is a break in supply. However, if a product is not supplied continuously, which is the most frequent case, we need to hold stock to provide availability between replenishments.

Stock also serves some other purposes. The supply of product to satisfy a given need is frequently met through a chain of processes, starting with the acquisition...