What are the main types of stocks in supply chain?
Inventory management is one of the most important processes for the logistics performance of companies. However, many managers still find it difficult to adapt their practices and identify, among the types of stock, the one that best fits the needs of each organization. This is a strategy that facilitates the management of each product’s journey, avoiding losses and promoting the proper monitoring of market demands, which increases the competitive advantage of the business. In this article, we will learn what are the main types of stocks in supply chain.
Because the market is highly competitive, seeking advantages over competitors is one of the companies’ priorities. And because inventory can represent an investment, production managers seek to optimize inventories in order to generate business and profits. To achieve this goal, it is important to have predictability of the demand of the products offered. Although predictability is an approximate parameter, the company can determine the level of sales of its products and thereby determine the level of its inventory. If this is well elaborated it becomes an important tool for the management of the company.
What is stock?
It may seem like an obvious answer question, but depending on the segment and the area in which a company operates, stocks have different concepts.
For an industry, inventory is relative to the materials and raw materials that are used for the manufacture of some product.
For trade, stock is about stored products that will be marketed to society.
And for service companies, inventories are used for the products needed for the end activity to be carried out.
It is possible, then, to affirm, that stock is the storage and management of the products that will provide an organization with its operation, either by selling them or using them for the manufacture of a commodity, or as a support material in the provision of services and activities purposes.
What are the main types of stocks in supply chain?
Types of inventory stock in supply chain management
1. Anticipation stock
Also called seasonal inventory, this type of inventory is used by companies when they find themselves facing a high demand forecast, which requires high production and delivery readiness.
Designed to combat predictable variability in demand. Companies using seasonal inventory accumulate products in periods of low demand to meet periods of high demand, when they will not be able to produce everything that is requested.
This happens, for example, during festivals like Christmas, Diwali, EID or the big settlements in the season changes.
In this case, the production or acquisition of the items is high with the intention of ensuring the prompt fulfillment of the total volume of orders, meeting the needs of consumers and taking advantage of all business opportunities.
The anticipation stock is also a strategy to be considered when managers perceive the possibility of problems with the supply of items, which can impair the fulfillment of orders.
2. Cycle stock
It is that stock that occurs because one or more stages in the operation cannot provide all items. Cycle inventory allows you to track each item and exists when orders require a minimum batch of production or sale typically larger than the quantity to satisfy an immediate demand. These conditions can be linked to the minimum lot size depending on production, supply, or transportation.
This is the most suitable type of inventory for companies that have an intense turnover of products and need to ensure the optimization of inventory levels from variable and constant demands.
Although the production of the various items is not simultaneous, it is necessary to keep all the goods always available to the consumer. This requires constant movement of inventory through specific codes that facilitate product monitoring and the definition of minimum and maximum limits for each.
In this way, the company can keep sales volume on the rise while avoiding losses in the event of changes in market demand.
3. Safety stock
It is one that is maintained to combat the uncertainty of demand behavior;
This is one of the most widely used types of inventory by retail companies, especially in more robust sectors such as automotive or food.
As its name suggests, the goal is to protect sales operations and promote the availability of products even in unfavorable situations for inventory management, such as price increase or supplier strike.
The safety stock also helps companies maintain activity in the face of sudden increases in market demand, ensuring customer satisfaction.
Example: Toy retailer, e.g ‘A’, should calculate its protective inventory for the shopping season in festive periods. If it has too much protective stock the toys are not sold and may need discounts after periods. However, if the company has little stock of protection, then ‘A’ loses sales, and with them the profit margin it would have brought.
4. Intransit stock
The stock in transit is all that is not in your physical space, that is, it is in the trucks in the process of transport or in some distribution center.
It is the stock allocated to a given customer until the time it becomes available to the customer. This type of stock corresponds to the physical movement of materials and products.
5. Average Stock
Refers to half of the normal stock added to the safety stock. This stock should be checked more frequently in the case of perishable products.
6. Minimum Stock
It is linked to the smallest quantity of an item in stock to prevent an eventuality due to consumption beyond the expected or delay in the delivery of new goods.
7. Inactive stock
In retail, inactive inventory is made up of goods that have not performed well, becoming obsolete and forgotten by customers.
In these cases, managers must put into practice the best negotiation techniques and enforce the good relationship with suppliers, to be able to exchange the items left over for others, with greater output.
Another valid alternative is to carry out promotions that offer these items for a more attractive price, or they can be part of promotional combos, alongside the most sought after products.
8. Maximum stock
Maximum inventory always works in the perspective of the maximum quantity of products available in stock over a previously determined period of time. Its calculation considers the highest limit for the acquisition of goods, either due to the space for available storage, or by determination of the financial sector of the company.
By purchasing a large amount of items at once, companies can negotiate better prices for each commodity
9. Dropshipping
The stock known as dropshipping is widely used by stores that work with e-commerce. The store does not need to make inventories, because the delivery is carried out by a large supplier who is responsible for the entire logistics process.
It is a kind of business intermediation, where your company trades, but the supply is carried out by a third party.
All these types of stock that we mention above are quite common and widely used by companies that need to be attentive to market behavior. For this, the logistics area needs to operate with competence and agility, meeting all demands and contributing to the success of the operation.
Good inventory management can reflect directly on the situation of the company, being able to determine costs, quality and time of service, and the established goals. Inventories can control the execution of production, due to the existence of differences in the flows of tasks, generating savings in the use of resources. And, because it is part of the company’s capital, it can be seen as an investment, as well as cost, thus presenting its importance from a financial point of view. In summary, good inventory management can influence operational and financial points of view.
FAQ
Why is it important to know the types of stock well?
Knowing well the types of inventory is essential so that companies can maintain the efficiency of its operations and work through anticipating demands, which prevents losses, reduces costs and increases productivity.
The goal is to identify the best-selling products or the most widely used products in the production chain and ensure that they are always available, allowing the company to take advantage of all the growth opportunities offered by the market.
Thus, knowing the types of inventory and adapting the processes of your company can also favour the relationship with suppliers.
What are the 4 types of stock?
Stocks are generally classified into four basic categories: safety stock, cycle inventory, anticipation stock, and intransit inventory.
What can be considered stock?
The term “stock” refers to all tangible goods kept for sale or own use in the ordinary course of business, goods in the process of production for sale or for own use or intended for consumption in the production of goods for sale or own use.
What make up a company’s inventory?
Stock is an asset that represents tangible property destined for sale, and can be classified in the industry according to its finishing stage: Raw Materials, Products in Preparation and Finished Products. In trade, it will be represented by the Goods account.
What types of inventory are found in an industrial company?
The main types found in an industrial company are: raw material, product in process, finished product and maintenance parts.
What are the stock levels?
Inventory level is everything a company needs to store to operate, and can be kept at its minimum, maximum or order point, which is when the organization requests the goods to the supplier.
What is stock insulator?
Basically, stocks can be of four types: protection stock, cycle stock, anticipation stock, and intransit inventory. The protection stock, also known as insulating stock, aims to compensate for the uncertainties involved in demand and supply.
What is the function of inventory?
Stocks have the function of regulating the flow of materials, serving as a buffer in the difference between inputs and outputs of materials.
What is anticipation stock?
Anticipation stock is one that the company forms when it anticipates its production to meet an expected future demand. This occurs mainly in seasonal demand situations. For example, before winter companies produce more warm-ups (they form anticipation stocks) to meet higher future demand.
What makes up the cost of inventory?
Generally expressed as a percentage, the cost of inventory is nothing more than all capital investment, storage, depreciation, insurance, taxation, obsolescence and shrinkage for a given time.
What is Raw material stock?
It is the stock of products that are the raw materials used in production processes. Some simple examples of raw material: fabrics; metal plates and bars; wood; paper and cardboard; leather; cotton yarn; polyester; cement; crushed stone; Sand etc..
What does demand in logistics mean?
In Logistics, demand forecasting is often done in conjunction with the inventory and commercial management sectors and aims to anticipate business needs so that there is a balance in the volume of products available in the distribution center.
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