Stock of goods and costs generated by them

Introduction

What are stocks

Stocks of goods within a company’s logistics system determine a proper functionality of the activity that involves serving the clients and maintaining the life-cycle flow of the business. The costs of goods in the warehouse and the costs regarding the transport, storing, and ordering, affect the profitability of logistics operations. This view has been supported by Bălan (Bălan, 2006).

Waters (2003, p. 252) states that “stocks are supplies of goods and materials that are held by an organisation. They are formed whenever the organisation’s inputs or outputs are not used at the time they become available.” (Waters, 2003)

Stock importance

The importance of stocks and their utility is given by different approaches within companies’ stocks management. Over the time, the trends changed from traditional perspective of stocks preserved to mainly satisfy the demand, to the modern route of avoiding the immovable capital generated by large quantities stocks, i.e. reducing or removing the stocks within the company. (Bălan, 2006)

In theory, stocks must fulfill important objectives of businesses, without which the organisations could face delays and even losses.

The service responsible for satisfying clients’ demand rely on the continuous development of stocks management. For instance, through the performance indicator regarding the number of orders received and fulfilled and their time intervals of responding, the logistics people can develop the priority levels for storing goods. (Bălan, 2006)

According to Ronald (1992, p.403), the cost reducing method of storing goods represent between 20% and 40% of the overall value of those goods, therefore, stocks increase the savings in the production process by increasing the quantity of new goods that can lead to bigger amounts of products sold and a low transportation frequency. (Ronald, 1992)

The equilibrium between demand and supply depends on stocks in most cases for short periods of delays before the demand arises, particularly, maintaining stocks of goods that satisfy in advance the demand for products of which use is concentrated in a short period of time.

Table 1 Inventory demand and supply

Diminishing instability and company’s insecurity regarding unpredicted variations of demand and even suppliers’ transportation delays depend on safety stocks, which provide the company with support for fulfilling the orders and not only depend on suppliers’ performances, such as the production process or orders management process.

In practice, large stocks procedure is avoided in logistics departments, meaning that inventory represents a waste of time and capital. A real-life example is Toyota Motor Corporation that established between years 1948 and 1975 a cost reduction system of the production (Toyota Production System) starting from cutting off the waste of all kinds, including stocks waste. Building new warehouses or renting space to store extra inventory or hiring new employees to handle, control and repair the goods, all caused by overproduction, lead the company to research, develop and change the worldwide management philosophy, manufacturing, and logistics approach (Monden, 1993) (Wikipedia, 2016).