Stock Control and Working with Suppliers
Why Stock Management Matters
Every business that sells physical goods must manage its stock. Too little stock and a business runs out of products, loses sales and frustrates customers. Too much stock ties up cash, takes up warehouse space and risks goods becoming damaged or obsolete. Getting the balance right is a key operational challenge for any growing business.
The three types of stock a manufacturing business might hold are: raw materials (inputs waiting to be used), work in progress (partially made goods), and finished goods (ready to sell). Service businesses have fewer physical stock concerns, but still manage consumables and equipment.
Reading Bar Gate Stock Graphs
A bar gate stock graph (also called a stock control chart) shows stock levels over time. The saw-tooth pattern is typical: stock falls steadily as goods are used or sold, then jumps back up when a new delivery arrives. Businesses use these graphs to monitor stock and trigger re-orders at the right moment.
Four key values appear on a bar gate stock graph:
- Maximum stock level — the most stock the business wants to hold at any one time, set to avoid over-stocking.
- Minimum stock level (buffer stock) — a safety net kept in reserve. If stock falls to this level, a re-order is urgent.
- Re-order level — the point at which the business places a new order with its supplier. Set above the minimum to allow time for delivery.
- Re-order quantity — the amount ordered each time, designed to bring stock back to maximum level.
The re-order level is set above the minimum stock level to account for lead time — the gap between placing an order and receiving delivery. If lead time is long, the re-order level must be set higher so the business does not run out before the delivery arrives.
Just-in-Time Stock Control
Just-in-time (JIT) is an approach to stock management where materials are ordered and delivered only when they are needed. The aim is to hold no unnecessary stock, cutting storage costs and reducing waste. Toyota pioneered this system in the 1970s and it has since spread across many industries.
JIT offers significant advantages for businesses with reliable suppliers and predictable demand. However, it carries real risks: if a delivery is delayed, production can grind to a halt entirely. During the COVID-19 pandemic, many manufacturers found their JIT supply chains disrupted when deliveries from overseas suppliers stopped, leading to costly production stoppages.
Advantages: Reduces storage costs because the business holds little or no stock. Frees up cash that would otherwise be tied up in unsold goods. Reduces the risk of stock becoming damaged, outdated or unsaleable. Forces businesses to build tight, reliable supplier relationships.
Disadvantages: Very sensitive to supply disruptions — one late delivery can stop production. Requires extremely reliable suppliers, which may be difficult to guarantee. Less flexibility to cope with sudden surges in demand. Businesses may miss volume-purchase discounts because they order smaller quantities more frequently.
Procurement and Supplier Relationships
Procurement is the process of sourcing and buying the inputs a business needs. Effective procurement is not just about finding the cheapest supplier — it involves evaluating quality, reliability, delivery speed and building long-term trust.
When choosing a supplier, a business weighs up several factors:
- Quality — consistent quality from suppliers reduces defects and returns, protecting the business’s reputation.
- Delivery cost, speed and reliability — slow or unreliable deliveries can delay production and disappoint customers.
- Availability — can the supplier provide what is needed, in the right quantities, when required?
- Cost — lower input costs improve profit margins, but not at the expense of quality or reliability.
- Trust — long-term supplier relationships built on honesty and fair dealing can provide preferential terms and priority service.
Supplier decisions affect far more than purchase costs. A reliable, high-quality supplier can improve customer satisfaction, protect brand reputation and keep production running smoothly. A poor supplier choice can damage all three.
Logistics, Supply Chains and Business Performance
The supply chain covers every step from raw material to finished product in the hands of the customer. Good supply chain management reduces costs, ensures consistent quality and helps the business respond quickly to changes in demand. Poor supply chain decisions — such as relying on a single supplier or using slow logistics — raise costs, create delays and damage the business’s reputation.
Logistics refers to managing the physical movement of goods — transportation, warehousing and distribution. Efficient logistics reduce costs (lower transport and storage fees), protect customer satisfaction (goods arrive on time and undamaged) and free up capital that might otherwise sit in slow-moving stock.
Students sometimes assume a business should always choose the cheapest supplier. This ignores the full picture. A cheap supplier that delivers late or provides poor-quality materials may cost more in the long run through production stoppages, customer complaints and wasted inputs. Quality, reliability and trust can outweigh a small price difference, especially for businesses whose reputation depends on consistent output.