Stores Management in Operations Management

Stores man­age­ment is the func­tion of receiv­ing, stor­ing, pro­tect­ing, record­ing and issu­ing mate­ri­als in a sys­tem­atic way, so that the organ­i­sa­tion always has the items it needs, in usable con­di­tion, at the right place and time. A sim­ple way to put it: pur­chase man­age­ment brings mate­ri­als into the organ­i­sa­tion; stores man­age­ment looks after them from the moment they arrive until they are used.

It mat­ters because mate­ri­als are money in phys­i­cal form. A com­pany may buy exactly the right item, yet if it is stored badly it can be dam­aged, stolen, mis­placed or for­got­ten, and pro­duc­tion may stop even though the item is some­where in the build­ing. Good stores man­age­ment pro­tects this invest­ment, keeps pro­duc­tion run­ning and gives reli­able stock fig­ures for pur­chas­ing and account­ing.

What is a store?

A store is a con­trolled area where mate­ri­als are kept until they are required. It may hold raw mate­ri­als, com­po­nents, spare parts, tools, con­sum­ables, pack­ing mate­ri­als, main­te­nance items, office sup­plies, work-in-progress and, in some organ­i­sa­tions, fin­ished goods. A store is not just a room; it is a man­aged space with pro­ce­dures, records and secu­rity.

A home kitchen is a use­ful com­par­i­son. If gro­ceries are not arranged, sugar may be mis­taken for salt, items expire, ingre­di­ents run out unno­ticed and dupli­cates get bought. Arranged prop­erly, every­thing is easy to find and waste is low. An organ­i­sa­tion's store works the same way on a much larger scale.

Why stores man­age­ment is impor­tant

Poor stor­age leads to dam­aged mate­ri­als, mis­placed items, pro­duc­tion stop­pages, theft and wastage, piles of excess stock and wrong items being issued. Good stores man­age­ment helps in:

• smooth, unin­ter­rupted pro­duc­tion;
• proper mate­r­ial con­trol and accu­rate stock records;
• reduced wastage, dam­age and pil­fer­age;
• lower stor­age and han­dling cost;
• quick iden­ti­fi­ca­tion and issue of mate­ri­als;
• timely infor­ma­tion for pur­chase and inven­tory deci­sions.

Objec­tives of stores man­age­ment

Safe cus­tody

Mate­ri­als must be pro­tected from dam­age, theft, mois­ture, fire, rust and spoilage.

Con­tin­u­ous sup­ply to users

Pro­duc­tion and other depart­ments should receive mate­ri­als when­ever they need them.

Proper clas­si­fi­ca­tion and iden­ti­fi­ca­tion

Items should be grouped, coded and located so that they can be found quickly.

Avoid­ing over­stock­ing and under­stock­ing

Too much stock increases cost and risk of obso­les­cence; too lit­tle causes short­ages.

Accu­rate records

The organ­i­sa­tion should always know what is avail­able, how much, where it is kept and what it is worth.

Econ­omy in stor­age

Space, labour and han­dling equip­ment should be used effi­ciently.

Func­tions of stores man­age­ment

1. Receiv­ing mate­ri­als from sup­pli­ers and check­ing quan­tity, con­di­tion, doc­u­ments and deliv­ery details.
2. Coor­di­nat­ing inspec­tion so that qual­ity and spec­i­fi­ca­tions are checked before accep­tance.
3. Stor­ing accepted mate­r­ial in the cor­rect, labelled loca­tion.
4. Pre­serv­ing mate­ri­als accord­ing to their nature.
5. Issu­ing mate­ri­als to depart­ments only against proper autho­ri­sa­tion.
6. Main­tain­ing records of receipts, issues, returns, dam­aged items and bal­ances.
7. Ver­i­fy­ing stock by phys­i­cal count­ing and com­par­i­son with records.
8. Dis­pos­ing of sur­plus, obso­lete, scrap and dam­aged items prop­erly.
9. Report­ing stock posi­tions, slow-mov­ing items and reorder needs to pur­chas­ing.

Prin­ci­ples of good stores man­age­ment

• Proper loca­tion: the store should be close to the receiv­ing area and the main users, so that receipt and issue are easy.
• Clas­si­fi­ca­tion: items grouped by type, size, use or depart­ment.
• Cod­i­fi­ca­tion: every item has a clear code.
• Sys­tem­atic arrange­ment: fre­quently used items are the eas­i­est to reach.
• Proper preser­va­tion suited to each mate­r­ial.
• Secu­rity against theft, mis­use and unau­tho­rised issue.
• Accu­rate doc­u­men­ta­tion of every move­ment.
• Reg­u­lar stock check­ing so that records match phys­i­cal stock.
• First in, first out (FIFO) phys­i­cal rota­tion, so that older stock is used before it dete­ri­o­rates.

Types of stores

Stores may also be clas­si­fied by what they hold: raw mate­r­ial stores, gen­eral stores, tool rooms, fin­ished goods stores, and spe­cial stores such as cold stor­age or bonded ware­houses.

Store lay­out

Store lay­out is the arrange­ment of racks, bins, shelves, aisles, the receiv­ing bay, the inspec­tion area and the issue counter. A good lay­out saves move­ment time, makes items easy to locate, allows safe han­dling, sep­a­rates cat­e­gories and sup­ports quick receipt and issue. Store lay­out is to a store what plant lay­out is to a fac­tory.

Stor­age equip­ment

• Racks for boxed items and bins for small com­po­nents;
• open yards for bulky, weather-resis­tant mate­ri­als such as steel sec­tions;
• locked cup­boards or cages for expen­sive or attrac­tive items;
• cold stor­age for tem­per­a­ture-sen­si­tive items;
• pal­lets, fork­lifts and trol­leys for han­dling.

The choice depends on item size, value, fre­quency of use and required stor­age con­di­tions.

Clas­si­fi­ca­tion, cod­i­fi­ca­tion and loca­tion

Clas­si­fi­ca­tion

Items may be grouped by nature, depart­ment, usage, value, size or fre­quency of issue: for exam­ple, elec­tri­cal items in one sec­tion, hard­ware in another, con­sum­ables in a third and frag­ile items sep­a­rately. Clas­si­fi­ca­tion makes iden­ti­fi­ca­tion, stor­age, issue, stock con­trol and record keep­ing eas­ier. Value-based clas­si­fi­ca­tion using ABC analy­sis, first described by Dickie, lets the store give its tight­est con­trol to the few high-value items.

Cod­i­fi­ca­tion

Cod­i­fi­ca­tion gives each item a unique code, such as RM-101 for a raw mate­r­ial, SP-205 for a spare part or TL-310 for a tool. Codes avoid con­fu­sion between sim­i­lar items, speed up record keep­ing, sup­port com­put­er­i­sa­tion and bar­cod­ing, help stock check­ing and pre­vent the same item being recorded under two names. Codes may be alpha­bet­i­cal, numer­i­cal or alphanu­meric; many firms use a struc­tured numeric code where each group of dig­its stands for class, sub-class and item.

Loca­tion sys­tem

Each item's address is recorded, for exam­ple "Rack A, Shelf 2, Bin 5". With­out a loca­tion sys­tem, time is wasted search­ing, wrong items are issued and the store becomes dis­or­gan­ised.

Receiv­ing and issue pro­ce­dures

Receiv­ing pro­ce­dure

1. Receive the con­sign­ment and check the deliv­ery chal­lan against the pur­chase order.
2. Count or weigh the quan­tity and inspect the phys­i­cal con­di­tion.
3. Send the mate­r­ial for qual­ity inspec­tion where required.
4. Accept, or reject and return, the mate­r­ial.
5. Pre­pare the goods received note (GRN) and update records.
6. Move the mate­r­ial to its stor­age loca­tion.

Issue pro­ce­dure

1. Receive an autho­rised mate­r­ial req­ui­si­tion.
2. Iden­tify the mate­r­ial and check avail­abil­ity.
3. Issue the cor­rect quan­tity, nor­mally old­est stock first.
4. Record the issue and update the bal­ance.

Uncon­trolled issue leads to excess use, theft and unre­li­able records. Unused mate­r­ial returned by a depart­ment is received back on a mate­r­ial return note.

Preser­va­tion of mate­ri­als

Dif­fer­ent items need dif­fer­ent care: cement must be kept dry; chem­i­cals may need sealed con­tain­ers and ven­ti­la­tion; rub­ber items need cool, dark stor­age; metal items need anti-rust treat­ment; frag­ile items need care­ful han­dling; per­ish­ables need con­trolled tem­per­a­ture and strict FIFO. Good preser­va­tion reduces dete­ri­o­ra­tion, spoilage, cor­ro­sion, break­age and finan­cial loss.

Store records and doc­u­ments

Bin card and stores ledger com­pared

Store account­ing and pric­ing of issues

Store account­ing records the move­ment and value of mate­ri­als. It tells man­age­ment about usage, stock lev­els, stock value, losses and reorder needs, and sup­ports inven­tory con­trol, cost con­trol, audit, pur­chase plan­ning and pro­duc­tion con­ti­nu­ity. When the same item has been bought at dif­fer­ent prices, the store must decide which price to charge on issue. Two com­mon meth­ods are FIFO and weighted aver­age.

Worked exam­ple: stores ledger for bolts

Sup­pose a fac­to­ry's bolt account for June shows the fol­low­ing:

FIFO (first in, first out) charges issues at the old­est prices first.

• 10 June issue of 250: 200 × ₹10 + 50 × ₹12 = ₹2,000 + ₹600 = ₹2,600. Bal­ance: 250 × ₹12 = ₹3,000.
• 18 June receipt: bal­ance becomes 250 × ₹12 + 200 × ₹13 = ₹3,000 + ₹2,600 = ₹5,600.
• 25 June issue of 300: 250 × ₹12 + 50 × ₹13 = ₹3,000 + ₹650 = ₹3,650. Clos­ing bal­ance: 150 × ₹13 = ₹1,950.

Weighted aver­age recal­cu­lates an aver­age rate after each receipt:

$$\displaystyle \text{Average rate} = \frac{\text{Value of stock in hand}}{\text{Units in hand}}$$

• After 5 June: $\displaystyle \frac{2{,}000 + 3{,}600}{200 + 300} = \frac{5{,}600}{500} = 11.20$, so the rate is ₹11.20.
• 10 June issue: 250 × ₹11.20 = ₹2,800. Bal­ance: 250 × ₹11.20 = ₹2,800.
• After 18 June: $\displaystyle \frac{2{,}800 + 2{,}600}{250 + 200} = \frac{5{,}400}{450} = 12.00$, so the rate is ₹12.00.
• 25 June issue: 300 × ₹12 = ₹3,600. Clos­ing bal­ance: 150 × ₹12 = ₹1,800.

Check: total value avail­able is ₹2,000 + ₹3,600 + ₹2,600 = ₹8,200 under both meth­ods. With ris­ing prices, FIFO charges lower costs to pro­duc­tion and shows a higher clos­ing stock; the weighted aver­age smooths out price changes.

Stock lev­els main­tained by the store

The store watches stock against set lev­els so that it nei­ther runs out nor over­stocks. The stan­dard for­mu­las are:

$$\text{Re-order level} = \text{Maximum usage} \times \text{Maximum lead time}$$

$$\text{Minimum level} = \text{Re-order level} - (\text{Normal usage} \times \text{Normal lead time})$$

$$\text{Maximum level} = \text{Re-order level} + \text{Re-order quantity} - (\text{Minimum usage} \times \text{Minimum lead time})$$

$$\text{Danger level} = \text{Normal usage} \times \text{Emergency lead time}$$

Worked exam­ple: stock lev­els for bolts

Sup­pose the same fac­tory uses bolts at a min­i­mum of 100, a nor­mal rate of 150 and a max­i­mum of 200 units a week. Lead time is 4 weeks at best, 5 weeks nor­mally and 6 weeks at worst. The re-order quan­tity is 1,000 units, and an emer­gency pur­chase takes 2 weeks.

• Re-order level = 200 × 6 = 1,200 units.
• Min­i­mum level = 1,200 − (150 × 5) = 1,200 − 750 = 450 units.
• Max­i­mum level = 1,200 + 1,000 − (100 × 4) = 2,200 − 400 = 1,800 units.
• Dan­ger level = 150 × 2 = 300 units.
• Aver­age stock level = (min­i­mum + max­i­mum) ÷ 2 = (450 + 1,800) ÷ 2 = 1,125 units.

The chart con­firms the logic: start­ing from 1,800, stock reaches 1,200 after 4 weeks, an order is placed, and dur­ing the nor­mal 5-week lead time another 750 units are used, so stock touches 450 just as the deliv­ery arrives. If stock ever falls to the dan­ger level of 300, the store should arrange an emer­gency pur­chase.

Stock ver­i­fi­ca­tion

Phys­i­cal stock must be counted and com­pared with book stock. Peri­odic ver­i­fi­ca­tion counts every­thing at set inter­vals, often at year end, usu­ally with the store closed. Per­pet­ual inven­tory with con­tin­u­ous stock-tak­ing keeps records up to date after every move­ment and counts a few items every day, so that the whole store is cov­ered dur­ing the year with­out stop­ping work. Dif­fer­ences may come from count­ing or post­ing errors, break­age, evap­o­ra­tion, theft or wrong issues; they must be inves­ti­gated, approved and adjusted.

Store­keep­ing and the store­keeper

Store­keep­ing is the day-to-day run­ning of the store by the store­keeper, who is both cus­to­dian and con­troller of mate­ri­als. The store­keep­er's duties include receiv­ing and check­ing incom­ing mate­r­ial, arrang­ing and labelling items, issu­ing only against autho­ri­sa­tion, updat­ing records, pro­tect­ing mate­r­ial from dam­age, keep­ing the store clean and safe, report­ing short­ages, excess or dam­age, coop­er­at­ing with pur­chase and pro­duc­tion, and help­ing in stock ver­i­fi­ca­tion. A care­less store­keeper cre­ates stock con­fu­sion, pro­duc­tion delays, losses, wrong issues and record mis­matches.

A good store­keeper needs hon­esty, care, record-keep­ing skill, knowl­edge of mate­ri­als, dis­ci­pline, alert­ness, com­mu­ni­ca­tion skill and a sense of respon­si­bil­ity. A good store, in turn, is clean, well arranged, safe, secure, clearly labelled, easy to access, ven­ti­lated where needed and backed by good records.

Stores man­age­ment, inven­tory con­trol and pur­chas­ing

All three must coor­di­nate. If pur­chas­ing buys well but stores man­ages badly, oper­a­tions still suf­fer.

Stores man­age­ment and cost con­trol

A well-run store reduces cost by pre­vent­ing dam­age and theft, avoid­ing dupli­cate pur­chases, reduc­ing idle stock, ensur­ing timely issue so pro­duc­tion does not stop, and iden­ti­fy­ing slow-mov­ing and obso­lete items early. It is a con­trib­u­tor to cost effi­ciency, not merely a sup­port func­tion.

Chal­lenges in stores man­age­ment

• very large num­bers of items and short­age of space;
• record mis­matches and sys­tem errors;
• obso­lete and slow-mov­ing mate­ri­als;
• theft and pil­fer­age;
• poor han­dling meth­ods and con­ges­tion;
• slow issue processes and weak coor­di­na­tion with pur­chase and pro­duc­tion.

Mod­ern stores respond with bar­codes, ware­house soft­ware, clear loca­tion sys­tems and reg­u­lar cycle counts.

Exam-ready sum­mary

Stores man­age­ment is the func­tion of receiv­ing, stor­ing, pre­serv­ing and issu­ing mate­ri­als sys­tem­at­i­cally so that they are avail­able when needed. Its objec­tives are safe cus­tody, unin­ter­rupted sup­ply, proper clas­si­fi­ca­tion and cod­i­fi­ca­tion, cor­rect stock lev­els, accu­rate records and econ­omy in stor­age. Its func­tions include receiv­ing and inspect­ing mate­ri­als, stor­ing and pre­serv­ing them, issu­ing against autho­rised req­ui­si­tions, main­tain­ing bin cards and the stores ledger, pric­ing issues, ver­i­fy­ing stock and dis­pos­ing of sur­plus. Good stores man­age­ment reduces waste and cost, sup­ports inven­tory con­trol and keeps pro­duc­tion run­ning.

Key terms

Goods received note

A doc­u­ment pre­pared by stores record­ing mate­r­ial received and accepted.

Bin card

A quan­tity record kept at the stor­age loca­tion show­ing receipts, issues and bal­ance.

Stores ledger

An office record of receipts, issues and bal­ances in both quan­tity and value.

Mate­r­ial req­ui­si­tion

An autho­rised request from a depart­ment to draw mate­r­ial from the store.

Cod­i­fi­ca­tion

Giv­ing each item a unique code to avoid con­fu­sion and sup­port records.

Re-order level

The stock level at which a fresh order is placed.

Dan­ger level

A stock level below which emer­gency pur­chase action is needed.

FIFO

First in, first out: old­est stock is issued, or priced, first.

Per­pet­ual inven­tory

A sys­tem that updates stock records after every receipt and issue, sup­ported by con­tin­u­ous stock-tak­ing.

Com­mon ques­tions

What is the dif­fer­ence between a bin card and a stores ledger?

A bin card is kept by the store­keeper near the mate­r­ial and records quan­ti­ties only; the stores ledger is kept by the accounts or cost­ing office and records both quan­tity and value.

How are the re-order, min­i­mum and max­i­mum lev­els cal­cu­lated?

Re-order level = max­i­mum usage × max­i­mum lead time; min­i­mum level = re-order level − nor­mal usage × nor­mal lead time; max­i­mum level = re-order level + re-order quan­tity − min­i­mum usage × min­i­mum lead time. With the exam­ple data these give 1,200, 450 and 1,800 units.

What are the advan­tages of a cen­tralised store?

Bet­ter con­trol, lower total stock, fewer staff, eas­ier stock-tak­ing and bet­ter use of space; its draw­back is dis­tance from users and slower issue.

Why is cod­i­fi­ca­tion of mate­ri­als needed?

It gives every item one unam­bigu­ous iden­tity, pre­vents dupli­cate names, speeds up records and makes com­put­erised and bar­coded stock con­trol pos­si­ble.

What is the dif­fer­ence between stores man­age­ment and inven­tory con­trol?

Stores man­age­ment deals with phys­i­cal receipt, cus­tody and issue of mate­ri­als; inven­tory con­trol decides how much stock to hold and when to reorder.

Why does FIFO give a dif­fer­ent clos­ing stock value from weighted aver­age?

FIFO leaves the lat­est prices in clos­ing stock, while weighted aver­age blends old and new prices. When prices rise, FIFO shows a higher clos­ing stock, as in the exam­ple (₹1,950 against ₹1,800).

Ref­er­ences

1. Chary, S. N. Pro­duc­tion and Oper­a­tions Man­age­ment. McGraw-Hill Edu­ca­tion (India).
2. Pan­neer­sel­vam, R. Pro­duc­tion and Oper­a­tions Man­age­ment. PHI Learn­ing.
3. Bedi, K. Pro­duc­tion and Oper­a­tions Man­age­ment. Oxford Uni­ver­sity Press.
4. Steven­son, W. J. Oper­a­tions Man­age­ment. McGraw-Hill Edu­ca­tion.
5. Dickie, H. F. (1951) "ABC inven­tory analy­sis shoots for dol­lars, not pen­nies". Fac­tory Man­age­ment and Main­te­nance, 109(7), 92–94.

Related read­ing

• Ven­dor Selec­tion and Ven­dor Rat­ing
• Inven­tory Man­age­ment in Oper­a­tions Man­age­ment
• Inven­tory Con­trol Tech­niques in Oper­a­tions Man­age­ment