Written by Rich Dale
22 02 2016

Internal Stock Controls

Reduce unnecessary stock holdings with simple, consistent processes and procedures.

Reading Time: 3 minutes

An effective stock management process is one of the key components of a company’s purchasing efficiencies. Stock is large capital investment so it makes sense to manage it as well as possible.

In particular, keeping track of raw materials is essential for the smooth flow of the production process. Internal controls to prevent loss, damage and misuse of stock must be established and maintained.

Depending on the type of business, these internal controls include:

Segregation of Duties

Segregation of duties is the delegation of tasks across an organisation in order to ensure checks & controls are in place at critical points of any process. It plays a big part in reducing errors and minimising the risk of financial loss. 

This is easier said than done & is often dependent on the size of your organisation. The larger the organisation, the easier it is to implement in terms of spreading the responsibility across more team members. In smaller organisations the challenge is keeping a process simple to ensure there is minimal impact on productivity so that things get done!

Let’s look at the segregation of duty in the supply chain process, in an ideal world, as an example.

Action

By Whom

Reason

Goods requested

Production

Only required goods ordered

Supplier quotation(s) from approved suppliers

Procurement / Supply Chain

Ensure the best value is obtained from reputable vendors.

PO to supplier

Procurement / Supply Chain

Suitable authorisation levels in place

Receive goods

Stores (goods in)

Ensures you pay only for what you receive

Return goods

Stores (goods out)

Ensures faulty / unusable goods returned without delay

Pick & issue goods

Stores (goods out)

Only requested goods taken from stock

Goods used in manufacturing

Production

Ensures the correct goods in proper order are used

Finished product

Warehousing / Logistics

Products stored in the right conditions

Ship to customer

Warehousing / Logistics

Right product shipped to the right customer

Customer invoiced

Finance

Ensures right customer charged the right price for the right product

Goods returned

Warehousing / Logistics

Ensures valid returns

   

In most SMEs this is not the case. A slimmed down version could be to make sure that different people are requesting, purchasing, receiving and paying for the goods. The point being that to create transparency you need to be able to question & validate things. Where there is no transparency the risk for financial loss is increased.

Secure the Warehouse

Locked gates and doors with only authorised entry is the first step to securing the stock.

Organise the Stock

If you can’t find it, you can’t control it! Each stock item should be numbered as well as the location that it is stored in. This facilitates quick and easy tracking in the long run.

Count all Deliveries

Do not rely on delivery dockets. Identify who is responsible for signing off on the quantity received before it is officially recorded as ‘in stock’. If there are items missing or damages, this needs to be noted immediately and appropriate action taken, (accounts department notified, goods returned, etc.) Using an automated handheld scanner is the most error-free method of stock recording.

Six Stock Strategies Ebook Cover

Free eBook: Six Stock Strategies To Improve Profits & Cashflow

Tag all Materials

Each item should be identified by part number and description to avoid any confusion or the wrong part being used for the wrong production.

Standardise the Picking Process

Whether it is a manual or automated procedure, when any item leaves the warehouse for use in production, servicing, or otherwise, it must be recorded. A controlled gate or door is extremely beneficial for this step.

Check the Bill of Materials (BOM)

The Bill of Materials is a list of the parts needed for production and it is used to pick materials from stock. Ensure that your BOM software is reliable as this will save messy additional requests and returns at a later date.

Conduct Spot Checks

Compare small, frequent, manual counts of the warehouse stock with the recorded amounts and investigate any errors found.

Record all Wastage

If scrap materials are thrown away without being properly recorded, the stock management and accounting systems will assume that they are still in stock and quantities and values will be inaccurate. Create a procedure to record wastage regularly.

To see how Flowlens can help you control and manage your stock, why not book a demo or watch this video… 

Interested to find out how Flowlens Cloud MRP & CRM could transform your business?
Contact Us