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raw materials and components

Types of stock

Everything you use to make your products, provide your services and to run your business is part of your stock.

There are four main types of stock:

  • raw materials and components – ready to use in production
  • work in progress – stocks of unfinished goods in production
  • finished goods ready for sale
  • consumables – for example, fuel and stationery

The type of stock can influence how much you should keep – see the page in this guide on how much stock you should keep.

Stock value

You can categorise stock further, according to its value. For example, you could put items into low, medium and high value categories. If your stock levels are limited by capital, this will help you to plan expenditure on new and replacement stock.

You may choose to concentrate resources on the areas of greatest value.

However, low-cost items can be crucial to your production process and should not be overlooked.

How much stock should you keep?

Deciding how much stock to keep depends on the size and nature of your business, and the type of stock involved. If you are short of space, you may be able to buy stock in bulk and then pay a fee to your supplier to store it, calling it off as and when needed.

Keeping little or no stock and negotiating with suppliers to deliver stock as you need it

AdvantagesDisadvantages
Efficient and flexible – you only have what you need, when you need itMeeting stock needs can become complicated and expensive
Lower storage costsYou might run out of stock if there’s a hitch in the system
You can keep up to date and develop new products without wasting stockYou are dependent on the efficiency of your suppliers

This might suit your business if it’s in a fast-moving environment where products develop rapidly, the stock is expensive to buy and store, the items are perishable or replenishing stock is quick and easy.

Keeping lots of stock

AdvantagesDisadvantages
Easy to manageHigher storage and insurance costs
Low management costsCertain goods might perish
You never run outStock may become obsolete before it is used
Buying in bulk may be cheaperYour capital is tied up

This might suit your business if sales are difficult to predict (and it is hard to pin down how much stock you need and when), you can store plenty of stock cheaply, the components or materials you buy are unlikely to go through rapid developments or they take a long time to re-order.

Stock levels depending on type of stock

There are four main types of stock:

Raw materials and components

Ask yourself some key questions to help decide how much stock you should keep:

  • How reliable is the supply and are alternative sources available?
  • Are the components produced or delivered in batches?
  • Can you predict demand?
  • Is the price steady?
  • Are there discounts if you buy in bulk?

Work in progress – stocks of unfinished goods

Keeping stocks of unfinished goods can be a useful way to protect production if there are problems down the line with other supplies.

Finished goods ready for sale

You might keep stocks of finished goods when:

  • demand is certain
  • goods are produced in batches
  • you are completing a large order

Consumables

For example, fuel and stationery. How much stock you keep will depend on factors such as:

  • reliability of supply
  • expectations of price rises
  • how steady demand is
  • discounts for buying in bulk