DBS STORES ADM - LECTURE NOTES FOR DBS 2016 Edited

Lecture Notes; DBS-Stores Administration 2 1st Year 2nd Semester 2018
CHAPTER ONE
STORES ADMINISTRATION II
1.0 What Constitute Stores Or Warehouse
A store or warehouse is a temporal place for holding physical

stocks or supplies awaiting issue or transport to customers.
The store can be defined as “an area in an organisation where all kinds
of materials needed for production, distribution, maintenance,
packaging, etc. are received, stored and issued”. That is to say, the
basic responsibilities of stores is where materials are stored or in
custody and controlled against deterioration till they are needed as
parts, supplies, etc.
Warehouse in other words, is usually a huge building in which goods,

raw materials or commodities are stored. People do not usually shop at
warehouse.
1.1 The Concept of Stockholding
Stockholding is the amount of materials in unit held in stock at a given

period. This can also be referred to as Inventory.
Inventory is the stock of any item or resource used in an organization.

An amount of goods that a company keeps for use in the future. An
inventory system is the set of policies and controls that monitor levels
of inventory and determine what levels should be maintained, when
stock should be replenished, and how large orders should be.
By convention, manufacturing inventory generally refers to items that

contribute to or become part of a firm’s product output. Manufacturing
inventory is typically classified into raw materials, finished products,
component parts, supplies, and work-in-process.
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26th February, 2016 Course code: PUS 111b
Examples of Inventory/Stocks
1. Hospital inventory, e.g. drugs, disposables, injectable, stationary,

beds, wheelchairs, carriers Beds, needles syringes, medicine,
Thermometers etc.
2. Inventory carried by Educational institutions, eg. Stationary
items, textbooks, fluorescent bulbs, school uniforms, food items
Tables and chairs, computers, printers. Pens, markers, etc etc.
3. ECG will carry the following inventory; electrical poles, cables,

transformers etc.
4. Mining - machines parts and accessories, helmets, apron,
bulldozers chisels, chemicals such as cyanide, mercury etc.
5. Water Company - PVC, Pipes. Chemicals such as chlorine, water
tank etc.
6. Transport. Vehicle parts or components, lubricant, Tires etc.
1.2 TYPES OF INVENTORY
1. Cycle stock/inventory. It is inventory that results from

replenishment of inventory sold or used in production. It is
required in order to meet demand under conditions of certainty.
2. Safety or Buffer stock/inventory. This is stock held in excess
of cycle stock to guard against uncertainty in demand or lead time.
3. Speculative stock/inventory. This is inventory held for reasons
other than satisfying current demand. This type of stock is held in
anticipation of an intended strike, quantity discounts, materials
shortage, forecasted price increase etc.
4. In-transit inventory/stock. These are items that are en route
from one location to another. They may be considered part of cycle
stock even though they are not available for sale or shipment until
after they arrive at the destination.
5. Seasonal stock/inventory. It is a form of speculative stock that
involves the accumulation of inventory before a seasonal period
begins.
6. Dead stock/inventory. This refers to items for which no demand
has been registered for some specified period of time. It is
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sometimes referred to as obsolete stock. Such items are normally
transhipped to another location to avoid the obsolescence penalty
or mark down at their current location.
1.3 REASONS FOR HOLDING INVENTORY OR STOCK
1. Unreliable Deliveries of Stock. It is not all the time that suppliers

are able to deliver every order on time since supplies can be held
up by unforeseen circumstances such as strikes, transport delays,
bad weather, administrative error etc.
2. Bulk Discounts.
When companies buy items in large quantities, they can attract
advantageous price (discounts) since the supplier will have a
cheaper unit rate. In a company that spends billions of Cedis on
stock every year, such discounts can make a great contribution to
overall levels of profit.
3. Reductions in Operational Risks.
When a company holds more stock, it stands a better chance of
avoiding “nil or zero stock” situation. This means that if a supplier
fails to deliver the goods needed, the factory can still be supplied
from stock. The results of not producing because of zero stocks are
loss of profit, loss of sales, loss of reputation as a supplier, idle
labour etc.
4. Support production plan;-Organisations are able to achieve their
aims and objectives within the period for 3months, 6months or 12
months.
5. Reduced Purchasing Cycle;-
When an organization holds a high level of stock, the number of
times the purchasing cycle has to be gone through is significantly
reduced. This reduces management and administrative cost as well
as the cost of ordering.
6. Appreciation of Stock Value.
In times of high levels of price inflation, the holding of stocks,
purchased at a certain price, can help to protect the organization
from price increases.
7. Increased Flexibility Of Output
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By holding a certain amount of reserve stock, the organization will
be in a better position to increase its level of output should an
increase in demand come about.
8. Advantage Of Low Seasonal Prices
Some products are seasonal in nature and command lower prices
during peak periods. An organization can buy more of the stock at
the peak period and take advantage of the low price.
9. To maintain independence of operations.
10. To meet variations in product demand.
11. To allow flexibility in production scheduling.
12. To provide a safeguard for variation in raw material delivery time.
1.4 COSTS ASSOCIATED WITH HOLDING STOCK/ INVENTORY
There are several basic costs incurred by any organization which holds
stock of materials
1. Administrative Costs;-
When goods are held in stock, there is a great deal of
administrative work involved, including control of stock receipts,
issues, stock record cards etc. All these duties take up resources
in the form of space, overhead costs, labour skills and time.
2. Ordering Costs;-
This is the cost incurred from obtaining goods from the supplier.
These are costs of ordering a new batch of raw materials. These
includes placing a purchase order, cost of inspection of received
goods/materials, documentation etc. Ordering costs vary inversely
with carrying cost.
3. Interest On Capital Tied Up;-
This cost comes about in situations where the organization
purchases the items before they are supplied. A very long Lead
Time can be very costly and can lead to cash flow problems for the
organization since it has to pay interest on the capital tied up in
the goods which have not been supplied (ordering cost).
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Again, when an organization builds up stock it has first to
purchase that stock from suppliers. The goods will have to be paid
for before they are processed and sold by the organization. There is
a gap between the organizations paying for the stock and the final
selling of the finished item. This has the effect of committing a
great deal of the organization’s money which will not earn any
interest (opportunity cost) and cannot be used for any other
purpose until the goods are actually sold. If the period of time is a
long one, it can lead to cash flow problems for the organization.
4. Insurance Costs;-
This cost is incurred when the organization decides to insure the
inventory against theft, losses, and destruction.
5. Rent (Space use) Cost of storage;-
In situations where the organization does not have its own stores
or adequate space to hold up stock, it has to rent warehouse to
store the inventory. The space used for that purpose will have to
be paid for (rent).
6. Materials Handling Costs;-
When stocks are held by an organization, they have to be stored
and handled by the stores staff. This will include the use of
expensive materials, equipment, storage facilities and labour time.
7. Stock Maintenance Costs;-
Some inventories require different conditions of storage (warm,
dry, cool, cold etc.) in order to avoid deterioration of the stock. This
could necessitate the building of special storehouses, or the
introduction of heating, ventilation and lighting systems, all of
which must be maintained at great cost.
8. Obsolescence Costs or Depreciation;-
 Materials held in stock may become obsolete (outmoded) and
thus reduce in value hence will add to the total cost of
storage.
9. Security cost;
Materials are cash and need be stored in secure conditions but
security is expensive to buy and install (eg.CCTV Camera).
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1.5 COSTS OF STOCKOUT OR ZERO STOCK
Stock out is a situation in which the demand or requirement for an

item cannot be fulfilled from the current inventory. This is also
known as nil stock. The following are some of the costs associated
with stock out:
1. Loss of Production Output;-
In the event of stock-out, production department does not get raw
materials to carry out production and this will result in nil output
which can also adversely affect the financial standing of the
organization.
2. Cost of idle time;-
In a stock out situation, labour and machine remain idle or
unused. This will result in losses in the form of remuneration to
labour, machine hour etc.
3. Loss of Customer Goodwill;-
Stock out may force an organization’s customers to switch to
another competitor for supplies and this will eventually result in
loss of goodwill, that is, intangible asset valued according the
advantage or reputation the company has acquired over and above
its tangible assets.
4. Loss of Sales;-
When no production takes place, there will be no output to sell
and this will adversely affect the financial position of the
organization.
1.6 PROBLEMS OR RISKS ASSOCIATED WITH HOLDING STOCK
1. Potential Damage and Deterioration

2. Loss of Value
3. Encourages fraud
4. Use of Space
5. Obsolescence
6. Security concerns (rodents, reptiles, fire, flooding etc.)
7. Loss of working capital and its effect all cash flow.
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8. Theft
9. Fraud
Problems of stock Out

1. Loss of production output
2. Cost of idle time
3. Loss of consumer goodwill
3. Loss of sales
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CHAPTER TWO
2.0 INVENTORY MANAGEMENT AND FORECASTING TECHNIQUES
Forecasting technique is using different methods to predict quantity

usage in the future.
What is 'Inventory Management'
Inventory management is the overseeing and controlling of the ordering,

storage and use of components that a company will use in the
production of the items. It will sell as well as the overseeing and
controlling of quantities of finished products for sale.
A business's inventory is one of its major assets and represents an

investment that is tied up until the item is sold or used in the
production of an item that is sold. It also costs money to store, track
and insure inventory.
2.1 TYPES OF FORECASTING TECHNIQUE
A. moving Averages
Moving averages move in the sense that as new data becomes
available, it replaces the oldest data in the equation.
B. Exponential weighted moving average or exponential
smoothing.
This involves the use of a weighted average of past time series as
the forecast in the equation.
2.2 DEFINITION OF IMPORTANT TERMS
a. Safety Stock/Buffer Stock/Minimum Stock

It is the amount of stock in units that supports production as a
result of shortages due to lead time being exceeded or actual
demand being greater. Alternatively, it is the stock held by a
company in excess of its requirement for the lead time.
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Or a supply of inputs held as a reserve to safeguard against
unforeseen shortages or demands. Maintaining buffer stock can
protect a company from the perception of hardship during market
downturns
Formulae for safety stock
Safety stock= (maximum Daily usage - Average Daily usage) × lead
time
b. Service Level
It is the ability to meet the demands of customers from stock.
c. Reorder Level
The level of stock or predetermined quantity at which a fresh order
should be placed. The reorder level of stock is the point at which
stock on a particular item has diminished to a point where it needs
to be replenished. A minimum amount of an item which a
company holds in stock, such that, when stock falls to this
amount, the item must be reordered
d. Order Quantity (EOQ)
The amount of stock to order. This may be predetermined using
Mathematical formulae or based on personal judgement.
Economic order quantity (EOQ) is the order quantity that
minimizes the total holding costs and ordering costs.
e. Progress Level
When stock on hand falls to this level a check should be made
with the supplier as to the status of the outstanding orders.
f. Maximum Stock
This is the quantity of a stock item above which stock on hand
should never rise.
g. Lead Time
It is the time lapse between ordering and delivering of requests to
the buyer/organisation. (It can be operating points).
Alternatively, Lead time is the period between a customer's order and

delivery of the final product. A small order of a pre-existing item may
only have a few hours lead time, but a larger order of custom-made
parts may have one of weeks, months or even longer. Again, it can refers
to a number of minutes, hours, or days that must be allowed for the
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completion of an operation or process, or must elapse before a desired
action takes place
Lead time is made of:
 Preprocessing Lead Time (also known as "planning time" or

"paperwork"): It represents the time required to release a purchase
order (if you buy an item) or create a job (if you manufacture an
item) from the time you learn of the requirement.
 Processing Lead Time: It is the time required to procure or
manufacture an item.
 Postprocessing Lead Time: It represents the time to make a
purchased item available in inventory from the time you receive it
(including quarantine, inspection, etc.)
Lead Time terminologies
 Order Lead Time - Time from customer order received to

customer order delivered.
 Order Handling Time - Time from customer order received to
sales order created.
 Manufacturing Lead Time - Time from sales order created to
production finished (ready for delivery).
 Production Lead Time - Time from start of physical production to
production finished (ready for delivery).
 Delivery Lead Time - Time from production finished to customer
order delivered.
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CHAPTER THREE
3.1 STOCK CONTROL MODELS
Stock control models are the various techniques employed to calculate

quantity usage to replenish stock levels.
3.2 TYPES OF STOCK CONTROL MODELS

a. Fixed Order Point System;- (fixed time and fixed quantity).
This is also known as continuous review system or reorder point/level or

two-bin system. This is based on a reordering system that reacts when
stock falls to a predetermined level of stock or reorder level or point.
The fixed order point system is used when the demand for stock is
constant and known. Re-order level may be indicated by
1. Simple manual methods such as the two-bin system. In a two bin
system, the stock of a particular item is kept in two bins and when
the first bin is empty supply is re-ordered.
2. Computerized systems which trigger replacement when inventory
has fallen to a specific re-order point.
b. Periodic Review System (fixed time and variable quantity).
In this system an item's position is reviewed periodically. The periods or

intervals at which stock levels are reviewed depend on the importance
of the stock and the cost of holding it. A variable quantity will be
ordered at each review to bring the stock level back to the maximum
hence it is therefore called topping - up system.
c. Programmed Ordering System.
This programme takes into account the market situation or the

production demand when ordering. In this system, different kinds of
inventories require different stock management approaches. Examples
are MRP, J.IT, etc.
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d. Economic Order Quantity (EOQ)
The EOQ is a mathematical formula used by many organizations
to establish the most economic amount to order for any item held
in stock.
To be able to calculate a basic EOQ, certain assumptions are

necessary:
(a) That there is a known, constant stockholding cost;
(b)That there is a known, constant ordering cost;
(c) That rates of demand are known;
(d)That there is a known, constant price per unit;
(e) That replenishment is made instantaneously, i.e. the whole
batch is delivered at once;
(f) No stock outs allowed.
The formula is:
2 AX
Q= √ YZ
Where:
Q= the value of the EOQ

2= the common multiplication factor
A= annual consumption
X= the administrative costs of ordering
Y= the costs of storage expressed as a decimal of the average level of
stock value
Z= cost per unit
Example:
Information: 1. Annual usage 2500
2. Costs of one order GHc25.00
3. Costs of storage 0.5
4. Cost per unit GHc4.00
This means the quantity to order is 250units, when the reorder level is
reached.
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3.2.1 LIMITATIONS OF THE EOQ
(i) The EOQ model assumes that holding costs are constant, i.e.
that they vary in line with quantities held. However, this may not be
realistic. Holding costs may include some elements that are stepped
in nature; for example, if inventory reaches a level where another
member of staff is required to control it, there is a stepped increase in
costs.
(ii) The EOQ model rests upon various assumptions and

estimations of costs. If these assumptions and estimations are
incorrect, then the EOQ is incorrect.
(iii) The EOQ model assumes that demand for a product is spread
equally over a period, but in practice there may be seasonal
fluctuations in demand for a product. Application of the EOQ model
may result in order quantities that are insufficient to guarantee supply
in times of peak demand.
e. The ABC Analysis or the Pareto Analysis
The ABC analysis is an inventory control model that categorizes stock

(volume and value) according to their contribution to overall levels of
output and turnover. It is the use of Pareto principle in prioritizing or
ranking a range of items which have different levels of significance. Its
objective is to separate the ‘vital few’ from the ‘useful many.’ This
principle is also called the 80:20 rule.
With this, the stock controller must divide his stockholding into three
groups; Group A, Group B and Group C.
Three classes of items are;

A- Very important
B- Moderately important
C- Least important
Group A: Items that account for 20 percent of total volume (total

items in inventory) but account for 80 percent of total stock value
(financial value). These items receive close attention through frequent
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reviews of amount on hand to make sure that customer service levels
are attained
Group B: Items that account for 50 percent of stock volume (items in

inventory) and account for 50 percent of stock value (financial
value). Items should have controls that lie between the two extremes. It
must be noted that C items are not necessarily unimportant. Incurring
a stock out can result in a costly shutdown of an assembly line.
Group C: Items that account for 80 percent of total stock volume

(total items in inventory) but 20 percent of stock value (financial
value). Items might account for 80 percent of the number of items but
the financial value is low. The items should receive only less control.
The categorization will assist the store’s manager to prioritize their
resources in favour of A and B in order to maximize their impact on
total costs.
f. Materials Requirement Planning (MRP1)

This is a production planning and inventory control system used to
manage manufacturing processes.
An MRP system is intended to simultaneously meet three objectives:
a. Ensure that materials are available for production and products
are available for delivery to customers.
b. Maintain the lowest possible material and product levels in store.
c. And plan manufacturing activities, delivery schedules and
purchasing activities.
The MRP system calculates the total quantity of each item that needs to
be ordered, their lead times and issues purchasing with the information
to allow them to plan:
1. Which/what materials or parts need to be ordered?
2. How many to order?
3. When to order?
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For MRP to be successful, three main files/documents are required:
A. Bill of Materials(BOM)
This file specifies the quantity of materials needed to produce a
particular product.
B. Stock Record File or Inventory Records File
This file gives record of stock position and the additional materials
required for the production of a particular product.
C. Master Production Schedule
This file specifies the process or the technique necessary for the
production of a particular good.
3.2.3 Factors to Consider for a Successful MRP
1. Efficient and Integrated Computer Systems. This is important

because manual computation of materials and stock is prone to
errors.
2. High Data Integrity. For instance, if there are errors in the
inventory data, the BOM data as well as the output data will also
be incorrect (Garbage in Garbage out (GIGO).
3. Capacity. The MRP should factor into its calculations the issue of
adequate capacity in terms of manpower, machine and supplier
capacity.
4. Accurate ERP. Other systems in the entire enterprise need to work
properly, e.g. lead time, variety reduction etc.
g. JUST-IN-TIME(JIT)
Just-in-time (JIT) is a production and inventory control system in

which materials are purchased and units are produced only as needed
to meet actual customer demand. It is also called Zero inventory or
Stockless system. JIT-this is a materials control planning making
what the customer needs when it is needed and in the quantity needed
using the minimum resources of people, material and machinery.
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Under ideal conditions, a company operating a just-in-time
manufacturing system would purchase only enough materials each day
to satisfy that day’s needs.
Just-in-time means that raw materials are received just in time to go

into production, manufacturing parts are completed just in time to be
assembled into products, and products are completed just in time to be
shipped to customers.
Factors to Consider for a Successful JIT
1. A flexible workforce. This involves workforce capability to respond

to skills and knowledge required to perform a number of various
tasks of production.
2. There must be commitment from all involved in the organization
and willingness to adapt to change.
3. The idea of continuous improvement must be adopted into the
philosophy and goals of the company.
4. The must be the existence of teamwork which is necessary for the
development of a co-ordinate system.
5. There must be management and employee efforts to reduce and
eliminate waste and obstacles from the production area.
6. Management must carry out housekeeping activities which include
removal of defective products, improve level of employee morale,
reduce frequency of machine breakdown, enhance flow of
materials, incorporate employee suggestion and inventory levels.
7. There should be organizational flexibility in terms of volume
patterns, modification of the product mix, choice of equipment for
operations as well as development of employees to acquire multiple
skills.
Advantages of Just-In-Time
1. Funds that were tied up in inventories can be used elsewhere.

2. Areas previously used to store inventories can be used for other
more productive ventures.
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3. Throughput time is reduced, resulting in greater potential output
and quicker response to customers.
4. Defect rates are reduced, resulting in less waste and greater
customer satisfaction.
5. Less obsolescence risks in inventories.
6. Decline in paperwork.
Disadvantages of Just-In-Time
1. It may be difficult and expensive to introduce and operate.

2. With no stocks to fall on, a minor disruption in supplies to one’s
business from just one supplier could force production to cease at
very short notice.
3. Worker flexibility is reduced since in JIT, employees must adhere
to methods of production in order to maintain production
4. Resistance to change may be experienced since JIT involves an
organizational level of change which will affect every member of the
organization.
5. Cultural differences may be a hindrance to a successful
implementation of JIT.
6. Problems if orders are delivered late.

7. Problems if quantity ordered is not met
3.4 ACRONYMS
1. EOQ - Economic Order Quantity:
This is the optimal ordering quantity for an item of stock that
minimizes cost.
2. J.I. T - Just - In –Time:

This means making what the customer needs when it is needed and in
the quantity needed using the minimum resources of people, material
and machinery.
3. M.R.P - Materials Requirements Planning-:

It is a technique that assists in the detailed planning of production. It
aims at making available goods or materials just before they are
required by the next stage of production.
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4. E.R.P - Enterprise Resource Planning:
This is applicable to all organization and allows managers from all
departments to have a consolidated view of what is or is not taking
place in the enterprise.
5. D.R.P - Distribution Requirement Planning:

This is an inventory control techniques that applies MRP principles to
distribution inventories. It may also be regarded as a method of
handling stock replenishment.
6. V.M.I - Vendor Managed Inventory-

This is a J.I.T Technique in which inventory replacement decisions are
centralized with manufacturers or distributors.
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CHAPTER FOUR
4.0 STOCKTAKING
Stocktaking is the process of accounting for all receipts, issues

and balances on hold in store within a given period of time.
4.1 TYPES OF STOCKTAKING
There are several methods of carrying out stocktaking
1. Periodic stocktaking: This is the process of taking stock within a

specific period of time, e.g. annually. This is obligatory on the part
of stores administration and it must involve external auditors.
Depending on a company’s policy, periodic stocktaking can be
done fortnightly, monthly or quarterly.
Advantages of Periodic Stocktaking
1. The stock take is usually carried out on non-working day and

therefore the stock checkers have time to count carefully and
check discrepancies.
2. A complete stock take enables discrepancies which are brought to
light to be investigated.
3. Accurate stock evaluate figures can be provided for the annual
balance sheet and accounts.
Disadvantages
1. The store must be completely closed to ensure an accurate count.

It is very costly and involves a great number of staff from both
inside and outside the stores.
Continuous stocktaking: Continuous stock taking is a process of

taking stock throughout the year at the convenience of the store keeper.
This is voluntary and optional to the store administration.
In this system, a selection or section of items is checked every week
throughout a twelve-month period. Item in stock would therefore, be
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physically counted and checked without having to close the store.
Advantages
1. It enables the store to continue working.
2. It spreads the disruption caused by stock taking over a long period
and therefore, the disruption is reduced.
3. It can act as a form of spot-checking if the schedule of stock to be
checked is not disclosed.
Disadvantages
1. Major discrepancies need a great time to investigate properly, but
because of the continuous nature of this type of checking, the
time devoted for investigation will be limited.
Spot checking: This is situational verification of stock position when

an unfortunate incident occurs e.g. Fraud, fire outbreak, theft etc.
Spot-checking is used in connection with the security and anti -theft
aspects of stores management. It is designed to verify the stock held
without a prior warning which could provide time for stock to be
replaced illegally. The system also acts as a deterrent against those who
may contemplate theft knowing that as sudden check could herald on
investigation.
Advantages
1. It acts as a strong deterrent to theft and fraud.
2. It is simple to arrange and carried out on a limited scale.
Disadvantage
1. It is limited in application in relation to major inventory
management principles.
2. Stock taking cannot really provide data for financial calculations.
Organization of Stocktaking
To ensure that stocktaking is an accurate and meaningful exercise,
stores management must organize and control all stocktaking activities.
Stocktaking demands a very high degree of care and attention to details
if the physical count is to be effective. Stores managers therefore need a
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stocktaking procedure to cover the vital aspects of complete stocks
a. A controller of stock should be appointed. (Usually he is a senior
member of the supply management Team)
b. Stock areas should be allocated to individual members of the
stocktaking team.
c. Adequate materials and equipment must be available for the
stock takers before the counting begins. Stock takers will need
pens, pencils, rubbers, stock counting, sheets, calculators,
clipboards, measuring equipment and office space to calculate
total stocks and make comparisons.
d. A comprehensive stocktaking meeting should be held before the
stock take is due to commence.
e. The stock to be actually counted must be clearly explained. It
should include all normal stock, materials under inspection,
scraps packaging and items on loan.
f. There should be a complete closure of all store installation and the
stopping of all stores activities until the stock take has been
completed.
g. All equipment and stock which do not belong to the organization
must be counted and recorded separately from the other stock
classification
h. All items of stock which are in transit (i.e. between the store and
some other installation) or stock held in depots or warehouses
must be accounted for at the same time as the main store stock
take in order to ensure a complete picture of the organization's
current
stock
I. All previously active store documentation (i.e. issue notes,

delivery notes, quality control notes, etc) should all have been
documented and filed before the actual stock taking begins.
This will ensure that calculated records are up to date
4.2 BENEFITS OF STOCKTAKING

Stocktaking involves many valuable and expensive man hours to
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arrange and carry out plus a great deal of management time needed to
investigate any list of stocks discrepancies.
However, the cost and efforts are more than justified by the following
benefits.
a. Stock record and stock control systems will be tested.
b. Computerized control systems can be verified.
c. Financial reports produced by the organization's auditors will
demand some form of physical stock verification to buck up the
value of stock shown within the balance sheet.
d. The security aspects of stores management demands that regular
and physical check be made to ensure that any possible theft or
fraud is quickly detected and investigations carried out.
e. Stocktaking is an indicator of overall stores efficiency and
management control.
4.3 STOCK DISCREPANCY
It is the difference between the calculated and the physical

stock quantity.
4.3.1 CAUSES OF STOCK DISCREPANCIES

1. Theft or fraud of the organization’s stock.
2. Unreported damage or deterioration of stock.
3. Stock taken from stores without proper documentation or
notification.
4. Materials being stocked at the wrong place and therefore not
considered during physical stock verification.
5. Actual quantity of an item of materials received in the store
being different from the quantity recorded.
6. Errors in ascertaining quantities physically available.
7. Wrong materials issued from stock.
4.3.2 HOW TO PREVENT STOCK DISCREPANCIES

1. Control systems should be closely studied to ensure that
any fault can be eliminated.
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2. Stores documentation must be closely examined to ensure
that all data needed to control the stock is provided,
clearly, quickly and accurately.
3. Consultations must be done with all departments whose
activities affect the accuracy of stocktaking to ensure they
appreciate the role their actions play.
4. A complete review and overall check of security systems
should be carried out if theft or fraud is suspected.
4.3.3 Stock Verification and Discrepancies

Stocktaking involves the actual and physical process of counting,
checking and measuring all the materials, tools and other equipment
held within the store. These figures are then compared with the
calculated levels of stock indicated in the stock record system. Because
the store manager has two individual sets of stock figures he can
compare and verify the two sets. This will enable him
to report a final and agreed stock quantity.
This is the difference between the calculated and the physical stock
quantity.
There are two main types of stock discrepancy.
a. Stock surplus or positive stock: this is a situation where more
stock is physically counted than is indicated in the calculated
stock.
b. Stock deficiencies, also known as negative stock is a situation
where less stock is physically counted than is indicated in the
calculated stock.
4.3.4 Classification for Stock Discrepancies

There are three main classifications for stock discrepancies
a. Minor Discrepancies: this is where the variation between
calculated and physical stock is very small, compared with the
overall quantities involved. For example if a stock taken of all the
stores of stock of light bulbs produced a total of about 3,000 and a
stock discrepancies of only two was found, then management
would not waste time and resources on any attempt to investigate
23
such a minor discrepancy.
b. Major discrepancies: this is where a very large and valuable
variation between calculated and physical stock is detected
because of the stores accountability and responsibility for also
stock held, a complete investigation into the causes of the
discrepancies must be carried out.
c. Operational discrepancies: this is where although the amount of
variation involved is very small, the importance of the items
involved.
In terms of the continued operation of the organization is so vital that a
major investigation may have to be mounted to determine the fault and
ensure that stocks of the vital materials are secured.
Causes of Stock Discrepancies

a. Original incorrect stock take
b. Mathematical error within the stock record card may produce an
incorrect calculated stock for comparison.
c. Units of issue in a large stock take can become confused or
changed without notification to the stock takers and therefore a
miscount will occur.
d. Misplacement of stock in the wrong shelf, cupboard or bin can
results in stock being counted but in recorded against the wrong
stock count sheet.
e. Theft or fraud of the organization's stocks.
f. Unreported damage or deterioration of stock.
g. Stock taken from stores without proper documentation.
The Prevention of Stock Discrepancy

a. The existing system of control should be closely studied to ensure
that any faults can be eradicated.
b. Stores documentation must be closely examined to ensure that all
data needed to control the stock is provided.
c. Consultations should be held between the stores and other
departments whose actions can affect the accuracy of stocktaking.
(Transport, purchasing, distribution, production and other user
departments).
24
A complete review and overall check of security systems should be
carried out if theft or fraud is suspected.
CHHAPTER FIVE
5.0 COMPUTER
A computer is a programmable electronic machine that can store,
retrieve, and process data according to a set of instructions at high
speed.
Merits and Demerits of Computer in the Supply Chain

Merits
1. It has made processing of difficult tasks easier.
2. It has made huge database management easier.
3. It saves time and money.
4. Communication has been made easier by use of computers.
5. It has helped in convergence of several technologies like audio,
video, mobile etc.
6. Employment
7. It has reduced the human effort and work load in the office.
8. It has eliminated paper work
9. It saves time and money
Demerits
1. It has affected the concept of society in the world (culture and

values).
2. It has isolated people from one another.
3. Unemployment
4. It has created unhealthy activities in the youth.
5. Its affecting the heath of individuals especially backache and
eye problems.
5.1 IMPORTANCE OF ICT IN PURCHASING AND SUPPLY
Information Communications Technology (ICT) is generic name used to

describe a range of technologies for gathering, storing, retrieving,
processing, analysing and transmitting information. It is an umbrella
that involves any communication application or device, including
25
television, radio, satellite systems, cellular phones, computer hardware
and software.
5.2 COMPUTARISED OR INTERNET PURCHASING
It is the act of purchasing products or services over the internet.

Generally, a lot of people prefer internet purchasing because it is
convenient and can be done from the comfort of one’s home. Again it
reduces the need to wait in long queues or search from store to store for
a particular item. This is also called E-purchasing.
ADVANTAGES OF E-PURCHASING
1. It is convenient. In comparison to a brick and mortar store with

fixed hours, online shoppers can choose any time of the day to get
on the web and shop.
2. It is possible to compare prices from hundreds of different vendors
unlike in the case of a store where one is most likely to settle for
any price the vendor has placed on a particular item.
3. Availability of variety of choices. It is possible to move several
stores on the web until you settle for a choice unlike the brick and
mortar store where shelve space is limited and variety is also
limited.
4. Easy access to consumer reviews. It is relatively easy to come by a
consumer reviews for almost any product you can think of online
which makes for more informed purchases.
5. It is cost-saving, eg. order costs.
6. It makes for efficient use of time.
7. Shopping can be done online 24/7.
8. It reduces hazards associated with personal shopping eg., armed
attack, pilfering etc.
DISAVANTAGES OF E-PURCHASING
1. You can’t try things on to see whether they fit you or not which
can be a bad experience.
2. It may not be possible to talk to someone immediately if you have a
question about a product you wish to purchase.
26
3. The question of privacy and security can be a concern for online
shoppers due to the problem of hacking and virus attack etc.
4. It is not possible to do physical inspection of products before
purchasing them. This can lead to the possibility of buying goods
that are shoddy.
5. It is not possible to do bargaining on the net. Goods bought online
can sometimes be more expensive than walking to the store to buy.
27
CHAPTER SIX
6.0 CODE OF ETHICS OR CONDUCT
Code of ethics is systems and procedures designed to regulate and

prevent unethical practices in the form of attitudes or behaviours
exhibited as a purchasing and supply practitioner.
Acting in ways consistent with what society and individuals typically

think are good values.
Ethical behavior tends to be good for business and involves

demonstrating respect for key moral principles that include honesty,
fairness, equality, dignity, diversity and individual rights.
Business ethics is the application of the principles of conduct to

the work place and business relationship.
Professional ethics are guidelines or best practices that embody
ideas and responsibilities that inform pardoners as to the
principles and conduct they should adopt in certain situations.
Section 86 of the Ghana Public Procurement Act 2003, requires the

compilation and publication of a code of conduct by Public Procurement
Authority (PPA). This code of conduct has been issued in the
Regulations and requires public officials to generally inspire ethical
standards such as:
 Confidential information
Officials must not disclose to any third party confidential or proprietary
information
 Supplier relationship
Officials must avoid conflicts between their personal financial interests
and their official duties.
 Gifts and Entertainment.
28
Officials must not accept directly or indirectly, any gift (including any
gratuity favour, entertainment, loan or other consideration) with a value
in excess of a certain amount of money (which should be set at a low
level, having regard to the overall situation in the country concerned
from any person or entity which has or seeks to obtain a contract with
their own agency.
 Goods & Services
Officials and their immediate family must not sell or supply goods and
services to their own agency.
6.2 General Examples of Unethical Conduct of Purchasing and

Procurement Professionals
The following are examples of the type of conduct prohibited by the

Code of Ethics:
 Revealing confidential or “inside information” either directly or
indirectly to any tenderer or prospective tenderer.
 Discussing procurement with any tenderer or prospective tenderer
outside the official rules and procedures for conducting
procurements.
 Favouring or discriminating against any tenderer or prospective
tenderer in the drafting of technical specifications or standards or
the evaluation of tenders.
 Destroying, damaging, hiding, removing, or improperly changing any
official procurement document.
 Accepting or requesting money, travel, meals, entertainment, gifts,
favours, discounts or anything of material value from tenderers or
prospective tenderers.
 Discussing or accepting future employment with a tenderer or
prospective tenderer.
 Requesting any other Public Servant or Government official
representing the Procurement Entity in procurement to violate the
public procurement rules or procedures.
29
 Ignoring evidence that the Code of Ethics has been violated by a
member of the Tender Committee, Public Servant or other
employee or representative of the Procurement Entity.
 Ignoring illegal or unethical activity by tenderers or prospective
tenderers, including any offer of personal inducements or rewards.
 Inflating prices or quotations
6.3 RESULT OF UPHOLDING PROCUREMENT PRINCIPLES
Procurement principles and ethics will result in the following:

 Increased efficiency in the procurement functions
 Procurement operations become more effective
 Enhanced profile of procurement
 Improved achievement of objectives
 Professionalism of procurement in Ghana
6.3.1 Principles of Professional Ethics
1. Impartiality or objectivity
2. Openness and full disclosure
3. Confidentiality
4. Due diligence, Competency and a duly care.
5. Avoiding potential conflict of interest.
6.3.2 Unethical Behaviour
1. Inflating prices or granitites

2. Disclosing confidential information
3. Receiving business gift of high value
4. Preparing fictitious invoices and receipts
5. Theft and embezzlement

6. Fraudulent bids
7. Fraud in contract performance
30
6.3.3 Factors to be considered when receiving an offer of

hospitality
(a) The motive of the donor whether it is a token of appreciation or a
bribe.
(b)The value of the gift or the hospitality
(c) The types of gift or the hospitality
(d)The manner in which the offer is made-openly or secretly
(e) What conditions, if any are attached
(f) What impressions the gift or hospitality will make on superior,
colleagues subordinates bearing in mind the human propensity to
think the worst.
6.3.4 Reasons why code of ethics is important

1. It provides the basis for working together.
2. It sets boundaries as to what constitute ethical behaviour
3. It provides safe environment for all subscribers
4. It helps to dispel ethical ambiguity
6.3.5 Some ethical behaviour for procurement practitioners

1. Provision of practical help and advice to suppliers honestly and
openness
2. Provision of feedback on unsuccessful tenders
3. Impartiality and objectivity
4. Confidentiality
5. Placing a proportion of orders with local supplier
31
TRY QUESTIONS
1. What is code of ethics?
2. State any three principles of professional ethics
3. Identify any four ethical behaviours of procurement function.
4. Explain five unethical behaviours of procurement function.
5. List and explain the main reasons why organizations hold stocks.
6. What are the costs involved in holding stocks?
7. Identify four costs associated with stock out.
8. Explain the concept of stock holding.
9. Distinguish between safety stock and service level.
10. State and explain THREE ways by which a purchasing
organization can prevent stock holding cost.
11. Define the term code of ethics.
12. Explain the following terms in ethics as applied in
purchasing and supply
ii) Hospitality
ii) Business gift
13. List FOUR guidance set out for members to follow when
practicing purchasing.
14. State and explain THREE main files needed in order to
achieve Materials Requirement Planning (MRP).
15. List FOUR factors to be considered if the MRP system is to
work effectively.
16. Explain the following terms of inventory management:
i) lead time
ii) service level
iii) exponential weighted average
iv) moving weighted average
v) stock control models
17. Identify FOUR costs associated with stock out.
32
18. List FIVE disadvantages of computerized purchasing.
19. Identify FOUR unacceptable ethics of supply of goods service
that may occur in the organization.
20. Define the term ‘Just-in-Time’ (JIT) system and state THREE
of its benefits.
21. State and explain TWO factors to be considered for JIT to
work effectively.
22. A building materials stockist obtains its cement from a single
supplier. Demand for cement is reasonably constant throughout
the year. Last year the company sold 2000 tonnes of cement. It
estimates the cost of placing an order at around GH¢25 each time
an order is placed and charges inventory holding at 20 per cent of
purchase cost. The company purchases cement at GH¢60 per
tonne. How much cement should the company order at a time?
23. Eternity for mankind, a company that sells pump to other

manufacturer would like to reduce its inventory cost by
determining the optimal number of pumps to obtain per order. The
annual demand is 1000units, the ordering cost is GH¢10 per
order, and the average carrying cost per unit per year is GH¢0.50.
Using these figures, if the EOQ assumptions are met, calculate the
optimal number of units per order.
24. ABC Ltd is engaged in production of tires. It purchases

rims from DEL Ltd, an external supplier. DEL Ltd takes 10days in
manufacturing and delivering an order. ABC requires 10,000 units
of rims. Its ordering cost is $1,000 per order and its carrying costs
are $3.00 per unit per year. The maximum usage per day could be
50 per day. Calculate EOQ, reorder level and safety stock.
25. Deliberate on five (5) benefits of stocktaking?

26. Describe the various types of stocktaking.
27. Differentiate between fixed order point system and periodic
review system.
28. Explain each of the following:
a. Stock discrepancy
33
b. Stock surplus
c. Stock deficiency
d. Sate four ways by which discrepancy can be prevented
6.5 REFERENCES AND READING LIST

1. Arjan.J.W (2008). Purchasing and Supply Chain Management.Fouthedition, Printed in
China. Publishe by Thompson Learning.
2. Baley, P.D Farmer, D Jossep and D Jones (2005). Purchasing Principles and Management,
9th Edition, FT Pretence Hall, Harlow.
3. Buckley, J (1996). Guide to world commodity markets 7 th Edition, Kogan Page, London.
4. CIPS (1998). Purchasing policies and procedure, Chartered Institute of Purchasing and
Supply, Easton (ISBN 1-86124-003-1)
5. Purchasing & Supply Chain Management -Lyson, Farrington et al.
34

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Lecture Notes; DBS-Stores Administration 2 1st Year 2nd Semester 2018

1.0 What Constitute Stores Or Warehouse

A store or warehouse is a temporal place for holding physical

Warehouse in other words, is usually a huge building in which goods,

1.1 The Concept of Stockholding

Stockholding is the amount of materials in unit held in stock at a given

Inventory is the stock of any item or resource used in an organization.

By convention, manufacturing inventory generally refers to items that

1. Hospital inventory, e.g. drugs, disposables, injectable, stationary,

3. ECG will carry the following inventory; electrical poles, cables,

1.2 TYPES OF INVENTORY

1. Cycle stock/inventory. It is inventory that results from

1.3 REASONS FOR HOLDING INVENTORY OR STOCK

1. Unreliable Deliveries of Stock. It is not all the time that suppliers

1.4 COSTS ASSOCIATED WITH HOLDING STOCK/ INVENTORY

Stock out is a situation in which the demand or requirement for an

1.6 PROBLEMS OR RISKS ASSOCIATED WITH HOLDING STOCK

1. Potential Damage and Deterioration

7. Loss of working capital and its effect all cash flow.

Problems of stock Out

2.0 INVENTORY MANAGEMENT AND FORECASTING TECHNIQUES

Forecasting technique is using different methods to predict quantity

What is 'Inventory Management'

Inventory management is the overseeing and controlling of the ordering,

A business's inventory is one of its major assets and represents an

2.1 TYPES OF FORECASTING TECHNIQUE

2.2 DEFINITION OF IMPORTANT TERMS

a. Safety Stock/Buffer Stock/Minimum Stock

Alternatively, Lead time is the period between a customer's order and

Lead time is made of:

 Preprocessing Lead Time (also known as "planning time" or

Lead Time terminologies

 Order Lead Time - Time from customer order received to

3.1 STOCK CONTROL MODELS

Stock control models are the various techniques employed to calculate

3.2 TYPES OF STOCK CONTROL MODELS

This is also known as continuous review system or reorder point/level or

b. Periodic Review System (fixed time and variable quantity).

In this system an item's position is reviewed periodically. The periods or

c. Programmed Ordering System.

This programme takes into account the market situation or the

To be able to calculate a basic EOQ, certain assumptions are

The formula is:

Q= the value of the EOQ

(ii) The EOQ model rests upon various assumptions and

e. The ABC Analysis or the Pareto Analysis

The ABC analysis is an inventory control model that categorizes stock

Three classes of items are;

Group A: Items that account for 20 percent of total volume (total

Group B: Items that account for 50 percent of stock volume (items in

Group C: Items that account for 80 percent of total stock volume

f. Materials Requirement Planning (MRP1)

3.2.3 Factors to Consider for a Successful MRP

1. Efficient and Integrated Computer Systems. This is important

Just-in-time (JIT) is a production and inventory control system in

Just-in-time means that raw materials are received just in time to go

Factors to Consider for a Successful JIT

1. A flexible workforce. This involves workforce capability to respond

1. Funds that were tied up in inventories can be used elsewhere.

1. It may be difficult and expensive to introduce and operate.

6. Problems if orders are delivered late.

2. J.I. T - Just - In –Time: