Why Do Organisations Need Stock?

1. Raw materials - why store?
   • To cope with changes in production levels.
   • To guard against delays in delivery, or against non-delivery, from suppliers.
   • To reduce the risk of world shortages.
   • If you expect the price to rise.
   • Bulk discounts will encourage you to buy large amounts.
     
     
2. Work in progress - why store?
   • Holding stock at each stage of production allows you to continue production if a piece of machinery breaks down or if workers are absent.
     
     
3. Finished goods - why store?
   • You will be able to cope with unexpected increases in demand as products are ready for immediate delivery to customers. This can be an important factor in securing a competitive edge in the market place. This will also avoid the need to step up production quickly. Hurried production increases can mean having to pay overtime and risk problems with morale as employees have to work very long hours.
   • It allows a steady flow of work through the factory in order to smooth out seasonal changes in demand. For example, ice-cream is produced and stored all year round even though most sales occur in the summer.
   • The company may have to pay financial penalties if it is late delivering its goods. Therefore holding stock of finished goods will guard against the breakdown of machinery, absence of workers, shortage of fuels or raw materials.
   • Sometimes it is necessary to build up a stock of finished goods until an order is met or a large enough batch is accumulated to be sent to a distribution centre.