In the logistics sector, stock plays a fundamental role. Effectively managing inventory is crucial to the success of any business, as it directly impacts customer satisfaction, operating costs and overall supply chain efficiency.
However, to achieve proper inventory management, it is essential to understand not only what stock is, but also the different types and their role in the logistics operation.
In this article, we’ll take a detailed look at the concept of stock, the different types that exist and how each plays a unique role in warehouse management.
In addition, we will explore methods for calculating the appropriate level of stocks and strategies for optimizing them. We will also highlight the vital role of stock in a company’s logistics and how Across Logistics can become a key ally to help you improve your inventory management.
Let’s dive into this guide to discover how good stock management can make a difference to your business.
Types of stock
In logistics, correctly identifying and classifying the different types of stock is essential to optimize inventory management. Here we explore the two main categories: stock by functionality and stock by operation.
Stock by functionality
This classification groups stock types according to their specific purpose in the warehouse and how they fulfill a particular role in the supply cycle.
Cycle or Active Stock
Cycle stock, also known as assets, represents the amount of stock required to meet the usual demand of customers or distributors over an extended period of time.
This is the level of inventory that a company must hold to satisfy recurring sales and maintain a constant flow of deliveries.
It is the heart of inventory and serves as an indicator of the rate at which a company replenishes its products, directly influencing customer satisfaction and operational efficiency.
Maintaining an optimal balance in active stock is crucial to ensure that companies can fulfill orders without accumulating excess inventory that can increase storage costs or lead to obsolescence.
Minimum Stock
The minimum stock is the minimum amount of stock that a company must keep in its warehouse to avoid stock-outs. It is established as a critical line which, when crossed, indicates that a new order must be placed to replenish the stock.
This limit is essential to ensure a continuous flow of operations without interrupting sales or deliveries. An adequate minimum stock level enables companies to respond quickly to demand, avoiding lost sales and maintaining customer satisfaction.
Maximum Stock
The maximum stock, in contrast to the minimum stock, represents the highest amount of stock that a company can store without exceeding its capacity. This limit is determined by product demand, space availability and storage capacity.
Maintaining a maximum stock helps to avoid inventory over-accumulation that could result in waste, additional warehousing costs or obsolete products. It is crucial to maintain a balance to meet demand without incurring unnecessary expenses.
Safety Stock
Safety stock is an additional reserve that companies maintain to cover unexpected situations such as delays in supply or an unforeseen increase in demand. This type of inventory is essential to avoid stock-outs in times of uncertainty and therefore ensures that customers continue to receive their products on time.
The amount of safety stock required may vary depending on factors such as replenishment time, demand volatility and market conditions.
Stock in Transit or On Track
Stock in transit, also known as stock in process, includes stock that is in the process of being moved between different points in the supply chain. It may be in the process of manufacturing, packaging, transportation or even in the delivery stage. Although it is not physically in the warehouse, it is still part of the total inventory.
Efficient management of this type of stock is crucial to reduce delivery times, optimize logistics operations and ensure that products reach the points of sale or end customers in the shortest possible time.
Seasonal or Seasonal Stock
Seasonal stock refers to products stored to cover a specific increase in demand during a specific period of the year. Companies in sectors such as fashion, food and consumer goods often prepare well in advance to meet demand during events such as Christmas, Black Friday or the summer vacations.
This type of stock requires careful planning to avoid running out of stock during peak season or accumulating excess inventory that is difficult to sell after that time window.
Recovery Stock
The recovery stock is composed of products that can be reused, in whole or in part, after having completed their initial life cycle. This could include goods that are returned, repaired or contain useful components for new products.
Aligned with the principles of the circular economy, this type of stock is related to reverse logistics and recycling. Managing this inventory can help companies reduce costs, minimize waste and improve their environmental impact by giving these products a “second life”.
Dead or Inactive Stock
Dead stock, also known as inactive stock, includes obsolete goods that can no longer be marketed or reused. These may be perishable products that have passed their expiration date or items that are no longer in demand due to changes in market trends or technological innovations.
Holding this type of inventory can be costly for companies, as it takes up storage space and generates financial losses. Effectively managing and eliminating dead stock is critical to maintaining a healthy inventory flow and reducing costs.
Speculative Stock
Speculative stock is accumulated with the intention of taking advantage of a possible increase in sales or prices of certain products in the near future. This approach is based on the forecast that the demand or value of products will grow, allowing the company to gain a competitive advantage by having a surplus of goods ready to meet that demand.
However, holding speculative stocks entails risks, as forecasts may not be met, which could result in unwanted surpluses or financial losses.
Stock by Operation
This classification considers the operational approach of companies to manage inventory and optimize the flow of goods. Here we break down the different ways in which stock can be managed according to the needs and strategy of each company.
Optimum Stock
The optimal stock is the inventory level that offers the maximum profitability to the company, maintaining the perfect balance between satisfying demand and minimizing storage costs.
This approach aims to avoid both stock-outs and excess inventory, ensuring an efficient flow of products.
To determine the optimum stock level, it is necessary to consider factors such as expected demand, replenishment time, storage costs and profit margins.
Zero Stock
The concept of zero stock, associated with the Just In Time (JIT) model, involves minimizing inventory to the maximum, keeping only the amount needed to satisfy immediate orders.
The idea is that products arrive at the warehouse just in time for use or shipment, thus reducing storage costs and the risk of obsolescence.
This approach is common in industries such as automotive, where demand forecasting and synchronization with suppliers are crucial to maintain production flow without inventory buildup.
Physical Stock
Physical stock represents the total amount of stock on hand at a given time in the warehouse. It is a tangible and concrete measure of inventory that can be physically observed and accounted for.
The physical stock serves as the basis for strategic replenishment and management decisions, as it shows how many units of each product there are.
Periodic audits are essential to keep this calculation up to date and aligned with the inventory management system data.
Net Stock
The net stock is the result of subtracting from the physical stock the amount of inventory already demanded but not yet satisfied. This calculation provides a more accurate view of the stock on hand for future sales, as it considers the impact of orders already placed that are pending delivery.
The net stock allows companies to anticipate their capacity to fill new orders without compromising those already confirmed.
Stock on hand
The stock on hand is a dynamic measure obtained by adding the current stock in the warehouse and the stock that will be generated with orders to suppliers in progress, subtracting the stock already demanded and to be satisfied.
This calculation makes it possible to forecast what quantity of products will be ready for immediate use, providing a more complete view of inventory based on incoming orders.
It provides a strategic perspective that allows for more accurate planning of stock levels needed to meet future demand.
3. How to calculate the right stock?
Calculating the correct stock level is essential to avoid both shortages and overstocking. Here are some common methods for determining the right stock:
Economic Lot Model (EOQ):
This model calculates the optimal order size that minimizes the combined storage and ordering costs. It considers demand, the cost of placing an order and the cost of holding inventory, finding the break-even point where total costs are lowest.
Safety Stock
As mentioned above, safety stock is an additional reserve to cover unforeseen events such as fluctuations in demand or delays in supply. It is calculated considering demand variability and average replenishment time.
ABC Analysis
Classify products into three categories according to their value and frequency of rotation:
A: High value, low turnover items (represent a small portion of inventory, but a high percentage of total value).
B: Items of moderate value and medium turnover.
C: Items of low value, but high turnover.
This makes it possible to prioritize management and resources according to the importance of each category.
Just-In-Time (JIT)
A zero stock approach that minimizes inventory by keeping only the stock needed to fulfill immediate orders. It requires accurate demand planning and strong synchronization with suppliers.
Warehouse Management System (WMS)
The use of advanced software to manage inventory in real time provides up-to-date information on stock on hand, demand trends and lead times. This helps companies make informed decisions about how much inventory to hold.
The method or combination of methods chosen will depend on the nature of the business, demand patterns and operating strategy. The key is to find the right balance that minimizes costs and ensures product availability to meet customer demand.
The role of stock in company logistics
Stock plays an essential role in a company’s logistics, as its proper management directly affects operations, costs and customer satisfaction. Here are some ways in which stock impacts logistics activities:
Order fulfillment
A well-planned stock level ensures that companies can fulfill customer orders in an efficient and timely manner. Product availability is key to maintaining a positive reputation and avoiding lost sales.
Cost optimization
Maintaining a balance between minimum and maximum stock is essential to minimize storage costs and reduce capital tied up in inventory. Overstocking means unnecessary costs, while out-of-stocks can lead to operational disruptions.
Operational flexibility
A well-managed stock provides flexibility in the face of unexpected changes in demand or delays in the supply chain. The safety stock, for example, makes it possible to absorb these unforeseen events without affecting the workflow.
Demand forecast
Historical analysis of stock levels and sales patterns helps to forecast future trends. This allows companies to adjust their inventory according to expected demand, thus reducing breakage or overstocking.
Competitive strategy
An agile supply chain, supported by well-managed inventory, can become a competitive advantage. It provides companies with the ability to respond more quickly to customer needs, especially during periods of high demand.
Customer satisfaction
Continuous product availability helps companies maintain customer confidence. Stock-outs can negatively affect loyalty and cause customers to seek alternatives from competitors.
Technology integration
Efficient stock management requires the integration of technological tools such as warehouse management systems (WMS) and forecasting software, allowing real-time visibility of inventory levels and synchronizing warehousing and transportation operations.
In summary, proper stock management is essential for companies to achieve smooth logistics operations and optimize the relationship between supply and demand, reducing costs and increasing customer satisfaction.
Across Logistics: Warehousing and Distribution for your Company
At Across Logistics we understand the importance of effective stock management for the success of your company’s logistics operations. Our warehousing and distribution service is designed to offer competitive, intelligent and flexible solutions, tailored to the specific needs of each customer.
We have expanded our warehousing capacity globally to guarantee presence in the most strategic logistics points, facilitating access to a comprehensive network that ensures stock availability and mobility when you need it most.
Here are some reasons why our warehousing and distribution services are a valuable choice for your business:
Bonded Warehouses (DA, DDA, LAME): We offer storage solutions that comply with customs and tax requirements, allowing goods to be stored temporarily with tax benefits.
Dangerous Goods Warehouses: We have facilities prepared to manage the safe storage of chemicals and hazardous materials, complying with the strictest regulations.
24/7 Surveillance: Our facilities have advanced security systems and constant surveillance to protect your inventory.
Inventory and Order Management: We implement warehouse management systems (WMS) to maintain real-time inventory control, manage orders and reduce errors.
Picking & Packing: We offer customized services for picking and and packing of products, ensuring fast and efficient delivery.
Seamless Systems Integration: Our technology solutions integrate with your systems to facilitate communication and real-time visibility of logistics operations.
KPI reporting: We provide periodic KPI reports so you can measure the impact of our solutions on your supply chain.
Last Mile Delivery: We ensure the delivery of your products to their final destination, offering last mile service accurate and on time.
Continuous Process Improvement: We constantly seek to improve our processes to provide value-added services that boost your company’s operational efficiency.
At Across Logistics, our mission is to become the logistics partner that optimizes your supply chain with customized solutions, ensuring that your inventory is in the right place at the right time.
Contact us to find out how we can help you to find out how we can help you improve your stock management and achieve your logistics goals.
