CHAPTER FIVE

Storage management
5.1 Definition and nature of stores
Dictionary defines stores as a building where goods are kept. Stores are defined as
supplies of goods and storage is defined as the act of storing the goods. Some people use
the term store keeping which means storage.
The term stores, storehouse or warehouse refer to a building or room or place where
materials are kept. In popular usage, the term stores are used to cover all aspects of
preservation of goods that is building suppliers, and the act of storing. Stores or storage is
the function of receiving storing and issuing material. In short it is connected with the
physical handling and well being of stocks. An organization can have various types of
stores like raw materials stores, processed or semi finished materials stores, finished
goods stores, yard stores and so on.
Basically the function of stores management is to be a custodian, looking after the
items and controlling their flow. The efficiency of mfg operation largely depends on the
efficient functioning of receiving and stores operation. Efficiency in stores starts with
planning the need for materials and this presupposes that the need it self has been
forecasted with a considerable degree of accuracy. The forecast also must be subjected to
periodic review. The art of store keeping is largely that of optimizing the use of resources
to meet actual needs in an efficient manner. One of the indicators of efficiency in stores is
the number of times the stocks have turned over. Money is a scarce resource and once it
is converted in to material, it is use full only when the materials have been converted
back to money. This is the significance of stock turn over.
Storage functions
The functions of stores may be listed as follows:
 . receiving and inspection: to receive and inspect raw materials
 Issue and dispatch-to meet the demands of the customer(user dept )by proper
issuing
 Stock records-to know the balance and assist in verification and providing
supporting information for effective purchase items.
 Stock accounting

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  Stock taking and checking- to high light stock accumulation discrepancy, and
abnormal consumption and effect control measures.
 Stores preservation-to provide adequate and proper storage and preservation
to various items
 To minimize obsolescence –surplus and scrap through proper codification
preservation and handling.
 Stores arrangement-to ensure good house keeping, so that materials handling ,
preservation, stocking receipt and issue can be done efficiently
In some companies, the store keeping function include salvage and retrieval of
materials, disposal of scrap, and surplus. In smaller companies, the stores
department may be vested with the additional responsibility of inventory
control and even purchasing.
Major responsibilities of stores
A). Identification- is the process of systematically defining and describing all items of
materials in stock. It includes preparation of a store code or vocabulary, the adoption of
materials specification and the introduction of degree of standardization. In certain cases
part of this work may be done by the design, planning or standard department or some
times the purchase dept.
B). Receipt- the process of checking and accepting from all sources (vendor, production
unit etc.), All materials and parts that are used in the organization. These include supplies
of mfg or operating process, plant maintenance office and capital installation
C). Inspection-involves the examination of the incoming consignment for quality. Very
often there is a separate quality control dept which under take this work for most
material. Other wise stores personnel inspect goods. What ever may be the system of
inspection in force, it is the duty of stores to ensure that the inspection procedures laid
down are carried out before materials are accepted in to stores.
D). Storage and preservation-items are required to be binned and kept in storage bins
and impounds on racks and shelves and some times in the yard. The location is usually
indicated in the transaction card. The storage period may vary between one day and one
year or more depending up on recoupment procedure. Preservation involves maintenance

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of material to retain their quality. Quit often, temperature, humidity, dust and other
factors cause deterioration of materials.
Location and Layout
The layout of the store house help to develop an efficient work flow that minimizes the
transportation problem and handling of materials, this means that materials should be
stored closer to their point of use to the extent possible. This minimizes handling and
ensures timely dispatch. In stores layout, the governing criteria are easy movement of
materials, good house keeping and sufficient space for personnel and material handling
equipment, optimum utilization of stores and storage equipment. In addition the activities
of receiving goods, storing, handling and issues must be done promptly and
economically. The two aspects of stores are:
1. storage system and
2. type of store layout
Storage system – choosing the most suitable storage system means dealing with the
number of interactions and often conflicting factors in veritably the degree of
mechanization affects layout while the scarcity of space affect the height to which
racking is erected. The need for rapid, intensive order packing means a need for rapid and
easy access to stock. But accessibility weighs against space economy. A satisfactory
storage system is therefore, a compromise between the use of space and the use of time.
The way in which stock is located helps make the compromise a satisfactory one. There
are three basic ways of locating stocks –fixed location, random location and zoned
location.
Fixed location- means that goods of a particular type have a position in store assigned
to them exclusively. It means that while stocks can be found immediately with out a
complex system, for recording its position this can be considerable waste of space,
because when stock of any one item are low the space left vacant can’t be filled. The
assignment of fixed location to a particular type of goods is made on any one of the
following basis:

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  on the basis of supplier
 on the basis of similarity of the items
 on the basis of the joint issue of the item
 on the basis of the size and frequency of use
Random location-means that items can be stored in any storage location that is available.
Space is thus better utilized but particularly where a large number of products lines a
record have to be kept of where goods are and frequency of when they entered the storage
area.
Zoned location- means that goods of a particular product group are kept in a given area
may be randomly stored in zoned location or stored according to fixed location.
Store Building Layout
The material flow in a store house or a stock yard provides considerable saving of time
and space. As far as possible materials should flow in one direction –straight line flow.
A). Straight Line Flow- it is ideal arrangement for an industrial store with material
arriving at one end of the building and issuing take place at the other end of the building.
Material flow in one direction how ever many store buildings are not purpose made.
Stock Receipt, Issue and Dispatch
Receiving- is the process of identifying, visually inspecting, counting and recording the
receipt of all incoming materials. Goods may be received from outside suppliers, from
production department or from other sources with in the organization. They must be
properly looked after when they arrive. Goods receiving should be arranged as
economical as possible to avoid unnecessary delay or expense.
Receipts from out side supplier- when goods are received the following information
and documents should be made available and necessary arrangements should be made.
 The consigner should be give clear information about the place where goods are
to be delivered.
 Hazardous materials should be clearly identified and marked. Unloading of this
item should not take place until the necessary safety and other equipment is in
place.
 If goods are urgently required and need priority of unloading, information of their
arrival should be communicated to the receiver

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  Suppliers should be informed of the days and items during which facilities will be
available to accept deliveries.
 The receiver should be informed of deliveries through the following documents:
 Copy of the purchase order- when orders are placed the store keeper must
be informed what he/she is expected to receive and when it is likely to
arrive. This is usually done by sending a copy of the order form to
him/her.
 Supplier’s advice note- gives description, the quantity involved, the
method of transport, and the date of the dispatch. But it may note be
required for small values.
 Carrier’s consignment note-this document is used if an independent
transport organization is used to transport the goods. It is sent in addition
to the supplier’s advice note. it shows the name and the address of the
consigner, the description of the goods identification marks if any, the
weight detail of the delivery vehicle and the name and address of the
carrier.
 Supplier’s packing note-when materials are supplied carted or packaged,
the supplier sends packing note, which is either included in or securely
fixed to the package. This not gives much more detail about the contents
than the corresponding advice note.
Then before delivery, the receiver compares the above documents to see that there is no
discrepancy. Once the documents are verified, the receiver proceeds with the following
procedure:
 Unloading and checking the shipment –the number of containers
(goods) unloaded from carriers is checked against the carriers
manifest (freight bill) or the above documents to make certain the
full consignment have been delivered. All containers are also
inspected for external damage: any damage found is inspected by
the carrier representative and noted on the receipt which the
receiving clerk signs. Failure to do so before accepting can relieve

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 the carrier from all liabilities except liability for concealed damage
not evident until container is unpacked.
 Unpacking and inspecting the material-the receiving clerk is
responsible to verify &check:
 The general condition of the material
 The materials received against the seller’s packing slip and
against copy of the firm’s purchase order
 The type, quantity, and item
 Recording overage, shortage or damage to the material-
 Paying and processing freight bills provided that the freight bill
is to be settled by the buyer
 Completion of the receiving report-while goods are received
goods receiving note is prepared
 Notifying user of the material receipt
 Delivery of the material – the more stock material should be
directly delivered to the user department
Inspection
Goods received should be checked for type, quality, and quantity. To ensure the quantity
of the incoming goods is up to standard, it is necessary to inspect every item of the
incoming delivery. How ever in all cases inspecting every incoming item may be
difficult. Thus sampling inspection can be appropriate when:
 Inspection involves destructive testing
 The cost of accepting defective item is possible
 Materials arrive in large batches
 It is possible to take a truly random sampling
 Sampling can predict the quality of the parent batch consistently
Disposition of Surplus, Obsolete, Scrap and Waste
A final objective of stock control is the detection of inactive stock item that increase
the inventory investment with out contributing any corresponding service or utility.
Surplus may arise from any one of the following reason:
 Over questioning , over buying or over delivering

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  Abandonment of projects or cancellation of sale order
 Undetected errors in materials accounting or materials stored in wrong
location and consequently lost and
 Error in record keeping
Reason for Disposal
 Obsolescence
 Irrevocable damage
 Deterioration in value
 Surplus
Alternative possibilities for disposal:
 Utilization as a substitute for currently standard material or some other product
 Utilization by transfer to another department
 Utilization by remanufacture
 Return to original manufacturer
 Sale as surplus material
 Sale as scrap
 Despise as a waste material
Issue and Dispatch
Authorization of issues- before goods are with drawn from a store house they have to be
duly authorized by a person nominated to authorize the issue.
Timing of the issue- there should be regular issue of materials to avoid delay and to
insure smooth and even flow of work. Depending on the nature of demand, issue can be
made on daily, weekly or monthly basis. The store keeper should try to meet the
convenience of users.
Record system- the operation of the store function and control of stores require
collecting and storing information and facilities for the analysis and use of this
information. Stock records are expected to preserve particulars of receipts, issues and
balances remaining in stock for each individual item held in the store house from day to
day.

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Reason for maintaining records
 To indicate the amount of stock at any time with out making physical count
 To establish a line between the physical stock and the store account
Stores Accounting
Store accounts play an important role in estimating the cost of the product for pricing
decision. Materials costing are very crucial in terms of the valuation of the cost of
materials assumed by the production department, as well as in terms of the estimation of
the value of materials held in stock. Materials costing can be discussed under
classification of;
1. The receipt of material
2. The issue of materials to production
3. The stocks held at the end of the accounting period
1. costing of the receipt of materials
The actual cost of materials received is worked out by taking price quoted by suppliers as
the base, subtracting the discount and adding any other expense not covered. There for
we can say that cost of materials received is equal to the price quoted less discounts, less
freight, insurance duties, taxes and package charges.
2. Costing of issue of materials to production
First-In-First –Out (FIFO), Last-In-Last-Out (LIFO), average cost, standard cost, base
stock method, and market price at the time of issue are some of the methods used to
calculate the cost of issue to production.
3. Costing the closing stock
Generally guide lines used here is that closing stock is value at either at the market price
or at actual cost of the stock whichever is less. The main factors that determine the cost of
closing stock are price levels, obsolescence and deterioration. Provisions have to be made
to account for under valuation or over valuation of stock due to price fluctuations,
obsolescence of stock on the basis of past experience (usually worked as a percentage of
total stock value) and deterioration of stock with time due to limited shelf life or
inadequate precaution while storage.