Types of

Stock
What is stock?
Stock is a set of goods, materials,
merchandise, etc. that is owned by a company
at a given time. It is the consequence of a flow
gap between pushed and pulled flows.

When we talk about stock, we mean products

or items.
The nature of stock
Types Description

Input stock Stock of raw material and/or merchandise.

Output stock Stock of finished product

Stock of finished Intermediate, semi-finished or work-in-progress stock that

product appears throughout the production process
Consignment stock The stock is with the customer (called, in this frame, the
consignee) who only pays the vendor when the stored
product is used. It therefore remains the property of the
supplier. The customer can return the unsold stock without
obligation. Unless there is a contractual clause, in the
event of loss, damage or theft of stock, it is the supplier
who suffers the cost of the loss.
The nature of stock
Types Description

Advanced stock The stock is with the supplier, but belongs to the customer.
It is assimilated to the consignment stock.
Deported stock The stock belongs to the supplier, but is placed “on a site
delegated by the manufacturer to a service provider
The destination of stock
 Stockcan be assigned or common stock. It is
called “assigned” when the stock is dedicated
to a particular production. It is referred to as
“common” when the stored product is used
regardless of production.
 The stock and “its quantity”
Tool stock Stock of parts that do not enter the production
process, but are used for the smooth running of the
company. It can be assimilated to the minimum
stock.
Minimum stock Stock of parts that do not enter the production
process, but are used for the smooth running of the
company. It can be assimilated to the minimum
stock.
Safety stock Also known as the buffer stock, it corresponds to a
level of stock that is constantly maintained in the
warehouse and which limits stock shortages due to
contingencies, such as forecasts that do not match
demand, longer than expected supply times, etc.
 The stock and “its quantity”
Alert stock Corresponds to minimum stock + safety stock.
Physical stock Actual quantities in the warehouse. As a
reminder, a company must carry out a physical
counting of all its parts once a year.
Actual stock Physical stock + supplier orders in the course
of delivery - customer orders in the course of
delivery.
Dormant or dead Stock whose turnover is insignificant or zero.
stock Costly and cumbersome, they are usually
destroyed.
Stock rotation
There are two types of stock rotation:

– first, so-called non-zero rotation gives the

possibility of reselling the stock in the
following period. The product is not subject
to a sell-by date10;
 – so-called zero rotation makes it
impossible to resell in the following period.
In this context, the product has a sell-by
date.
The support of goods: the pallet
Talking about stock leads to presenting the
pallet. The pallet is a wooden, plastic or steel
structure on which the goods are placed when
they are moved. The loading of goods on a
pallet is called palletization
Inventory Procedures
Several inventory procedures are possible,
depending on the obligations

A stock inventory consists of the

identification, counting and assessment of
stock in the company.
Physical, permanent, intermittent
and rotating inventory
 The physical inventory of stock consists of a manual counting
of products in the warehouse. Its role is to determine possible
discrepancies between the accounting entry and reality. The
physical inventory thus highlights omissions, theft, breakage,
bad codifications, bad storage, etc.
Several counting methods are used:
 – first, an intermittent inventory is established once a year, at
the time of financial closing and where it is advisable to stop
any movement of goods during this physical inspection of the
stocked parts;
 – second, there is the permanent inventory, which consists of a
continuous management of the stock, thanks to adapted
software. This inventory method is particularly applicable for
references in limited numbers and where counting is relatively
easy;
Physical, permanent, intermittent
and rotating inventory
Several counting methods are used:
 – first, an intermittent inventory is established once a
year, at the time of financial closing and where it is
advisable to stop any movement of goods during this
physical inspection of the stocked parts;
 – second, there is the permanent inventory, which
consists of a continuous management of the stock,
thanks to adapted software. This inventory method is
particularly applicable for references in limited
numbers and where counting is relatively easy;
The Pareto Principle and the
A-B-C classification
The 20/80 Law or Pareto Principle is named after
its designer Vilfredo Pareto (1848–1923), who
observed that 20% of the population owned 80%
of Italy’s wealth. This observation was
subsequently applied in several areas, including
inventory management. The variant A-B-C
developed in 1954 by Joseph Juran (1904–2008)
consists of a subdivision into three parts: the third
part being considered as the residual part, which is
the subject of less interest.
The Pareto Principle and the
A-B-C classification
Faced with a large number of stock references, the
A-B-C, or even A-BC-D method, is used to
categorize stock and establish a relatively regular
monitoring. For example, class A, which
corresponds to the most critical category of stock,
will be subject to the establishment of a systematic
safety stock on each product or a permanent
inventory.
The Pareto Principle and the
A-B-C classification
The breakdown into categories A-B-C conforms to the
following logic:
– Class A: 20% of the references, which represent
approximately 80% of the total value of the stock or
turnover excluding VAT;
– Class B: 30% of the following references, which
represent approximately 15% of the total value of the
stock or turnover excluding VAT;
– Class C: the remaining 50% of the remaining
references, which represent approximately 5% of the
total value of the stock or turnover excluding VAT.
The Pareto Principle and the
A-B-C classification
In itself, this division into three classes is not a
rule. The company can perfectly multiply the
number of categories if it believes that this will lead
to better inventory management. In this way, it is
advisable to keep Class A as “fixed”.
The Pareto Principle and the A-B-
C classification
The interpretation of the A-B-C classification is as
follows:
– we are thinking in terms of values sold and not
quantities sold. For example, for 1,000 products
sold at 1 euro and 1 product sold at 1,000 euros, it
is the product sold at 1,000 euros that is
considered critical;
The Pareto Principle and the A-B-
C classification
– for example, if 20% of references for Class A or
30% of references for Class B are stated, it is
estimated that Class A must contain a minima 20%
of the references, and Class B must contain a
minima 30% of the references. Thus, if the
classification highlights a reference with 19.9%
and the next one with 20.1%, we include the
reference that includes the 20.1% in category A.
This rule also applies to category B. Consequently,
the balance of references is placed in category C
The Pareto Principle and the A-B-
C classification
– it is the percentage of the reference classes that
prevails and not the percentage of the monetary
value of the stock. If, for example, the value of the
stock attached to Class A equals 50% of the total
stock value, this percentage is left at 50% and no
attempt is made to reach 80% of the value, as
stated in the theoretical rule;
The Pareto Principle and the A-B-
C classification
– the unit of value used is the total stock value. In
order to ensure a good analysis, it is customary to
consider that the unit of value is based on the same
method of calculation. If the company opts for a
calculation method based on the First-In-First-Out and
Weighted Average Unit Cost methods (see Sheet 21),
the analysis may be lacking unicity. If this is the case, it
is preferable to take the sales price excluding VAT as a
unit of value: excluding tax, as the same principle
applies in the case of multiple VAT rates (Value-Added
Tax);
The Pareto Principle and the A-B-
C classification
– a breakdown according to the A-B-C method can
be carried out annually or at other intervals. In fact,
the seasonal factor must be taken into account
when selecting the breakdown period. But beware
of the implementation of the number of
breakdowns of stock, as the more that is cut in the
year, the more there is a risk that the categories
will vary.
Example of calculation of the A-
B-C method
Example of calculation of the A-
B-C method
Example of calculation of the A-
B-C method
The steps to be taken to implement the A-B-C
classification are as follows:
– classify turnover by reference from highest to
lowest;
– determine the cumulative percentage of turnover
per reference;
– determine the percentage of references. For the first
reference, we calculate 1 out of the total of references
which is 15 here, and so on. This column is used to
classify categories;
– break down the classes in view of the results.
THANK YOU