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Stock, supplies and what is lost

When the next order has to go in, what the stock on the shelf ties up, and what spoiled, broken, taken and out-of-date stock adds to the cost of everything you do sell.

Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.

1. What you will learn

You will set a reorder level from a week's use, the weeks a supplier takes and a buffer, say how many weeks an order covers, and work out the money an ordering policy keeps on the shelf. You will also read a loss as what it adds to the cost of every unit actually sold, and judge a bulk discount by the cost per unit that reaches a customer.

2. What you already have

You can cost a batch and spread a loss over the units that survived it, and you know that money spent on stock leaves the account before any of it sells. This lesson puts a level on the shelf — when the next order goes in — a figure on the money sitting there, and a number on what goes missing.

3. Words this lesson uses

4. Stock is money in the shape that cannot pay a bill

A full store looks like wealth and behaves like the opposite: the money has gone, and what is on the shelf pays nobody until somebody buys it.

Two numbers run it, and neither is the amount in the store: how fast it goes out, measured rather than remembered, and how long the supplier takes, which owners underestimate because they remember the good deliveries.

$$\text{reorder level} = \text{a week's use} \times \text{weeks the supplier takes} + \text{buffer}$$

Then the losses: soft, broken, taken, out of date, cleared cheap. None of that reduces what the stock cost — it reduces how many units are left to carry it, so every loss raises the cost of every unit that does get sold, quietly, because no bill ever arrives.

5. The method, step by step, and how to check it

Measure a week's use. Count the stock at the start and end of a few ordinary weeks, add what arrived, and the difference is what went out. Use a typical week, not the busiest.

Find the lead time honestly. From the last few orders: the date ordered and the date delivered. Use the slower end of what actually happened, not the supplier's promise.

Choose a buffer. Enough to cover the worst lateness you have seen, or a week that sells well above normal. A small buffer risks running out; a large one ties up money and, for perishable stock, raises waste.

Set the reorder level and the order quantity. The level is use times lead time plus the buffer. The quantity is a trade-off: large orders mean fewer deliveries and sometimes a better price, but more money on the shelf and, for anything perishable, more lost.

Count the losses. Each week, write down what left the store without being sold, and why: soft, broken, taken, out of date, cleared cheap. Divide the lot's cost by the units actually sold.

Check the policy against what happens. If the store runs out, the lead time or the use was underestimated, or the buffer is too small. If stock is still on the shelf when the next order lands, the order is too large. If the loss count keeps rising, the order quantity or the handling is the place to look — and the money on the shelf, at half an order plus the buffer times the unit cost, says what the policy costs to hold.

6. What a loss actually costs

A grocer buys 200 crates for 1,000 dollars. Nothing below changes that 1,000.

Fifteen percent went missing and the cost per crate sold rose by eighteen percent. A business pricing on 5.00 is short on every crate, every week, and it shows up only as a month that made less than the arithmetic said. Clearing cheap counts too: spoilage smells, a clearance looks like a busy afternoon.

7. The money on the shelf, and the bulk-buy trap

Stock is cash that has been turned into something that cannot pay a bill until it sells. On an ordinary day the shelf holds about half an order plus the buffer; multiply by the unit cost and that is the money the stock policy keeps out of the account. A kitchen ordering 600 boxes at a time with a buffer of 100, at 0.40 a box, has about 400 × 0.40 = 160 dollars sitting in boxes. Halve the order and the average drops to 250 boxes and 100 dollars.

Suppliers often offer a lower price for a bigger order, and it is worth working out before saying yes. The saving is the discount times the units. The costs are the extra money on the shelf, the extra space, and — for anything that spoils, breaks or dates — the extra loss. A tenth off and a fifth lost is a price rise, however the invoice looks.

A bulk buy of something that keeps — boxes, bags, bottles of cleaning solution — can be a genuine saving if the cash forecast can carry it. A bulk buy of something that spoils is usually a mistake, unless it will sell long before it goes off. The question is always the cost per unit that actually reaches a customer, and when the money for it comes back.

8. Counting the store, and what the count tells you

A stock count is the only way to know what the record cannot: what actually left without being sold. The method is simple. On a fixed day — the same day each week or month — count every unit of each line. Add what arrived since the last count, take off what the record says was sold, and compare with the count. The difference is shrinkage: stock that left the store by some route other than a sale.

Some shrinkage has an explanation already written down: the soft fruit binned, the box dropped, the tins past their date. Whatever is left after those is unexplained, and unexplained shrinkage is the figure to watch. A little is normal — miscounts, a sale not rung through. A rising figure means a step in the routine is failing, or stock is being taken, and the count is what makes it visible early.

Counting also keeps the reorder level honest. The level assumes a week's use; the count shows what a week really used. If the two drift apart — a new customer, a busier season — the level should move with them. An owner who counts every week and compares the count with the record knows the store in a way that no amount of remembering can match, and it takes about as long as the drawer count at the end of a day.

9. In the world: a café's milk

A café uses about 90 liters of milk a week. Its dairy delivers twice a week and has occasionally been a day late, so the owner keeps a buffer of 15 liters. Each delivery covers half a week, 45 liters, and the order goes in when the fridge falls to 45 × ⅔ + 15 = 45 liters — which, with a three-day gap between deliveries, is simply order on the delivery day for the next one.

Milk spoils, so losses matter. Over a month the café finds it throws away about 22 liters: milk past its date at the back of the fridge, and cartons opened and not finished at closing. At 1.10 a liter that is 24 dollars — small, until it is set against the 396 dollars of milk bought: over 6 percent of the milk is lost, and every coffee sold carries that.

Two habits cut it. Deliveries go to the back of the fridge so the oldest milk is used first, and the evening shift pours out only what the last hour usually needs. The next month's loss is 8 liters. The café also declines the dairy's offer of a 5 percent discount on weekly rather than twice-weekly deliveries: 90 liters at once would save about 5 dollars a week and, from the café's own records, lose more than that to milk that turns before it is used.

10. In the world: just-in-time and its limits

Large manufacturers made just-in-time stock famous: tiny buffers and frequent deliveries, so little money sits on shelves. It works when suppliers are close and reliable. When supply chains were disrupted in recent years, many firms raised their buffers again — the same trade-off between money on the shelf and the risk of running out that every small shop faces.

11. Where this goes wrong

A full store is a safe store. It is money that cannot pay a bill.

The reorder level is about how much you want to keep. It is about how long the supplier takes: identical shelves and different suppliers give different levels.

A loss reduces the cost of the stock. It does not. The money has gone; the loss reduces the units left to carry it, which raises the cost of each one.

A big batch at a discount is cheaper. Only if you sell it: a tenth off and a fifth dead is not a saving.

Using the supplier's promised lead time. Use what the last few deliveries actually took.

Waste is a problem to fix, so it is not a cost. Fix it — and cost it meanwhile, or the price is short every time.

12. Clay at Maya's Ceramics

1. Write a week's use.

   $\text{use} = 8 \text{ bags}$

   Measured, not remembered.

2. Find what is used while an order is on its way.

   $8 \times 3 = 24$

   The supplier takes three weeks.

3. Add a buffer of 6.

   $24 + 6 = 30$

   The buffer is for the late lorry.

4. Find the weeks an order of 40 covers.

   $40 \div 8 = 5$

   She thinks about clay five times a year rather than weekly.

5. Find the money on the shelf at 12 a bag.

   $(40 \div 2 + 6) \times 12 = 312$

   What the policy keeps out of the account.

13. A tray of lunch boxes that did not sell

1. Cost the tray if every box goes.

   $600 \div 200 = 3.00$

   The optimistic figure.

2. Count the losses: 10 thrown out at closing.

   $200 - 10 = 190$

   Boxes that brought nothing in.

3. Find the cost of a box sold.

   $600 \div 190 \approx 3.16$

   The thrown-out boxes raise every sold box's cost.

4. Count the clearance: 20 sold at half of 8.

   $20 \times 4 = 80 \text{ instead of } 160$

   Sold, but for half what they should have brought.

5. Find what the two losses took from the day.

   $10 \times 8 + 80 = 160$

   Name each loss separately.

6. Decide what to change tomorrow.

   $\text{make 180 tomorrow, and cost what happens until then}$

   3.16 is the number the price must carry today.

14. A bulk offer at Northside Repairs

1. Write the current policy: 20 screens a week, 2-week lead time, buffer 10, orders of 60 at 18.

   $\text{reorder at } 20 \times 2 + 10 = 50$

   The level to watch.

2. Find the money on the shelf now.

   $(60 \div 2 + 10) \times 18 = 720$

   Average stock times cost.

3. The supplier offers 200 at 16.

   $\text{saving} = 200 \times 2 = 400$

   The discount on the whole order.

4. Find the money on the shelf under the offer.

   $(200 \div 2 + 10) \times 16 = 1760$

   More than twice as much cash tied up.

5. Estimate the screens made obsolete by a new phone model: 1 in 10 of a 10-week stock.

   $20 \times 16 = 320$

   Stock held for ten weeks risks going out of date.

6. Compare saving and loss.

   $400 - 320 = 80$

   A small gain, before the extra 1040 tied up.

7. Decide against the cash forecast.

   $\text{take it only if the forecast can carry } 1760$

   The price per screen that reaches a customer, and when the money comes back.

15. Your turn: screens at Northside Repairs

1. He fits 20 screens a week and the supplier takes 2 weeks. Find what is used while an order is on its way.

   $20 \times 2 = 40$

   Use times wait.

2. He holds a buffer of 10. Find the reorder level.

   $40 + 10 = 50$

   Add the buffer.

3. Your turn: work this step out. Its working is at the end of the packet.

   Find the weeks an order of 60 covers.

16. Guided practice

Four ways stock goes missing, and four things a business does about them. Match each loss to the control that catches it.

17. Guided practice

Complete the worked solution: a line of stock goes out at $26$ a week, the supplier takes $3$ weeks, the business holds a buffer of $9$, and it orders $130$ at a time. Set the policy.

1. Find what is used while an order is on its way.

   $26 \times 3 =$ _d

   The store keeps emptying while the supplier works.

2. Add the buffer.

   $(\text{used}) + 9 =$ _r

   The reorder level.

3. Find the weeks one order covers.

   $130 \div 26 =$ _k

   How often the order goes in.

4. Find the average stock on the shelf.

   $130 \div 2 + 9 = 74$

   Half an order on average, plus the buffer.

5. Write the level on the shelf.

   $\text{order again at } (\text{level})$

   A level written down is a decision made once.

18. Guided practice

Neighborhood Kitchen uses $200$ lunch boxes and lids in a week. The supplier takes $2$ weeks to deliver, and the business holds a buffer of $100$ against a delivery that is late. At what level in the store should the next order go in?

Answer:

19. Practice

Monica's Market Stall opens the week with $8$ crates in the store and $24$ dollars in the account. A crate sells for $4$ dollars; ten crates cost $20$ dollars from the wholesaler. She orders again when the store falls to $5$ crates. Bring the store down to that level, and do not let the crate count go below nothing.

This task has no paper form; do it on a device.

20. Practice

A grocer buys $194$ crates for $672$ dollars. Over the week, $26$ are lost — gone soft, dropped, cleared below cost or unaccounted for — and $168$ are sold at full price. What did each crate that sold actually cost, in dollars?

Answer:

21. Practice

Neighborhood Kitchen orders $800$ lunch boxes and lids at a time and holds a buffer of $100$. Each one costs $8$ dollars. On average, how many dollars are sitting on the shelf as stock?

Answer:

22. Somewhere new

A plant nursery is offered $100$ young plants at $11$ dollars each, a dollar below its usual price. A batch that size sits longer in the greenhouse, and a fifth of it dies before it can be sold. What would each plant that is actually sold cost the nursery, in dollars?

23. Lesson test

Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.

24. Test question

Northside Repairs keeps replacement screens in stock. Fill in the two missing lines of the ordering sheet.

25. What you can do now

You can work out the level at which to order again, say what the buffer is for, find the money on the shelf, and recost a batch for the stock that never reached a customer. Tell someone why a loss makes what you sold dearer rather than making the stock cheaper. Next: the choice that decides what the whole business is for — who it is for, and what it will not do.

Working for the steps left to you

15. Your turn: screens at Northside Repairs, step 3