STORES SYSTEM AND PROCEEDURE

INTRODUCTION
Store is an important component of material management since it is a place that keeps
the materials in a way by which the materials are well accounted for, are maintained
safe, and are available at the time of requirement. Storage is an essential and most
vital part of the economic cycle and store management is a specialized function,
which can contribute significantly to the overall efficiency and effectiveness of the
materials function.
Literally store refers to the place where materials are kept under custody. Typically, a
store has a few processes and a space for storage.

The main processes of store are

 To receive the incoming materials (Receiving)
 To keep the materials as long as they are required for use (Storage)
 To move them out of store for use (Issuing). The auxiliary process of store is the
stock control also known as inventory control. In a manufacturing organization,
this process of receiving, keeping in custody, and issuing forms a cyclic process
which runs on a continuous basis. The organizational set up of the store depends
upon the requirements of the organization and is to be tailor made to meet the
specific needs of the organization.
STORES SYSTEMS AND PROCEDURES
The systems and procedures in stores can be broadly studied under four heads
1. Identification system
2. Receipt system
3. Storage system
4. Issue system
The overall system of store functioning along with the major input-output documents
at each stage. A substantial amount of information is required, at every stage, for
checking, controlling and feedback purposes. The stores systems have been discussed
with reference to the physical system as well as the recording or information system.
1. Identification System
The stores management is concerned with the design and control of the systems
utilised in conducting the store activities. A large
number of materials are being handled by a typical stores. The development of an
unambiguous and efficient identification system is the first responsibility confronting
a store’s manager so as to facilitate clear internal communication. The physical
description of each item is usually lengthy and imprecise to be taken for the purposes
of identification in day-today operations. Moreover, it cannot be operated on
mechanical or electronic computing devices, the use of which is increasing every
day in automating the clerical operations of the stores. One kind of identification of
the parts can be done with the supplier's part numbers. But each supplier has got his
own codification system and it will be cumbersome to operate on these numbers for
the identification of different parts. The need to develop a proper identification system
to coordinate the activities of purchasing inventory control and stores departments
with possible integration with the operations of design engineering, production and
cost accounting can hardly be overemphasized. The use of codification of parts can be
done in any one of the following ways:
a) Arbitrary approach: The inventory items are given an arbitrary number in the
sequence in which these are added in the stores account. Clearly, each item gets a
discrete number but there is no systematic relationship to the numbers assigned to
related items.
b) The symbolic approach: This is a very systematic approach to the design of
codification system. The codes assigned to different parts may be numeric or
monemonic (alpha numeric). A numerical system assigns a six to ten digit code
number to each item to develop the classification from broader to specific categories.
This is illustrated with the help of following example:
The code number of an item is 1 52 43 25; the explanation is as follows:
First digit 1 General-class
Next two digits 52 Generic class
Next two digits 43 Sub class
Last two digits 25 Specific item number
This code is based on the assumption that there are maximum 10 general classes, 100
generic classes, 100 sub-classes in each generic class and 100 specific items in each
sub class. If it is more than this limit in any of the categories, one more digit is to be
added for that category. The general classification of the parts may be done as
follows:
Code General Class
1 Raw materials
2 Purchased parts
3 Manufactured parts
4 Work in process
5 Spares.
This mnemonic or alpha numeric system combines the numeric and alphabetic
notations. This makes the visual identification easier because they are more
descriptive and often shorter. A typical example is the number of good alphabetical
symbols is limited the system may not work with larger number of items.
c) The use of engineering drawing number: The number in the engineering drawing
at times is used as an identification number in the stores. This has the advantage of
better internal communication as this number is used by other departments. The major
limitation that it can be only for manufactured items; for bought out items a separate
system is to be devised. It has the non-sequencing.
2.Receipt System
The stores department receives the stores both from outside suppliers and internal
divisions and accordingly there are separate receipt systems. The system of receipt
starts much before the physical receipt of the materials in the stores. It starts with the
placement of purchase order by the purchasing department, a copy of which is sent to
stores. This is maintained in chronological order, so as to give an idea at any time
about the volume of receipt, and helps in the planning of receipt, unloading,
unpacking and other related activities. The supplies while despatching the goods
normally send an advice note to the stores.
An advice note An Advice note is a document that confirms the receipt and
dispatched of customer order. The document is sent by the supplier to a customer to
inform him of the goods ordered has been dispatched. This contains information
regarding the date of dispatch, carrier details, description of the consignment and
value.
Consignment note
This is the document that accompany goods that are filled by the shipper. It is
prepared by the transport carrier and is sent to the stores concerned.
These documents help the store’s manager to organise and plan for expeditious
clearance of materials to minimise costly demurrages(delayments). On actual delivery
the receiving department unpacks the goods received and checks quantity and
condition of goods with documents. There is a packing slip inside each package
detailing the contents in package and usually it gives the purchase order number.
Provisional Goods Inward Note (PGI) or Materials
Received Report
A Provisional Goods Inward Note (PGI) or a `Materials Received Report is prepared
as soon as the materials are cleared from the receiving sections and sent for
inspections.
This gives information on materials code, quantity received, and rate, date of
receipt, carrier details, supplier details, location code and description of the
material.
All the items received are inspected and sample tested to ensure that the purchase
order specifications are made.
` Clearance Report or Rejection Note
Results of the inspection are indicated in special testing report and a Clearance Report
or `Rejection Note is prepared and sent by inspection department to purchase,
Production and Accounting departments.
Final Goods Inward Note (FGI)
This forms the basis for the preparation of `Final Goods Inward Note (FGI). This
document indicates quantity accepted and quantity received in addition to the
information provided by PGI. FGI help in preparing shortage reports, claims
documents, making appropriate payments and recoveries in case of shortages.
3. Storage Systems
Physical Systems
The design of proper shortage system is very important for easy location, proper
identification, and speedy issue to the consuming department.The commonly followed
systems for physically controlling stores materials are:
Closed stores system, open stores system and random access
stores system.
A single firm can follow a combination of these systems depending upon the nature of
production operation and the use of materials.
a) Closed Stores System:
All materials are physically stored in a closed or controlled area, usually kept in
physical control by locking. Only stores personnel
are permitted to enter the stores area.
Advantages of closed system
1. Entry and exit of the material from the area is permissible only with the
accompaniment of authorising document.
2. Maximum physical security and tight accounting control of inventory material are
ensured by such a storage system.
b) Open Stores System: In this system no separate store room exists. The material is
stored as close to the point of use as is physically possible. Such a system finds
applicability in the highly repetitive, mass production type of systems exhibiting a
continuous and predictable demand, e.g. automobile assembly plant. The storage
facilities are arranged at each work station as per requirement and availability of
space. The storage facilities are open and worker has direct access to it; no
authorisation document is needed.
Advantages of open system
1. The open type of shortage system expedites the activities, cutting down the
retrieval time.
2. Materials are used relatively quickly and reduces high rate of deterioration or
obsolescence.
Disadvantages of open system
1. The system places little emphasis on the security of materials.
2. There high chances of materials been easily damaged or pilferaged.
c) Random Access Stores System: This is a type of closed stores system in which no
material has a fixed location, all materials are stored at random locations throughout
the store room. Similar types and sizes of storage equipment are grouped together.
When an item enters the stores, it is stocked at the first available storage location for
that particular group, and when it leaves the storage, location becomes empty for any
other item of the same group.
Advantages of Random access system
1. The most significant advantages of this system is that it utilizes the space more
efficiently than a fixed location system.
2. It provides greater flexibility by accommodating different materials and inventory
mixes with some storage facilities.
Disadvantages of Random access system
1. It is possible for large scale operations and requires a costly control system using
electronic data processing equipment.
2. The preservation of record card is very important; if it is lost the item is also
literally lost for indefinite period.
3. The physical stock verification without this is very cumbersome and time
consuming also literally lost for indefinite period.
4. The physical stock verification without this is very cumbersome and time
consuming.
STORE RECORDS SYSTEM
Development of appropriate recording system for stores is important to provide right
information regarding the physical inventory and accounting of the transaction. Two
records are usually kept of materials Bin card and stores ledger.
a) Bin Cards: For each kind of material, a separate record is kept on Bin Card which
shows details of quantities of each type of material received, issued and on hand each
day. Cards up-to-date and usually in duplicate. One card is attached to each bin on
shelf containing the material and record remains with the storekeeper for reference
b) Stores Ledger: It is identical with bin card except that here money values are
shown. The store ledger may be maintained by a separate material accounting
department. The entries regarding the materials ordered, received and issued are made
from the purchase order, receiving section report and the material requisitions
respectively shown. The store ledger may be maintained by a separate material
accounting department. The entries regarding the materials ordered, received and
issued are made from the purchase order, receiving section report and the material
requisitions respectively.
4.Issue System
This is the last stage in the stores system. Issues can be of two kinds, i.e., issues to
consuming departments, and issues to outside supplies for processing.
In both the cases there are certain common requirements. The control of issues is
regulated by production programmes. Based on the programme and the bill of
materials work orders are prepared, listing for each material quantity to be issued and
the corresponding quantity of the component to be manufactured. Two copies of the
work order or Material Requisition Form are prepared by the foreman or
concerned manager which are forwarded by the storekeeper to material accounting
division for
pricing and entry in store ledger. One copy is retained there and the other is returned
to the originating department where it is used as the basis for a charge to the
appropriate production order Adhoc material requisitions are sometimes made.
Periodically consolidated statements of such items must be prepared. When issues are
made to outside supplies, Controls have to be more formal and adequate enough to
take care of payments and claims. To provide right information regarding the physical
inventory and accounting of the transaction. Two records are usually kept of materials
and other goods received, issued or transferred, namely, on Bin (or Stock) Cards
and in the stores ledger Bin cards are also used as a check on the stock Iedger
accounts in the material accounting.