In manufacturing concerns, it is possible to manage stores in the following ways:
- Centralized stores
- Decentralized stores
- Centralized stores with sub-stores
Centralized Stores Management
Centralized stores management occurs when a single storehouse is established for the whole organization. This central storehouse caters to the needs of every department within the organization.
Centralized stores are advocated from the point of view of economy and efficiency, as well as to promote proper control over the receipt and issue of materials.
Centralized stores offer the following benefits:
1. Economy in space, storage cost, and labor.
2. Better supervision and effective control over materials and stores.
3. Minimization of capital investment in stock.
4. Significant reduction of obsolete items in stores.
5. Enables the appointment of experts who can handle the intricacies of inventory control.
6. Enables effective forecasting of material requirements.
7. Better layout and effective inventory checks on stores.
Centralized stores also suffer from limitations, including:
1. Increased material handling and transportation costs.
2. Greater risk of loss by fire due to the concentration of all materials in one location.
3. Inconveniences and delays are caused in supplying materials to departments situated at a distance from the central stores.
4. Accumulation of materials in one place creates storage space problems, meaning that effective control may not be exercised over materials and stores.
5. Any breakdown in internal transportation systems (i.e., those used to carry materials from the stores to different departments) can significantly disrupt production.
Decentralized Stores Management
Decentralized stores management occurs when storerooms are located adjacent to the departments that they serve. The storekeeper for each department independently handles the receipt and issue of materials.
Decentralized stores offer the following advantages:
1. Lower internal transportation costs.
2. Avoidance of undue delays associated with receiving materials issued from centralized stores.
3. Minimization of interruptions in work due to failures of the internal transportation system.
Along with the advantages mentioned above, decentralized stores suffer from the following limitations:
1. Lack of specialization in initiating proper stores control and material handling operations is the most serious drawback of decentralized stores.
2. Setting up a separate store for each department leads to increased labor costs and the occupation of more space for storage purposes.
3. Establishment of decentralized stores usually leads to duplication of clerical work, stores recording, and establishment expenses.
Centralized Stores Management with Sub-Stores
In practice, a combination of the above two types of stores management is usually followed, which is known as centralized stores management with sub-stores. This system functions on the principle of the imprest system.
Under the imprest system, all materials are held in bulk in a centralized store, while sub-stores (or decentralized stores) are set up inside each production department. The sub-stores draw their requirements from the centralized or main stores for a specific period (e.g., one month).
The sub-store then issues materials to the department with which it is attached in accordance with the department’s requirements.
At the end of the period (e.g., one month), the quantity actually consumed is replenished from the main or centralized stores to bring the stock up to the imprest (i.e., pre-determined quantity).
As such, the imprest system of stores operates exactly like the imprest system of petty cash.
Centralized stores management with sub-stores is associated with the following advantages:
1. Easy accessibility to the consuming departments or the department for which such stores are established.
2. Interruptions in production are unlikely because any material items that are immediately required for production are kept in the sub-stores.
3. Specialized control and supervision can be undertaken because a limited number of activities are carried out by the storekeeper in charge of the sub-stores.
4. Risks of fire and accidents are minimized due to diversified storage locations.
At the same time, stores of this kind suffer from the following disadvantages:
1. Establishment costs are high due to the need for more storage equipment, more storage spaces, and personnel to control the centralized storehouse and sub-stores.
2. The system lacks uniformity in terms of organizing and maintaining stores.