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WAREHOUSING
This is an aid to trade involving storing of goods and raw materials against atmospheric conditions, pests, theft etc. Therefore it is protection offered to goods when they are not required until they are required.
WHY IS WARE HOUSING NECESSARY (FUNCTIONS OF WARE-HOUSING)
1. It enables a stock of goods to be stored until they are required.
2. It enables manufacturers to continue with the production processes as there is room to store the produced goods.
3.Seasonal goods are kept for consumption during periods of no consumption.
4.It facilitates preparation of goods for sale through advertizing, sorting, weighing, parking, branding of goods.
5. It enables the storage of goods to prevent price fluctuations especially with agricultural goods or products.
6. It enables the importer or trader to look for the market while the goods are kept at the ware house.
7. It enables the breaking of bulk to meet the needs of individual retailers.
8. It keeps the stored goods in strict and suitable conditions against bad weather and any form of contamination.
9. It enables goods to be stored to meet a continuous flow of goods and thus avoiding scarcity.
TYPES OF WARE HOUSES
(a) Public ware houses.
These are privately owned by people whose business is to rent out spaces to those who may have need for temporary storage of stock. They are usually located at sea ports, railway stations, air port for any importer or exporter who has limited space in his premises. They are often used for storing goods for short periods which are in transit.
(b) Private ware houses.
These are ware-houses owned by private individuals for storing their goods. They may be for wholesaler’s, ware-houses owned by manufactures or whole sellers where they store their goods before sale.
(c) Bonded ware-houses
These are the special kind of ware-houses where imported goods are kept until payment of customs duties is made. Goods are only released from the bonded ware-house after the customs duty is paid and a release warrant is issued.
(d) Free ware-houses
These are the ware-houses which keep goods that are not subjected to any customs duty or controlled by customs authorities.
ADVANTAGES OF BONDED WARE-HOUSES TO THE IMPORTERS
1.The importer may not pay the customs duty if the goods are bought while in bond but it is passed on the buyer.
2. Goods may advertised, blended, branded and classified in the bonded ware-houses.
3.The importer may look for buyers before paying the customs duty.
4.If the importer desires to re-export the goods, the customs duty is not paid but only pays storage charges.
5.Some goods lose weight while in the bonded house so the customers duty paid becomes lower if it is based on the weight of goods (specific taxi).
ADVANTAGE OF GOVERNMENT
1. Bonded ware-houses ensure that no duty is avoided (dodged) since the goods cannot be released without payment.
2. It enables the government to check on prohibited goods and smuggling.
QUALITIES OR ESSENTIALS OF A GOOD WARE-HOUSE
1. It must be located in those places where goods are produced in greater quantities and are used at mature stage.
2. It should be fully equipped and have all the necessary facilities to store goods for a long time without being spoil or damaged.
3. It should be large enough to allow feature expansion and storage of different type of goods safely.
4. It should have a good transport system so that the goods do not go bad due to delivery of goods to the market. It would also facilitate the transportation of raw materials to production centre.
5. It should have efficient staff in order to acquire efficiency and protecting goods against any lose or damage.
6. It should have adequate (enough) protection measures so that chances of loses or damages would be prevented by all means possible.
7. It should be located as near as possible to the buyers so that the transport cost to the market is minimized.
8. It should stock goods according to peoples demand in order to avoid wastage of goods and money (Resources).
ORGANIZATION OF WARE-HOUSES/ MANAGEMENT OF WARE-HOUSE
In the organization of a ware-house, the owner is on top of list followed by the general manager who is usually the chief executive. A warehouse has the following department with their responsibilities.
(a) PURCHASES DEPARTMENT.
This department is headed by a purchasing manager responsible for buying stock to the warehouse. Its major duties are: –
(1) Placing orders for goods needed in the warehouses with the most suitable manufacture.
(2) Looking for cheap sources of supply so that a business man is able to make high profits.
(3) He is responsible for assessing the changes in fashion and tests so that only goods demanded are stored in a warehouse which would avoid loses to the business man.
(4) Receiving goods from the suppliers and making sure that they are safely stored.
(5) Maintaining a list of regular suppliers for easy contact and purchasing of goods when required.
(6) It is responsible for parking, blending or branding goods thereby ensuring that goods are ready for sell.
(7) Maintaining stores records in order to show receipts ensued and balance in stock.
( b) SALES DEPARTMENT
This is headed by sales manager and he is responsible for the profitability of the entire business. It is responsible for the following: –
(1) To carry out sales promotion strategies such as advertizing branding free samples etc.
(2) To receive orders from the customers and dispatching goods as required by the buyer.
(3) It also maintaining the list of all regular customers classifying them according to areas or credit worthiness so that he can attend to them appropriately.
(4) It arranges for the transport of goods from the ware house to the retailers premises according to the agreed terms.
(5) It handles the customers complains regarding the good supplied and making sure that appropriate steps are taken to solve problems related to these complaints.
(6) It ensures that required goods are available so as to avoid strategies which may cause price fluctuations.
(7) It maintaining a regular sales force arranging for its traveling so as to acquire efficiency in the ware house.
(8) To ensure that there is credit control so as to avoid in current bad dept.
(c) ACCOUNTS DEPARTMENT.
This is headed by a chief accountant and handles all accounting works . The major activities it carries out include: –
(1) Receiving and effecting payments on behalf of customers.
(2) Preparing budget and enforcing costing systems which make proper accountability of the ware house funds.
(3) Ensuring that all the financial commitment of the business are conveniently met.
(4) It carries out financial account at the end of each year in form of preparing the balance sheet.
(5) Preparing invoice and statement to be sent to customer’s sol that accountability can be made by the chief accountant’s easily.
(6) Preparation of wage sheet and payment of wages
(d) SECRETARY DEPARTMENT
Its headed by the secretary or office manager and it handles all the correspondence legal affairs and personal matters and records. It is responsible for the following duties: –
(1) To keep up to date with correspondence this may be regarding or sales of good.
(2) Maintaining the necessary files which cause the smooth running of the business possible.
(3) Advising the management on the matters of legal importance e.g company registration divided.
(4) A pointing staff members or in case of senior employers advice the general manager and the owner on their appointments.
(5) Arranging for the training of personal so that there is efficiency in duties performed in the staff.
(6) Maintain staff records which can be reference in case of promotions and any other appointment among the staff.
(E) SALES PROMOTION DEPARTMENT.
It is headed by the sales promotion manager who is responsible for the following:-
(1) Handling all advertisement aimed at promoting sales.
(2) Printing catalogs and prices and other documents which can be sent to prospective buyers.
(3) Arranging for special demonstrate of foods offered by the business with the aim of promoting the volume of sales.
(4) Participate in trade shows like SABA-SABA trade fair and international trade fairs so as to interact with prospective buyers.
(5) Attending to customer’s complaint and making sure that such complaints one solved.
STOCK ADMINISTRATION
Stock administration is the management of stocks in a business so that the goods for selling are always in sufficient qualities without running short of supplies or carrying more stock than the recovered turnover.
Stock administration is the management of stocks in a business so that the goods for selling are always in sufficient qualities without running short of supplies or carrying more stock than the recovered turnover.
FUNCTIONS/ ACTIVITIES IN STOCK ADMINISTRATION
The main activities in stock administration or function of stock administration are:
1.STOCK CONTROL
This is the keeping and checking record of stock in the firm. Stock control is the main activities in stock administration.
2.ISSUING OF STOCK
This involves releasing sold stock to the customers.
3.RECEIVING STOCK
This involves taking delivery of good from the suppliers.
4.CARE OF STOCK
This involves keeping stock in good order and at a right place.
5.STOCK TAKING
This is the process of finding the quantity of stock held at specific period of time. OR
This is the physical counting and finding the value of all items sold. This includes the following;
This is the physical counting and finding the value of all items sold. This includes the following;
-To check pilferage.
– To check accuracy of records.
– To check weakness in the system of stock control.
– To support the value of closing stock which will be used for final account.
6.PLACING OF ITEMS
This is allocation of goods in appropriate place. Stock must be arranged in such a way that will reveal those old ones from new ones.
7. STOCK VALUATION
This is the process of finding the value of stock held at a specific period of time. E.g. value of stock at the end of the year.
STOCK LEVELS
There are various points volume of stock at different times. Stock levels include the following
(i) Minimum stock
(ii) Maximum stock
(iii) Average stock
(iv) Order – point/ Re-order point
– MINIMUM STOCK
This is the lowest amount which should be kept to safeguard against unforeseen events like delay in deliveries. OR
This is the quantity of a certain commodity that should always be in stock to safe guard sales against unforeseen delays in delivery of commodity. OR
Is the level below which the stock of any given commodities should not be allowed to fall.
Minimums stock = order point-(Normal consumption x lead time).
Minimums stock = order point-(Normal consumption x lead time).
– MAXIMUM STOCK
This is the highest level of stock recorded after receipt of new deliveries. Is the level reached immediately at the receipt of new supply of goods.
– AVERAGE STOCK
This refers to the average of numbers of stock levels within a period,usually a year. Average stock can be calculated as follow: –
Average stock = 
ORDER- POINT
This is the level at which the placing of new order must be done. OR
Is the level in which new order is required.
Determinants of stock-order are
(a)Daily sales/ wages/ consumption
(b)The period between placing order and receiving delivery /minimum stock level.
ODER-POINT = (Daily sales x time of delivery)+ minimum stock
Example 1
From the data given, calculate order point
Daily sales________________________ 100kg
Delivery time _____________________ 3 days
Minimum stock ___________________ 200kgs
Solution
ODER-POINT = (Daily sales x time of delivery) + minimum stock
= (100 x 3) + 200
= 300+200
= 500kg
Example 2
Given the following data of sales
Daily volume of sales = 50tones
Time of delivery = 12 days
Minimum stock = 200 tons
Calculate order point
Solution
ODER-POINT = (Daily sales x time of delivery) + minimum stock
= (50 x 12) + 200
= 600 + 200
= 800 Tones
ECONOMIC ORDER QUANTITY (EOQ)
Is an amount of quantities delivered from supplier of materials. Economic order quantities is given by a formula below;-
Where
C = ordering cost per order
D = Demand per annual
Cc = carrying cost per item per annum
Examples
Find the economic order quantity where demand is 20,000 units per annum, the ordering cost is Tshs. 500 per order; the carrying cost per item per annum is Tshs. 120
Solution
Demand per annum = 20,000 un
its (10,000)
its (10,000)
Carrying cost per item = Tshs. 120 (100)
Ordering cost = Tshs. 500 (180)
STOCK TAKING
This is a process of verifying the balances of items held in stock at the end to the pre- determined period by counting, weighing and measuring. Stock taking can be divided into three (3) categories
1. ANNUAL STOKING
This is done once per year to find the ending balance for the purpose of preparing financial report.
2. PERIODIC STOCK TAKING
This is an activity of finding the balances of stock for an interval period.
3. PERPETUAL STOCK TAKING
This is the continuous stock taking of recording the transactions made of receiving and issuing of materials in stock.
CALCULATING CONTROL LEVELS
1. LEAD TIME
Is the period of time between ordering and replacement. i.e. when goods are available for use.
2. RE-ORDER LEVEL
Is the level of stock at which a further replacement order should be placed.
Re-order level = maximum usage x maximum level time.
Minimum level = Re-order- (Normal consumption x lead time).
TURN – OVER
Turn-over refers to total sales at a certain period of time.
Turn-over = price x Quantity
= P x Q
RATE OF STOCK TURN OVER
This is the number of times the average volume of stock held has been turned over. i.e. Sold during a given period.
Rate of stock turn over =
Rate of stock turn over =
GROSS PROFIT
This is the excess of sales (turn over) the cost of sales.
G.P = Total sales – cost of sales.
Example 1.
Given
Sales = 12,000
Purchases = 100,000
Gross profit = 120,000 – 100,000
= 20,000
Example 2
Given the following date of a firm opening stock at the beginning of the year = 250,000
Purchases = 300,000
Closing stock at the end of the year = 20,000
Goods returned to supplier (Returns outwards) =10,000
Goods returned by customers (returns inwards) = 20,000
Total sales = 800,000
Find gross profit
DR TRADING A/C CR
Opening stock 250,000 Add: Purchases 300,000 Less : returns outwards 10,000 Net purchases 290,000 Goods available for sale 540,000 Less: closing stock 20,000 Cost of goods sold 520,000 Gross profit 260,000 780,000 | Sales 80,0000 Less: returns inwards 20,000 Net sales 780,000 780,000 |
NET PROFIT
This is the revenue which remains after making deductions of expenses running a business.
In order to calculate net profit, a profit and loss A/c must be drawn up, showing on the credit side the gross profit brought forward from the trading A/c and on the debt side, the various expenses such as rent, rates, taxes, wages, insurance, interest on loans (if any), advertising , light and heat, depreciation etc.
Net profit = gross profit – expenses
BUSINESS CALCULATIONS
(a)MARK-UP
This is gross profit as a percentage to cost price.
Mark-up = 
x 100
x 100Example
Given
Cost price = 50,000
Gross profit = 25,000
= 50%
(b)MARGIN
This is the gross profit as a percentage to sales price.
Margin = x 100
x 100Example:
Given
Selling price = 100,000
Gross profit = 20,000
Margin 
= 20%
DISCOUNTS
This is the allowance given to the trade on the goods purchases. There are 3 types of discounts.
(a) TRADE DISCOUNT
This is an allowance (deduction) made if goods are sold by one businessman to another businessman on goods whose price is either fixed or controlled or is generals known.
Example
Mr. Bukagile sells his products at Tshs. 1000 per unit. He gives trade discount of 10%. If a customer bought 50 units the trade discount will be:-
(50 x 1000) x 10%
= 5000
(b) QUANTITY DISCOUNT
This is the discount allowed in additional to a trade discount if the quantity of goods sold is large.
Example
A wholesaler selling soda may allow trade discount to retailers of 20% to quantities less than 50 crates and additional quantity discount of 5% to any amount exceeding 50 crates.
(c) CASH DISCOUNT
This is a discount given to induce the trader to pay promptly.
Example: 5% discount will be allowed if payment is made within 1 month, 2% if payment is made after 1 month and 1% if payment is made after a month.
TYPES OF CASH DISCOUNT
(i) DISCOUNT ALLOWED
This is the amount which is allowed to the debtor. It is an expense to a business.
(ii) DISCOUNT RECEIVED
This is a discount which is received from creditors.
DOCUMENTS USED IN WARE-HOUSING
1.Ware-house warrant.
This is a document authorizing the removal of goods. This is a document issued to the importer after storing his goods in a ware-house.
2.In-bond notes.
This is a document that shows the amount of goods which are in a ware-house.
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