Inventory Control Management New

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Inventory Control Management

Meaning: Inventory control - Supervision of the supply and storage and accessibility of items in order to insure an adequate supply without excessive oversupply. Definition
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Inventory control is "the process of managing inventories in such a way as to minimize inventory costs, including both holding costs and potential out of stock costs”. Manufacturers recognize three general types of inventory:

1.1. Inventories
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Raw materials, Work-in-process (WIP) and Finished goods. At a car maker, a tire is raw material, the chassis on the production line is WIP, and the finished automobile is finished goods. While each is under ownership of the company, it is inventory. Retailers have only finished goods--called "stock" or "merchandise." 1.2. Balance
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Inventory costs a company in purchasing, storage and handling. Effective inventory control minimizes those costs, by determining the minimum of time required to receive materials from suppliers, and to produce goods to order; and the minimum amount of raw materials required to begin an order. An inventory control system is a methodology, or technology, of inventory control. It may be as simple as a handwritten manifest, as complex as a material requirements planning (MRP) system. Enterprise software providers, including SAP and Oracle, offer dedicated inventory control software systems.

1.3. Systems
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1.4. Cost of Goods Sold
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An effective inventory system minimizes the cost of inventory, including storage costs; handling; and loss through pilfering and obsolescence. Inventory management is a very simple concept - don't have too much stock and don't have too little. Since there can be substantial costs involved in straying above and below the optimal range, careful inventory management can make a huge difference in the profitability of a business. Although the concept is simple, the process of getting the right balance can be quite a complex and time consuming task without the right technology.

Objectives of Inventory Management A fundamental objective of a good system of inventory control is to be able to place an order at the right time from the right source to acquire the right quantity at right price and of right quality. Following are the objectives of inventory control: (1) To Ensure Adequate Stock: An endeavor is made by inventory control to see that any department will get the raw materials or other necessary item as and when required. Hence an effective system of purchasing, storage and maintenance is effectively arranged so that enough stock is available on hand. (2) To Minimize Inventories on Hand: The next objective of inventory control is to minimize inventories on hand. It has to be ensured that excessive stock is not kept and unnecessary capital is not locked up. But it must be consistent with adequate stock, so that production is not disrupted. (3) To Maintain Continuity in Production: The supplies of materials spare parts, consumable stores etc. must be stocked to the optimum level, so that continuity of operations is maintained. The inventory

control system should ensure that production is completed as per schedule. (4) Minimize the Cost of Purchasing and Storage: It is essential that there is economy in cost of purchasing, cost of receiving and inspection, storage and issue of materials etc. The expenses to be reduced to minimum are interest oh capital locked, insurance, maintenance, and inspection and transportation costs. (5) To Minimize the Wastage and Loss: In every manufacturing organisation, there is a risk of wastage and theft of stores, wastage and losses are likely to occur during movements and during the production processes. Inventory control ensures that the risk of theft, wastage and losses are minimized. (6) Effective Use of Available Capital: Various levels like maximum level, minimum level, reordering level etc. are fixed in a system of inventory control, which ensures that unnecessary capital is not locked up in inventory. Order is placed at right time and in right quantity, taking into account the re-ordering level. This will make efficient purchasing possible. (7) To be Helpful in Efficient Purchasing: Maintenance of optimum stock is closely connected with a system of inventory control. One of the major objectives of inventory control is to assist in efficient purchasing. (8) To Give Maximum Satisfaction to Customers: The customer satisfaction is a sign of a progressive enterprise. Inventory control assists in supplying goods at proper price and at right time. Inventory control leads to economical purchase, makes possible continuity of production and maintaining enough stock. All these leads to consumer satisfaction. (9) To Minimize Loss Due to Price Decline: When considerable investment is made in inventory, the price decrease on a large scale may involve the firm in considerable loss. This is reduced to a great extent by proper inventory control.

(10) Maximum Use of Storage Capacity: One of the objectives of inventory control is to make maximum use of storage capacity available. This will reduce storage costs. (11) Proper Storage of Materials: Inventory control function includes supervision and control of storage of materials, tools etc. Where thousands of items are stored, it is necessary that material of a particular type required is immediately available. Efficient storage is made possible due to inventory control. Roles and Responsibilities a) Inventory Manager

Responsible for maintaining the Inventory in a current and accurate state. Role is responsible for both mainframe and network resident devices and software components. Interfaces with Systems Management disciplines and Financial department. b) Inventory Clerks

Responsible for maintaining the Inventory Data Base Repository and for guarantying the information contained within the Repository is accurate and in a current state. Information is data entered, or entered via automated tools. If automated tools are used, then clerks must be knowledgeable in program products used as a tool. The Benefits of Inventory Control Today, maintaining the right inventory levels is a tough challenge. If not properly managed, your inventory can result in a significant expense



Maintain an item master file for the company. This file keeps all pertinent information on each item to be controlled: part number and description, detailed information such as preferred and actual locations and shipping weight, reorder point and recommended reorder quantity and cost information such as standard cost, actual cost and sales price. Process the inventory within the company. Such activity includes the material issues, receipts, shipments, transfers, returns, rejections, inspections and scrap. The system should enable the transactions to be processed online, with immediate updates. The system should also provide the capability to track inventory levels and activity for multiple locations within the company. Facilitate purchasing. The system should provide reports of items at reorder points in case of companies not using material requirement planning ("MRP") systems. The order point calculation should be based on the prior use of items. Automatic computation of these numbers greatly helps in inventory control personnel. Provide adequate online inquiry and management reporting capabilities. The system should provide online inquiry into the stock status by different locations, inventory value by different location and descriptive information for each item. The information should be obtainable on the screen from different computer terminal locations.







Methods of Inventory Control Management 1) Economic Order Quantity What is it: Economic Order Quantity (EOQ) is that level of inventory that minimizes the total of inventory holding cost and ordering cost. EOQ is the order quantity that minimizes of the cost of ordering and the cost of holding inventory

Why use it: EOQ is useful in determining optimal order quantity, that minimizes total variable costs required to order and hold inventory Where to use it: Basically, EOQ helps you identify the most economical way to replenish your inventory by showing you the best order quantity. When to use it: The EOQ tool can be used to model the amount of inventory that we should order each month.

2) ABC Method

The ABC method of inventory control requires the classification of inventory into one of three groups-A, B, or C. Group A items are the most expensive, group B less expensive, and group C the least costly. The higher the value of the inventory items, the more control needed. See Figure 10-4 for an illustration of the ABC inventory control system. Table 10-3 illustrates an ABC distribution.

Figure 10-4 ABC Inventory Control System

Deciding on the proper amount of investment in inventory is not an easy task. The amount you need may change daily and require close evaluation. However, improper inventory management can unnecessarily tie up funds in inventoryfunds that can be used more productively elsewhere. A buildup of inventory may lead to obsolete inventory. On the other hand, an excessively low inventory may result in less profit because of lost sales.

The ABC inventory control method determines the importance of inventory items based on usage, sales or costs criteria. This inventory control method provides companies the ability to give individual stock keeping units (SKUs) different levels of inventory control based on the SKUs relative importance. Companies perform a Pareto analysis to determine ABC item classifications

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