Concept of inventory control

The value or quantity of materials on hand is referred to as inventory. All included raw materials, semi-finished goods, replacement parts, and final goods. Inventory may reflect several stages in getting the final product and may be required directly or indirectly to make a sale of the end product. The Inventory Management System is designed to ensure that inventory items behave desirably. Inventory control is largely concerned with implementing specific policies, processes, and procedures to lower inventory costs. It helps in having a systematic record and physical verification of the products as well. This also allows the scope of periodic scrutinies.

Importance of inventory control

• Keeping appropriate stock is essential for good inventory management. Overstocking will stifle cash flow and add to the expense of handling surplus inventory. On the other hand, understocking results in a loss of sale due to the inability to obtain supply at the appropriate moment.
•  As a result, a company must establish inventory control to ensure that the appropriate product is available at the right time and in the right place.
• Inventory management aids the business in determining the shortage and the amounts to be ordered based on the available net stock. As a result, it ensures that sufficient stocks are kept on hand to meet client demands at all times.

Types of inventories  

Inventory of raw materials

 This consists of basic materials that have not yet been used in a manufacturing firm’s output. Raw materials obtained from businesses are subsequently used to create the business and afterwards in its operations.

Stockpiles and spare parts

 Stores and Spares are products that are accessories or parts of the main products that are manufactured for sale. Bolts, nuts, clamps, and screws are examples of this sort.

Works in Process Inventory

This includes those materials that have already been committed to the assembly method but haven’t been completed. The more advanced and lengthier the assembly method, the larger the investment in work inventory will be required.

4. Finished goods inventory

These are completed products that are anticipating sale.

Objectives of inventory management:

Inventory control has two key objectives: 

1. Why does one turn out good?

The solution is straightforward: selling the products at an honest price. There is such a large amount of manufactured goods in the open market.

 2. However, how can you differentiate and attract customers to your product?

The solution here is apparent solely through correct client service.

Customer service suggests that having the correct merchandise is obtainable in the right amount in the right place at the correct time. This could be achieved solely if you have the correct inventory control measures followed up in your organisation.

Cost incurring at inventories:

 ● Another objective of inventory control is to optimise the price of ordering and carrying inventories. As we all know, the objective of internal control is to attain satisfactory levels of client service by keeping the inventory prices within reasonable bounds.

● Therefore, the price of ordering inventories and carrying those inventories throughout the assembly is additionally necessary to keep the cost of commerce as low as possible.

What are the advantages of inventory management?

 ● Maintaining an optimal level of inventories is beneficial. In giving birth to the acquisition method by considering the wait-time, lead-time, etc

● Periodical scrutiny of inventories

● Guides in the storage and distribution of inventories from godowns.

● A systematic record of the movement of materials.

It helps to have plans for the physical verification of inventories.

How does inventory work?

Step 1: Prefer inventory levels that are as low as possible.

 ● A production department is incomplete if it doesn’t have an honest relationship with the sales and promotion department. It’s a result of the fact that the demand or would like for the merchandise you turn out will be solely assessed by those about to customers, like sales and promoting.

● Therefore, preferring the amount of inventory, i.e., maximum-minimum inventory limits, is important. As a manufacturer, you’d not just like the raw materials to become obsolete even before the assembly has begun or to top off raw materials that have very restricted use within the production of a finished product.

 Step 2: Determine the level of re-ordering.

 ● In this environment, demand for anything is unpredictable. Especially when it comes to the tastes and preferences of customers. You must be prepared to select how much to produce in response to customer demand if a product you manufacture sells well.

 ● You must determine when you will restock the raw materials that will be employed in the final product’s creation. You will not be able to supply a complete product to the customer if the restocking time exceeds the time pledged to deliver the final product.

 Step 3: Selecting an effective inventory management strategy

 ● There are various inventory control methods available, and you can select the one that best meets your needs. Whatever way you use, it’s critical that the strategies aid in determining the minimum number of stock, when the stock should be re-ordered, and the correct quantity to order.

Conclusion

The Inventory Control System is designed to ensure that inventory items behave desirably. Inventory control is largely concerned with implementing specific policies, processes, and procedures to lower inventory costs.

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