Thereby deciding on the levels of inventory i.e. It is because the demand or need for the product you produce can only be assessed by people who are close to customers such as sales and marketing. Step 1: Deciding on the minimum levels of inventoriesĪ production department is incomplete if it does not have a good relationship with the sales and marketing department. It helps to lay out plans for physical verification of inventories.A systematic record of movement of materials.Guides us on storing and issuance of inventories from godowns.Helps in laying the procurement process considering the wait-time, lead-time etc.Maintaining an optimum level of inventories. Therefore, the cost of ordering inventories and carrying those inventories throughout the production is also important to keep the overall cost of selling as low as possible. As we know that the overall objective of inventory control is to achieve satisfactory levels of customer service by keeping the inventory costs within reasonable bounds. Cost of holding inventoriesĪnother objective of inventory control is to optimize the cost of ordering and carrying inventories. This can only be achieved if you have proper inventory control measures followed up in your organization. Then how could you be different and attract customers to your product? The answer here is plain, it’s only through proper customer service.Ĭustomer service means having the right goods available in the right quantity in the right place at the right time. In an open market, there are so many manufactures who may produce the same goods as you may. Why do you produce goods? The answer is simple it is to sell the goods at a good price. Inventory control has two key objectives: Customer service level Thus, it ensures that enough stocks are maintained to meet customer needs, at any point in time. Inventory control helps the business in knowing the shortfall and quantities to be ordered considering the net stock available. On the other hand, understocking leads to loss of sale due to non-availability of stock at the right time.Īs a result, a business needs to implement inventory control so that the right product at the right place and the right time is available. Overstocking will lead to cash flow blockage and the additional cost for managing excess stock. Managing adequate stock is key for managing inventory successfully. Here is why inventory control plays an important role. In this process, how much to stock is an important question that needs to be answered. In some cases, more stocks are held to create demand for the product and get a high price for the product.įrom the above, it’s quite clear that for various reason, you need to hold inventories in the business. In such a situation, it becomes necessary for the company to hold stock of those readymade inventories which are required in the production of the final product.Ī company stocks the finished goods during the waiting period until it finds its customer. Sometimes they buy readymade components available in the market. Let’s say if any batch order which requires the same kind of raw material, it can be diverted from the batch order that has been postponed by the management for certain time thereby not affecting the production flow.Ī company usually does not produce every component that goes into the product. The reason is to balance the production flow. The reason for holding raw materials is to reap the price advantage available on purchase of bulk or on any seasonal raw materials which can be procured only during the harvest seasons. The below table explains different inventory types and the reason why such inventories are held by the business. In simple words, inventory control is a process of ensuring that a business maintains the adequate quantity of stock to meet the forecasted demand with minimum holding cost. Inventory control is an activity of checking a shop’s stock and to maintain the inventory at desired levels, keeping in view the best economic interest of an organization.
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