Inventory or Store Control
Inventory control means to monitor the stock of goods used for production, distribution and captive (self) consumption. For a specific time period, stocks of goods are placed at some particular location. Stock of goods includes raw-materials, work in progress, finished goods, packaging, spares, components, consumable items, etc. Inventory Control means maintaining the inventory at a desired level. The desired-level keeps on fluctuating as per the demand and supply of goods.
According to Gordon Carson, "Inventory control is the process where by the investment in materials and parts carried in stocks is regulated, within pre-determined limits set in accordance with the inventory policy established by the management."
Simply "Inventory control is a method to identify those stocks of goods, which can be used for the production of finished goods. It shall be supported by a schedule which gives details regarding; opening stock, receipt of raw-materials, issue of materials, closing stock, and scrap generated."
Objectives of store control: The following are the important objectives of store control
a) to make available the right type of raw material at the right time in order to have smooth and continuous flow of production;
b) to ensure effective utilization of material;
c) to prevent over stocking of materials and consequent locking up of working capital;
d) to procure appropriate quality of raw materials at reasonable price;
e) to prevent losses during storage of materials;
f) to supply information to the management regarding the cost of materials and the availability of stock;
Essential of store control: The following at the essentials of good system of material control.
a) There should be proper co-operation and co-ordination among the departments dealing with materials.
b) All purchases must be centralized and must be made through an expert purchase manager.
c) All items in the stores should be classified with codes.
d) Receiving and inspection procedure should be chalked out.
e) Ideal storage and preservation facilities will have to be provided.
f) Stores control measures like ABC analysis, perpetual inventory system, stock verification should be introduced.
g) There should be an efficient system of internal audit and internal check.
h) Maximum level, minimum level and re-order level of stock should be fixed to avoid over-stocking or shortage of materials.
i) Appropriate records should be maintained to control issues and utilization of stores in production.
j) There should be a system of regular reporting to management regarding materials purchases, storage and utilization.
Advantages of Inventory control
1. Protects from fluctuations in demand: There are always chances of fluctuations in the demand of a material. These fluctuations can be adjusted if there are sufficient items in the stock of inventory. Therefore, proper inventory control protects the company from fluctuations in demand.
2. Better services to customers: If the company maintains a proper inventory of raw-materials, then it can complete its production in time. So, it can deliver the finished goods to the customers in time. Similarly, if the company has a proper inventory of finished goods, then it can satisfy the additional demand of the customers.
3. Continuity of production operations: Proper inventory control helps to maintain continuity of production operations. This is because it maintains a smooth flow of raw materials. So, there are no shortages of raw-materials required for production process.
4. Reduces the risk of loss: Proper inventory control helps to reduce the risk of loss due to obsolescence (outdated) or deterioration of items. This is because it checks all the items regularly.
5. Minimizes the administrative workload: Proper inventory control helps to minimize the administrative work load of purchasing, inspection, warehousing, etc. This will reduce the manpower requirement and will minimize the labour cost too.
6. Protects fluctuation in output: Inventory control tries to reduce the gap between planned production and actual production. There are cases where the production schedule cannot be followed because of Sudden breakdown of machines, Problems in supply of materials, Sudden labour strikes, Loss due to failure of power supply, etc.
In such cases, the difference between planned production and actual production can be bridged by inventories held in stock.
7. Effective use of working capital: Proper inventory control helps to make effective use of working capital. Inventory control helps in maintaining the right amount of stocks of materials, components, etc. Over stocking is avoided. Therefore, the working capital will not be blocked in excess inventory.
8. Check on loss of materials: Inventory control helps to maintain a check on the loss of materials due to carelessness or pilferage. If there is no proper inventory control, then there are more chances of carelessness and pilferage by the employees, especially in the store-keeping department.
9. Facilitates cost accounting activities: Inventory control facilitates cost accounting activities. This is because, inventory control provides a means of allocating materials cost of products, departments or other operating accounts.
10. Avoids duplication in ordering: Inventory control avoids duplication in ordering of stock. This is done by maintaining a separate purchase department.