Inventory control
Inventory control refers to the process whereby the investments in materials and parts carried in stocks are regulated within pre-determined limits set in accordance with the inventory policy established by the management. It involves the planning of :
1. What to produce?
2. How much of the inventory is to be kept or ordered?
3. When to purchase?
Need of Inventory control and objectives of Inventory control
o Need for inventory control are as follows:
1. Increasing size of manufacturing.
2. Wide variety and complexity of the requirements.
3. High idle time cost of Machines and Men.
4. Liquidity.
Objectives of Inventory control are:
1. To ensure adequate supply to avoid shortages.
2. To ensure minimum capital blockage in inventories.
3. Efficient purchasing, storing, consumption, and accounting for materials is an important objective.
4. Timely record of inventories and timely action for replenishment.
5. To provide a buffer stock for contingency situations.
Inventory Control system
o There are two types of inventory control systems:
1) Perpetual/Continuous/Fixed order quantity system. (Q system)
2) Periodic/Fixed order Period system (P system).
Perpetual/Continuous/Fixed order quantity system. (Q system)
o In this system order quantity is always constant and order is placed when the level of inventory reaches the reorder point. It is also known as reorder point system.
Periodic/Fixed order Period system (P system).
o In this the order period is fixed, but the order quantity varies with the requirement. The quantity orders each time depends on the current inventory level or inventory in hand. As this system is based on periodic review of inventory levels, the cost involved in constant review can be saved. But the system requires a high level of safety stocks to tide over any unexpected demand variations.
Lead Time
o It is the Gap between the placement of an order and the time of actual supply. It is not necessarily identical to delivery time. It can be written as :
Lead time = Servicing Time + Delivery time+ Receiving Time
ABC Analysis
o In this materials are divided into 3 categories adopting a selective approach for material control. It is generally seen that in a manufacturing concern, a small percentage of items contribute a large percentage of the value of consumption (A category) and a large percentage of materials contribute a small percentage of value (C category). In between these two limits, there are some items that have an almost equal percentage of values of items (B category).
Applications of ABC
o Information of items that require a higher degree of control.
o To maintain re-ordering strategy.
o Stock records.
o Priority treatments to different items.
o Determination of safety stocks.
o Stores layout.
o Value analysis
Benefits of ABC Analysis
o Level of control.
o Gradual Delivery of material.
o Careful Accounting.
o Safety stock.
o Quantity discount factor.
o Layout of stores.
o Stock Taking.
o Value analysis Projects.
However, some limitations of ABC are as follows:
o Listing of ABC is difficult.
o Price factor, fluctuations, seasonal variations are not taken into account.
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