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Wednesday, May 26, 2010

Basics of Inventory Management - Inventory Control

Inventory control is of great importance in order to ensure smooth and uninterrupted production. Inventories refer to those items, which are either stocked for sale or they are in the process of manufacturing or they are in the form of materials, which are yet to be utilized. It takes time for transforming raw material into final products and it varies from industries to industries depending upon the cycle time of manufacture. Thus, it is necessary to hold inventories of various kinds to maintain balance between supply and demand for efficient operation of the system.

Reason for keeping inventories

It helps to stabilize production:
The demand for an item fluctuates because of the number of  factors, e.g., seasonality, production schedule etc. The inventories (raw materials and components) should be made available to the production as per the demand failing which results in stock out and the production stoppage takes place for want of materials. Hence, the inventory is kept to take care of this fluctuation so that the production is smooth.

It helps in taking advantage of price discounts: Usually the manufacturers offer discount for bulk buying and to gain this price advantage the materials are bought in bulk even though it is not required immediately. Thus, inventory is maintained to gain economy in purchasing.

It helps to meet the demand during the replenishment period: The lead time for procurement of materials depends upon many factors like location of the source, demand supply condition, etc. So inventory is maintained to meet the demand during the procurement (replenishment) period.

To avoid over stocking and under stocking of inventory


It helps to keep pace with changing market conditions:
The organizations have to anticipate the changing market sentiments and they have to stock materials in anticipation of non-availability of materials or sudden increase in prices.

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