Inventory Control

Inventory control methods vary from company to company, commodity to commodity. The inventory control method that works best for slow-moving items might not work as well for fast-moving items. One thing to remember is: no perfect method to manage inventory. A holy grail or magic formula that results in perfect inventory levels does not exist. A company can only seek to find the best method that result in reduced cost and increased service levels.

Basics

Many small businesses use a basic method of inventory control called minimum stock levels. With this form of control, the additional stock gets ordered when the existing stock has reached a certain level. For example, a small business sets a minimum stock level of 40 units on an item that sells at an average rate of 100 units every five days. When the inventory reaches 40 units at the end of day three, the company orders additional stock.

Just In Time (JIT)

One of the most popular methods for controlling inventory in the manufacturing environment remains just in time, or JIT, inventory control. JIT seeks to deliver inventory to the production floor just in time for use. The JIT method delivers only the exact quantities required to complete current production; no more, no less. JIT inventory control is highly dependent on the ability of the company’s suppliers to deliver on demand. In most manufacturing environments utilizing JIT delivery, the supplier has a warehouse very close to the manufacturing facility.

Economic Considerations

The economic order quantity, commonly referred to as EOQ, seeks to find a balance between holding too much or too little inventory. The EOQ formula gets quite complex, and to make use of it, a company must know the following information, usage in units, ordering cost in dollars per order, annual carrying cost rate as a decimal of a percentage, unit cost in dollars and the order quantity in units. The EOQ method seeks to find the order quantity that has the lowest total cost of carrying the inventory.

Safety Stock

Safety stock refers to an additional amount of stock carried over the normal stocking level requirements as a buffer against uncertainty. Some reasons for using safety stock as an inventory control method include supplier performance problems, long lead times and material uncertainty. Calculating safety stock quantities involves another complex formula, but most large companies have software that automatically calculates safety stock values. For the small business that works on a very tight budget, carrying additional inventory in the form of safety stock may do more harm financially than the benefits gained from carrying the inventory.

Set up an Inventory Management System to Suit your Company Needs:

Understand Why Stock Control And Stock Taking Is Critical

Inventory management is a systematic process of stock management and relates to the goods received and dispatched by trying to strike a balance.

The verification of actual inventory to bookkeeping records: Stocktaking involves the actual stock count with an aim of:

• Finding the amount of stock that has been sold
• Find the amount of stock still left to be sold
• The stock that is missing
• The stock that needs to be replenished.

Financial information of the status of inventory investment: The inventory is a record of stock kept. Stocktaking reveals the financial status of the stock that was entered in the inventory. By revealing the financial status of the inventory, the profitability of the business is scrutinized.

A measure of the effectiveness of inventory control procedures: One of the roles of an inventory is to control stock as it comes in and out of the warehouse. Stocktaking measures how effective the control of the stock through the inventory control procedure is and what the shortcomings are.

A method of assessing the individual managers in managing assets placed at their disposal: Stocktaking also reveals the individual manager’s ability to manage the stock at their disposal. Stocktaking is an investigation of how the goods that were brought into the warehouse were managed. The manager’s ability to dispose of stock, replenish stock and manage stock is revealed through stocktaking.

A record of inventory holdings by age groups: Stock taking also reveals the ages of the goods that are still in the store and enables change of stock, replenishment and identification of stock that moves well / is stagnant.

An adjustment to the accounting records in order to complete the financial statements: Stocktaking enables the management to adjust the accounting records in relation to the amount of goods still in the store and the amount of goods sold.