In terms of manufacturing organizations, inventory can simply be defined as the materials procured, stored and used for the day-to-day functioning of an organization.
But in technical terms, inventory includes all materials, parts, supplies, tools, in process and finished goods that get recorded on the books of the organization and kept in stocks, warehouses or plant for some period of time. In a lay man’s language, inventory can simply be illustrated as any resource of the organization that carries an economic value for the organization itself.
IMC i.e. inventory management and control is the technique of maintain the stock keeping items, at desired levels, whether they be raw materials, goods in progress or finished goods. Inventory management and control is a scientific method of determining-
1. What to purchase
2. When to purchase
3. How much to be kept as stock for a given period of time
Efficient inventory management and control means—never falling short of anything, never overstocking of anything and never dispatching too many small orders too often.
Functions of inventory management and control
1. To ensure a balanced supply of materials and components.
2. To avoid stock out situation i.e. complete exhaustion of the inventory, otherwise it may disrupt the production.
3. To avoid excess locking up of the items in storage
4. To keep a proper record of inventory
5. To act as an insurance against errors in forecasting
6. To reduce thefts and misplacements of the material
7. To maintain proper inventory information system in the organization
8. To keep working capital blockage at a minimum level of opportunity cost
9. To avoid the devaluation of the material
10. To prevent the obsolesce of design and technology
11. To gain economies in purchasing, for example—discount ordering, bulk ordering should be done to reduce the purchasing costs
12. The check the pilferage, spoilage and damage of inventory.
13. To reduce the material handling costs, by using carry vans, frank lifts and conveyor belts
14. To gain the economies of production (by reducing the idling time of labor and machinery)
15. To check the insurance, taxes and other payable bills of inventory
Objectives of inventory management and control
1. Minimizing the idling time of man and machinery
2. To provide smooth and optimal services to the customers
3. To keep the carrying cost at minimum level
4. To keep the blockage of working capital at minimum level
Techniques of inventory management and control
Two major techniques of inventory management and control are “fixed order quantity” and “fixed order inventory”.
Fixed order quantity is also known as “Q” system of regulation or two bin system of regulation. Under this technique quantity to be ordered is fixed but time period varies. Fixed order inventory is also known as “P” system of regulation or periodic review mechanism. Under this technique quantity to be ordered varies but time period of ordering is fixed. These techniques help organizations to keep their inventories at optimum level.