< 10 Essentials of a Good Inventory Control System
Production Management

10 Essentials of a Good Inventory Control System

The essentials of an effective inventory control system

For an efficient and successful inventory control here are certain important conditions or elements. They are as follows

(1) Classification and Identification of Inventories : The usual inventory of a manufacturing firm includes raw-material, storm, work-in progress and components etc. To facilitate prompt recording and dealing each item of lithe inventory must be assigned a particular code no. and it must be classified in suitable groups or sub-divisions. ABC analysis of material is very helpful in this context.

(2) Standardization and Simplification of Inventories : In order to facilitate inventory control the inventory line should be simplified. It refers to the elimination of excess types and size of items. Simplification leads to reduction in inventories and its carrying costs. Standardization, on the other hand, refers to the fixation of standards of raw material to be purchased and specification of the components and tools to be used.

(3) Setting Maximum and Minimum limits for each part of inventory: The third step in this process is to set the max imam and minimum limits of each items of the inventory. It avoids the changes of over-investment as well as running shat of any item during the course of production. Record point should also be fixed before hand.

(4) Economic Order Quantity : It is also a basic inventory problem to determine the EOQ the problem is one to set a balance between two opportunity costs, namely, ordering cost and carrying costs. The quantity should be fixed beforehand.

(5) Adequate Storage Facilities : To make the system of inventory control successful and efficient one, it is also essential to provide the adequate storage facilities. Sufficient storage area and proper handling facilities should be organized

(6) Adequate Records and Reports : Inventory control requites the maintenance of adequate inventory records and reports. Various inventory records must contain information to meet the needs of the purchasing, production, sales and financial staff. The typical information required about any class of inventory may be relating to quantity on hand, location, quantities in transit, unit cost, EOQ for each item of inventory, recorder point, safety level, etc. statements forms and inventory records should be so designed that the clerical cost of maintaining these records must be kept at a minimum.

(7) Intelligent and Experienced Personnel : The last but not the least important requirements of a successful inventory control system is the appointment of intelligent and experienced employees in purchase department, stores department and so on. Mere establishment of procedures an(i the maintenance of records would not give the desired results as there is no substituted for sincere and devoted as well experienced hands. Hence, the whole inventory control structure should be manned with trained, qualified, experienced and devoted employees. Apart from the above, the other requirements are as follows

(8) Co-ordination : There must be proper co-ordination of all departments involved—finance, purchasing, receiving testing, approving, storage, accounting, etc.

(9) Budgeting : An efficient budgeting system is also required. Preparation of budgets concerning materials, supplies and equipment to ensure economy in purchasing and use of materials is also necessary.

(10) Internal Check : Operation of system of internal check so that all transactions involving materials, supplies and equipment purchases are properly approved and automatically checked.


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