BENEFITS OF INVENTORY MANAGEMENT AND CONTROL

BENEFITS OF INVENTORY MANAGEMENT AND CONTROL

Inventory is an important part in every business. Inventory control refers to the proper balance between the cost and the profit, resulting from the accurate management of items on hand.

Inventory management is essential in every business and its efficiency and effectiveness can significantly reduce the capital losses of the business.

Keeping the equilibrium between the cost of stocks and the profits earned by the business can be very difficult because it requires the evaluation of several inventory related task.

The efficient control and management of stocks relies upon how inventories are organized and regulated, cost predictions, the quantity of items to be ordered and stored and the ideal time to order the items to avoid shortage and profit and loss.

The purpose of controlling and managing the stocks on hand is to determine and maintain the precise amount of investment in the inventory.

Successful businesses are incredibly proficient in managing their inventory and monitoring the items on hand. These enterprises are also very competence in developing plans and applying effective scheme for maintain the optimum levels of investment in the inventory.

Controlling and managing inventory tasks can either be very easy or can be presented in sophisticated and complicated mathematical inventory model. The level of sophistication relies on the size of the business and the requirement needed to keep an effective inventory, to keep losses at the lowest level. But how can business owners carry out a reliable inventory management?

First, it is very important for businessmen to purchase methodically. Purchasing goods only when the stocks are very low is not always a good idea. Do not wait for “out-of-stock” conditions to happen before purchase, but never purchase goods in high quantities, leaving the business loss storage space and sell items in their not-so-good qualities.

The re-ordering point is a critical time for the business. It is the moment when the suppliers are low but can still meet the customer demands and new supplies arrives just-in-time before the last item is sold. Second, it is useful for the business to monitor and frequently update their inventory to check if the items required are ordered, the deliveries are correct and on time, which items are on demand and not selling, spot shortages because of high demand or in some instances, theft and to monitor product expiration and spoilage.

Finally, assign a professional and skilled employee who can efficiently carry out the inventory task.

Businessman must also understand the expense of controlling and managing inventory. The cost of ordering may include fees needed to prepare the purchase, shipping cost, processing of the relevant documents and other miscellaneous fees.

The cost of ordering needs a careful evaluation of the correct amount of orders for the business to save more money and to avoid extra costs on small production runs, overtime and others. The cost of carrying includes financial losses that may come from spoilage or expiration of goods, payment for shortage areas and insurances for the safety of the employees.

Efficient inventory control management leads to smooth business operation and an optimized usage of resources and man power.

Additionally, if the inventory is managed perfectly there is a higher coordination which the employees, consumers and stocks and the internal affairs of the business can be systematically organized.

Proper management and control of inventory will result in the following benefits to an organization. Inventory control ensures an adequate supply of material and stores minimized stock outs and shortages and avoid costly interruptions in operations.

It keeps down investment in industries, inventory carrying cost and obsolescence losses to the minimum. It facilitates purchasing economies through the measurement of requirement on the basis of recorded experience.

It permits a better utilization of available stocks by facilitating inter-department transfers within a company. It provides a check against the loss of materials through carelessness or pilferage.

It facilitates cost accounting activities by providing a means for allocating material cost to products, departments or other operating accounts. Perpetual inventory value provides a consistent and reliable basis for preparing financial statement.