INVENTORY MANAGEMENT & CONTROL
Proper management and control assume considerable importance because of high costs involved in inventories. The management of inventory is given such an importance, that it is often treated synonymous with materials management.
Inventory management involves the â€˜development and administration of policies, systems and procedures, which will minimize total costs relative to inventory decisions and related functions such as customer service requirements, production scheduling, purchasing and trafficâ€™. Viewed in that perspective, inventory management is broad in scope and affects a great number of activities in a companyâ€™s organization. Because of these numerous interrelationships, inventory management stresses the need for integrated information flow and decision making, as it relates to inventory policies and overall systems.
Inventory control, on the other hand, is defined in a narrower sense than inventory management and pertains primarily to the administration of established policies, systems and procedures. For example, the actual steps taken to maintain the stock levels or stock records refer to inventory control.
Factors influencing Inventory Management and Control
Several factors influence inventory management and control. The principal effects of these factors are reflected most strongly in the levels of inventory and the degree of control, planned in the inventory control system. The factors include type of product, type of manufacture, volume of output and others.
Type of Product
Among the factors influencing inventory management and control, the type of product is fundamental. If the materials used in the manufacture of the product have a high unit value when purchased, a much closer control is usually in order. Ornament makers are much more careful of their stock of diamonds than they are with display cases full of low-priced Costume jewellery. The same principle holds in manufacturing also.
If the material used in the product is in short supply or is rationed by the government, this may influence the purchase of this material and its stock maintained.
Type of Manufacture
Besides the type of product, type of manufacture also influences inventory management and control. Where continuous manufacture is employed, the rate of production is the key factor. Here, inventory control is of major importance and in reality controls the production of the product. The economic advantage of this type of manufacture is the uninterrupted operation of the machines and assembly lines in the plant. It is a major offence on the part of the inventory personnel to have the plant shut down for the lack of material. Intermittent manufacture, on the other hand, permits greater flexibility in the control of material.
The volume of product to be made as represented by the rate of production may have little effect on the complexity of the inventory problem. Literally, millions of brass bases for light bulbs are manufactured each month involving the control of only two principal items of raw material inventory. On the other hand, the manufacture of a large locomotive involves the planning and control of thousands of items of inventory. Both, the inventory problem and the difficulty of controlling production, increase in difficulty with the number of component parts of the product and not with the quantity of products to be made.
The other factors are
1. The objectives of the company as they relate to inventories and the level of services to be provided to customers.
2. The qualification of staff personnel who will design and co-ordinate the implementation of the system.
3. The capabilities of personnel who will be responsible for managing the system on a continuing basis.
4. The nature and size of inventories and their relationship to the other functions in the company, such as manufacturing, finance and marketing.
5. The capability of present and future data processing equipment.
6. The potential savings that might be anticipated from improved control of inventories.
7. The current or potential, availability of data that can be used in controlling inventories.
8. The present method for controlling inventories and for making inventory decisions.
9. The degree of commitment by management personnel to the development of a more effective inventory management system and the results they anticipate from such a system.
The manufacture of standard products, as compared to custom-made items, will influence inventories. Material needed to manufacture a standard produce is easy to obtain and a close control on the stock is not necessary. Material required to produce made-to-order items needs strict control to ensure that no items is lost in the process of manufacture. Such materials and tools are of special and expensive type and a loss of any small part will hold up the production.