WCM/U4 Topic 1 Inventory: Need for Monitoring & Control of Inventories
(i) To minimise capital investment in inventory by eliminating excessive stocks;
(ii) To ensure availability of needed inventory for uninterrupted production and for meeting consumer demand;
(iii) To provide a scientific basis for planning of inventory needs;
(iv) To tiding over the demand fluctuations by maintaining reasonable safety stock;
(v) To minimise risk of loss due to obsolescence, deterioration, etc.;
(vi) To maintain necessary records for protecting against thefts, wastes leakages of inventories and to decide timely replenishment of stocks.
Advantages of Inventory Control:
- It improves the liquidity position of the firm by reducing unnecessary tying up of capital in excess inventories.
- It ensures smooth production operations by maintaining reasonable stocks of materials.
- It facilitates regular and timely supply to customers through adequate stocks of finished products.
- It protects the firm against variations in raw materials delivery time.
- It facilitates production scheduling, avoids shortage of materials and duplicate ordering.
- It helps to minimise loss by obsolescence, deterioration, damage, etc.
- It enables the firms to take advantage of price fluctuations through economic lot buying when prices are low.
Limitations of Inventory Control:
(i) Efficient inventory control methods can reduce but cannot eliminate business risk.
(ii) The objectives of better sales through improved service to customer; reduction in inventories to reduce size of investment and reducing cost of production by smoother production operations are conflicting with each other.
(iii) The control of inventories is complex because of the many functions it performs. It should be viewed as shared responsibilities.