What is the objective of inventory control?

The main objective of inventory management is to maintain inventory at appropriate level to avoid excessive or shortage of inventory because both the cases are undesirable for business. Thus, management is faced with the following conflicting objectives:-

1. To keep inventory at sufficiently high level to perform production and sales activities smoothly. 2. To minimize investment in inventory at minimum level to maximize profitability.

The objective of inventory control in manufacturing or stock keeping service is as follows:

1.   To monitor the levels of Inventory and what level of inventory should be maintained

2.   To specify when an item should be ordered and 

3.   To determine how large the inventory order should be. 

An inventory-control system is the mechanism within a company that is used for efficient management of the movement and storage of goods and the related flow of information. Product resellers have access to technology-driven software programs that help optimize inventory control, which is critical in achieving business success. Getting product to customers on time and as inexpensively as possible are the main goals of an inventory-control system.

Making sure that your customers have access to products when they need or want them is a key service issue in inventory control. Your system should include a well-outlined replenishment system, where critical inventory levels at a store result in swift shipments from your distribution center or directly from a vendor. Given the time and effort put into promoting products to attract customer interest, you want inventory on hand when they come to buy.

Optimized inventory control actually balances a fine line between too much and too little. In fact, a main reason companies have gone to just-in-time systems and advanced software solutions is to avoid having excess inventory while trying to meet demand. Carrying too much inventory in distribution centers or retail stores is costly. It takes up space, employee time, utility costs and limits floor space for selling. Plus, perishable items or products with expiration dates must be thrown out if you can't sell them.

Efficiency in inventory means the ability to quickly receive and store products as they come in and retrieve and ship when they go out. Every extra second spent in these processes adds to the costs of inventory management. Plus, efficient distribution is a customer satisfaction issue for trade channel sellers and retailers. Retailers expect suppliers to meet prescribed delivery timetables, and customers expect customized orders and products to arrive on time.

Well-managed inventory control is often a key in meeting profit margin objectives. Gross profit margin is the difference between revenue earned from sales and the costs of goods sold. Take away fixed costs including buildings, utilities and labor and you get to operating margin. Investing as little as possible in inventory control while meeting the other objectives is critical in earning profit and growing your business.

The main objective of inventory management is to maintain inventory at appropriate level to avoid excessive or shortage of inventory because both the cases are undesirable for business. Thus, management is faced with the following conflicting objectives:1. To keep inventory at sufficiently high level to perform production and sales activities smoothly.2. To minimize investment in inventory at minimum level to maximize profitability.Other objectives of inventory management are explained as under:-1. To ensure that the supply of raw material & finished goods will remain continuous so that production process is not halted and demands of customers are duly met.2. To minimize carrying cost of inventory.3. To keep investment in inventory at optimum level.4. To reduce the losses of theft, obsolescence & wastage etc.5. To make arrangement for sale of slow moving items.6. To minimize inventory ordering costs.

To minimise capital investment in inventory by eliminating excessive stocks.

To ensure availability of needed inventory for uninterrupted production and for meeting consumer demand.

To provide a scientific basis for planning of inventory needs.

To tiding over the demand fluctuations by maintaining reasonable safety stock.

To minimise risk of loss due to obsolescence, deterioration, etc.

To maintain necessary records for protecting against thefts, wastes leakages of inventories and to decide timely replenishment of stocks.

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Hello Team,

Inventory Control: it’s Objectives, Advantages and Limitations!

Objectives:

(i) To minimize 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 minimize 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:

Scientific inventory control provides the following benefits:

1. It improves the liquidity position of the firm by reducing unnecessary tying up of capital in excess inventories.

2. It ensures smooth production operations by maintaining reasonable stocks of materials.

3. It facilitates regular and timely supply to customers through adequate stocks of finished products.

4. It protects the firm against variations in raw materials delivery time.

5. It facilitates production scheduling, avoids shortage of materials and duplicate ordering.

6. It helps to minimize loss by obsolescence, deterioration, damage, etc.

7. 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.

Regards,

Saiyid

Excellent answers from the subject experts. Thank you