ADVANTAGES OF INVENTORY MANAGEMENT

Advantages of Inventory Management

The advantages gained by the firm by managing the inventory effectively are

Ø  Introduction of a proper inventory management system holds in keeping the investment in the inventories as low as feasible.

Ø  Ensures availability of material by providing adequate protection against uncertainties of supplies and consumption of materials.

Ø  Allows full advantage of economics of bulk purchases and transportation.

Ø  Leads to reduction in inventory levels

Ø  Releases more of capital for other operations.

Ø  Adequate customer service.

Ø  Advantage of price discounts by bulk pricing.

Ø  Providing flexibility to allows change in production lines due to changes in demands on any other reason.

Ø  Even out the workloads on the soaps in the face fluctuations demands.

FINANCIAL OBJECTIVES

FINANCIAL OBJECTIVES: - The Financial objectives of Inventory management is further divided as follows –

·         Economy in purchasing: - Proper inventory management system brings certain advantages and economies in purchasing the raw materials. Management makes every attempt to purchase raw materials in bulk quantity and to take advantage of favorable market conditions.

• Optimum investment and efficient use of capital: - The primary objective of inventory management, from financial point of view, is to have an optimum level of investment in inventories. Inventory management has to setup minimum and maximum levels of inventories to avoid deficiency or surplus stocks.

• Reasonable prices:- Inventory management has to ensure the supply of raw materials at a reasonable low price, but without sacrificing the quality it helps to reduction of cost of production and improvement in the quality of finished goods in order to maximize the profits of the organization

• Minimizing the costs: - Minimizing inventory costs such as handling, ordering and carrying costs etc is one of the main objectives of inventory management. It helps in reduction of inventory costs in a way that it reduces the costs per unit of inventory and there by reduction of total cost of production.

TECHNIQUES OF INVENTORY MANAGEMENT

TECHNIQUES OF INVENTORY MANAGEMENT

The following are the techniques of the inventory management

·        Economic order quantity.

·        ABC analysis.

·        VED classification.

·        HML Classification.

·        SDE Classification.

·        FSN Analysis.

·        SOS classification.

·        XYZ Analysis.

·        Golf classification

·        MNG Analysis.

PERIODIC INVENTORY SYSTEM

Inventory Systems

For an effective inventory management, an efficient inventory system should be maintained.  Thus the importance of inventory systems cannot be neglected in the Inventory Management.  The two importance types of inventory systems available are

·         Periodic Inventory Systems.

·         Perpetual Inventory Systems.

·         Just –In-Time Inventory Systems.

Periodic Inventory Systems

In this systems the quantity and value of inventory is found out only at the end of the accounting period after having a physical verification of the units in hand.

The cost of materials used or goods sold is obtained by adding the total of inventory purchased during the period to the value of the inventory in hand in the beginning of the period and subtracting the value of inventory at the end of period.In this system the inventory level is not monitored at all during the time interval between the orders, so it has advantage of little or no required record keeping.  The disadvantage is less control.

PERPETUAL INVENTORY SYSTEM

Perpetual Inventory Systems

It is a system of tracking and knowing the value of inventory and quantity of merchandise on hand at any time by tracking sales, returns and receipts with information systems.

A positive feature of a perpetual system is that inventory level is continuously monitored, so management always knows the inventory status.  This is advantageous for critical parts or raw materials and supplies.  However, it can be costly

.The perpetual inventory system consists of:

1.      Bin Cards.

2.      Stores Ledger.

3.      Continuous Stock taking.

Bin Cards – Bin Cards are printed cards used for accounting the stock of material, in stores.  For every item of materials, separate bin cards are kept.

The details regarding the material such as the name of the material, the part number, the date of receipt and issue, the reference number, the name of the supplier, the quantity, etc. are recorded in the bin cards.

Stores Ledger –Like bin cards, a stores ledger is maintained to record all the receipts and issues in respect of materials with the difference that long with the quantities, the values are entered in the receipt, issue balance columns.

Continuous Stock taking – The perpetual inventory system is not complete without a systematic procedure for physical verification of the stores.  The bin cards and the stores ledger record the balances, but their correctness can be verified by means of physical verification only.