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  Inventory Control

Introduction to Inventory Control

For inventory control, the following techniques are used.

A. Perpetual Inventory System: meaning of the Perpetual Inventory system are continuous stock taking. CIMA describes perpetual inventory system like 'the recording as they take place of receipts, issues and the resulting balances of each items of stock in either quantity or quantity and value'. Within this system, a continuous record of receipt and issue of materials is recorded through the stores department and the information concerning the stock of materials is all the time present. Entries in the Bin Card and the Stores Ledger are made after each receipt and issue and the balance is reconciled on regular basis along with the physical stock. The main benefit of this system is that it prevents disruptions in the production caused through periodic stock taking. Likewise it helps in comprising a detailed and very much reliable check on the stocks. The stock records are very much reliable and stock discrepancies are investigated and suitable action is taken instantaneously.

B. ABC System: In this method, the items of inventory are categorized according to the value of usage. Materials are categorized like A, B and C according to their value. Items in class 'A' comprise the most significant class of inventories so far like the proportion in the total value of inventory is concerned. The 'A' items comprise approximately about 5-10% of the total items when its value might be approximately 80% of the total value of the inventory. Items in class 'B' comprise intermediate position. These items might be approximately 20-25% of the total items when the usage value might be approximately 15% of the total value Items in class 'C' are the very much negligible in value, approximately 65-75% of the total quantity but the value might be about 5% of the total usage value of the inventory. The numbers that are given above are simply indicative, actual numbers might change from situation to situation. The standard to be followed is that the high value items should be controlled much more carefully while items that are having small value though large in numbers could be controlled at regular intervals.

C. Just in Time Inventory: This is the current trend in inventory management. This main envisages that there should not be some intermediate stage such as storekeeping. Material purchased from supplier should go directly to the assembly line, that is to the production department. There should not be any requirement of storing the material. The storing cost can be saved to a great extent via using this method. Though, the practicality of this method in Indian circumstances should be confirmed before practicing similar. The advantages of Just in time system are as follows,

  • At right time the right quantities are purchased or produced.
  • Cost effective operation or production of correct services is feasible.
  • Inventory carrying costs are totally eliminated.
  • The stores function is eliminated and so there is a significant saving in the stores cost.
  • Losses because of breakage, wastage, pilferage etc are prevented.

D. VED Analysis: This analysis splits items into three types in the descending order of their criticality as follows.

  • The alphabet 'V' means vital items and their stock analysis needs more attention. The factor is that if these items are not present, the resultant stock outs will result heavy losses because of stoppage of production. So these items are needed to be stored sufficiently to make sure smooth operation of the plant.
  • 'E' stands for essential items. Such types of items are considered necessary for efficient running but the system will not fail, without these items. Care must be taken to see that they are all the time in stock.
  • 'D' means desirable items, that do not affect production immediately but available quantity of these items will lead to more efficiency and less fatigue.
  • So VED analysis can be extremely useful to capital intensive process industries. Like it analyses items based on their significance and it can be used for those particular raw materials that are difficult to procure.

E. FSND Analysis: Age of the inventory points out the duration of inventory within the organization. It depicts the moving position of inventory in the year. This analysis splits the items of inventory into four types their usage rate as follows in the descending order.

I] 'F' means fast moving items and stocks of such type of items are consumed in a short span of time. Stock of fast moving items have to be examined constantly and replenishment orders be placed in time to prevent stock out position.

II] 'N' stands for normal moving items and over a period of time such types of items are exhausted, that is say one year. The order levels and quantities for such types of items should be on the base of a new estimate of future requirement to minimize the risks of a extra stock.

III] 'S' stands for slow moving items, existing stock for which would last for two years or so. These items must be reconsidered carefully before eliminating them.

IV] 'D' means dead stock that means that there will not be any further demand for this type of item. It is essential to identify these items and if there cannot be any option use for these items, should be eliminated.

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