inventory control techniques
TECHNIQUES FOR INVENTORY CONTROL:
THE NEED FOR INVENTORY
In industry, inventory means 'stock of goods'. It may mean raw materials, work-in-progress, maintenance materials, processed and semi-processed materials, oils, fuels and lubricants as well as finished and semi-finished goods. They may be either in solid, liquid or gaseous form, required for future use, mainly in the production process as in the case of finished goods for re-sale. In any case, it is an idle resource having an economic value awaiting conversion, consumption or re-sale. Thus inventories are held primarily for some transaction. 'Today's inventory is tomorrow's production'. In case of production inventory, generally there is a time-lag between there cognition of the need and fulfillment of that need. This time-lag; which is technically called 'lead time' is due to the time required for ordering, processing and time needed by the vendor for actual delivery of the materials. Consequently, lead time greatly influences holding of the volume of inventory. Had it been so that materials were readily available right on placing orders, there would have been no need for holding inventory. The second element is that inventories are held as a precautionary measure for increases in both lead time and consumption rate. Also, there are reasons for holding inventory as a matter of speculation, because prices may subsequently go up or the material may become scarce in the future. This is however, not 'of so much importance for our purpose. Finally, inventories also serve to decouple materials from consumption at successive stages of production operations.
THE NEED FOR INVENTORY CONTROL: It is important to improve upon the return on capital, that is, profit margin. But there are obvious limitations such as competition in the business world. One way of improving the profit margin is to turn inventories into saleable products with less investment and as quickly as possible so that higher sales targets
THE NEED FOR INVENTORY
In industry, inventory means 'stock of goods'. It may mean raw materials, work-in-progress, maintenance materials, processed and semi-processed materials, oils, fuels and lubricants as well as finished and semi-finished goods. They may be either in solid, liquid or gaseous form, required for future use, mainly in the production process as in the case of finished goods for re-sale. In any case, it is an idle resource having an economic value awaiting conversion, consumption or re-sale. Thus inventories are held primarily for some transaction. 'Today's inventory is tomorrow's production'. In case of production inventory, generally there is a time-lag between there cognition of the need and fulfillment of that need. This time-lag; which is technically called 'lead time' is due to the time required for ordering, processing and time needed by the vendor for actual delivery of the materials. Consequently, lead time greatly influences holding of the volume of inventory. Had it been so that materials were readily available right on placing orders, there would have been no need for holding inventory. The second element is that inventories are held as a precautionary measure for increases in both lead time and consumption rate. Also, there are reasons for holding inventory as a matter of speculation, because prices may subsequently go up or the material may become scarce in the future. This is however, not 'of so much importance for our purpose. Finally, inventories also serve to decouple materials from consumption at successive stages of production operations.
THE NEED FOR INVENTORY CONTROL: It is important to improve upon the return on capital, that is, profit margin. But there are obvious limitations such as competition in the business world. One way of improving the profit margin is to turn inventories into saleable products with less investment and as quickly as possible so that higher sales targets