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Inventory
management or control refers to the management of idle resources
which have economic value tomorrow. Alternatively,
Inventory may be defined as usable but idle resources that have
economic value.
Inventory Management refers to maintaining , for a given financial
investment, an adequate supply of something to meet an expected demand pattern. It thus deals with determination of
optimal policies and procedures
for procurement.
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In business management, inventory consists of a list of goods
and materials held or available in stock. Management of
inventory or Inventory management is all about handling
functions related to the tracking and management of material.
This includes the monitoring of material moved into and out of
stockroom locations and reconciling the inventory balances,
setting targets, providing replenishment techniques, reporting
actual and projected inventory status. The task of ABC analysis,
lot tracking, cycle counting support etc. can even be a part of
inventory management. |
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Inventory control is concerned
with minimizing the total cost of inventory. The three main
factors in inventory control decision making process are:
* The cost of holding the stock (e.g., based on the interest
rate).
* The cost of placing an order (e.g., for row material
stocks) or the set-up cost of production.
* The cost of shortage, i.e., what is lost if the stock is
insufficient to meet all demand.
The third element is the most difficult to measure and is
often handled by establishing a "service level" policy, e.
g, certain percentage of demand will be met from stock
without delay. |
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Terminology used in Inventory management / control :
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Maximum Limit : When devising a suitable
Inventory model ,the Maximum limit establishes the
upper limit to which the stock of an inventory item
shall be allowed.
Minimum Limit : It is the lower limit
to which the stock can be allowed to fall in course
of replenishment of the stock of an item. Normally,
this is taken to be the safety stock also.
Safety Stock : This is the stock that is
maintained to counter the variation in demand of an
item during the replenishment lead time.
Demand or Usage: Replenishment of stock and
usage of an item is an ongoing phenomenon in
inventory control. Demand thus is the rate of usage
of an item. Over |
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a
period of time demand is considered to be stable.
However , demand can be seasonal or cyclical in
nature depending upon an item's nature.
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