Inventory Control Techniques

Perpetual Inventory Control System

This is a full-proof, bureaucratic control system. Whenever the production department requires material, it sends material Requisition Note to the stores. The store-keeper send the same note with his remarks to the purchasing department. The Purchase Officer sends a purchase Order’ to the supplier. The supplier sends material along with an invoice. This material is received by the ‘Goods Receiving cum Inspection’ department located at the entrance of the factory.

Output / Input Ratio

This ratio explains the final output of the finished product by consuming raw material. It gives control over the consumption of raw material. The higher the ratio, the better is the output and efficiency of material consumption. Indirectly, it explains the material wastage during the production process. This ratio may be defined for each individual, process of production.

Material Wastage Report

A periodic report on material wastage is normally sent by the production supervisor, to his superior. Wastage may be normal or abnormal. Normal wastage is due to normal reasons like intrinsic features of the process, plant or material itself. Normal wastage can not be minimized. Abnormal wastage is on account of accidents, plant failure, poor quality of material handling, etc. Abnormal wastage can be avoided with due care and control.

Budgetary Control

The budget for each item of inventory is prepared. Actual usage of inventory can be compared with budget figures and control can be achieved.

Standard Costing

Standard material Consumption per Unit is fixed along with a standard price. Periodically these standard figures are compared with actual figures and difference (Which is called “variance”) is found out Reasons for such variances are also found out for better future control.

ABC Analysis

Item of inventory is classified into three classes i.e. A, Band C. The most costly items are grouped under ‘A’ Cheapest item are grouped under‘C’ and moderate item are called ‘B’ item. ABC approach is a managerial technique of determining the degree of control to be exercised over a various items of inventories. This is done by analysing the stock – usage patterns by the money value of importance.

VED Analysis

Under this control technique, inventory items are divided into three categories in the descending order of their criticality. Thus ‘V’ item includes vital items which need more attention because stock out of such items will result in halting of production. These items must be stored adequately so as to ensure the uninterrupted functioning of the plant. In ‘E’ items are included those which are essential for the efficient functioning of the operating system. Care has to be taken to ensure that they are always in stock. ‘D’ stands for desirable items which do not have bearing on the production immediately but the availability of such item will lead to more efficiency and less fatigue.

Just-in-Time Inventory Control

This system of inventory control was developed by Taichi Okno of Japan. According to this system, the firm should maintain a minimum level of inventory and rely on suppliers to provide parts and components just-in-time to meet its assembly requirements. Thus, this system is different from the traditional inventory management system which calls for maintaining a reasonable amount of safety stock to provide reasonable protection against uncertainties of consumption and supply.

NSD Analysis

According to the technique, fast-moving items of stock need to be constantly monitored and replenishment orders to be placed in time to avoid stock-out situations. In the case of slow-moving items, a careful review is required before any order is placed for their replenishment. The reorder level and quantities for such items should be on the basis of a new estimate of future demand, to minimise the risks of a surplus stock being left when slow-moving items become obsolescent or minimise the risks of a surplus stock being left when slow-moving items become obsolescent of dead. Deadstock represents that portion of inventory that is of no value to the enterprise but occupies useful space. Hence, once such items are identified, efforts should be made to find all alternative uses for it. Otherwise, it must be disposed of.

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