Any stock that a firm keeps to meet its future requirement of production and sales is called INVENTORY. The basic reason for holding inventory is to keep up to the production activities unhampered. It is neither physically possible nor economically justifiable to wait for the stock to arrive at the time when they are actually required. Therefore, keeping of inventory is a must for the efficient working of a business unit.
Raw materials represent goods kept by a manufacturing firm prior to their being utilized in the production process. Supplies generally include tools and consumables which are consumed in the production of goods and services.
Goods in process represent the semi-finished goods; they include those materials that have been committed to production process but have not yet been converted into finished goods.
Finished goods are completed goods awaiting sale in a manufacturing concern; they are the final output of the production process.
The nature of inventory depends upon the type of activity carried on. In the case of a manufacturing unit, inventory will generally include all types of inventories mentioned above, while in the case of a trading concern, it will comprise only finished goods or stock-in-trade owned by it for sale to customers in the normal course of business. Inventory needs proper control as it is one of the largest assets of a business.
[...] Another important question pertaining to efficient inventory management is, when should the order to procure inventory be placed? This aspect of inventory management is covered under the order point problem. The reorder point is started in terms of the level of inventory at which an order should be placed for replenishing the current stock of inventory. In other words, recorder point may be defined as that level of inventory when a fresh order should be placed with the suppliers for procuring additional inventory equal to the economic order quantity. [...]
[...] All decisions about spares are based on the financial cost of inventory on such spares and the costs that may arise due to their non-availability. NEED FOR INVENTORIES: What purpose is served by inventories? Before we answer this question, a distinction may be drawn between ‘process or movement' inventories and ‘organization' inventories. Process or movement inventories are required because it takes time to complete a process or operation and to move product from one stage to another. The average quantity of such inventories would be equal to; Average output of the process X Time required for the process. [...]
[...] CHAPTER - 2 INVENTORY MANAGEMENT - IMPORTANCE AND CONTROL TECHNIQUES MANAGEMENT OF INVENTORY THEORY AND ANALYSIS Inventories often constitute a major element of the total working capital and hence it has been correctly observed, “good inventory management is good financial management”. Inventory management covers a large number of issues including fixation of minimum and maximum levels; determining the size of the inventory to be carried; deciding about the issue price policy, setting up receipt and inspection procedure, determining the economic order quantity, providing proper storage facilities, keeping check of obsolescence and setting up effective information system with regard to the inventories, However, management of inventories involves two basic problems; Maintaining a sufficiently large size of inventory for efficient and smooth production and sales operations Maintaining a minimum investment in inventories to minimize the direct indirect cots associated with holding inventories to maximize the profitability. [...]
[...] Ratio has wider application as measure of inventory control among most manufacturing firms Effective inventory management requires an effective control over inventories. Inventory control refers to a system which ensures supply of required quantity and quality of inventories at the required time and at the same time prevents unnecessary investment in inventories. A good inventory control system is one which: Avoids problems of stick–outs, excessive inventory, and overstocking of inventory. Ensures a continuous supply of materials to production department facilitating uninterrupted production. [...]
[...] WHAT IS INVENTORY MANAGEMENT”: Inventory management is the active control program which allows the management of sales, purchases and payments. Inventory management software helps create invoices, purchase order, receiving lists, payments receipts and can print bar coded labels. An inventory management software system configured to your warehouse, retail or product line will help to create revenue for your company. The Inventory Management will control operating costs and provide better understanding. A complete Inventory Management Control system contains the following components: Inventory Management Definition Inventory Management Terms. [...]
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