Apr 1, 2016

INVENTORY CONTROL


The financial investment tied up in total manufacturing stock is bound to represent a very high proportion of the capital employed in any typical manufacturing company.

Total inventory comprises purchased materials and components held in store.
Stock of finished goods awaiting sale and all the work in progress. The value of work in progress includes not only the relevant material costs, but also the value added in terms of labor costs incurred in machining, assembly and all other process operations thought the factory.

Stocks and work in progress on sub-contractors premises also contribute to this total investment. Since so much capital is attributable to inventory holding, it follows that sensible and efficient control of stock level is an essential ingredient of profitable management. Hence effective inventory control denotes efficient working of an industrial undertaking.

STOCK – TAKING

Stock taking is a tedious and laborious chore that has to be performed annually to the satisfaction of the company’s auditors in order to evaluate the quantities of stock of materials and work in progress. The results are used in preparing the company’s financial accounts and are also important for management control. Stock taking verifies the accuracy of stock records and discloses the possible frauds of other losses. Stock taking needs careful planning to ensure that the whole exercise can be completed during the prescribed period.

Stock taking provides an opportunity which should not be missed, of identifying obsolete and redundant stocks, the disposal of which can release both cash and space.

It is important to understand that the objective of stock taking is not simply to verify the accuracy of stock records, but to assess the total value of stocks and work in progress and value of slow moving items as well. This means that all the stocks have to be counted and valued, including materials, components, and assemblies throughout the factory and its stores and stock yards.

RECORDING STOCK

There is a vast numbers of systems used to record stock. Nevertheless, they can usually be classified under 3 headings; Bin cards, Kardex and computer system. All record systems cost money to operate, whether they are carried out manually or by computer.

All systems depend on the prompt and accurate recording of every physical stock movement. This often requires sound staff training and education (particularly in the case of computerized software system) to ensure that no private or bootleg systems are operated in parallel.

The essential requirements of any stock recording systems are ---

Accuracy of data.

Promptness of updating.

Updating facility limited to trained staff.

Security.

Regular comparison of actual quantity with recorded amounts.

GETTING THE RIGHT AMOUNT OF STOCK

It is for the materials manager to ensure that there are always enough raw materials and stock available to support the forward production and its potential variances but only just enough.

However, it is fairly obvious that no control over stock level can be exercised at all unless a firm knows with reasonable accuracy, the actual levels of stock held at all times.

It is, therefore, essential for materials managers to forecast what is going to be needed. This is best based on of forecast of sales of finished products which is then broken down to individual components. Next, it is important to know what and how much is currently in stock. Obviously this changes from day to day a stock gets used and new deliveries are received. So it is essential that materials management has an accurate and responsible recording system.

In theory, a comparison of how much stock is available against what is required will quickly identify how much more stock needs to be purchased. However, since there is always a variable period of time between deciding to buy the goods and receiving them, an extra level of buffer stock is often, required. This is usually calculated in terms of days, usages and reflects the time needed to get the material, the distance of the supplier and the method of transport.

Total stock system, stores and transit can then be measured in two ways; it can be compared to previously set budget levels or it can be measured in terms of inventory turns the number of items the stock is used up in a year which is probably the best yardstick.

Some firms believe as few as two or three turns the year, but the most efficient can get up to 5/7 times. The difference enables working capital to be better utilized and the business to be more profitable.

























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