Question

Organisations use procedures and practices to meet their requirements in relation to maintaining inventory records. What areas might be subject to control in this fashion?(Please type up your answer)

Answer 1

Inventory is the major element of the production cost. one can measure the efficiency of an organization by ascertaining the level of inventory control. Efficient stock control allows you to have the right amount of stock in the right place at the right time. It ensures that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain.

One can define inventory control as follows “inventory control can be defined as the “coordination and supervision of the supply, storage, distribution, and recording of materials to maintain quantities adequate for current customer needs without excessive supply or loss.”

Need of inventory control is essencial for profitability of a organization, one can justify this on below points.

1. In absence of inventory control, there may be a excessive purchase of stock which may lead to loss of capital and increase on expenditure on stocking.
2. Possibility of theft and loss will increase.
3. Possibility of material loss.
4. Ineffective use of working capital which can lead bad effect on other business componenets.
5. In absence of inventory control imbalancing in stock items may increase.

After discussing about inventory control and its importance let us discuss about the areas of inventory control.

1. Purchasing of Inventory

A organization should develop a separate purchase department to procure goods for the organization. Purchase department should work in consonance with other verticals of organization and purchase should be centralized and should be monitored by a purchase manager. The purchase manager should be capable in technicals pertaining to maerials and due controls shold be deployed in purchase department. Separate purchase policy may be formed for procuring different types of goods wiz raw material, consumables etc.

1. Receiving of Inventory

On arrival of physical inventory at organization due methods of receiving and recording the inventory should be deployed, important report for this functions is the inventory receipt report, receipt officials dispatch the report of inventory receipts to purchase department as well as store department. So purchase department match the receipt goods with purchase order and maintain control on purchase and other side store department may come to knowledge that what inventory they are receiving so we can say that inventory receipt report is a important inventory control report.

1. Inspection of Material

Now inventory control takes place by inspection of inventory received on store. An efficient system should deploy at store that will ensure that the inventory is of right quality and in right amount as per purchase order so this is a physical verification of inventory and control on purchase and store system of inventory in an organization

1. Storage of Material

A efficient control system should deploy that will ensure that the procured inventory would be classified, checked and stored in a proper system so that one can find the inventory at the requirement instant and ascertain the level of inventory, various inventory techniques may be used for this control wiz alphabetical method, mumerical method, bin & Racks system etc.

A Storekeeper should maintain various level of inventory every time that are as follows

1. Maximum Level of inventory
2. Minimum Level of Inventory
3. Buffer Stock Level of inventory
4. Re Order Level of inventory
5. Danger Level of inventory
6. Economic Order Quantity (EOQ)

So above levels should be maintained and watched every time to maintain a smooth flow of material control in production line.

1. Issuance of Material

This is the next area of inventory control. A proper system of inventory issuance has to be developed in an organization issuance of inventory should be always a duly issued inventory issuance lettor and process of issuance of inventory issuance letter should be control by internal checks. Control documants and reports for this functions as follows.

1. Inventory issuance letter
2. Bills of material
3. Material Returned Note
4. Material Transfer Note

1. Inventory Record and accounting

This is the another important area and tool of inventory control proper inventory record provide informations and control on inventory some major inventory books may be as follows

1. Store Ledger
2. Bin card
3. Stock Ledger Control Account

So above are the areas of inventory controls those a organization should address to control the inventory.