RE: INVENTORY MANAGEMENT
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INTRODUCTION TO INVENTORY MANAGEMENT
Inventory is a list for goods and materials, or those goods and materials themselves, held available in stock by a business. Inventory are held in order to manage and hide from the customer the fact that manufacture/supply delay is longer than delivery delay, and also to ease the effect of imperfections in the manufacturing process that lower production efficiencies if production capacity stands idle for lack of materials.
The most important objective or inventory control is to determine and maintain an optimum level of investment in the inventory. Most companies have now successfully installed one or the other system of inventory planning and control.
Inventory Management and Inventory Control must be designed to meet the dictates of the marketplace and support the company's strategic plan. The many changes in market demand, new opportunities due to worldwide marketing, global sourcing of materials, and new manufacturing technology, means many companies need to change their Inventory Management approach and change the process for Inventory Control.
Despite the many changes that companies go through, the basic principles of Inventory Management and Inventory Control remain the same. Some of the new approaches and techniques are wrapped in new terminology, but the underlying principles for accomplishing good Inventory Management and Inventory activities have not changed.
The Inventory Management system and the Inventory Control Process provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities, and communicate with customers. Inventory Management and the activities of Inventory Control do not make decisions or manage operations; they provide the information to Managers who make more accurate and timely decisions to manage their operations.
The basic building blocks for the Inventory Management system and Inventory Control activities are:
Sales Forecasting or Demand Management
Sales and Operations Planning
Material Requirements Planning
The emphases on each area will vary depending on the company and how it operates, and what requirements are placed on it due to market demands. Each of the areas above will need to be addressed in some form or another to have a successful program of Inventory Management and Inventory Control.
NEED TO HOLD THE INVENTORIES
There are the four major reason for holding inventories.
1. TRANSACTION PURPOSE :
Which emphasized the need to maintain inventories to smoothen production and sales operations, which is for the day-to-day use.
2. SAFETY PURPOSE :
Which necessities holding of inventories to guard against the risk of unpredictable changes in the market.
3. SPECULATIVE PUROSE :
There is a speculative element which influences the decision to increase or decrease Inventory levels to take advantage of price change.
TYPES OF INVENTORIES :
Inventories can be classified in terms of its different uses, which will enable one to appreciate the peculiarities and problems in its uses. Secondly the differentiation based on uses of inventories will enable one to adopt control techniques to suit the needs
Inventories are classified according to uses and point of entry in the alteration is as follows:
1. Raw Material
2. Spares and Consumables
3. Work in Process Goods and
4. Finished Goods