Why should inventory be controlled? Explain
The previous thoughts were accurate. Inventory has to be controlled if self preservation of the business is of vital interest. Operating costs swell and profits dwindle if inventory is a "runaway train" that cannot be controlled. The very idea that the essence of a business' profit center, inventory, is not controlled simply means that the business will not be in operation for long. I think that the challenge is for businesses to control inventory, but also understand that there will be some level of imprecision in the process. Inventory cannot be exactly perfect all the time. As businesses expand and grow, some "spillage" of inventory is going to be inevitable. Products might be damaged in production or distribution phases, or it might be more productive to engage in a free distribution of inventory as a "trial phase" with the hope to generate a larger consumer base in the future. Some loss is going to happen, but as long as there is a very cogent idea of how the inventory is to be managed, this can be sustained.
I don't claim to be a business person; however, common sense dictates some common sense reasons why inventory should be controlled in any business which has inventory.
- To ensure that enough of any given product is in stock and available for customers in order to keep in business.
- To monitor theft and loss by employees.
- To facilitate ordering new goods to customers in a timely fashion.
- To increase efficiency and productivity of employees (so they're not re-inventing the wheel and starting from scratch every time ordering is done).
- To organize products in an orderly way to, again, expedite productivity.
I'm sure there are more--and certainly more official--reasons to control inventory. In short, it's the most efficient, organized, and cost-efficient way to operate a business.
Inventory control is the task of ensuring that the level of stocks of material remain at optimum level that meet the requirements of the users of the material without increasing the cost of procurement and of holding inventories too much. Thus the basic objectives of inventory control include:
- Ensuring adequate stocks of material to meet the requirements of users of material.
- Keeping down the stock levels to reasonable levels so that cost of carrying inventory is not too high.
- Deciding on time and quantities for replenishment of stock that optimizes the frequency of replenishment.
In addition the inventory control function many other routine record keeping and reporting functions such as keeping stock records, and providing information to users, production planners, and purchasers on existing stocks to enable them to plan and follow up for replenishment.