What Effect Does Budget Have on Inventory Control?

Budgets are an important tool for managing various functions in a business. Company mangers may have annual budget meetings where they discuss the budgets and how much money is to be spent on certain items.

Facts

Inventory can be a large expense for many businesses. Using an inventory budget can limit the procurement of too much inventory by allowing a specific dollar amount of inventory to be purchased at any given time.

Types

Many different budgets are available for inventory control. Standard or flexible budgets are the most common. Standard budgets list a fixed amount available for inventory purchases. Flexible budgets rise or fall as business activity changes.

Significance

Inventory budgets and other control methods help companies create efficient business operations. This efficiency can create a competitive advantage over competitors who are unable to manage inventory and control business costs.

Considerations

Companies may choose to implement an automated inventory control system that tracks inventory and compares the on-hand amount to the inventory budget. This gives managers a better picture of inventory issues.

Warnings

Creating a restrictive inventory budget may lead to stock-outs or the inability for companies to meet rising consumer demand. These issues can cause companies to lose sales and market share to competitors.

References

• SCORE: Inventory Control
• Conklin & de Decker: Inventory -- Control It Before It Controls You