Inventory Control Guidelines

Inventory control is the process of going through business inventory methodically and examining supply, loss and the various costs associated with managing the inventory. Most businesses have some type of inventory -- even service companies use office supplies and documents that can be considered inventory. Manufacturers deal with both raw material inventory and finished goods inventory at both ends of their operations. Distributors examine inventory in stock and on shelves.

Purpose

Inventory control helps companies grow more efficient and save money. Some businesses use inventory control procedures to accurately track how much inventory is being sold versus how much is being pilfered, which can help develop better security measures. Inventory requires a significant amount of company funding to store, transport, shelve and reprice. Many inventory control procedures attempt to reduce storage or transportation times to help save money, making the process more streamlined.

ABC Classification

A common inventory control technique is the ABC method. Businesses use the A classification for all of their best-selling inventory that they move out of stores quickly and order more of consistently. This A inventory is one of the primary sources of profit for the business and receives the most attention, allowing the company to focus its attention on the goods that matter most. Efforts are allocated to B and C inventory classifications only after A inventory has been examined and analyzed.

Safety Inventory

Safety inventory is the concept of having extra inventory for certain goods that are expected to sell well in the future. Distributors may keep safety inventory for seasonal goods in case they cannot get additional shipments from their suppliers. Manufacturers may use safety inventory between different manufacturing steps so that machines can keep working even if one piece of equipment breaks down. But this extra inventory costs money to make and store, so companies must decide if they want to use safety inventory at all and how much to keep. Reducing extra inventory is a common method of cutting inventory costs.

Reordering

Reordering is the processing of analyzing when is the best time to order new inventory shipments from suppliers. A common strategy in lean manufacturing is to only create goods when the customer buys them, reducing waste and removing the need for storage space: in this case, reordering must occur often and be dependable to meet demand. Companies that cannot operate without extra inventory may use computer applications that track inventory sales and shipments and automatically notify managers when a type of inventory needs to be re-ordered to use space more efficiently.

References

• University of Baltimore: Economic Order Quantity and Economic Production Quantity Models for Inventory Management
• Dealer Marketing: Parts for Profit Part Four -- Profitable Inventory Control Philosophies
• Almyta: Inventory Control I