First of all we should know the meaning of inventory. Inventory is an idle stock of physical goods that contain economic value which are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time. Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale. The organizations hold inventories for various reasons, e.g. speculative purposes, functional purposes, physical necessities etc.
Inventory of materials occurs at various stages and departments of an organization. A manufacturing organization holds inventory of raw materials and inventory of semi-finished goods at various stages in the plant with various departments. Finished goods inventory is held at plant, FG Stores, distribution centers etc. Organizations also hold inventories of spare parts to service the products. Defective products, defective parts and scrap are also a part of inventory.
Inventory management is the process of efficiently supervision the constant flow of units into and out of an existing inventory. This process usually involves controlling the transfer in of units in order to prevent the inventory from becoming too high, or too low that could put the operation of the company into difficulty. Competent inventory management also seeks to control the costs associated with the inventory.
Inventory management plays a significant role in determining the
- What should purchase
- How much should purchase
- Where from should purchase
- Where should store
Objective of Inventory Management
- To ensure timely delivery of inventory for production
- To avoid over or under level of stock
- To maintain investment in inventories at optimum level
- To minimize the loss in inventory control
In addition to maintaining control of the volume and movement of various inventories, inventory management also makes it possible to prepare accurate records that are used for accessing any taxes due on each inventory type. Without precise data regarding unit volumes within each phase of the overall operation, the company cannot accurately calculate the tax amounts. This could lead to underpaying the taxes due and possibly incurring stiff penalties in the event of an independent audit.
