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INVENTORY CONTROL SYSTEM

 INVENTORY :
Inventory is nothing but ideal resource of enterprise. Inventories represent those
items which are either stocked for sale or they are in the process of manufacturing
or they are in the form of materials which are yet to be utilised.

 INVENTORY CONTROL :
It is planned approach to determine what to order, how much to order and how
much to Stock. So that cost associated with buying and storing will be optimal
without interrupting production and sale. Inventory control deals with the two
problems,
1. When should an order to be placed.
2. How much should be ordered

Objectives of inventory control system


1. To ensure adequate supply of products and avoid storage as far as possible.
2. To make sure finance investment is minimum.
3. Effective purchasing and storing consumption, accounting is more important
objective.
4. To maintain timely record of all inventory items and to maintain the stock in
desired limits.
5. To ensure timely action for replenishment.
6. To provide reserve stock for variation in lead times of delivery material.
7. To provide scientific base for both short term and long term planning
materials.
 INVENTORY CONTROL SYSTEM :
The inventory control systems are developed to cope with situation where the
demand and lead time both are fluctuating. The basic approach to all stock control
method is to establish a re-order level which, when reached would indicate signal for
the replenishment action. Thus the replenishment of inventories means determining
the quality to be ordered and the time of ordering.
In an inventory control system there are two types of replenishment systems
1. Fixed quantity system
2. Fixed period system
o Fixed quantity system:
In this, quantity to be ordered is fixed and normally it is equal to EOQ. It is suitable
for low unit cost and high order quantity.
Parameters to operate the system:
1. Re-order level:
This equals the sum of safety stock and lead time consumption.
ROL=m+L*C
Where
M=minimum or safety stock
L=lead time
C=consumption level
2. Maximum stock level:
This is nothing but order quantity and safety stock
M=m+Q
Where
Q=order quantity
3. Average inventory:
Avg inventory=1/2(min stock +max stock)=m+Q/2

System can be graphically shown as

Stock level
5

2 Stock level

0
0 2 4 6 8 10
Advantages:

1. Simple and cheaper to operate


2. Stock control will be accurate because Replenish Action is taking after
reaching the safety stock.
3. Suitable for low value item.
4. Appropriate for variety of inventory maintained within organisation.

Disadvantages:

1. If many items reach at ROL at the same time it will cause difficulty.
2. The stock level record and usage rate data are to be maintained.

o Fixed period system:


The period of ordering inventory is fixed and order quantity is depends upon
stock on hand.
Parameters to operate
1. Maximum level:
It is sufficient to satisfy review period and lead time.
M=m+C(r+L)
2. Re-order Quantity:
Q = Max stock – stock actually held at the time of review
But when lead time is more
Q = M - (Stock in hand and Stock on order)

Period Review System


5
4.5
4
3.5
3
2.5
Y-Values
2
1.5
1
0.5
0
0 1 2 3 4 5 6 7
NEED OF INVENTORY SYSTEM:

 To stabilize production against the variation in demand


 Inventory maintain a smooth flow of production by offering some options
in process path
 To take the prize discount by ordering in bulk
 To prevent loss of order
 To keep pace with changing market conditions
 Also it aid in increasing production rate and decreasing production cost.

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