9.3: Inventory Control
Boundless: Finance “Chapter 18, Section 5, Part 9: Benefits of Inventory Management”
Read this section and explore the fundamentals of inventory management. The benefits to improved inventory management processes are lower costs and improved cash flows. A skill in inventory management is necessary for sound operations.
Benefits of Inventory Management
Improved inventory management can lead to increased revenue, lower handling and holding costs, and improved cash flows.
LEARNING OBJECTIVE
- Discuss the benefits of inventory management
KEY POINTS
- Inventory management is primarily about specifying the shape and percentage of stocked goods.
- Inventory management leads to optimal inventory levels.
- Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution system, functions to balance the need for product availability against the need for minimizing stock holding and handling costs.
- Inventory management can also help companies improve cash flows.
TERMS
- ABC analysis: The ABC analysis is a business term used to define an inventory categorization technique often used in materials management. It is also known as Selective Inventory Control. Policies based on ABC analysis: A ITEMS, very tight control and accurate records; B ITEMS, less tightly controlled, and good records; and C ITEMS, simplest controls possible and minimal records.
- holding cost: In business management, holding cost is money spent to keep and maintain a stock of goods in storage.
FULL TEXT
Inventory management is primarily about specifying the shape and percentage of stocked goods. It is required at different locations within a facility or within many locations of a supply network to precede the regular and planned course of production and stock of materials.
The intent of inventory management is to continuously hold optimal inventory levels. The scope of inventory management concerns the fine lines between replenishment lead time, carrying costs of inventory, asset management, inventory forecasting, inventory valuation, inventory visibility, future inventory price forecasting, physical inventory, available physical space for inventory, quality management, replenishment, returns and defective goods, and demand forecasting. Balancing these competing requirements leads to optimal inventory levels, which is an on-going process as the business needs shift and react to the wider environment.
Management of the inventories, with the primary objective of determining/controlling stock levels within the physical distribution system, functions to balance the need for product availability against the need for minimizing stock holding and handling costs. Inventory management involves systems and processes that identify inventory requirements, set targets, provide replenishment techniques, report actual and projected inventory status, and handle all functions related to the tracking and management of