· Improvement
in customer’s relationship because of the timely delivery of goods and service.
· Smooth
and uninterrupted production and, hence, no stock out.
· Efficient
utilization of working capital. This is helps in minimizing loss due to
deterioration, obsolescence damage and pilferage.
· Economy
in purchasing.
· Eliminates
the possibility of duplicate ordering.
2.7
Techniques of Inventory Control
In
any organization, depending on the type of business, inventory is maintained.
When the number of items in inventory is large and then large amount of money
is needed to create such inventory, it becomes the concern of the management to
have a proper control over its ordering, procurement, maintenance and
consumption. The control can be for order quality and order frequency. The
different techniques of inventory control are: (1) ABC analysis, (2) HML
analysis, (3) VED analysis, (4) FSN analysis, (5) SDE analysis, (6) GOLF
analysis and (7) SOS analysis.
The
most widely used method of inventory control is known as ABC analysis. In this
technique, the total inventory is categorized into three sub-heads and then
proper exercise is exercised for each sub-heads.
1.
ABC analysis
In
this analysis, the classification of existing inventory is based on annual
consumption and the annual value of the items. Hence we obtain the quantity of
inventory item consumed during the year and multiply it by unit cost to obtain
annual usage cost. The items are then arranged in the descending order of such
annual usage cost. The analysis is carried out by drawing a graph based on the
cumulative number of items and cumulative usage of consumption cost. Once ABC
classification has been achieved, the policy control can be formulated as
follows:
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