· Cost of Capital

Cost of capital include the costs of investments, interest on working capital, taxes on inventory paid, insurance costs and other costs associate with legal liabilities.

The inventory storage costs as well as cost of capital are dependent upon and vary with the decision of the management to manage inventory in house or through outsourced vendors and third party service providers.

2.4 Meaning of Inventory Control

Inventory control is a planned approach of determining what to order, when to order and how much to order and how much to stock so that costs associated with buying and storing are optimal without interrupting production and sales. Inventory control basically deals with two problems: (i) When should an order be placed? (Order level), and (ii) How much should be ordered? (Order quantity).

These questions are answered by the use of inventory models. The scientific inventory control system strikes the balance between the loss due to non-availability of an item and cost of carrying the stock of an item. Scientific inventory control aims at maintaining optimum level of stock of goods required by the company at minimum cost to the company.

2.5 Objectives of Inventory Control

·      To ensure adequate supply of products to customer and avoid shortages as far as possible.

·      To make sure that the financial investment in inventories is at the minimum.

·      Efficient purchasing, storing, consumption and accounting for materials are an important objective.

·      To maintain timely record of inventories of all the items and to maintain the stock within the desired limits

·      To ensure timely action for replenishment.

·      To provide a reserve stock for variations in lead times of delivery of materials.

·      To provide a scientific base for both short-term and long-term planning of materials.