Page 57 - DBP5043

INVENTORY

IMPORTANCE OF INVENTORY CONTROL

The main goal of the inventory management is to minimize costs that are
directly involved in the company. Balancing up the stock value is necessary
for companies in order to maximize return on sales, thus providing good
value to return on assets.

1. Companies should avoid excessive stocking because it will adversely
affect the company itself because the real level of sales cannot be
made.

2. The first step in the management of inventory is to identify all the costs
involved in purchasing and handling of inventory. This is to ensure that
companies are operating at minimum cost.

3. The costs involved are: a) Carrying Cost - cost arising starting from the
stock began to be in store until it is sold. - Example : cost of
warehousing, storage costs b) Ordering Cost - Costs involved in the
process of getting goods from suppliers.

SAFETY STOCK

REASONS FOR KEEPING SAFETY STOCK

Supplier may deliver their product late or not at all

The warehouse may be on strike

A number of items at the warehouse may be of poor quality and
replacements are still on order

A competitor may be sold out on a product, which is increasing the
demand for your products

Random demand (in reality, random events occur.)

Machinery breakdown

Unexpected increase in demand