Page 425 - Manual-of-Operation-Merged

CvSU MANUAL OF OPERATIONS
______________________________________________________________________
88

c. Inventory Control System

A good inventory control system is one that achieves a balance
between avoiding stocks-outs (i.e., situation where an IGP runs out of
items to sell) and controlling levels of finished products in the
warehouse.
A stock-out means lost opportunities for both actual and
prospective sales when dissatisfied customer may not come back for
another purchase. On the other hand, maintaining too much stock
would mean that the working capital is tied up with the excess
inventory.

In food production projects where there is risk of spoilage, the
IGP Manager should have more creative ways to dispose the inventory
at the shortest possible time. Having a captive market (the employees
and students of the University) helps the IGP Manager in estimating a
realistic level of production. The feasibility study is the primary source
of these data. Once demand is firmly established, raw materials that
would yield the desired production level can be easily estimated.

For manufacturing concerns, the case is a bit more complicated
because there are different inventory costs at various stages of
production. For costing purposes, manufacturing inventories are
broadly classified into:

a. In transit or work process
b. Raw materials
c. Finished goods

Work-in-process inventory are those inventory in various stages
of production but are not quite done yet. Raw materials inventory are
the basic ingredients required to produce the finished products or
goods. Finished goods inventory refers to inventory that have gone to
the production process. It possesses the required direct materials,
direct labor and factory overhead. For all purposes, it is ready for sale.

In an ideal situation, inventories are sold as soon as they are
produced. In reality, however, a manufacturing concern will always
run the risk of either producing more or less. A good control system
permits efficient production scheduling and utilization of resources.
The idea is to avoid additional costs due to production delays or
overproduction. The system should also allow for operational
flexibility in its purchases so that storage and handling costs can be
minimized if not totally eliminated.

88