"Companies that efficiently manage their inventory will flourish in the long run." -Vinay Chhabra & Manish Dewan
Advantages of Inventory Control
- It enables the material to be procured in economic quantities.
- It eliminates delays in production caused by the non-availability
of required materials.
- It works as a check on the over accumulation of inventories and
thereby results in minimum investment consistent with production requirements.
- It reduces inventory losses caused by inadequate inspection of incoming
materials and losses due to obsolescence, deterioration, waste and
theft while in storage.
- It ensures proper execution of policies covering procurement and
use of materials. It also facilitates timely adjustment with changing
conditions in the market.
Techniques of Inventory Control
- ABC analysis
- VED analysis
Under this technique, the inventory items are divided into three groups,
viz., A, B and C on the basis of the investment involved.
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| Percentage of
| Percentages of the total annual value
of the inventories (Rs.)
In fact, ABC analysis indicates the items of raw materials to be controlled
by managers at different levels. The managers are responsible for ensuring
optimal investment in raw materials.
This analysis consists of separating the inventory items into three
groups according to their critically as under:
- Vital items (or V items) – These items are considered vital for
smooth running of the system and without these items the whole system
becomes inoperative. Thus, close attention is paid to V items.
- Essential items (or E items) – These items are considered essential
for efficient running of the system.
- Desirable items (or D items) – The availability of these items
help in increasing the efficiency.
The criticality of the item may either be on technical grounds or on
environmental grounds or on both.
ABC analysis coupled with VED analysis enhances the efficiency of control