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What Makes A Good Inventory Control System_


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  • 1. What Makes A Good Inventory Control System?An inventory control (I/C) system is a set of interdependent processes, procedures , and methods thatinteract regularly to track the flow of individual inventory items from the time they enter the supplychain of the business to the time they leave the business through its distribution or asset disposalsystem.The system includes all aspects of managing a companys inventories : purchasing, receiving,warehousing, storage , tracking, shipping, turnover, and reordering. Ideally, each of these aspectsmakes up a separate subsystem. However , different companies have different ways of dealing withthese aspects in relation to inventory control. Some treat each aspect as a subsystem while others donot.Computerised inventory control systems have made it possible to combine the various functionalsubsystems of inventory management into a single cohesive system. In the modern businessenvironment , even MSEs have come to rely on computerised inventory management systems.A computerised I/C system may be too much of a good thing for small establishments like retailoutlets , shoe stores, convenience stores, and the like. These types of businesses can continue usingmanual systems or partially computer-assisted systems.However, they may still be found to have a good inventory control system. It is not computerisationthat makes a good inventory control system but something more fundamental.
  • 2. Elements of a Good Inventory Control SystemInventory management has four important functions:Counting and monitoring of inventory itemsRecording and retrieval of items storage locationRecording changes to inventoryAnticipating inventory needs, including inventory handling requirementsA good inventory control system support all the above functions of inventory management to achievethe ultimate goal Maximizing cash flow:Counting and Monitoring of inventory ItemsThe nature of inventory is that it is always moving or flowing through different channels. An effectiveI/C system should be able to count and keep track of every inventory item as it moves because the
  • 3. company incur cost the moment each item comes in and that cost not only has to be recovered butalso contribute to the companys profitability.Tracking inventory and assessing its values as it makes progress through the processes is theprimary reason for developing the system. For a business that deals only with finished goods, thetask is relatively simple: it basically involves counting cans, kegs, or boxes. The task becomes morecomplex for manufacturing firms , where there is conversion of materials inventory into finishedproducts inventory. In a manufacturing set up, tracking inventory flow goes hand-in-hand with:-Handling raw materials-Controlling materials in process-Managing finished productsThe more common use of an inventory control system is constantly counting finished inventory forsale. This is because items with retail worth have greater value and offer a more accurate picture of acompanys net worth.Recording and retrieval of Item Storage LocationA crucial feature of a good inventory system is the inventory database , the repository of data relatedto every inventory item. This is the key to effective inventory tracking. The database containseverything there is to know about inventory: item identification, date acquired, quantity acquired,
  • 4. vendor identification, unit cost, reordering parameters, purchasing lead time, quantity used , dateused, place/process used , persons responsible for transactions, warehouse location code, itemstatus.A non-computerised inventory database works fine, but it is many times slower and more error-pronethan a computerised version.The current trend toward inventory management automation has introduced the concept of real-timeintelligent information processing in the warehouse. Automation uses combinations of hardwareincluding material handling and data collection technologies. The "intelligent bCrLf" part of thesystem is powerful software that automatically controls all aspects of warehouse operations, includingmanagement of the inventory database.Part of a good inventory control system is a stock locator database, which is preferably computer-based. This database, in tandem with the inventory database in a modern space managementsystem , helps in proactive decision making. It captures and maintains records of: stock number, lotnumber, number of pallet loads in each storage location , grid coordinates of the reserve area,individual rack tier positions, and pallet load capacity of all storage locations.An equally important part of the system (whether automated or not) is a sensible effectivewarehousing design. Small businesses, especially those involved in processing fairly large volumesof materials and goods, can reap great benefits from a user-friendly and properly organisedwarehouse layout. A well-designed warehouse makes locating and retrieving stored materialsefficient and lends support to the inventory database system.For example, when a materials releasing clerk requests for retrieval of a specific item from storage,the inventory database system links the items location code with its actual physical location
  • 5. information in the stock locator database. Warehouse personnel use the location information foractually retrieving the item from storage. If the warehouse is efficiently designed, retrieval of the itemtakes only a short time. Quick retrieval contributes to quick delivery to the customer.Recording Inventory SalesAn inventory database does not operate by itself. It needs input before it can process output.Since the database is at the core of a good inventory control system , assurance must be providedthat all transactions involving inventory are captured by the system: purchasing , purchasing returns,receiving, storage , requisitioning, retrieval from storage , delivery to end-user, spoilage/damage.The business has to design effective triggering mechanisms that signal system operators to performappropriate database update procedures the moment an inventory transaction occurs. Effectivefeedback mechanisms also need to be put in place to confirm that updates have been performedpromptly and correctly.Moreover, data quality control must be exercised at all times in order to guarantee that all data itemsthat the database captures are accurate and valid.Anticipating Inventory Needs
  • 6. One of the most important factors of success in cash flow management is keeping inventory levels atminimum. The business only keeps stock of enough goods and materials to prevent a stock-outsituation that could paralyse operation.To achieve this objective, the business has to anticipate future inventory needs as accurately as itcan in order to respond effectively to seasonal customer demand (and thus take advantage of salesrevenue opportunity) without placing itself into a situation called over overstocking.If the companys inventory control system is sound, its inventory database system can producedetailed reports, summaries, and analyses which can assist management in planning futurepurchases and/or production schedules. REport details like for example, vendors and purchasing leadtime, can guide management in scheduling purchase orders. Unit cost details help managementmake purchase volume decisions and set aside funds for the purchase.Inventory Management SecretInventories are assets that do not work until sales are made. Therefore, turning those inventories iscritical to the companys financial growth and success.Inventory turnover is the primary criterion for a good inventory control system.
  • 7. There is no magical mathematical equation or formula for determining just the right level of inventorybased on previous sales, but every business has the capacity to know the tastes and behaviours ofits customers, to understand its products, and to make wise management decisions.Business can use this knowledge to achieve inventory turnover that translates to maximum profitmargin and cash flow.Learn more about having a good inventory system and see your business grow and succeed. Visit to know better ways of doing business.CSO