What Is the Purpose of Inventory Control?

by Contributing Writer; Updated September 26, 2017

No business can afford the loss of precious dollars by way of waste of goods in its warehouses. Businesses need to control their inventory--a complete listing of their stock of raw materials and components, works in progress and finished products. The purpose of inventory control is to efficiently manage the availability of stock for production, sales and delivery and services of a business to maximize the volume of business and profits.

Ready Supply of Raw Materials

Smart inventory control methods aim at maintaining an adequate supply of raw materials ready to be used for production. The volume of production depends on procured and projected future sales orders. Also production cycles vary from business to business and they may take place in batches with time gaps or continuously. Inventory control managers have to know production requirements and ensure that raw materials are available to meet exact production demands at all times.

Inventory Control and Overstocking

Raw materials used in the manufacturing of a product have to be paid for and their storage involves certain costs. Businesses try to avoid over stocking of raw materials as they are not used in the production process in the near future. Buying raw materials in bulk may be cheaper. But if materials lie unutilized for a long period the money paid for procuring them gets blocked. The risk of the materials getting damaged is also there. Inventory control measures aim to minimize this cost without hampering the smooth flow of availability of raw materials for production.

Work in Progress

Half finished or unfinished goods are referred to as work in progress. They are required components for producing the final product. The availability of their stock should also be adequate. Inventory control is about striking a fine balance in the availability of goods whether they are raw or unfinished, so that there isn’t a case of low inventory hampering production or of surplus stock leading to cost escalation.

Finished Products

It’s incumbent on inventory control managers to know the exact production requirements as well as an estimate of customers demand in the near future. They must maintain stock levels to be able to meet demands from the point-of-sales. Lead times are crucial here. Some products sell quickly and others take time. Inventory control mechanism of a business should consider this. Inventory management also takes cognizance of unforeseen market conditions, such as recession, that could cause a fluctuation in demand for the product.

Reorder Point

Businesses must plan and time the reordering of a material. This should include the time taken to ship the product and any bureaucracy involved. Materials should arrive in time and there should be no shortage or over stocking due to reordering of material.

Though there are some universal principles of inventory control, businesses devise appropriate methods best suited for their size, location, type. Adopting the best practices in inventory control could reduce costs considerably and maximize profits. Smart businesses know this and accord due importance to inventory control.