How to Build an Inventory Control System

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Inventory refers to a detailed list of the tangible assets of a business organization (furniture, machinery and work in progress). An inventory control system therefore refers to a process of monitoring the stock levels, location and nature of these assets. This process may be manual or computerized. By efficiently controlling inventory, a business can increase its production and cash flows and be cost-effective. With some companies managing billions of dollars in inventory, an effective, efficient and cost-effective inventory control system is a plus for any organization.

Define the scope of your inventory. Are you building an inventory for the entire business or for a particular unit of your business, such as the production unit?

Identify all the items to be included in the inventory so as to avoid additions later. Differentiate between different categories of inventory (for example, machinery, furniture and fittings, stocks, stationery and electronics) by assigning them particular codes.

Define the characteristics of the items in the inventory that are of great significance and add depth to the inventory, like date of purchase/manufacture, serial number, model, color, size and location. Use uniform parameters in defining the inventory such as age of the items in the inventory is calculated from the date of purchase not date of manufacture.

Create an inventory database that is suitable for your business. The initial financial cost incurred in obtaining a computerized inventory system may seem overwhelming but is outweighed by the benefits in regard to efficiency and effectiveness it brings.

Tips

  • Always carry out a physical stock take periodically for reconciliation purposes between the actual and the recorded.

Warnings

  • Failure to establish internal control measures to support the inventory control system may yield negative results.

References

Resources

About the Author

Paul Merchant started writing in 2005. His articles have appeared in “JSTOR Journals” and “Wileys Management Journals.” He is a certified public accountant and a qualified project management expert. Merchant holds a Bachelor of Arts in communication from the University of Nairobi.

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