Inventory is simply a stock of physical assets having some economic value which can be either in the form of material, money or labour. Inventory is also known as an idle resource as long as it is not utilised. Inventory may be regarded as those goods which are procured, stored and used for day-to-day functioning of the organisation.
Inventory control is the technique of maintaining stock items at desired levels. In other words, inventory control is the means by which material of the correct quality and quantity is made available as and when it is required with due regard to economy in the storage costs, ordering costs, set up costs, manufacturing costs, purchase prices and working capital.
There are following three main issues involved in inventory management and control :
- How and what to prioritize for procurement ?
- How much to order ?
- When to order ?
In this unit, these issues have been discussed and their associated techniques are also described in detail.
Objectives
After studying this unit, you should be able to
- describe various concepts pertaining to inventory,
- explain the needs, objectives and functions of inventory,
- discuss various factors affecting inventory,
- apply classification methods as per the situation,
- develop simple Economic Order Quantities (EOQ) model, and
- describe 'P' and 'Q' systems of inventory.
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