The approach to stock in manufacturing company needs to be different from that in a trading or a commercial business. For a Supermarket the main reason for holding stock will be to provide good customer service. A high degree of such service will be required. If the cornflakes are out of stock, the customer will go elsewhere. The goods classed as "Stock" will mainly be finished goods; ready for sale, ordering from Suppliers will be done largely without considering the consequences on any manufacturing activity.
For a manufacturing company, stock control systems must take account of manufacturing activities. Inevitably there will be clashes or trade offs between the level of stock carried, the service given to the customers, the cash flow involved in carrying stock and the influence stock ordering policy has on manufacturing costs.
"Stocks" will cover finished goods stocks, but also raw materials, work in process and components ready for use. The term "Inventory" refers to the stock of raw materials, Parts and finished products at hand at a given time (a tangible asset which can be seen, weighed or counted). In a wider sense "inventory consists of usable but idle resources''. The resources may be of any type; for example men, materials, machines or money. When the resource involved is material or goods in any stage of completion, inventory is referred to as stock''.
Inventory consists of the following-
• Raw Materials: They are the physical resources to use in the production of finished goods. The purpose of holding raw material is to ensure uninterrupted production inthe event of delays in delivery and to take advantage of bulk or other favorable terms of purchase.
• Bought out components: Items not manufactured/fabricated by the organization but used with or without further processing and/or packing the finished product, e.g. Rubber parts by Egg co. Tin cans by a Milk Mill.
• Work in process: or intermediate goods are in the process of production. Their purpose is to disconnect the various stages of production which facilitate production planning. Such Inventory helps to stabilize the rate of out put at successive stages in the face of fluctuation. Partly manufactured/processed inventories awaiting further mfg/processing between two operations and are in the process of being fabricated or assembled into finished products, including materials lying with subcontractors and material lying in shop food for further processing or assembly.
• Finished Goods: They are the inventory held for sale in ordinary course of business. Such inventory serves as a buffer against fluctuations in demand for a product. Stock of finished goods facilitates a reasonable rate of out put and enables the firm to provide a quick service to customers. It helps to reduce the risk associated with stoppages or reductions in production on account of strikes, break down, shortage of material/power etc.
• MRO: Maintenance, Repair and operating supplies. The group include spare parts and consumables which are required for use in the process but do not form a part of the finished product, e.g. Lubricants, V Belt, Electrodes, Pencil, Soap etc.
Inventory policies are important enough that production, marketing, and financial managers work together to reach agreement on these policies. That there are conflicting views concerning inventory policies underscores the balances that must be struck among conflicting goals-reduce production costs, reduce inventory investment, and increase customer responsiveness.
Objectives of inventory Control:
The main objectives of controlling inventory are as follows:
• to minimize capital investment in inventory by eliminating excessive stocks,
• to ensure availability of needed inventory for uninterrupted production and for
meeting consumer demand;
• to provide a scientific basis for planning of inventory needs;
• to tiding over the demand fluctuations by maintaining reasonable safety stock;
• to minimize risk of loss due to obsolescence, deterioration etc., and
• To maintain necessary records for protecting against thefts, wastes, leakages of
inventories and to decide timely replenishment of stocks.
Advantages of Inventory Control:
Scientific inventory control provides the following benefits:
• It improves the liquidity position of the firm by reducing unnecessary typing up of capital in excess inventories.
• It ensures smooth production operations by maintaining reasonable stocks of materials.
• It facilitates regular and timely supply to customers through adequate stocks of finished products.
• It protects the firm against variation in raw materials delivery time.
• It facilitates production scheduling, avoids shortage of materials and duplicates ordering.
• It helps to minimize loss by obsolescence, deterioration, damage, etc.
• It enables the firms to take advantage of price fluctuations through economic lot buying when prices are low.
