Inventory Control

Inventory Control:

To maintain stocks of materials at the correct level is a tricky problem. For giving better services and to get price advantage it may be necessary to buy in bulk (Economy of scale). But this may mean blocking of substantial amount of money and the inventory carrying costs also go up. If we buy very frequently, cost of ordering goes up. In addition we may not get the quantity discounts. The risk of materials not available when required and the consequent additional costs to the organization, have to be kept in view. Inventory control therefore, involves designing and following such policies, which will minimize sum total of various costs (the inventory carrying cost and ordering costs) related to materials in an organisation. Inventory control calls for right quantity, right quality, at right price from right source, at right place, at right time.

INVENTORY CONTROL

Improving Service level and Inventory Control: To ensure continuous availability of stores to user departments while keeping the stock levels at optimum level is one of the important objectives of Stores Department. Efficiency with regard to optimum stock levels is measured by working out inventory turnover ratio on every 31st march, which is worked out as under:

 

Inventory Turn Over Ratio =(Total inventory balances in Rupees on 31^st March)

--------------------------------------------------------------  * 100                      

(Total value of stores issued during the year)

The target for inventory turn over ratio is generally kept around 15%.  The efficiency with regards to service is worked out by compiling compliance percentage of materials against all requisitions received in Stores Department. The target for compliance is kept between 95% to 98%.  For vital and safety items, the compliance is aimed at 100%.

In order to keep inventory turn over ratio and compliance figure at optimum level, selective inventory management method is used on Indian Railways. We classify the item in A-B-C category as well as vital, essential and desirable category. These are explained below. We also use standardization, variety reduction and extensive computerization for inventory management.