Inventory Control

Inventory control serves several important functions and adds flexibility to the operations o the firm. A firm’s inventory has several uses from decoupling function, storing resources, irregular supply and demand, quantity discounts and avoiding stockouts and shortages (197). Decoupling the manufacturing process attempts to eliminate delays when one manufacturing activity has to be finished before a subsequent one can begin. Storing resources is necessary when the production or harvesting of those resources is season however the demand is steady throughout the year. When supply and demand is irregular, storing inventory ensures that there are sufficient quantities available to meet the increased demand. When suppliers offer discounts on bulk purchases, storing the excess inventory until needed is necessary. All attempts should be made to avoid stockouts and shortages whenever possible. If stockouts and shortages are common, consumers will source for alternate sources. All of these uses of inventory have to be weighed against the additional cost of storing and stocking the excess inventory. Like all business decisions, the costs must outweigh the risk.

Determining and developing adequate inventory control procedures is critical in improving production efficiency and determining how much to order and when. There are several tools available to assist an organization is determining how much to order and when are ABC analysis and just-in-time inventory control. In ABC analysis, inventory is divided into three separate groups based upon cost where group A is the most expensive, group B are moderately priced item and group C are low cost items (225). By grouping the inventory into three groups, and managing the inventory based on price where the most costly items represent the lowest quantity inventory progressing to the low cost item taking up most of the inventory. Just-in-time inventory controls attempts to improve production line efficiency by...