Inventory Management & Controls.

Business inventory is the most critical phenomenon which needs close monitoring any mismanagement can result in major business losses. Since overstocking can block your capital funds/investments and under stocking can result in your production hold-ups. 

For successful inventory management, we need to have installed a purchase plan ensuring the continued supply of the raw material and related items to be used in the production, any delay can spoil the production schedules. The objective is to assure that the items are available when needed. Due to the escalating production costs and storage costs, the most common strategy adopted by the company management is JIT ( Just in Time) where a company plan to receive the items when needed. The deliveries are planned according to the sales forecast available with the management. Inventory and reorder levels are maintained and provision for buffer stock is also provided for critical load and items. The objective of these checks and controls is to minimize the cost of production and enhancing the company's profit. Sometimes inventory management gets difficult to control when your business is growing and handling of inventory is increased manifold.  

Various checks and controls are placed to ensure a smooth flow of inventory without any hang-up when making a purchase plan after taking into consideration the below factors. The use of technology makes things easier.   

> Re-Order Level: It is the inventory level at which a company places a new order or starts a new manufacturing run. It is calculated as 

Reorder level = Lead time in Days x Daily average usage.

Lead time means the time it takes the supplier or the manufacturing process to provide the ordered units. 

Daily average usage is the number of units consumed on a daily basis

If a company is holding safety stock, then the reorder level will be 

Reorder level = Lead time in Days x Daily average stock + Safety stock

Safety stock is the stock held by a company in excess of its requirement for Lead time. Safety stock is maintained to protect the risk of stock out. It is calculated as under ;

Safety stock = (Maximum Daily usage -Average Daily usage) x Lead time

> Economic Order Quantity (EOQ): It is the most appropriate quantity a company manages to purchase with the minimum involvement of below costs.

• Ordering cost
• Holding cost 
• Storage cost

By using the above controls the inventory is tracked, received, stored, and shelved in the warehouses and it keeps your business running and orders selling.