INVENTORY MANAGEMENT; DEFINITIONS AND CONCEPTS

There is need for installation of a proper inventory control technique in any business
organization in developing country like Nigeria. According to Williams and Susan (2008),
inventory in a merchandized company, inventory consists of all goods owned and held
for sales to customers. Inventory is expected to be converted into cash within the
companys operation cycle. When merchandize is purchased, its cost (net of allowable
cash discounts) is added to the asset account inventory. The valuation of inventory and
the cost of goods sold are of critical importance to managers and to external users of
financial statement. Investment in stock represents a major asset of most industrial and
commercial organization, and it is essential that stocks be managed efficiently so that
such investments do not become unnecessarily large. A firm should determine its
optimum level of investment in stock and to do this, two conflicting
requirement must be met. First, it must ensure that stocks are sufficient to meet the
requirement of production and sales; and secondly, it must avoid holding surplus stock
that are unnecessary and that increase the risk of obsolesces.

BENEFITS OF INVENTORY MANAGEMENT AND CONTROL

Inventory is an important part in every business. Inventory control refers to the proper balance
between the cost and the profit, resulting from the accurate management of items on hand.
Inventory management is essential in every business and its efficiency and effectiveness can
significantly reduce the capital losses of the business. Keeping the equilibrium between the cost
of stocks and the profits earned by the business can be very difficult because it requires the
evaluation of several inventory relatedtask. The efficient control and management of stocks
relies upon how inventories are organized and regulated, cost predictions, the quantity of items
to be ordered and stored and the ideal time to order the items to avoid shortage and profit and
loss. The purpose of controlling and managing the stocks on hand is to determine and maintain
the precise amount of investment in the inventory. Successful businesses are incredibly
proficient in managing their inventory and monitoring the items on hand. These enterprises are
also very competence in developing plans and applying effective scheme for maintain the
optimum levels of investment in the inventory. Controlling and managing inventory tasks can
either be very easy or can be presented in sophisticated and complicated 25mathematical
inventory model. The level of sophistication relies on the size of the business and the
requirement needed to keep an effective inventory, to keep losses at the lowest level. But how
can business owners carry out a reliable inventory management? First, it is very important for
businessmen to purchase methodically. Purchasing goods only when the stocks are very low is
not always a good idea. Do not wait for out-of-stock conditions to happen before purchase, but
never purchase goods inhigh quantities, leaving the business loss storage space and sell items
in their not-sogood qualities. The re ordering point is a critical time for the business. It is the
moment when the suppliers are low but can still meet the customer demands and new supplies
arrives just-in-time before the last item is sold. Second, it is useful for the business to monitor
and frequently update their inventory to check if the items required are ordered, the deliveries
are correct and on time, which items are on demandand not selling, spot shortages because of
high demand or in some instances, theft and to monitor product expiration and spoilage. Finally,
assign a professional and skilled employee who can efficiently carry out the inventory task.
Businessman must also understand the expense of controlling and managing inventory. The
cost of ordering may include fees needed to prepare the purchase, shipping cost, processing of
the relevant documents and other miscellaneous fees. The cost of ordering needs a careful
evaluation of the correct amount of orders for the business to save more money and to avoid

extra 26costs on small production runs, overtime and others. The cost of carrying includes
financial losses that may come from spoilage or expiration of goods, payment for
shortage areas and insurances for the safety of the employees.
Efficient inventory control management leads to smooth business operation and an optimized
usage of resources and man power. Additionally, if the inventory is managed perfectly there is a
higher coordination which the employees, consumers and stocks and the internal affairs of the
business can be systematically organized.

PROCESS OF INVENTORY MANAGEMENT AND CONTROL

As mentioned earlier, inventory managementand control refers to the planning for optimum
quantities of materials at all stages in the production cycle and evolving techniques which
wouldensure the availability of planned inventories.
Four steps involved in the process, namely:

I-.Determination of optimum inventory levels and

procedure of their reviews and adjustment.
II.-Determination of the degreeof control that is required
for best result.
III.-Planning and design of the inventory control system
and
IV.-Planning of the inventory control organization
Inventory control is pivotal in effective and efficient organization. It is also
vital in the control of material and goods that have to be held [or stored] for later
use in the case of production or later exchange activities in the case of services.
The principal goal of inventory control involves to balance the conflicting
economics of not wanting to have too much stock. There by having to tie up capital
so as to guide against the incurring of costs such as storage, spoilage, pilferage and
obsolescence and, the desire to make items or goods available when and where
required [quality and quantity wise] so as to avert the cost of not meeting such
requirement.
Inventory problem of too great or too small quantities on hand can cause
business failures. If a manufacturer experiences stock-out of a critical inventory
system, production halts could result. Moreover, a shopper experts the retailer to
carry the item wanted, if an item is not stocked when the customer thinks it should
be, the retailer losses a customer not only on that item but also on many items in
the future.

The conclusion one might draw is that effective inventory control can make
a significant contribution to a companys profit as well as increase its return on
total assets. It is thus the control of this economics of stockholding, that is
appropriately being refers to as inventory control. The reason for greater attention
to inventory control is that this figure, for many firms is the largest item appearing
on the asset side of the balance sheet.
Essentially, inventory control, within the context of the foregoing features
involves planning and control. The planning aspect involve looking ahead in terms
of the determination in advance:
(i)
What quantity of items to order; and how often do we order for item to maintain
the overall source store sink coordination in an economically efficient way.
(ii) How often [periodically] do we order for item to maintain the overall stock
coordination in an economically efficient way.
The control aspect, which is often described as stock control involves
following the procedure set up at the planning stage to achieve the above objective.
This may include monitoring stock levels periodically or continuously and
deciding what to do on the basis of information that is gathered and adequately
processed.
Inventory to a manufacturing concerns means:
(a) Raw Material: Materials, sub assemblies from other plants or purchases
from suppliers, which are used to manufacture final products.
(b) Goods in Process: Also called work in process are the uncompleted goods
or goods that are skill in the process of completion. They are also goods in transit
from raw materials to the final products.
(c ) Finished Goods: They are already completed products.
(d) Supplies Inventories: They are fixed assets of the company, the activities of
manufacturing firms includes.
i.
Purchase of raw materials
ii.
Conversion of raw materials into the final products
iii.
Sales of the final product to the consumers, the retailers and the
wholesalers. In all cases, inventory control performs the functions of separating all
the prominent successive activities or stage in the manufacturing and distribution
process. This claudicates that the chief activity is to make use of inventories to
successfully perform their respective operations and on the other hand, inventory
has to pass through these operations in order to attain the primary corporate
objective.
In between is exercise, a lot of decisions are to be made by different
operational sections in the plants. Decisions like what to invest, when to invest,
how to invest on inventory and its corresponding level. Other decisions include
pricing the store issue on inventories firm:-

i.
ii.
iii.

Purchasing of raw materials section to the store house.

Warehouse of raw materials to the factory
Warehouse of finished goods to sales.
It is in this regard that it becomes necessary to examine the relevance of
inventory control to decision making, that is the relationship between decision
making and inventory control with particular emphasis to unilever plc.
1.2 Statement of the problem
Some of the manufacturers of house hold products, like Unilever Plc, P2 industries
e.t.c Aj Seward Limited, VAC Limited, and Dally heed industries are presently
undergoing difficulties especially in the area of inventor functions and managerial
policies. The evaluation techniques of inventory issues and pricing techniques of
supplies, since these are certain cost benefit rations to be associated with every unit
of inventory the firm maintains, this fact calls for a decision to be made on what
quantities purchases and manufactured items should be kept in stock certain
criteria are to be evaluated by good control so that it can make good decision on its
inventory policy.

OPTIMUM INVENTORY LEVELS

Determination of inventory that an organization should hold is a significant but difficult stop. Too
much inventory result in locking up of working capital accompanied by increased carrying cost
(but reduced ordering costs). Excess inventories, however guarantee uninterrupted supply of
materials and 28components, to meet production scheduled and finished goods to meet
customers demands. Too less of inventory releases working capital for alternative uses and
induces carrying costs (increases ordering costs). But there is the risk of stock out cost.
The actual level of the inventory may also be improved by aclose study of the manufacturing
cycle. How long does it take to bring out a road roller of a rail coach or an electric motor from
the raw materials stage to the finishing stage? A study in co-operation with the manufacturing
function of the ratio of actual details are eliminated, the work in process inventory can be
considerably reduced.
INVENTORY COST CONTROL MANAGEMENT
The cost of materials makes up a huge portion of spending in most businesses.
Failure to monitor and control these costs can create serious cash flow problems. Conversely
having the knowledge and ambition to identify and control big cost areas can make quick heroes
of new and seasoned managers alike.The starting point is identifying the major variable cost
items in a typical business and investigating the opportunities and impacts of managing each
one. Something that top managers and CEOS all understand is that in most businesses, the
cost of inventory is the single biggest opportunity for cost savings and cash flow control
available. Few managers make it to the top without this lesson well.35The cost of inventory is
the largest regularly occurring expenditure in most business, along with salary. Having enough
suppliers available to services all of your customers is critical to your business success.
Ordering too many supplies can put you in a serious cash flow crisis. Managing inventory costs
is critical business.In theory, you just predict what you are going to sell and purchase the
required components. The problem is the word predict. Depending on our business, predicting
not only total sales but also the mix of what different things you are going to sell is far from an

exact science. There is a certain amount of guess work required in forecasting sales forecasts
are generally optimistic and generally speaking, management tip number one is that inventory
levels should be heavily based on past performance and not just on future sale forecast.
Maintaining high levels of inventory has some definite advantages. High inventory enable you to
secure volume purchase discounts, ensure fast delivery time and reduce the risk of losing sales
due to supply shortages. The price is that you tie up large amount of working capital and run the
risk of getting stuck with stranded inventory that you are unable to sell when something new or
better comes along. For slow changing industries the benefit of high inventories often outweighs
the risk. On the flipside, running low levels of inventory will just enough supply also has its
advantages. You can save significantly on warehouse space and let your supplier worry about
storage coat and facilities. You can also 36keep more working capital available for other
activities. Remember that money is not free and dollars not tied up in inventory can be re
invested in the business, or even in outside investments. The downside is that you will not get
the same volume discounts as you can if you keep high stock levels, and you run the risk
of lost revenue if your suppliers have problems, or you have a period of higher than expected
demand and run short of supplies. Getting just enough supplies,
just in time is great if you need to keep money available for other things, and if
you supply needs change frequently. As a manager you need to understand that
inventory control is a huge factor in your success. You need to carefully balance
i
nventory levels to ensure adequate supply without wasting money, managing
supply levels requires good trained people, and is not an area you want to
scrimp
on to save a few dollars. The most important management tip when it
comes to inventory control is th
at this is your first line of defense when you get
in a cash flow crunch. It is most often the easiest you turn up or turn down to
manage cash in a significant way; you may find other items to control but few
things inside a business have the large dollar
impacts you need when quick
corrections need to be made. As an effective manager you need to know the
inventory situation of business and learn to use it to your adva

Inventory
Management &
Control
Assignment of
Production Operation
Management
Submitted By:
Vrindavan Das
Utkarsh Mittal
Sunny Verma
Suraj Yadav
Shubham Bharadwaj