Inventory management and control
Introduction
At the outset, let us clarify some terminology. All firms hold stocks of some goods that they keep in storage until needed. The level of stock held varies from firm to firm but, on average, it would not be too inaccurate to say that 20% of the annual turnover would be the amount of stock a firm holds in some sort of storage. As you can imagine, this can be a big investment. Much work has been expended in trying to reduce this and to not have capital tied up in stock which is not in the process of being turned to income. The move is towards lower levels of stock and shorter lead times, as discussed in the last chapter.
So, stock is goods that are held in storage until they are used.
To keep track of what is held in stock, an inventory is taken of all these goods and their quantities. An inventory is, therefore, a list of all the stock . Very often, however, the terms stock and inventory are used interchangeably. We must understand the meaning of the terms quite accurately, as well as the fact that they are used frequently to mean each other. When we talk of inventory management, we are talking about managing all the stock that is recorded in the inventory of a firm.
Learning objectives
After completing the work for this chapter you should be able to:
- Examine and detail the concepts of inventory
- Assess various inventory management techniques
- Determine the impact of inventory management on business performance
