It’s important for employees of organisations of all sizes, to understand the role inventory control has in the supply chain and manufacturing processes. If stock goes missing or is not correctly handled the company can risk losing revenue.
For any business that deals with selling and buying goods, inventory control makes up a large part of these operations. There are a few types of inventory: purchased parts, raw materials and component parts.
Businesses will keep an inventory for a variety of reasons, the key reasons can be to take advantage of discounted pricing, to meet unforeseen demand and maintain costs of the inventory. Inventory is commonly managed through computer systems or paper records depending on the complexity and size of the supply chain.
Inventory Control for Finished Goods
Finished goods are items which have been purchased in a complete form but have not yet been bought by any customers. Finished goods can be held throughout various places in the supply chain.
As finished goods are expected to sell within a short period (up to a year), they are considered a short term asset. Inventory control for finished goods is typically reported within a single item on the balance sheet at the end of the reporting period. The total amount of finished goods is accumulated from the price of raw materials and the work-in-process.
Inventory Control for Components
Components are a type of stock which are in a finished state, but are used at production to complete an item at the manufacturing stage. Maintaining stock levels of components will depend on certain factors, such as whether the components are delivered in batches and if demand can be predicted so components are not under or over bought.
Radio Frequency Identification (RFID) can be used to store information about individual components so they can be tracked through the supply chain and processed or sold in time. RFID can also help to prevent over or under stocking of components. Another method of inventory control for components can be through using software that integrates accounting and invoice systems.
As every piece of inventory held by a business has value, it is important to consider how to classify parts of the inventory.
Raw Materials: Input goods which will form part of the semi-finished or finished product. An example is raw wood being finished into furniture.Back