Materials and Resource Requirement Planning – Objectives, Advantages and Disadvantages
Introduction Success of an operation department of any organization is dependent upon an efficient production plan. One of the key essential of a production plan is material and manufacturing planning system. Material requirement planning plays a pivotal role in assembly-line production. Material requirement planning is a system based approach, which organizes all required production material. […]
Introduction to E-Procurement – Tools, Application and its Benefits
Introduction In layman’s term, e-procurement is nothing but electronic data transfer to support operational, tactical and strategic procurement. E-procurement has been existence for long time in one form or the other earlier it was done through electronic data interchange. In today’s environment, most of the e-procurement is done through the Internet. Traditionally, procurement of supplies […]
How Genuine is China’s Growth Story?
The Chinese economy has received a lot of positive press in the past two decades. The rapid economic growth that China has registered is being touted as an economic miracle. It is incredible how China rose from being a desolate third world country to being the second largest economy in the world. However, the Chinese […]
Risk Mitigation Team and their Role in Business Continuity Management
In previous articles, we have seen how Business Continuity Programs are formulated and how they are executed in times of crisis. In this article, we look at the role of the Risk Management and Risk Mitigation Team in aiding the organization towards formulating contingency planning. The risk management team is responsible for identifying risks, coming […]
Effect of Business Process Outsourcing (BPO) on the Workforce
The previous articles have discussed the impact that the BPO phenomenon has had on the economies of the home and the target countries. This was essentially a macro level perspective about how the BPO sector has impacted these countries. In this article, we drill down and look at the effect that the BPO sector has […]
In any business or organization, all functions are interlinked and connected to each other and are often overlapping. Some key aspects like supply chain management, logistics and inventory form the backbone of the business delivery function. Therefore these functions are extremely important to marketing managers as well as finance controllers.
Inventory management is a very important function that determines the health of the supply chain as well as the impacts the financial health of the balance sheet. Every organization constantly strives to maintain optimum inventory to be able to meet its requirements and avoid over or under inventory that can impact the financial figures.
Inventory is always dynamic. Inventory management requires constant and careful evaluation of external and internal factors and control through planning and review. Most of the organizations have a separate department or job function called inventory planners who continuously monitor, control and review inventory and interface with production, procurement and finance departments.
Inventory is an idle stock of physical goods that contain economic value, and are held in various forms by an organization in its custody awaiting packing, processing, transformation, use or sale in a future point of time.
Any organization which is into production, trading, sale and service of a product will necessarily hold stock of various physical resources to aid in future consumption and sale.
While inventory is a necessary evil of any such business, it may be noted that the organizations hold inventories for various reasons, which include speculative purposes, functional purposes, physical necessities etc.
From the above definition the following points stand out with reference to inventory:
Inventory of materials occurs at various stages and departments of an organization. A manufacturing organization holds inventory of raw materials and consumables required for production. It also holds inventory of semi-finished goods at various stages in the plant with various departments.
Finished goods inventory is held at plant, FG Stores, distribution centers etc. Further both raw materials and finished goods those that are in transit at various locations also form a part of inventory depending upon who owns the inventory at the particular juncture.
Finished goods inventory is held by the organization at various stocking points or with dealers and stockiest until it reaches the market and end customers.
Besides Raw materials and finished goods, organizations also hold inventories of spare parts to service the products. Defective products, defective parts and scrap also forms a part of inventory as long as these items are inventoried in the books of the company and have economic value.
| INPUT | PROCESS | OUTPUT |
| Raw Materials | Work In Process | Finished Goods |
| Consumables required for processing. Eg : Fuel, Stationary, Bolts & Nuts etc. required in manufacturing | Semi Finished Production in various stages, lying with various departments like Production, WIP Stores, QC, Final Assembly, Paint Shop, Packing, Outbound Store etc. | Finished Goods at Distribution Centers through out Supply Chain |
| Maintenance Items/Consumables | Production Waste and Scrap | Finished Goods in transit |
| Packing Materials | Rejections and Defectives | Finished Goods with Stockiest and Dealers |
| Local purchased Items required for production | Spare Parts Stocks & Bought Out items | |
| Defectives, Rejects and Sales Returns | ||
| Repaired Stock and Parts | ||
| Sales Promotion & Sample Stocks |
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