Checklist
This checklist provides advice on how to control inventory effectively.
Definition
Inventory control, or stock control, is concerned with how much stock you have at any one time, and how you keep track of it. Effective inventory control applies to every item you use to produce a product or service, from raw materials to finished goods. It covers stock at every stage of the production process, from purchase and delivery to using and re-ordering the stock.
There are four main types of stock:
-
raw materials and components—ready to use in production;
-
work in progress—stocks of unfinished goods in production;
-
finished goods ready for sale;
-
consumables—for example, fuel and stationery.
Effective inventory control is critical to the success of a business. By making sure that capital is not tied up unnecessarily, you can help to lower the cost of running a business and maintain customer loyalty; clients may migrate to other suppliers if you are unable to supply them with the goods they need when they need them. It can protect production if problems arise with the supply chain, and eliminate waste if you are involved in the supply of perishable goods.
Maintaining accurate order records is the first step on the path to controlling inventory. Order sheets should be established by vendor and should include all vital information, such as the name of the customer, their phone number and e-mail address, the date and time the order is placed, the name of the contact person, and other information. You can thus quickly compile a record of all the orders your company receives. From this, it will be possible to determine seasonal and yearly fluctuations in sales and decide which items to discontinue. You will know when to order and will be able to reduce shortages of stock and avoid overordering. Computerizing this system will enable you to manage your inventories in the most efficient manner.
Once you have all this information, you can decide which inventory-control system you wish to adopt. There are three basic systems:
-
Minimum stock level—you identify a minimum stock level and re-order when the stock reaches that level. This is known as the “re-order level.”
-
Stock review—you regularly review your stock. At every review, you place an order to return stocks to a predetermined level.
-
Just in Time (JIT)—this method aims to reduce costs by keeping stock to a minimum. There is a risk that you may run out of stock, so you need to be confident that your suppliers can deliver on demand.
You also need to know the lead time required when ordering some items. This will help you to maintain an optimum level of stock. Ideally, the current stock of an item should be running out just as the new shipment comes in.
Advantages
-
Efficient inventory control allows you to have the right amount of stock in the right place at the right time.
-
Keeping an optimum amount of stock, rather than too much, frees up capital that would otherwise be tied up in stock.
-
It guards against your customers being disappointed and taking their business elsewhere.
-
It prevents stock from deteriorating or simply falling out of fashion.
Disadvantages
There are no disadvantages involved in efficiently managing your inventories.
Action Checklist
-
Establish accurate order records containing vital information such as the name of the customer, their phone number and e-mail address, the date and time the order was placed, and the name of the contact person.
-
Decide which inventory-control system suits your business best.
-
Look to computerize your inventory control. There are software packages that can control your stock for a fraction of the cost of managing it manually.
Dos and Don’ts
Do
-
Make sure that you have good security controls in place to protect your stock. For example, you should mark expensive portable equipment such as computers, and put CCTV in car parking areas and other key locations.
-
Make sure that one person is in charge of stock control. Depending on the size of the business, this could either be a dedicated stock controller or an administrator who also undertakes other activities.
Don’t
-
Don’t forget that, for security reasons, it is good practice to have different staff responsible for finance and stock.
www.qfinance.com