doc10 - SCORE Counselors to Americas Small Business...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
SCORE Counselors to America’s Small Business INVENTORY CONTROL Why Inventory Control? Control of inventory, which typically represents 45% to 90% of all expenses for business, is needed to ensure that the business has the right goods on hand to avoid stock-outs, to prevent shrinkage (spoilage/theft), and to provide proper accounting. Many businesses have too much of their limited resource, capital , tied up in their major asset, inventory . Worse, they may have their capital tied up in the wrong kind of inventory. Inventory may be old, worn out, shopworn, obsolete, or the wrong sizes or colors, or there may be an imbalance among different product lines that reduces the customer appeal of the total operation. Inventory control systems range from eyeball systems to reserve stock systems to perpetual computer-run systems. Valuation of inventory is normally stated at original cost, market value, or current replacement costs, whichever is lowest. This practice is used because it minimizes the possibility of overstating assets. Inventory valuation and appropriate accounting practices are worth a book alone and so are not dealt with here in depth. The ideal inventory and proper merchandise turnover will vary from one market to another. Average industry figures serve as a guide for comparison. Too large an inventory may not be justified because the turnover does not warrant investment. On the other hand, because products are not available to meet demand, too small an inventory may minimize sales and profits as customers go somewhere else to buy what they want where it is immediately available. Minimum inventories based on reordering time need to become important aspects of buying activity. Carrying costs, material purchases, and storage costs are all expensive. However, stock- outs are expensive also. All of those costs can be minimized by efficient inventory policies. Inventory Control Inventory control involves the procurement, care and disposition of materials. There are three kinds of inventory that are of concern to managers: Raw materials, In-process or semi-finished goods, Finished goods . If a manager effectively controls these three types of inventory, capital can be released that may be tied up in unnecessary inventory, production control can be improved and can protect against obsolescence, deterioration and/or theft, Handout 06/02 – Inventory Control Page 1 of 8
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
The reasons for inventory control are: Helps balance the stock as to value, size, color, style, and price line in proportion to demand or sales trends. Help plan the winners as well as move slow sellers Helps secure the best rate of stock turnover for each item. Helps reduce expenses and markdowns.
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 01/23/2012 for the course ECON 261 taught by Professor George during the Spring '04 term at Illinois Tech.

Page1 / 8

doc10 - SCORE Counselors to Americas Small Business...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online