Explain Benefits or Importance of Inventory Control

Explain Benefits or Importance of Inventory Control

Following image briefly explains benefits or importance of inventory control.

The benefits or importance of inventory control is listed in following points:

1. Inventory control protects a company from fluctuations in demand of its products.
2. It enables a company to provide better services to its customers.
3. It keeps a smooth flow of raw-materials and aids in continuing production operations.
4. It checks and maintains the right stock and reduces the risk of loss.
5. It helps to minimise administrative workload, manpower requirement and even labour cost.
6. It tries to protect fluctuation in output.
7. It makes effective use of working capital by avoiding over-stocking.
8. It helps to maintain a check on loss of materials due to carelessness or pilferage (stealing).
9. It facilitates cost accounting activities.
10. It avoids duplication in ordering of stock.

The following discussion briefly and lucidly covers all the above-mentioned objectives, benefits or importance of inventory control.

1. Protects from fluctuations in demand

Many a times, the demand forecast of a product is not accurate. There is always a small difference between the demand forecast and actual demand. However, sometimes, there is a big difference between the demand forecast and actual-demand.

So, there are always chances of fluctuations in the demand of a material. These fluctuations can be adjusted if there are sufficient items in the stock of inventory. Therefore, proper inventory control protects the company from fluctuations in demand.

2. Better services to customers

If the company maintains a proper inventory of raw-materials, then it can complete its production in time. So, it can deliver the finished goods to the customers in time.

Similarly, if the company has a proper inventory of finished goods, then it can satisfy the additional demand of the customers. So, inventory control helps the company to deliver goods at the right time as demanded by the customers.

After making timely delivery, the company can concentrate on giving other services to the customers.

3. Continuity of production operations

Proper inventory control helps to maintain continuity of production operations. This is because it maintains a smooth flow of raw materials. So, there are no shortages of raw-materials required for production process.

4. Reduces the risk of loss

Proper inventory control helps to reduce the risk of loss due to obsolescence (outdated) or deterioration of items. This is because it checks all the items regularly.

Furthermore, it sells all the slow-moving items, in time, at the market prices. It only maintains the right stock at all times. So, the chances of any item getting outdated is reduced.

5. Minimizes the administrative workload

Proper inventory control helps to minimize the administrative work load of purchasing, inspection, warehousing, etc. This will reduce the manpower requirement and will minimize the labour cost too.

6. Protects fluctuation in output

Inventory control tries to reduce the gap between planned production and actual production. There are cases where the production schedule cannot be followed because of:

1. Sudden breakdown of machines,
2. Problems in supply of materials,
3. Sudden labour strikes,
4. Loss due to failure of power supply, etc.

In such cases, the difference between planned production and actual production can be bridged by inventories held in stock.

7. Effective use of working capital

Proper inventory control helps to make effective use of working capital. Inventory control helps in maintaining the right amount of stocks of materials, components, etc. Over stocking is avoided. Therefore, the working capital will not be blocked in excess inventory.

8. Check on loss of materials

Inventory control helps to maintain a check on the loss of materials due to carelessness or pilferage (stealing).

If there is no proper inventory control, then there are more chances of carelessness and pilferage by the employees, especially in the store-keeping department.

9. Facilitates cost accounting activities

Inventory control facilitates cost accounting activities. This is because, inventory control provides a means of allocating materials cost of products, departments or other operating accounts.

10. Avoids duplication in ordering

Inventory control avoids duplication in ordering of stock. This is done by maintaining a separate purchase department. This department will do all the purchasing for the full organisation. No other department is allowed to do purchasing. So there will not be any duplication in ordering of stock.