Introduction:
In the process of management the yield of the firm can be increased by some methods like, By maximizing the margin of profit; or By maximizing the production with a given amount of capital, i.e. to increase the productivity of capital. Among this Materials Management has become one of the most effective. In Materials Management, Inventory Control play vital role in increasing the productivity of capital.
Inventory control:
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Inventory management or Inventory Control is one of the techniques of Materials Management which helps the management to improve the productivity of capital by reducing the material costs, preventing the large amounts of capital being locked up for long periods, and improving the capital - turnover ratio.
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The techniques of inventory control were evolved and developed during and after the Second World War and have helped the more industrially developed countries to make spectacular progress in improving their productivity.
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The importance of materials management/inventory control arises from the fact that materials account for 60 to 65 percent of the sales value of a product, that is to say, from every rupee of the sales revenue, 65 paise are spent on materials.
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Small change in material costs can result in large sums of money saved or lost. Inventory control should, therefore, be considered as a function of prime importance for our industrial economy.
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Inventory control provides tools and techniques, most of which are very simple to reduce/control the materials cost substantially.
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A large portion of revenue (65 percent) is exposed to the techniques, correspondingly large savings result when they are applied than when attempts are made to saver on other items of expenditure like wages and salaries which are about 16 percent or overheads which may be 20 percent.
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By careful financial analysis, it is shown that a 5 percent reduction in material costs will result in increased profits equivalent to a 36 percent increase in sales.
Definition of inventory control:
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“The word inventory means a physical stock of material or goods or commodities or other economic resources that are stored or reserved or kept in stock or in hand for smooth and efficient running of future affairs of an organization at the minimum cost of funds or capital blocked in the form of materials or goods (Inventories)”.
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The function of directing the movement of goods through the entire manufacturing cycle from the requisitioning of raw materials to the inventory of finished goods in an orderly manner to meet the objectives of maximum customer service with minimum investment and efficient (low cost) plant operation is termed as inventory control.
