Why is it so important to control inventories?
How does one decide which inventories need more control and management time?
How are inventory carrying costs, inventory ordering costs and the optimal ordering size determined?
When should inventories be ordered?
Inventory management is one of the critical factors in working capital management
Information on the costs and benefits of investment in inventories cannot be obtained from the statutory accounts, so consider other sources:
formal and informal analysis of purchasing department
arrange for one-time in-depth analysis
formal analysis of marketing department
Identify the total inventories at the closing balance sheet date from the accounting records of the company.
Identify the most valuable or the most important items from the complete list of inventories.
The ratio of the selected, most important, inventories to total inventories held is important. Usually, the ten most important items account for over 50% of total inventories.
Identify the management procedures currently applied to control different types of inventories.
Compare existing control measures with measures offered in this table and identify the necessary steps to improve inventory control or eliminate unnecessary control procedures.
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