Factors To Be Considered In Inventory Control

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.

Factors :

There are many factors, which have influence on the inventory, which draws the attention of an inventory manager, they are:Demand

The demand for raw material or components for production or demand of goods to satisfy the needs of the customer, can be assessed from the past consumption/supply pattern of material or goods.
demand may be deterministic in nature i.e., we can specify that the demand for the item is so many units for example say ‘q’ units per unit of time.
Sometimes demand for the item may be probabilistic in nature i.e. we have to express in terms of expected quantity of material required for the period.
Also the demand may be static, i.e. it means constant for each time period (uniform over equal period of times).
Further, the demand may follow several patterns and so why it is uncontrolled variable, such as it may be uniformly distributed over period or instantaneous at the beginning of the period or it may be large in the beginning and less in the end etc. These patterns directly affect the total carrying cost of inventory.

Production of goods or Supply of goods to the inventory

Lead time or Delivery Lags or Procurement time

Type of goods

Time horizon

The supply of inventory to the stock may deterministic or probabilistic (stochastic) in nature and many a times it is uncontrollable, because, the rate of production depends on the production, which is once again depends on so many factors which are uncontrollable / controllable factors.
Similarly supply of inventory depends on the type of supplier, mode of supply, mode of transformation etc. The properties of supply mode have its effect in the level of inventory maintained and inventory costs.
Lead-time is the time between placing the order and receipt of material to the stock.
In production models, it is the time between the decision made to take up the order and starting of production. This time in purchase models depends on many uncontrollable factors like transport mode, transport route, agitations etc.
It may vary from few days to few months depending on the nature of delay. The materials manager has to refer to the past records and approximately estimate the lead period and estimate the quantity of safety stock to be maintained.
In production models, it may depend on the labour absenteeism, arrival of material to the stores, power supply, etc.
The inventory items may be discrete or continuous. Sometimes the discrete items are to be considered as continuous items for the sake of convenience.
The time period for which the optimal policy is to be formulated or the inventory cost is to be optimized is generally termed as the Inventory planning period of Time horizon. This time is represented on X - axis while drawing graphs. This time may be finite or infinite.

Safety stock or Buffer stock

Whatever care taken by the materials manager, one cannot avoid the stock out situation due to many factors.
To avoid the stock out position the manager sometimes maintains some extra stock, which is generally known as Buffer Stock, or Safety Stock.
The level of this stock depends on the demand pattern and the lead-time.
This should be judiciously calculated because, if we stock more the inventory carrying cost increases and there is chance of pilferage or theft.
If we maintain less stock, we may have to face stock out position. The buffer stock or safety stock is generally the consumption at the maximum rate during the time interval equal to the difference between the maximum lead time and the normal (average) lead time or say the maximum, demand during lead time minus the average demand during lead time.