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Inventory represents goods and products that companies produce or sell. It is crucial in some industries, for example, manufacturing and retail. Therefore, it is vital to employ controls to ensure the safety of these goods. Companies can use several tools at their disposal to achieve that. Usually, these fall under inventory controls.
What are Inventory Controls?
Inventory controls are the procedures and measures put in place by a company to manage and safeguard its inventory effectively. These controls ensure accurate inventory tracking, prevent theft and loss, optimize stock levels, and enhance operational efficiency. Primary components of inventory controls include physical inventory counts, inventory tracking systems, proper valuation methods, stock reconciliation, access controls, stock rotation, and documentation.
Implementing inventory controls provides real-time visibility into inventory levels, locations, and movement. These systems enable businesses to monitor stock levels, track inventory movements, and make informed decisions, including purchasing, production, and order fulfillment. Similarly, effective inventory controls contribute to better decision-making, cost reduction, enhanced customer service, and streamlined operations.
What are the types of Inventory Controls?
Companies can implement several types of inventory controls to manage their inventory effectively. Some of the most prevalent ones include the following.
Reorder Point (ROP) Control
Reorder point control establishes a predetermined inventory level that triggers a reorder. When inventory falls below this point, a replenishment order gets placed to avoid stockouts. It ensures that inventory is replenished promptly based on factors like lead time and demand variability.
Just-in-Time (JIT) Control
JIT control focuses on minimizing inventory levels by receiving goods or materials precisely when needed. It aims to reduce carrying costs, eliminate waste, and improve efficiency. Accurate demand forecasting, efficient production processes, and close collaboration with suppliers are essential for successful JIT implementation.
ABC Analysis
ABC analysis categorizes inventory items based on their value and contribution to the business. “A” items are high-value, “B” items are medium-value, and “C” items are low-value. This classification allows companies to prioritize resources, allocate control efforts accordingly, and implement different inventory management strategies for each category.
Lot Tracking Control
Lot tracking control assigns unique identification numbers or codes to specific batches or lots of inventory, enabling tracking and tracing throughout the supply chain. It is particularly crucial in industries with regulatory requirements. Lot tracking helps businesses quickly identify and recall specific lots in case of quality issues or safety concerns, ensuring compliance and consumer safety.
What is the difference between Inventory Controls and Inventory Management?
Inventory controls are the specific measures and procedures implemented to regulate and track inventory levels, movement, and accuracy. They focus on establishing internal controls, such as physical counts, tracking systems, and segregation of duties, to ensure accurate inventory records and prevent loss or theft. Inventory controls are more tactical, aiming to enforce discipline and accuracy in inventory management practices.
On the other hand, inventory management is a broader concept that encompasses the strategic planning and execution of activities related to inventory. It involves making decisions about the overall inventory strategy, such as determining optimal inventory levels, forecasting demand, setting reorder points, and managing supplier relationships. Inventory management accounts for factors like customer demand, lead times, carrying costs, and production capabilities.
Conclusion
Inventory controls are processes and systems companies employ to safeguard physical stock. These controls enable companies to track inventory accurately and prevent any loss. Typically, inventory controls fall into several categories. However, these controls differ from inventory management which represents a broader strategy for managing stock.
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