Objectives Of Inventory Management

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Inventory Management must be designed to meet the dictates of market place and support the company’s Strategic Plan. The many changes in the market demand, new opportunities due to worldwide marketing, global sourcing of materials and new manufacturing technology means many companies need to change their Inventory Management approach and change the process for Inventory Control.

Inventory Management system provides information to efficiently manage the flow of materials, effectively utilize people and equipment, coordinate internal activities and communicate with customers . Inventory Management does not make decisions or manage operations, they provide the information to managers who make more accurate and timely decisions to manage their
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Inventory balance information in the distributor’s expensive computer system does not accurately reflect what is available for sale in the warehouse.
 The return on investment is not satisfactory. The company’s profits, considering its substantial investment in inventory, is far less than what could be earned if the money were invested elsewhere.


Inventory control techniques are employed by the inventory control organization within the frame work of one of the basic inventory model, viz., fixed order quantity system or fixed order period system. Inventory control techniques represent the operational aspect of inventory management and help realize the objective of inventory management control.

Several techniques of inventory control are in use and it depends on the convenience of the firm to adopt any of the techniques. What should be stressed, however, is the need to cover all items of inventory and all stages, i.e., from the stage of receipt from suppliers to the stage of their use. The techniques most commonly used are the following:

Always better control (ABC) classification
Vital essential and desirable (VED) classification
Material requirement planning (MRP)
Just-in time
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In actual practical situations, there is an uncertainty with respect to the both demand as well as lead time. The total forecasted demand may be more or less than actual demand and the lead time may vary from estimated time. In order to minimize the effect of uncertainty due to demand and the lead time, a firm maintains safety stock, reserve stocks or buffer stocks.

The safety stock is defined as “the additional stock of material to be maintained in order to meet the unanticipated increase in demand arising out of uncontrollable factors”.
In simple it is tells about which is used to protect against uncertainties.
Because it is difficult to predict the exact amount of safety stock to be maintained, by using statistical methods and simulation, it is possible to determine the level of safety stock to be maintained.


If the level of safety stock is maintained is high, it locks up the capital and there is a possibility of risk of obsolescence. On the other hand, if it is low, there is a risk of stock out because of which there may be stoppage of production. When the variation in lead time is predominant, the safety stock can be computed as:

Safety Stock = (Maximum Lead time- Normal Lead time) * Demand

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