FINANCIAL MGMT. & MGMT. ACCOUNTING
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Q.EXPLAIN THE VARIOUS INVENTORY CONTROL TECHNIQUES? Q.EXPLAIN IN DETAIL THE VARIOUS TOOLS AND TECHNIQUES OF INVENTORY MANAGEMENT. 1. DEMAND AND SUPPLY METHOD OF STOCK CONTROL: Levels of Stock & EOQ This method of inventory control utilizes the principles of planning the demand and supply of each item of inventory. The various levels of stock used in demand and supply method are explained in detail below: The purpose of inventory control is to maintain the stocks of raw materials as low as possible. At the same time, they must be made available as and when required by the production department. There may be overstocking or under stocking of materials if there is no proper planning. Proper maintenance of stock level of each type of material is the main function of the stores department. Following are the different levels of stock to be fixed by the store keeper for the purpose of material control. MAXIMUM LEVEL: This is the level above which the stock should not be allowed to exceed at any time. This is fixed by taking into account the following factors: 1) Availability of capital. 2) Storage space available. 3) Rate of consumption of material. 4) Seasonal price fluctuations. 5) EOQ 6) Possibility of change in fashion. 7) Government restrictions as in the case of explosive materials. 8) The cost of maintenance. 9) Time required to obtain fresh supply of material. Formula: Maximum level= Reorder Level + Reorder Quantity – (Minimum Consumption x Minimum Reorder Period) MINIMUM LEVEL (SAFETY STOCK) This is the level below which stock should not be allowed to fall at any time. If the stock goes below this level, there is a danger of stoppage of production for want of materials. This level is fixed by taking into account the following factors: 1. Rate of consumption of material 2. Time required to obtain fresh supply of material 3. Re-order level Formula: Minimum level = Reorder Level – (Normal Consumption x Normal Reorder Period)
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