INVENTORY MANAGEMENT
- 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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