Inventory cost control is a method of managing expenses associated with stocking goods and keeping them on hand for sale or use. Inventory cost control involves monitoring the number of goods in stock, the cost of those goods, and managing the other associated costs of storage and procurement.
Inventory cost control is important to companies because it helps them maximize their profits by determining what goods should be stocked, when goods should be reordered, and when inventory should be disposed of.
Inventory cost control begins with the setting of targets. This involves establishing the desired level of inventory and the number of goods needed to meet customer demand. Targets can be set using historical sales data or by using predictive models. Targets may also be set in order to ensure that inventory is available for promotional activities or seasonal demand.
Inventory cost control also requires constant monitoring. This involves checking the quality of the goods and the quantity of goods in stock, as well as keeping track of incoming orders, ongoing customer demand, and other factors that can influence the amount of inventory held.
Proper inventory cost control also involves regularly reviewing and updating existing stock control strategies to ensure that costs are kept to a minimum. Cost reduction measures may include changes to the pricing of goods, shortening of lead times, and minimizing stock levels.
Inventory cost control also requires regularly assessing the strengths and weaknesses of suppliers, and negotiating better deals. It is important to review supplier performance and work with the supplier to find ways to reduce costs and improve quality.
Inventory cost control also involves tracking purchase and disposal activities to ensure that inventory is managed effectively. This includes tracking the cost of acquiring goods and disposing of excess inventory, including the cost of storage, transport, and disposal.
Finally, inventory cost control should include the establishment and enforcement of rules and policies to ensure that the desired level of inventory is maintained. This includes setting clear and measurable objectives and targets, issuing warnings, and taking corrective action when necessary.
In summary, inventory cost control is an important aspect of running a successful business. It involves setting targets and monitoring inventory, as well as anticipating customer demand and negotiating better deals. Proper inventory cost control also requires the enforcement of appropriate rules, policies, and actions to ensure the desired level of inventory is maintained. By implementing effective inventory cost control policies, businesses can ensure that profits are maximized, costs reduced, and customer service maintained.
