Inventory control can be viewed as the process in which an organization manages and locates objects or materials. In the contemporary business world, the market is characterized by a very high level of competition. For any organization to succeed in such an environment, it must have effective inventory management systems. This ensures that the business is organized and that the customers are not faced with any shortage.
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As already noted, inventory control plays a pivotal role in determining the success of any business. The most successful businesses are usually characterized by an effective inventory control practices. This makes the business to be more organized hence promoting efficiency in business operations.
One of the main advantages of inventory control in an organization is to ensure that there is an adequate inventory level, which maximizes the level of consumer satisfaction. Through inventory, an organization can avoid any shortages that may arise from inadequate inventory levels. Improved customer satisfaction leads to increased profitability in a business. In other words, inventory plays a pivotal role in determining the level of profits in an organization. This is because it significantly determines customer service levels in an organization.
Through inventory control, it is easier for the management in making critical decisions. For instance, the long term inventory records will help the management in making some critical decisions in the areas of business expansion.
The ABC inventory control system enables organizations to give individual stock keeping units different levels of inventory control depending on the level of importance (Hamlett 2011). Through the Pareto analysis, an organization can use the ABC system in classifying various items.
There are several advantages of using the ABC system of inventory control. The ABC system of inventory control offers an organization more control over the inventories that are in the store. For the companies that apply the annual costs of goods sold in their ADC, classification tends to store less of the A-class items and more of the B and C class items that have a relatively lower annual cost of goods sold (Hamlett 2011).
Through the application of the Pareto law, an organization can cut down on its costs. For instance, an organization can be able to reduce the level of security stocks with time and also negotiate with its suppliers for reduced prices. This helps in reducing the overall operational costs hence increasing the profit margins.
ABC system helps an organization to keep the right mix of the inventory at the best levels. For instance, an organization can use customer demand as its basis for its analysis. This helps in determining the most feasible item mix that will satisfy the customers. This promotes the level of customer satisfaction hence promoting the success of an organization.
In some cases, an organization may face periods of shortages. This may arise from an unpredictable increase in demand. Since it is not possible to just produce instantly, when this happens it leads to shortages. To overcome such problems, an organization needs to have security or buffer stock. Security stock helps an organization to mitigate any shortage that may arise due to uncertainties in demand and supply.
Just-in-time is one of the methods which have been recently applied intensively by several organizations in their effort to minimize costs. The concept of just-in-time ensures that the supplies reach the firm at the exact time when they are needed (Broyles 2005). By reducing wastage, an organization can enhance value in its operations. Just-in-time system has significantly helped many organizations in improving their competitive advantages, especially in the contemporary competitive business world.
Broyles, D. (2005). Just-In-Time Inventory Management Strategy & Lean Manufacturing. Web.
Hamlett, K. (2011). The Advantages of the ABC System of Inventory Control. Web.