Objectives of Inventory Management

Objectives of Inventory Management. The following are the main objectives of inventory management:

1) Operational Objectives:

These objectives include material and other parts which are available in sufficient quantity:

i) Availability of Material: The main objective of inventory management is to ensure that a firm has the availability of various goods, as and when required. This is done to ensure a smooth production process.

i) Minimising the Wastage: A firm should allow only a normal level of wastage which is uncontrollable. It can minimize controllable wastage by maintaining the proper level of inventory. A firm should ensure that it minimizes wastage occurring due to spoilage, theft, leakage, etc.

i) Promotion of Manufacturing Efficiency: A firm can increase its efficiency by providing the right kind of material at the right time to its production department. It also boosts the morale of its workers.

iv) Better Service to its Customers: A firm can offer better service to its customers by maintaining an uninterrupted production cycle and making available required products to the customers.

v) Control of Production Level: Proper inventory management allows a firm to optimize its production level according to time requirements. It also helps in creating and maintaining buffer stock.

vi) Optimum Level of Inventories: A firm should determine the optimum level of inventories, keeping in view its production schedule. It helps in avoiding sudden shortages in the production process.

2) Financial Objectives:

A firm should ensure that its financial resources are not unduly tied in inventories:

i) Economy in Purchasing: A firm may receive quantity discounts when it purchases in This way, inventory maintenance helps the firm in reducing its costs.

ii) Optimum Investment and Efficient Use of Capital: From a financial viewpoint, the main objective of inventory management is to ensure that the company maintains an optimum level of investment in inventory. Under or over-investment should be avoided. A firm should determine its minimum and maximum level of inventory to run the production cycle efficiently.

iii) Reasonable Price:

Proper inventory management may help the firm in obtaining materials at more reasonable prices. It is also useful in increasing production and maintaining quality control. Minimizing Costs: A firm may minimize various costs such as carrying and ordering costs through proper inventory management. Inventory costs are included in the cost of production, therefore optimization of these costs may help the firm in improving its profit margin.

Costs Associated with Inventory- Click here

Leave a comment