Compiled by: Aamarpali Puri

Inventory is a detailed list of those movable items which are necessary to manufacture a product and to maintain the equipment and machinery in good working order. The quantity and the value of every item is also mentioned in the list. Inventory is actually ‘money’ kept in the store room in the shape of a high speed steel bit, a mild steel rod, milling cutters or welding electrodes.


Inventory control is concerned with achieving an optimum balance between two competing objectives. The objectives are:

  • to minimize investment in inventory,
  • to maximize the service levels to the firm’s customers and its own operating departments.
  • Inventory control may be defined as the scientific method of finding out how much stock should be maintained in order to meet the production demands and be able to provide right type of material at right time in the right quantities and at competitive prices.

Inventory may be classified as follows

Raw inventories. They include raw material and semi finished products supplied by another firm and which are raw items for the present industry.

In process inventories. They are semi-finished goods at various stages of manufacturing cycle.

Finished inventories. They are the finished goods lying in stock rooms and waiting dispatch.

Indirect inventories. They include lubricants and other items (like spare parts) needed for proper operation, repair and maintenance during manufacturing cycle.


 To manage these various kinds of inventories two alternative control procedures can be used

(1) Order point system

This has been the traditional approach to inventory control. In this system, the items are restocked when the inventory levels become low.

Lot size and reorder point calculations are the more spectacular aspect of inventory management. Once the calculations are complete, the routing commences for checking deliveries and physical count of the amount on hand.

(2) Materials Requirements Planning (MRP)

MRP is sometimes thought of as an inventory control procedure.

MRP is the technique used to plan and control manufacturing inventories.

MRP is a computational technique that converts the master schedule for end products into a detailed schedule for the raw material and components used in the end products.

The detailed schedule identifies the quantities ofeach raw material and component item. It also tells when each item must be ordered and delivered so as to meet the master schedule for the final products.

It is important that the proper control procedure be applied to each of the four types of inventory as explained earlier.


Inventory control aims at keeping track of inventories. In other words, inventories of required quality and in desired quantities should be made available to different departments as and when they need. This is achieved by,

  • Purchasing material at an economical price, at proper time and in sufficient quantities so as not to run short of them at any instant.
  • Providing a suitable and secure storage location.
  • Providing enough storage space.
  • A definite inventory identification system.
  • Adequate and responsible store room staff.
  • Suitable requisition procedure.
  • Up-to-date and accurate record keeping.
  • Periodic inventory check up.
  • Division of inventory under A, B and C items, exercising the control accordingly and removing obsolete inventory.

A good control over the inventories offers the following Advantages

  • One does not face shortage of materials.
  • Materials of good quality and procured in time minimises defects in finished goods.
  • Delays in production schedules are avoided.
  • Production targets are achieved.
  • Accurate delivery dates can be ascertained and the industry builds up reputation and better relations with customers.



  1. Separate different operations from one another and make them independent, so that each operation (starting from raw material to finished product) can be performed economically. For example, ordering of raw material can be carried out independently of the finished goods distribution and both of these operations can be made low cost operations say by ordering raw material and distributing finished goods in one big lot, than in small batch sizes. Besides economy, the men and machinery also can be better utilized if the operations are separated and carried out in various departments than if coupled and tied at one place.
  2. Maintain smooth and efficient production flow.
  3. Purchase in desired quantities and thus nullify the effects of changes in prices or supply.
  4. Keeps a process continually operating.
  5. Create motivational effect. A person may be tempted to purchase more if inventories are displayed in bulk.

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