Inventory control is the process of managing an inventory so that the business derives the most overall benefit from the existence of the inventory. The strategy normally involves such functions as setting limits on the actual size of the inventory, while also taking care to maintain enough items on hand to allow the business to operate at maximum efficiency. When conducted responsibly, inventory control also helps businesses to manage their tax obligations more effectively, and thus add to the overall profitability of the operation.
While there are many different theories and processes that are employed with inventory management, many of them are based on the concept of usage. This is particularly true when the inventory in question is composed of raw materials or equipment that is important to the ongoing operation of a production facility. The idea is to make sure there is always enough resources on hand to maintain the desirable level of production, but not so many resources that they languish in storage for long periods of time.
In many nations, taxes are imposed on inventories of this type. By practicing responsible inventory management, businesses are able to keep inventories as low as possible to reduce the tax burden, but also never run short on what is needed to allow the business to fill orders from customers. This delicate balance is normally achieved by establishing order procedures that allow materials to be received shortly before they are needed for production, thus ensuring they do not spend much time in the stored inventory.
The same general approach to inventory control also applies to finished goods inventory. Here, the idea is to produce enough goods to meet customer demands and fill orders in a timely manner, but not create situations in which finished goods must be stored for long periods of time. By accurately projecting the usage of customers, it is possible to adjust production quotas so that orders are processed efficiently, without the need to maintain large inventories to fill those orders. This aspect of inventory control can also help aid in loss prevention efforts, since the less time that finished goods remain in storage, the less opportunity there is for those goods to be damaged in some manner.
Solid inventory control also allows a business to make the most efficient use of its resources. Lower inventories means less company resources tied up in the value of the inventories themselves. Along with the lower tax burden, the company with efficient inventory control procedures can dedicate more of its available finances to other essential operations, such as marketing campaigns, research and development, and the refinement of the manufacturing process.