More Effective Control Over Inventory
by ROBERT D. ARNETT Principal, Seattle Office
Presented before the Management Services Conference of the San Francisco Chapter of The California Society of Certified Public Accountants—November 1961
IN ORDER to establish a sound basis for considering inventory control a clear understanding of our goals is necessary. In establishing such a basis this discussion will review, first, the reasons for having an inventory and, second, the objectives that we wish to obtain through control.
INVENTORY CONTROL IN PERSPECTIVE
BUSINESS REASONS FOR HAVING INVENTORY
The most apparent reason for having inventory is to service quickly customer demand for goods. The following items set forth some of the other reasons that may not be as immediately apparent:
• Inventory provides a buffer, or working margin, to separate the various steps in the process of buying raw material, manufacturing
goods, storing goods, and selling them.
• The ability to hold inventory allows companies to level the rate of production, thereby obtaining manufacturing economies. In cases where raw material supply is seasonal, inventory storage of raw material is necessary to obtain a regular production rate. When sales are subject to seasonal fluctuation, the ability to carry a finished-goods inventory will allow stability of the production rate.
• Economies in purchasing and shipping are available to companies
able to hold inventory.
• In the case of replacement parts that manufacturers no longer produce, wholesalers or distributors may carry inventories to protect future needs of customers.
THE OBJECTIVES OF INVENTORY CONTROL
There are three fundamental inventory-control objectives. The first is a need for maintaining physical control over property. This objective is concerned primarily with protection against loss, damage, and theft, and maintaining adequate information concerning how