Raw Material Inventory Control

Raw material inventory control is sometimes thought to be costly. Unknowingly, you can get ways on how to achieve this without spending so much money from your bank account.

All you need is to do is read this article to help you out with that concern.

Inventory and control of raw materials is considered to be one of the issues of any entrepreneur. The issues that arise in here are its demand for an additional charge or deduction to the profit that they earn in their business.

What You Need to Know About Raw Material Inventory Control

Inventory and control basically means supply supervision storage as well as accessibility of the items with the purpose of ensuring enough supply. At the same time, this also works in ensuring that there is no oversupply. There are ways on how to control inventory procedures.

First is for you to choose reliable suppliers. Sometimes in choosing supplies, quality is overlooked. In some instances, most entrepreneurs focus on the price of the raw materials rather than the long lasting durability of the product. Dependability and as well as delivery time are also areas that you should be concerned. Proper separation of inventory like raw materials, finished goods and work in process is a must.

Next is to calculate the amount of dollar that was spent on your individual inventory. This is determined by multiplying the expected annual sales in the future by unit cost. Perform a ranking of the results from high to low depending on the yearly financial budget spent.

Classification of the inventory is the next step. This is done by assigning letters to the categories. For example, use letter A for the top 30 percent, letter B for the next 30 percent and lastly, assign letter C for the bottom 50 percent. Moreover, the assigned items in the A category signifies that it needs prompt and more attention than the least of the items. Classification like this will give you a systematized inventory and control of the products. After the classification, you need now to check for the right order quantity through the so-called Economic Order Quantity (EOQ) model. This has a standard formula that you can follow in order to determine the order quantity. Furthermore, this formula is almost true to all kinds of commercial enterprises.

The final step will be the calculation of the reorder point. This is executed by multiplying the lead times in days or even weeks by average daily or weekly sales. The final step is by adding the safety stock with the product or result. This is done to prevent shortage in the inventory just in case there will be a variation in lead time. For example, A items must have only little safety stocks, the B items has more plenty stocks than the items in A category and of course the stocks in the items under the C category.


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