Question

"For a good inventory control system, we need to take care of both physical and fiscal aspects." Explain the nature of items that make up the inventory.

Answer 1

Explanation:

For a good inventory control system, we need to take care of both physical and fiscal aspects. But before we deal with those two, Let us understand the nature of items that make up the inventory.

1. Stock Keping Unit (SKU) Code: Each and every item in the inventory is to be identified with a unique code which signifies certain aspects of the item. It can be colour, size, weight or any other characteristic that is of importance in its use. The SKU code can be a combination of alpha and numeric. SKU is the very basic unit for data collection and further manipulation for deriving meaningful statistics and decision-making. Bar Codes and RFID (Radio Frequency Identification) tags ‘ are used in tracking etc. using SKU.

2. Motley crowd: (a) We always refer to inventory in one monetary value in the accounting statement, behind it are myriad numbers of SKUs – that can be classified as Raw Materials, Packing Materials, Spare Parts, Semi Finished Goods (or WIP – Work In Progress), Finished Goods, Consumables, etc. (b) The SKU code should definitely help us identify which class the item belongs but not much else. The treatment for each class will have to be different, keeping in mind some of the factors identified here.

3. Space: Space requirement for all items will not be identical; neither will it have proportionate relationship with the cost of the item. There can be many bulky items with low value (For example, straw for use in paper mill) as well as high value items with low volume (For example, Diamonds).

4. Value: Not all SKUs have same value.

5. Lead time:

(a) Lead time to manufacture or procure an item depends on many factors. Combined effect of these factors — like standard or special raw material, processing time, scheduling of machines, distance between source and user point etc. – makes up the lead time .

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