One of the basic functions of management is to employ capital efficiently so as
to yield the maximum
returns. This can be done in either of two ways or by both, i.e. (a) By maximizi ng the margin of profit; or (b) By maximizing the production with a given amount of capital, i.e. to incr ease the productivity of capital. This means that the management should try to make its capital work hard as possible. However, this is all too often neglected and much time and ingenuity are devoted to make only labour work Understand that thew two baskets... 8.1. INTRODUCTION One of the basic functions of management is to employ capital efficiently so as to yield the maximum returns. This can be done in either of two ways or by both, i.e. (a) By maximizi ng the margin of profit; or (b) By maximizing the production with a given amount of capital, i.e. to incr ease the productivity of capital. This means that the management should try to make its capital work hard as possible. However, this is all too often neglected and much time and ingenuity are devoted to make only labour work harder. In the process, the capital turnover and hence the productivity of capit al is often totally neglected. Several new techniques have been developed and employed by modern management to remedy this deficiency. Among these Materials Management has become one of the most effectiv e. In Materials Management, Inventory Control play vital role in increasing the productivity of capital. Inventory management or Inventory Control is one of the techniques of Materials Management which helps the management to improve the productivity of capital by reducing th e material costs, preventing the large amounts of capital bei8.1. INTRODUCTION One of the basic functions of management is to employ capital efficiently so as to yield the maximum returns. This can be done in either of two ways or by both, i.e. (a) By maximizi ng the margin of profit; or (b) By maximizing the production with a given amount of capital, i.e. to incr ease the productivity of capital. This means that the management should try to make its capital work hard as possible. However, this is all too often neglected and much time and ingenuity are devoted to make only labour work harder. In the process, the capital turnover and hence the productivity of capit al is often totally neglected. Several new techniques have been developed and employed by modern management to remedy this deficiency. Among these Materials Management has become one of the most effectiv e. In Materials Management, Inventory Control play vital role in increasing the productivity of capital. Inventory management or Inventory Control is one of the techniques of Materials Management which helps the management to improve the productivity of capital by reducing th e material costs, preventing the large amounts of capital bei8.1. INTRODUCTION One of the basic functions of management is to employ capital efficiently so as
to yield the maximum
returns. This can be done in either of two ways or by both, i.e. (a) By maximizi ng the margin of profit; or (b) By maximizing the production with a given amount of capital, i.e. to incr ease the productivity of capital. This means that the management should try to make its capital work hard as possible. However, this is all too often neglected and much time and ingenuity are devoted to make only labour work harder. In the process, the capital turnover and hence the productivity of capit al is often totally neglected. Several new techniques have been developed and employed by modern management to remedy this deficiency. Among these Materials Management has become one of the most effectiv e. In Materials Management, Inventory Control play vital role in increasing the productivity of capital. Inventory management or Inventory Control is one of the techniques of Materials Management which helps the management to improve the productivity of capital by reducing th e material costs, preventing the large amounts of capital being locked up for long periods, and im proving the capital turn over ratio. The techniques of inventory control were evolved and developed during and after the Second World War and have helped the more industrially developed countries to ma ke spectacular progress in improving their productivity. The importance of materials management/inventory control arises from the fact th at materials account for 60 to 65 percent of the sales value of a product, that is to say, fr om every rupee of the sales revenue, 65 paise are spent on materials. Hence, small change in material costs can result in large sums of money saved or lost. Inventory control should, therefore, be considered as a function of prime importance for our industrial economy. Inventory control provides tools and techniques, most of which are very simple t o reduce/control the materials cost substantially. A large portion of revenue (65 percent) is exp osed to the techniques, correspondingly large savings result when they are applied than when attempts ar e made to saver on other items of expenditure like wages and salaries which are about 16 percent or overheads which may be 20 percent. By careful financial analysis, it is shown that a 5 percent reduc tion in material costs will result in increased profits equivalent to a 36 percent increase in sales. 8.2. DEFINITION OF INVENTORY AND INVENTORY CONTROL The word inventory means a physical stock of material or goods or commodities or other economic resources that are stored or reserved or kept in stock or in hand for smooth and efficient running of future affairs of an organization at the minimum cost of funds or cap ital blocked in the form of materials or goods (Inventories).