STORES KEEPING AND MATERIALS MANAGEMENT

GROUP MEMBERS:-

NAME REG. No SIGNTURE

1. Businge Innocent RIM/O6.15/018D

2. Adongo Suzan
3. Luyiga Hanifa

COURSE UNITE: - STORES KEEPING AND MATERIALS MANAGEMENT

FACILITATOR: - MR MAWANDA ISAAC

MTAC

Qn. 1 a. Describe the major inventory management issues and

objective.

b. purely analyze the importance of inventory management

and the risk of holding stock.

c. Why do you think time value of money is important in

materials management?

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 Describe the major inventory management issues and
objective
Inventory management is that act or function of handling,
managing, directing, controlling and coordinating the flow of
inventory or stock in the organization.
The main objectives of inventory management are operational and
financial. The operational objectives mean that the materials should
be available in sufficient quantity so that it should not disrupt for
want of inventory. The financial objectives means that in inventory
should not remain idle and minimum working capital should be
locked in it. The following are the objectives of inventory
management;
One of the objectives of managing inventory is to maintain a
minimum investment into inventories and maximize profitability.
To ensure continuous supply of materials and facilitate uninterrupted
operations so that production does not suffer at any time and the
customers should also be met, this can be done by ensuring no
stock out.
To avoid both over-stocking and under-stocking of inventory
To keep material cost under control so that they contribute in
reducing cost of production overall cost.
To minimise lose through deterioration, pilferage/theft, wastages
and damages.

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 To ensure perpetual inventory control so that materials shown in
stock ledgers should be actually lying in the stores.
To ensure right quality goods at reason prices
To maintain investments in inventories at the optimum level as
required by the operation and sales activities.
To eliminate duplication in ordering or replenishing stocks. This is
possible with the help of centralising purchases.
To facilitate furnishing of data for short term and long term planning
and control of inventory
To design proper organisation of inventory. A clear cut accountability
should be fixed at various levels of management.
Maximization of cost; cost like ordering, handling, storage and so on
are reduced to minimum level.
To maintain an optimum size for efficient operation of the
organisation like smooth running of production and sales
department.
To keep and maintain sufficient stock level or right quantities. This
can be achieved through economic order quantities
To Control investment in inventory and stock at a required level; this
will avoid over stocking and under stocking with their associated
bottle neck.
To liaise or coordinate work together with other functional
department

Purely analyze the importance of inventory management

and the risk of holding stock.
Inventory management is very important as far as stores
management is concerned. The following are some of the
importance of inventory management.

Improved product availability

Reduced stock taking cost
Increased profitability
Minimized storage costs
They minimizes stock out and other related costs
Protection from fluctuation in demand partners.
Inventory management checks lose of materials due to
pilferage/theft.
It is Crucial in giving better services to consumers thus consumer
satisfactions and retention.

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 It reduces risks of lose, lack of sales, obsolete and deterioration,
money paid to idle labour.
Inventory management enables continuous production
Effective use of working capital whereby right quantity of stock is
held thus not blocking money in excess stock.
Maintains quantity output, right quantity from the right place at the
right time; this ensures right products.
Avoids duplication of orders. Inventory management ensures that
the purchasing function is done by one management which does the
buying of the entire item required by organisation.
Risks of holding stock; the holding of stock involves blocking of
the organizations funds and incurrence of capital. It also exposes the
organization to certain risks. The various risks involved in holding
stock are as listed below:-
Capital costs: maintaining of stock resu8lts in blocking of the
financial cost of stock. The funds may be arranged from own
resources or from outsiders; in both cases, the organization incurs a
cost. In the capital was from the outsider, the organization has to
pay interest to an outsider.
Risk of price decline. There is always a risk of reduction in the price
of stock by the suppliers in holding inventories. This may be due to
increased material supplies, competition or general depression in
the market.
Risk of obsolescence. The stock may become obsolete outdated due
to improved technology, improvements in product design changes in
the requirements, change in customers tastes and so on
Purchase cost. A firm has to pay high price for managing inventory.
Stock management has to take into account of the price paid to the
suppliers and expense of transport for bringing the materials to
sores, insurance and transportation cost.
Carrying cost. This include cost of storing the inventory in
warehouse, handling expenses, insurance and rent paid for
managing the inventory, opportunity cost locked up in stocks and so
on. Opportunity cost here refers to the alternative use of funds that
the firm would have used to invest in stocks.
Ordering cost. This includes costs of requisitioning, preparation of
purchase order, transportation of stock, and so on.

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 Risk of deterioration in quality. The quality of the materials may also
deteriorate while the inventories are kept in stores.
Storage and handling risks. Holding stocks involves cost of storage
as well as handling of materials. The storage costs include the rental
of warehouses.
Risk of pilferage/theft. When stock is kept for long, it might be stolen
away. Thieves may be from inside or outside.
High taxes. Sometimes the government or local authorities may
continue to slap taxes on every item held on the store.
Storage space. Holding stock in an organization might consume
space which might otherwise use for other purposes.
Security cost. There is an increase cost of hiring security personnel
to look after the stock in the store.
Fire outbreak. Fire caused by short circuit and or any other thing can
also destroy the stock.
Another risk is damage and expiry. Stock if kept for long it expires
and in return gets damaged or spoiled.

Why do you think time value of money is important in

materials management?
Time value of money is that idea that money available at the
present time is worth more than the same amount in the future due
to its potential capacity. This principle holds that, provided money
can earn interest, any amount of money is worth more the sooner it
is received. Time value can also be seen as present discounted
value.

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