Factors Influencing Inventory Control

Factors Influencing Inventory Control

There are a number of factors which can influence the inventory decisions. These can be broadly divided into the following categories:

Factors Influencing Inventory Control

Factors Influencing Inventory Control

1. Characteristics of the manufacturing system

The nature of the production process, the product design, production planning and plant layout have significant effect on inventory policy. Some of these factors are:

2. Degree of specialization and differentiation of the product at various stages

The degree of changes in the nature of the product from raw materials to final product at various stages of transformation viz., final assembly and packaging determines the nature of inventory control operation. e.g., if nature of product remains more or less same at various stages of production, then economies can be achieved by keeping the right balance of stocks of semi finished product.

3. Process capability and flexibility

Process capability is characterized by processing time of various operations e.g. the replenishment lead time (length of delay in execution after issuance of a replenishment order) directly influence the size of inventory.

Similarly how rapidly and economically a system can adjust its production rate, shift production facilities from one operation to another operation and change equipment &om one product to another determines the magnitude of flexibility.

Inventory policy should aim towards balancing the production flexibility, capability, inventory levels and customer service needs.

4. Production capacity and storage facility

The capacity of production system as well as the nature of storage facilities considerably affects the inventory policy of the organization e.g. capacity for heating oil production in an oil refinery is governed in part by its thorough-put capacity and in part by its distribution system.

Similarly if for any product, the cost of storage facility is high, then it sets a limit on the storage capacity.

5. The nature of the production system

It is characterized by the number of manufacturing stages and the interrelationship between various production operations e.g. in product-line system, inventory control is simpler than in job-type system. Similarly if there are many operational stages, then the inventory control system must provide smooth adjustment of early operating stages and inventories to fluctuations in finished stock.

6. Amount of Protection against Shortage

There is always variation in demand and supply of the product. The protection  against such unpredictable variations can be done by means of buffer stocks.

7. Organizational Factors

There are certain factors that influence inventory control in an organization which are related to the policies, traditions and environment of any industrial enterprise. Some of these are

  • Labour relation policies of the organization
  • Amount of capital available for stock
  • Rate of return on capital available if invested elsewhere.

8. Other Factors

There are several other factors related to the overall business environment of the region that influence Inventory Control viz:

1. Inflation

2. Strike situation in communication facilities.

3. Wars or some other natural calamities like famines, floods, etc.

4. Difference between input and output