Objectives of Inventory Management

Through the efficient Management of Inventory of the wealth of owners will be maximised. To reduce the requirement of cash in business, inventory turnover should be maximised and management should save itself from loss of production and sales, arising from its being out of stock. On the other hand, management should maximise stock turnover so that investment in inventory could be minimised and on the other hand, it should keep adequate inventory to operate the production & sales activities efficiently. The main objective of inventory management is to maintain inventory at appropriate level so that it is neither excessive nor short of requirement Thus, management is faced with 2 conflicting objectives.

(1) To keep inventory at sufficiently high level to perform production and sales activities smoothly.

(2) To minimise investment in inventory at minimum level to maximise profitability.

Both in adequate & excessive quantities of inventory are undesirable for business. These mutually conflicting objectives of inventory management can be explained is from of costs associated with inventory and profits accruing from it low quantum of inventory reduces costs and high level of inventory saves business from being out of stock & helps in running production & sales activities smoothly.

The objectives of inventory management can be explained in detail as under:-

(i) To ensure that the supply of raw material & finished goods will remain continuous so that production process is not halted and demands of customers are duly met.

(ii) To minimise carrying cost of inventory.

(iii) To keep investment in inventory at optimem level.

(iv) To reduce the losses of theft, obsolescence & wastage etc.

(v) To make arrangement for sale of slow moving items.

(vi) To minimise inventory ordering costs.