MATERIAL MANAGEMENT- Inventory Management




  • Inventory is defined as a stock in hand at a given point of time which may beheld for the purpose of later use or sale.
  • It has an economic value and it may include raw materials, work in process, semi-finished or sub-assembly and final product.
  • Every such stock involves blocked capital thus in inventory management our aim is to manage inventory in such a manner that production system run smoothly without any delay but at the minimum cost.
  • The nature of inventory depends upon the type of business activity or firm. e.g. a manufacturing unit carries raw material, some purchased or subcontracted parts, work in process and finished goods. It may also carry tools, spare parts etc. for the next few weeks.
  • Inventory is equally relevant in non-manufacturing or service sectors. e.g. Hospitals keeps a reasonable stock of medicines, life saving injections, operation and surgical equipments, hospital wards including beds etc.



  • Purchasing material at an economic rate, at proper time and sufficient quantity so as not to run short of them.
  • Providing a suitable and secure storage location.
  • Providing enough storage time.
  • A definite inventory identification system and adequate and responsible room staff.
  • Suitable requisition procedure.
  • Up tp date and accurate record keeping.
  • Periodic inventory verification.
  • Division of inventory under proper heads, exercising the control accordingly and removing obsolete inventory.
  • Timely availability of required materials of acceptable quality.
  • To avoid build up stock levels by inflow of materials much in advance of requirements or accumulation of unwanted items which tough order earlier, not required now.



  • Inventory is required to meet he anticipated demand. Customer generally does purchasing without nay pre-information to the seller or producer. Many times he is undecided about the model, make or quantity of the purchase. He would like to see the performance of all the available models. After judging his need and expenditure, he would select one piece. It is almost impossible to know how many pieces of a product would be needed each day. Therefore, inventory serves as buffer to the anticipated demand.
  • Inventory guards against stock out situations. There could be many exogenous factors due to which the arrival of raw material may be delayed. Inventory works as the safety stock for such situations.
  • Inventory ensures smooth flow of production process. Satisfaction of customer is dependent on the timely availability of finished goods and spare parts. Inventory plays an important role in it.
  • Inventory management is a high priority area in industry or service sector. This is due to conflicting role of inventory. For example, the salesman wants high level of inventory to keep the promise and quick delivery. On the other hand, warehousing people of the same industry will prefer lower finished goods inventory so that less storage space is needed.