Inventory Control – Meaning, Definition, Objectives and Scope

Inventory Control

The present concept of inventories has necessitated the use of scientific techniques in the management of inventories known as inventory control. A inventory is an essential part of any organization, it consists of many items running into thousands. Systematic management and control of inventory for all the items is a challenging job.


  1. Inventory control is a system of ordering based on the maintenance of the stock in a store using a re-order rule based on the stock level.
  2. Inventory control is concerned with various items stocked at predetermined level or within some safe limits.
  3. Inventory control may be defined as planning, ordering and scheduling of materials used in the manufacturing process. It is possible to exercise control over three types of inventories recognized by accountant as raw material, work in progress and finished good.
  4. Inventory control is the technique of maintaining the size of the inventory at some desired level keeping in view the best economic interests of an organization.

Objectives of Inventory Control

  1. To maintain the overall investment at the lowest level, consistent with operating requirements.
  2. To supply the product, raw material, sub-assemblies, semi-finished goods etc. to its users as per their requirements at right time and at right price.
  3. To keep inactive, waste, surplus, scrap and obsolete items at the minimum level.
  4. To minimize holding, replacement and shortage costs of inventories and maximize the efficiency in production and distribution.
  5. To treat inventory as investment which is risky. For some items, investment may lead to higher returns and for others less returns.
  6. To protect against inflation since the prices of materials are constantly increasing. Thus it is important to invest in the inventories and save whenever the price of the materials goes up. However this benefit can only be availed if cost of holding inventory is taken care off.
  7. To avail quantity discounts on bulk purchases.

Scope of Inventory Control

  1. Formulation of Policy

First of all, the policies of investment procurement, storage, handling, shortage and stock-outs, deterioration obsolescence etc. are to be formulated under the scientific system of inventory control. What, when and how much of purchasing and fixation of minimum and maximum levels is also to be determined for a given period of time.

  1. Organization structure

After determining inventory policy, the next step is to decide the location, layout and types of storehouse. It will facilitate the movement of materials and thus minimize he storage and handling cost of stores.

  1. Determination of Economic Order Quantity

Economic order quantity or economic lot size (if it related to production) refers to that quantity ordered in a single purchase or number of units should be manufactured in a single run, so that the total costs-ordering or set up costs and inventory carrying costs are at the minimum. So, the determination of E.O.Q. is also within the scope of inventory control.

  1. Determination of Safety Stock

Safety Stock is defined as the difference between the amount stocked to satisfy demand during a certain time interval and the mean expected demand for that period. It is for the purpose of providing protection against depletion. If demand remained constant and lead time, usage value, variability of lead time demand, carrying charges and he importance of its stock out cost. Again, determination of buffer stock reserve stock is included in the management of inventory.

  1. Determination of Lead Time

By lead time is meant the time that lapses between the raising of an indent by the stores and the receipt of materials by them. Lead time is of fundamental importance in determining inventory levels.

  1. Minimum Material Handling and Storage Cost

Stores Organization activities are arranged in such a manner that the cost of bringing in the storehouse and issuing from the storehouse of the various stores, will minimize the storage and material handling cost of stores.

  1. Effectiveness towards running store

The determination of policies of the location, layout and material storage handling equipment will certainly help in the effective working of storage organization.