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Inventory Cost Control In Large to Medium Bakeries

Large to medium bakeries  needs to have inventory  cost  control system in place

What  are  inventory cost 

INVENTORY  PROCUREMENT  COST

  • Cost of order processing  from the  purchase indents  stage to accounts  and finally  to the delivery of item to the factory . Cost involves  the stationary , employee and the time spent on
    these activities.

  • Cost of transmission of orders  from purchase deptt  to suppliers , fax , telephones  cost of
    postages etc  with advent of internet  and erp  there has been considerable drop in these costs .

  • Cost  of  transportation  including freight , octroi , transit insurance  and protective packaging for the same

  • Cost of invoice ,book entries  and processing payments

  • Cost of  Inspection , handling , receiving

INVENTORY CARRYING  COST

inventory cost contraol in large to medium bakeries

  • Space  rent  for the storage  of goods

  • Cost of  Working Capital locked in the inventory

  • Cost of insurance of goods

  • Cost of spoilage of goods  in storage , breakages in handling

  • Cost  of  deterioration  and obsolescence of  goods due to passes of time

  • Cost of space utilized during the storage of the product

We don't give much of importance to inventory lying in our stores or warehouse . Its when

some consultants points out that we have blocked money in these stocks that we realize that something has to be done to cut cost of inventory . . Its important to monitor inventory of RM/PM/Engg spares and even Finished goods ( FG ) , If not done it can severely impact the bottom line of business . These steps are applicable for  all items used in bakeries which have considerable cost impact 

Inventory  are maintained for following items in large to medium  bakeries

a )  Raw material and ingredients

b) Packing material and consumables

c) Engineering / Plant  Machine spares and consumables 

d) General office and utilities spares  and consumables 

e)  Finished Goods


Reasons why  stores have large inventory  are 

1  Change  in  recipe  

2. Change in packaging due  to several reason such as marketing . price or legal compliance

3.  Rejection  at   any stage in process  after inspection 

4  Slump  in sales  

5. Wrong  specification s  given at  the time of order placement 

6  Due  to  supplies  constrains  one has  to  keep  inventory   of certain critical items 

7 Duplicate Indents 

Inventory  Cost Control  techniques 

 1. Codify all items which are kept as stock in stores or warehouse .Use any inventory management software to track stocks and movement from one center to another. 

2.  Install  ERP software such as  BAAN or SAP   for better control on inventory  if you are  large to medium unit 

3. Classify items by ABC so you know what are high value items and keep a tab on their consumption and procurement . Next focus on low value items .

 4. Examine value of items on basis of return on investment .

 5.Identify high stock out items and then adjust buffer stock on cost trade off basis 

6.Examine all items for safety stocks with respect of lead time , demand , stock out cost , carrying , ordering don't pile up stock intuitively 

6. Do physical stock verification periodically and eliminate dead stocks ,accept obsolescence write off for these items . 

7. Determine Economic Order Quantities of all items .thus eliminating chances of excess material  lying in store blocking capital 

8. Shift owner ship  of  storage to vendors /suppliers  with  Annual contracts /Replenishment contract with  fixed quantity order or as and when requirement .

Thus  plant management needs  to  audit and review  stores and warehouses in regular interval to check  inventory levels  of  goods lying in stores .


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