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
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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