Inventory Management Techniques and Time-Keeping Methods

Minimum Level or Safety Stock

The minimum level is the minimum quantity of the material which must be maintained in hand at all times. The quantity is fixed so that the production is not held up due to shortage of the materials. In fixing this level, the following factors should be considered:

• Lead time i.e. time lag between indenting and receiving of the material. It is the time required to replenish the supply.
• Rate of consumption of the material during the lead time.
• Nature of the material. Minimum level is not required in case of a special material which is required against customer’s specific order.

Maximum Stock Level

It is the maximum of stock which should be held in stock at any time during the year. The quantity is fixed so as to avoid overstocking as it leads to the following disadvantages:

• Overstocking leads to increase in working capital requirement which could be profitable used somewhere else.
• Overstocking will need more godown space, so more rent will have to be paid.
• It may also lead to obsolescence on account of overstocking.

ABC Analysis

Under ABC Analysis, the materials in stock are divided into three categories for the purpose of control. Generally it is seen that the materials which constitute the least percentage of items in stock may contribute to a large percentage of value and a large percentage of items may represent a smaller percentage of value of items consumed. Between these two items are those items, the percentage of which is more or less equal to their value in consumption. Items falling in the first category are treated as ‘A’ items, of the second category as ‘B’ items and items of the third category are taken as ‘C’ items. Such an analysis of material is known as ABC analysis. This technique of stock control is also known as stock control according to value method or Always Better Control method or Proportional Parts Value Analysis method.

Perpetual Inventory

Perpetual inventory is a system of records maintained by the controlling department, which reflects the physical movements of stocks and their current balance. This is a system in which, with the help of Bin Cards and Stores Ledger, the balance of stock is ascertained after every receipt and issue of materials. This helps in avoiding closing down of firm for physical verification. Advantages of the Perpetual Inventory System:

• It avoids the disruption of production for physical checking of all items of stores at the end of the year.
• The preparation of Profit and Loss Account and Balance Sheet is possible without physical verification of stock.
• A detailed and more reliable control on the materials in store is obtained.
• As the work of recording and continuous stocktaking is carried out systematically and without undue haste, the figures are more reliable.

Time-Keeping

Time-keeping will serve the following purposes:

• Preparation of Pay Rolls in case of time-paid workers.
• Meeting the statutory requirements.
• Ensuring discipline in attendance.

The manual methods of time keeping are as follows:

• Attendance Register Method
• Metal Disc Method

Attendance Register Method

This is the traditional method where an attendance register or muster roll is kept at the time office near the factory gate or in each department. The timekeeper records the name of the worker, the worker’s number, the department in which he is working, the rate of wages, the time of arrival and departure, normal time and overtime. If the workers are literate, they may make a record of time themselves in the presence of a time-keeper or foreman.

Metal Disc Method

Under this method, each worker is allotted a metal disc or a token with a hole bearing his identification number. A board is kept at the gate with pegs on it and all tokens are hung on this board. These boards can be maintained separately for each department so that the workers can remove the token without delay and put it in a tray or box kept near the board. Immediately after the scheduled time for entering the factory, the box is removed and the latecomers will have to give their tokens to the timekeeper and their exact time of arrival is recorded. The tokens or disc left on the board will represent the absentee workers.