Inventory Cost

In any construction organisation, the need of material should be adequately met for maintaining efficiency and to keep up the schedules. It is equally important that capital investment in this form of material be kept at minimum. This can be ascertained once in a year when a visual inventory of entire site or plant is taken. The method of annual verification of stock and store prevails in many organisations and all materials is measured, weighed or counted and the assets are evaluated and are priced according to the judgement of those taking the inventory. It is done in order to know the current value of the assets. Taking account of inventory gives a clear picture of the state of affairs in the organisation i.e. whether it is progressing on right path or otherwise.


Inventory Control

Materials are purchased and held in shape of inventories. Inventories of various kinds act as a cushion between supply and demand. Inventory enables the firm to meet the orders and also helps in keeping up the manufacturing cycle. There should be a proper control on inventories. Efficient control of inventories increases the profit of the firm.

Inventory is defined as any idle resource of an enterprises. It is commonly used to indicate materials, raw materials, finished and semi-finished products, packing, spares and other stocks, in order to meet expected demands or distributions.


Types of Inventories

Inventories which are either direct or indirect can be categorised into five classes :

·        Production Inventories

Items which go into the final products – raw material and bought out components.

·        Maintenance, Repair and Operating Inventories

Items which do not form a part of final product but are consumed in the production process – spare parts, consumable items etc.

·        In-process Inventories

Semi-finished product ready for despatch.

·        Finished goods Inventories

Completed product ready for despatch.

·        Miscellaneous Inventories


Items other than those covered under the above for types of inventories – scrap, surplus and obsolete items.