Another major type of control system found in most organizations is inventory control. Inventory refers to the goods or materials that are available for use by a business.
There are three major types of inventory: raw materials, work in process, and finished goods.
Raw materials inventory is the stock of parts, ingredients, and other basic inputs to a production or services process. Work-in-process inventory is the stock of items currently being transformed into a final product or service. Finished-goods inventory is the stock of items that have been produced and are awaiting sale or transit to a customer.
Inventory control serves a number of important purposes in organizations and involves a number of significant costs.
The major advantages of inventory are:
- inventory helps deal with uncertainties in supply and demand;
- another purpose of inventory is to facilitate more economic purchases, since it sometimes is more economical to purchase large amounts of materials at one time;
- finally, inventory may be a useful means of dealing with anticipated changes in demand or supply, such as seasonal fluctuations or an expected shortage.
Two major inventory control methods are the economic order quantity and just-in-time inventory control.