Unit_5_Inventory_Control

Unit Five Inventory ControlPart one Text Inventory ControlInventory control, otherwise known as stock control, is used to show how much inventory you have at any one time, and how you keep track of it 1.It applies to every item you use to produce a product or service, from raw materials to finished goods. It covers inventory at every stage of the production process, from purchase and delivery to using and re-ordering the inventory.Efficient inventory control allows you to have the right amount of inventory in the right place at the right time. It ensures that capital is not tied up unnecessarily, and protects production if problems arise with the supply chain.What are inventories?Inventories are often also known as stocks. They are anything which a firm has which is not currently being used for one of the firms functions. Most departments in the company will have inventories of something. The factory may have inventories of raw materials ready to produce, the office may have inventories of stationery and the warehouse may have inventories of finished goods.Inventories are vital to a company to help it function smoothly. If production had to be stopped every time the firm ran out of raw materials, the time wasted would cost the firm a fortune 2. If a shop had no inventory on the shelves, customers would soon desert them. The same is true of most areas the firm operates in I am sure you can appreciate the importance of planning ahead and having suitable levels of inventories.Inventories are considered to be current assets (the other current assets are debtors and cash) because many types of inventories can be converted into cash reasonably readily particularly inventories of finished goods . However, they are generally the least liquid of the current assets 3. At times of recession or similar it may be very difficult for the firm to sell inventories, and so although they may be listed as a certain value their true value may be lower. Types of inventoryManaging inventory effectively is important for any business, because without enough inventories, production and sales will grind to a halt. Inventory control involves careful planning to ensure that the business has sufficient inventory of the right quality available at the right time 4.Inventory can mean different things and depends on the industry the firm operates in. It includes:Raw materials and components from suppliers Work in progress or part finished goods made within the business Finished goods ready to dispatch to customers Consumables and materials used by service businesses In order to meet customer orders, product has to be available from inventory although some firms are able to arrange deliveries Just in Time (see below). If a business does not have the necessary inventory to meet orders, this can lead to a loss of sales and a damaged business reputation 5. This is sometimes called a stock-out.It is important therefore that a business either holds sufficient inventories to meet actual and anticipated orders, or can get inventories quickly enough to meet those orders 6. For a high street retailer, in practice this means having product on the shelves.However, there are many costs of holding inventory, so a business does not wish to hold too much inventory either.Costs of inventoryApart from the actual cost of buying inventory in the first place, there may be a number of other costs linked to inventory. Too much inventory can lead to: Money being tied up in the inventory, which cannot be used for other purposes until the inventory is sold. Possible cash flow problems may result from this. Increased storage costs, such as heating, lighting, refrigeration and insurance. Possible increased wastage of inventories.Too little inventory can lead to: Idle workers and machines, and therefore lost output while wages and other costs still have to be paid. Orders are lost if deadlines cannot be met. Poor relations with customers, resulting from delays in deliveries. Loss of reputation and good will.The costs of holding inventory include:The opportunity cost of working capital tied up in inventory that could have been used for another purpose. Storage costs the rent, heating, lighting and security costs of a warehouse or additional factory or office space. Bank interest, if the inventory is financed by an overdraft or a loan 7. Risk of damage to inventory by fire, flood, theft etc; most businesses would insure against this, so there is the cost of insurance. Inventory may become obsolete if buyer tastes change in favour of new or better products. Inventory may perish or deteriorate especially with food products. Inventory control methodsInventories may be held for a variety of reasons. They may be inventories of raw materials ready for production, they may be work-in-progress (production part way through the production process) or they may be inventories of finished goods. Whichever they are it is vital for the firm to control the level of inventories very carefully. Too little and they may run into production problems, but too much and they have tied up money unnecessarily.The main theories about inventories then are to do with inventory control. There are various different ways to approach inventory control:Fixed re-order inventory level Fixed time re-ordering Economic order quantity Just-in-time Fixed re-order inventory level This method of inventory control is where a business decides the minimum level of inventories it can tolerate 8, and then re-orders before the inventories reach this level. The exact timing will depend how long the inventories take to arrive 9. This can be illustrated as follows: The distance between the re-order line and the minimum inventories level depends how long it may take for the order to arrive this time is known as the lead time.Fixed time re-orderingThis method is exactly as its title suggests. The firm re-orders inventories at a fixed time each month or week. It can offer a good solution as it represents a routine for the firm and ensures that inventories are regularly supplemented 10. However, it may well mean the level of inventories fluctuating quite a bit depending on the rate they are used up 11. It is a little inflexible as a system as well unless used very carefully 12.Economic order quantityFor any company there is an optimum level of inventories. The precise level of this will vary in different firms and industries. They have to balance the costs of holding inventories (the space taken, the money tied up etc.) with the costs of ordering inventory 13. The more firms order at once, the better the deal they will usually get.The level of inventories that strikes the balance between these two things is known as the Economic order quantity 14. If this is taken to be the optimum level of inventories it should help to minimize the firms costs an important pre-requisite to maximizing profit.Just-in-time productionBecause inventories cost so much to keep, another method of inventory-control was developed in Japan and has now become much more common in the UK. The just-in-time method involves keeping inventories to an absolute minimum, and the raw materials are ordered only when they are needed. In other words, just-in-time. This time period in some cases has been reduced to minutes or hours, and the raw materials arrive on site moments before they are needed 15.This can be wonderful for helping to reduce the need for working capital, but requires a very high level of organizational skill and a very close relationship with suppliers.Inventory turnover ratioTo analyze inventory a little further it is possible to use ratio analysis. The INVENTORY TURNOVER RATIO shows how many times over the business has sold the value of its inventories during the year 16. It is calculated by:INVENTORY TURNOVER RATIO =Cost of goods sold InventoriesThe higher the inventory turnover the better, because money is then tied up for less time in inventories. A quicker inventory turnover also means that the firm gets to make its profit on the inventory quicker, and so the firm should be more competitive. However, it will vary between industries and so it is important to compare within an industry.It is also possible to express the ratio as a number of days, which is sometimes an easier way to understand it. To do this use the following formula:INVENTORY TURNOVER RATIO (in days) = Inventories Cost of goods soldThe result of this ratio gives the number of days that on average money is tied up in inventories. The longer this is, obviously the worse this is for the business as the money is not available to be used elsewhere. Since the inventory is part of the working capital it is important that it is available for use promptly.Words and Expressions:appreciate pri:ieit v. 1.be fully aware of; realize fully for正确地评价,鉴别;体会,领会,察知 2. recognize with gratitude; be grateful感谢,感激;欣赏,赏识balance blns n. equality between the totals of the credit and debit sides of an account 结存;结余calculate klkjuleit v. 1. make a mathematical calculation or computation 计算 2. specifically design a product, event, or activity for a certain public 计划,打算;使适合(某种目的)+to-vconsumables knsju:mblz n. things that may be used up 消耗品deadline dedlain n. the point in time at which something must be completed 截止期限,最后限期; (报纸等的)截稿时间debtor det n. a person who owes a creditor; someone who has the obligation of paying a debt 借方;债务人delay dilei n. time during which some action is awaited 耽搁的时间; the act of delaying;延迟;耽搁delivery dilivri n. the act of delivering or distributing something (as goods or mail)交付,交货；投递,传送desert diz:t v. leave someone who needs or counts on you 抛弃;遗弃;离弃deteriorate ditirireit v. 1. grow worse恶化; 2. become worse or disintegrate质量(或价值)下降; dispatch dispt n. 1. send away towards a designated goal派遣,发送；2. an official report (usually sent in haste) (公文)急件;快信ensure inu v. make certain of 使安全,保护 (+from/against),保证;担保 +that+v-ingfluctuate flktjueit v. move or sway in a rising and falling or wavelike pattern 波动,变动;动摇idle aidl v. run slowly in neutral gear (机器)空转;无所事事;(+away)illustrate ilstreit v. clarify by giving an example of (用图,实例等)说明,阐明(+with);插图于(书籍等),图解inflexible infleksbl adj. incapable of change 不可改变的;不容变更的inventory invntri n. 1. a detailed list of all the items in stock清单上开列的货品; 2. the merchandise that a shop has on hand存货3. reduce (an) inventory by having a sale 作一次贱卖以减少存货adj. not in action or at work 不工作的;闲置的; obsolete bsli:t v./adj. old; no longer in use or valid or fashionable 废弃,淘汰;废弃的,淘汰的output autput n. final product; the things produced出产; production of a certain amount产量overdraft vdr:ft; (US) -drft n. a draft in excess of the credit balance 透支;透支数额; v. exceed the credit balanceperish peri v. pass from physical life and lose all bodily attributes and functions necessary to sustain life 毁坏;使死去pre-requisite pri:rekwizit n. anything indispensable 先决条件promptly prmptli adv. 1. with little or no delay迅速地，敏捷地; 2. at once立即地；3. in a punctual manner准时地,正好ratio reiiu n. the relative magnitudes of two quantities (usually expressed as a quotient) 比;比率;比例recession risen n. 1. the state of the economy declines (经济的)衰退;衰退期; 2. the act of ceding back 后退;退回refrigeration ri.fridrein n. the process of cooling or freezing (e.g., food) for preservative purposes 制冷;冷藏;冷冻the refrigeration industry 制冷工业represent .ri:prizent v. 1. express indirectly by an image, form, or model 意味着;相当于; 2. take the place of or be parallel or equivalent to有代表;有代表作retailer ri:teil n. a merchant who sells goods at retail 零售商;零售店routine ru:ti:n n. an unvarying or habitual method or procedure 例行公事;日常工作;惯例;惯常的程序stationery stei()nri n. paper cut to an appropriate size for writing letters; usually with matching envelopes 文具;信纸stock-out stkaut n. shortage of goods 缺货supplement splimnt n. a quantity added 增补,补充(+to);附录;(报刊等的)增刊(+to)supplier splai n. someone whose business is to supply a particular service or commodity 供应者；供应国；供应厂商tolerate tlreit v. put up with something or somebody unpleasant 忍受;容忍,宽恕; turnover t:n.uv n. the act of upsetting something；the volume measured in dollars (货物等的)流动,流通,吞吐warehouse whaus n. a storehouse for goods and merchandise 仓库,货栈；批发店;大型零售店 v. store in a warehouse把.存入仓库,使落栈wastage weistid n. anything lost by wear or waste 浪费;废物;消耗量natural wastage (职工退休、退职等引起的)自然减员to be tied up to secure with or as if with ropes被捆绑，被捆住，被套牢to insure against to get the warranty of 投保to grind to a halt to be unable to move further 停止to link to to connect with 连接起来;联系在一起Special Terms:assets management 资产管理assets reorganization 资产重组business reputation 商业信誉capital assets 资本资产（固定资产和专利权等）cash flow 现金流量current assets 流动资产；活期存款账目current assets 流动资产Economic order quantity 经济订货批量fixed assets 固定资产;不动产Fixed re-order stock level 固定再订货存货量Fixed time re-ordering 固定期限再定购inventory/stock control 库存控制，库存核算inventory/stock turnover ratio 库存出库率Just-in-time re-order line 即时生产再订货线lead time 筹建（筹货）时间minimum stocks level 最低存货量opportunity cost 机会成本optimum level 最佳水平production process 生产过程storage costs 存储成本supply chain 供应链Notes to the text:1. Inventory control, otherwise known as stock control, is used to show how much inventory you have at any one time, and how you keep track of it. 库存管理也被称为存货控制。库存管理是用来显示某个时间点你所拥有的存货的数量以及你如何跟踪记录存货入库出库情况的管理手段。The phrase “keep track of” here means “record, follow the course or development of”（记录，跟上的进程或发展）.For example: Her mother used to keep track of every penny she spent. 她母亲从前把自己所花的每一分钱都记下来。2. If production had to be stopped every time the firm ran out of raw materials, the time wasted would cost the firm a fortune. 如果工厂每次用完原材料时都不得不停止生产，这样浪费的时间将导致公司蒙受巨大的经济损失。The phrase “run out of” here means “used up” (用完，用光); the word “fortune” here means “a large sum of money” (财产,财富;巨款). For example: He received a large fortune when his uncle died. 他在叔父去世时得到了一大笔财产。3. Inventories are considered to be current assets (the other current assets are debtors and cash) because many types of inventories can be converted into cash reasonably readily particularly inventories of finished goods. However, they are generally the least liquid of the current assets. 由于很多种存货尤其是制成品存货都可以即时转换成现金，因此存货通常被视为流动资产（其他流动资产还有借贷和现金）。但是，存货通常是流动性最低的流动资产。The phrase “be converted into” means “be changed into” (被转换成). The word “liquid” here means “can be easily changed into cash”(易换为现金的).4. Inventory control involves careful planning to ensure that the business has sufficient inventory of the right quality available at the right time. 库存管理意味着通过精心的计划来保证在企业需要时有足够的质量符合要求的存货可供使用。The word “involves” in this sentence means “means” or “be a necessary part” (需要,包含,意味着). For example: His work involves occasional journeys. 他的工作偶尔需要出差旅行。The word “available” means “that can be obtained or used”(可用的,在手边的;可利用的). 5. If a business does not have the necessary inventory to meet orders, this can lead to a loss of sales and a damaged business reputation. 如果企业没有必要的存货来保证按期支付订单，就有可能导致销售损失或损害其商业信誉。The phrase “meet orders” means “be able to pay orders on time”(如期支付订单).6. It is important therefore that a business either holds sufficient inventories to meet actual and anticipated orders, or can get inventories quickly enough to meet those orders. 因此，企业要么持有充足的货物支付已有的和预期的订单，要么能够很快获得货物以支付订单，这点非常重要。The phrase “anticipated orders” means “orders that can be obtained in the future”(预期订单).7. Bank interest, if the inventory is financed by an overdraft or a loan. 银行利息，如果存货的费用是通过透支或贷款支付的话。The phrase “be financed by” in this sentence means “be given fund by”(由提供经费;供资金给;融资,为.筹措资金,由提供经费). For example: Our project is adequately financed. 我们的工程资金充足。8. This method of inventory control is where a business decides the minimum level of inventories it can tolerate, and then re-orders before the inventories reach this level. 这种方法就是确定企业所能承受的最低存货量，并在存货量达到这个水平时再订货。Here, “the minimum level of inventories it can tolerate ”means “它(企业)所能承受的最低存货量”.9. The exact timing will depend how long the inventories take to arrive. 具体的时间安排取决于所订货物运抵目的地需要的时间。The word “timing” here means “choice of time or time planning”(时间的选择或安排)10. It can offer a good solution as it represents a routine for the firm and ensures that inventories are regularly supplemented. 由于对企业来说它(这种方法)意味着一种常规性的工作，能保证存货能得到定期的补充，因此给企业提供了一个良好的解决方案。Here, the sentence “as it represents a routine for ” is an adverbial clause explaining the reason.11. However, it may well mean the level of inventories fluctuating quite a bit depending on the rate they are used up. 但是，这也意味着，受存货被用完的速度的影响，存货量波动比较大。12. It is a little inflexible as a system as well unless used very carefully. 而且，作为一个系统，它有点不太灵活，使用起来需要特别小心。13. They have to balance the costs of holding inventories (the space taken, the money tied up etc.) with the costs of ordering inventory. 他们必须在持有存货的成本（所需的空间、不能挪作他用的资金等等）与订货成本之间取得平衡。14. The leve