[ By Ronin Lin, Manager, Dezan Shira & Associates Shanghai office ]

Inventory control is one of the most important business processes during the operation of a trading or manufacturing company as it relates to purchases, sales and logistic activities. In order to have clear inventory management, a company should not only focus on logistic management but also on sales and purchase management. Commonly, we think of the warehouse as the most important component of inventory management and that the accounting department is responsible for the inventory management. However, inventory control is not only the responsibility of the accounting department and warehouse but the responsibility of the entire organization. Actually, there are many departments involved in the inventory control process, such as sales, purchasing, production, logistics and accounting. All these departments must work together in order to achieve effective inventory controls.

Common inventory control problems

Most inventory control problems are due to improperly defined control processes and activities; inventory control activities that are not standardized; and vague or ill-defined departmental authority and responsibility. As operation activities are decided and controlled by individuals making independent decisions rather than by pre-set procedures, and with each department following their own set of rules, obstacle to communication and information sharing can quickly spring up. As a result, the efficiency and effectiveness of the whole process is extremely low because the communication between departments is different (e.g. different data standards, formats, etc). This can also lead to the information flow through departments breaking down.

Improper delegation of authority and responsibility among departments can result in departments without proper authorization to secure the inventory control activities. For example, the warehouse is responsible to secure the inventory and create a clear inventory record. But if the sales department or production department is too powerful, it could influence the activities of the warehouse by sending raw materials directly to production lines without proper confirmation from the warehouse or finished goods could be delivered directly from the production line without informing the warehouse, which could create large problems for inventory management.
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