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Inventory control methods and techniques for effective management
1.
2. ⦁ Inventory control or stock control can be broadly
defined as "the activity of checking a shop’s
stock."However, a more focused definition takes into
account the more science-based, methodical practice of
not only verifying a business' inventory but also
focusing on the many related facets of inventory
management (such as forecasting future demand)
"within an organization to meet the demand placed
upon that business economically.
3. Inventory management software often plays an important
role in the modern inventory control system, providing
timely and accurate analytical, optimization, and
forecasting techniques for complex inventory management
problems. Typical features of this type of software include _
⦁ inventory tracking and forecasting tools that use selectable
algorithms and review cycles to identify anomalies and
other areas of concern
⦁ inventory optimization
⦁ purchase and replenishment tools that include automated
and manual replenishment components, inventory
calculations, and lot size optimization.
4. ⦁ lead time variability management
⦁ safety stock calculation and forecasting
⦁ inventory cost management
⦁ shelf-life and slow-mover logic
⦁ multiple location support
⦁ Mobile/Moving Inventory Support
5. ● Inventory control systems have advantages and disadvantages, based
on what style of system is being run. A purely periodic (physical)
inventory control system takes "an actual physical count and valuation
of all inventory on hand ... at the close of an accounting
period," whereas a perpetual inventory control system takes an initial
count of an entire inventory and then closely monitors any additions
and deletions as they occur. Various advantages and disadvantages, in
comparison, include:
● Periodic is technically the more accurate as it considers both counted
and valued inventory.
● Periodic is more time-consuming than perpetual.
6. ⦁ Inventory control is the process of
managing inventory in order to meet customer. demand
at the lowest possible cost and with a minimum of
investment. Unlike many. factors
in pharmacy, inventory is controllable.
The pharmacy decides how much.
7. ⦁ Managing inventory for a small business is a balancing
act with supply and demand on one side Several
different methods of inventory control, including
minimum stock levels, just in time and economic order
quantity, are used by businesses to gauge the needs of
consumers and the company.
8. ● Inventory control methods vary across companies,
commodities. The method that works best for slow-
moving items might not work as well for fast-moving
items.
● There is no perfect method to manage inventory.
● A holy grail or magic formula that results in perfect
inventory levels does not exist.
9. ⦁ The ABC analysis provides a mechanism for
identifying items that will have a significant impact on
overall inventory cost,while also providing a
mechanism for identifying different categories of stock
that will require different management and controls.
⦁ The ABC analysis suggests that inventories of an
organization are not of equal value. Thus, the inventory
is grouped into three categories (A, B, and C) in order
of their estimated importance
10. ⦁ There are no fixed thresholds for each class, and different proportions can be
applied based on objectives and criteria.ABCAnalysis is similar to the Pareto
principle in that the 'A' items will typically account for a large proportion of
the overall value, but a small percentage of the number of items.
Examples ofABC class are
⦁ 'A' items – 20% of the items accounts for 70% of the annual consumption value
of the items
⦁ 'B' items – 30% of the items accounts for 25% of the annual consumption value
of the items
⦁ 'C' items – 50% of the items accounts for 5% of the annual consumption value
of the items
⦁ Another recommended breakdown ofABC classes:
⦁ "A" approximately 10% of items or 66.6% of value
⦁ "B" approximately 20% of items or 23.3% of value
⦁ "C" approximately 70% of items or 10.1% of value
11. ⦁ The basic work in this always better control analysis is
the classification and identification of different types of
inventories, for determining the degree of control
required for each. In many firms it is found that they
have stocks which are used at very different rates. So
items are classified under three broad categoriesA, B
and C, on the basis of usage, bulk, value, size,
durability, utility, availability, criticality etc.; and
should be controlled with due weightage to differential
characteristics
12. ⦁ The basic decision in an economic order quantity (EOQ)
procedure is to determine the amount of stock to be ordered,
at a particular time so that the total of ordering and carrying
costs may be reduced to a minimum point. A firm should
place optimum orders and neither too large nor to small.
The EOQ is the level of inventory order that minimizes the
total cost associated with inventory. The EOQ model is
based on following four assumptions:
⦁ Afirm has a steady and known demand of D units each
period for a particular input.
⦁ The firm consumes the input at a uniform rate.
13. ⦁ The costs of carrying stocks are a constant amount C
per unit per period.
⦁ The costs of ordering more inputs are a fixed amount
O per order. Orders are delivered instantly.
Auseful formula for calculating the optimum order
quantity is:
EOQ = √2DO/ C
14. ⦁ To avoid stock-outs firms maintain safety stocks of
inventory. The safety stock is the minimum level of
inventory desired for an item given the expected usage rate
and the expected time to receive an order.
⦁ The increase in the amount of inventory held as safety stock
reduces the chances of stock-out and therefore, reduces
stock-out costs over the long-run. The level of inventory
investment is, however increased by the amount of safety
stock. The optimum level of safety stock is determined by
the trade-off between the stock-out and the carrying costs.
⦁ Thus the best level of safety stock for a given item depends
on stock-out costs, variability of usage rates and delivery
times
15. ⦁ The lead time is the delay applicable for inventory
control purposes. This delay is typically the sum of the
supply delay, that is, the time it takes a supplier to
deliver the goods once an order is placed, and the
reordering delay, which is the time until an ordering
opportunity arises again.