Inventory control

3. Any inventory of Raw materials, finished
goods as well as Intermediate in process
inventory has an economic value and is
considered an asset in the books of the
company. Accordingly any asset needs to be
managed to ensure it is maintained properly
and is stored in secure environment to avoid
pilferage, loss or thefts etc.

5. Types of Inventory
Inventory comes in many shapes and sizes such as:---
 Raw materials – purchased items or extracted
materials transformed into components or products
 Components – parts or subassemblies used in
final product
 Work-in-process – items in process throughout
the plant
 Finished goods – products sold to customers
 Distribution inventory – finished goods in the
distribution system

6. Types of Inventory

7. What Are the Objectives of the Inventory
Management System?
Does your business have an inventory management system?
Do you have all the right products available at the time of need?
For a company, keeping record and track of inventory, updating it and
using the same data to track profits, needs and sales are very
important but for a small business inventory management system can
make or break the ability to keep up with sales and demand.
Do you lose any business due to items out of stock?
Do you lose any money due to excessive stock?

8. An inventory management system helps you
to track and control the company's supply so
that you can optimize your inventory and
manage them without spending extra time
and money.
The most integral part of the inventory
management system is to evaluate your
business on a regular basis to ensure your
path towards success track.

10. What is Inventory Management?
Inventory Management is a technique through which stocked goods,
inventories, and non-capitalized assets are kept in a proper manner
according to their specific shape and placement.
An Inventory can be any item that a business holds to receive the
goal of resale or repair.
Inventory Management is a process of ordering, storing, and using
inventories. This stock management includes generating the lead on
raw materials, components, and finished products, along-side
warehousing and processing of such items in your company.

16. Meaning of Inventory Control
Inventory control means to monitor the stock of goods used
for production, distribution and captive (self) consumption.
For a specific time period, stock of goods are placed at some
particular location. Stock of goods includes raw-materials,
work in progress, finished goods, packaging, spares,
components, consumable items, etc.
Inventory Control means maintaining the inventory at a
desired level. The desired-level keeps on fluctuating as per
the demand and supply of goods.

19. Inventory control is the process of keeping the right
number of parts and products in stock to avoid
shortages, overstocks, and other costly problems.
Inventory control focuses on cutting the number of slow-
selling products a company purchases while also
increasing the number of high-selling products. This saves
businesses time and money because they don’t have to
spend lots of man-hours reordering and receiving goods that
they don’t really need. Plus, they avoid devoting precious
warehouse space to hold those products, which cuts down
on carrying costs and affords more room for faster-selling
products.

20. By using inventory control, you are able to protect
against making rash decisions and you also avoid
the pain and expense that come from overstocking
on inventory. As its name suggests, inventory
control helps you maintain control over your
inventory levels so that you make the best use of
your resources and avoid product spoilage and
obsolescence.

22. Which Is Better – ?
Situation 1: A customer doesn’t proceed to order from
you because you don’t have stocks of a certain product they
are willing to drop money on. Your manufacturing plant halts
all production because you lack a crucial raw material for a
highly in-demand product.
Situation 2: You need to rent bigger warehouse facilities
because you have boxes upon boxes of products that are
unsold. Even worse, they are all perishable within a week –
with no alternative to move them

23. Which is better – Situation 1 or 2? These are not just simple
problems. These are full blown emergencies that can hurt
your small business or small manufacturing operation.
Managing inventory supply-demand is no easy feat and
affects the entire business operation from production to
retail. It’s vital for the company to understand the right and
accurate stock levels as this affects not just your finances
but the customer’s general perception of you and their
experience. Sadly, these scenarios have become an all too
familiar tale with small business owners/manufacturers.
They routinely encounter issues on having too little
inventory (called a stock-out) or having too much given the
current demand (overstocking).

24. STOCK-OUTS
A stock-out is an event in which inventory is currently
unavailable, preventing an item from being purchased
or shipped. A stock-out can cause a lot of frustration for
the customer especially if there is no indication on when
the item will be back in stock and available for
purchase.
A stock-out happens when you are low in stock or out of
stock for a certain product/raw material. Before the advent
of ecommerce, companies would just simply back order
when inventory ran out and they would simply
purchase/make more products to sell. Customers had to wait
for them to be available

26. But today’s retail environment is different. Customers have higher
expectations when it comes to inventory standards. Consumers today
do not expect or even have the energy to wait for backorders. If you
can’t deliver, they’ll look for someone else who can. Aside from this,
stock- outs come with financial and reputational impact like:
Losing Add-On Business
If you do have a very loyal customer base, one serious stock-out
can say goodbye to them forever. Customer retention is about
being able to commit and provide the same service you have
given before. You’ll definitely lose potential business along with
the complimentary services or offerings that you also make money
on. If add-on services form a huge part of your revenue stream,
you’ll definitely feel the hit here as well.

27. Associated High Cost
The best way to solve stock-outs is to take on higher production levels which
will run higher cost. To make more products, you’ll need to hire temporary
workers and expand your production line to accommodate higher demand.
You also incur a lot of expedited logistics cost. To bypass the lead time in
deliveries and meet your customer’s expectations, you’ll need to avail of
express shipping that can cause your delivery and logistics expenses to
balloon up by 50% to as high as even 150%.

28. Lost Revenues and High Opportunity Cost
Stock-outs can make potential sales go bust. Revenues will be affected
because of the high opportunity cost on every unit customers would have
paid for if the item were available on hand. Some customers would be
patient and these can just be a case of delayed sales but in many instances
they would simply look for other manufacturers who can do the same thing
Damaged Reputation
Aside from just losing the sale, you’ve lost something more valuable: good
will and your excellent reputation. Stock-outs can make you lose current
and future customers. If you can’t offer the goods, why should people
settle for you? This will force customers to look at alternatives that can
deliver 100% and enables your competitors to have a leg up over you. If this
happens, you’ll earn a reputation for not being able to deliver and prospects
would simply go to more reliable vendors and suppliers

30. Overstocking
If having too much inventory is okay, then this is an easy call. You’ll
just produce or have more than you should. But that is not always the
case. Overstocking – the practice of carrying too much of a product in
inventory is just as dangerous to your business bottom line. Having a
“safety net” in the back of your closet can be financially draining as
well. Here are the financial impacts associated with this scenario:--
Higher capital tied to stagnating inventory
For small manufacturers or businesses, building your inventory requires capital. By
tying your money on inventory that doesn’t sell, you’ll lose the opportunity to
deploy or use that capital somewhere else that will get it better returns. Worst –
you’ll find yourself taking a long time to recoup that money which can prevent you
in generating high profit margins. The best way to get it back fast is to discount your
prices and that can cause you to just breakeven or even lose more capital.

32. Higher holding cost
You’ll definitely pay more to store or hold your physical inventory. Warehouse
space can be expensive and if you have special requirements like cooling or
security, you’ll even pay for more additional cost. Aside from this, you’ll also
need to pay for insurance to make sure that your products are covered in case of
disasters – further fueling your holding fees.
Potential wastage cost
Most physical products have expiration or write off date depending on its shelf
life. However, once a product is expired, you don’t just have to replace it to
maintain inventory. You also have to incur expenses in disposing them properly
in compliance with local environmental laws. These wastage cost can go up
even further when your product requires more complicated waste management
procedures.

33. Balancing The Tradeoffs Between Stock-outs And Overstocks
So which is better? To be honest, not one surpasses the
other. Each have their own effects on business operations
and customer satisfaction. The decision ultimately rests
when you take into account which risks and financial cost
you can tolerate and manage. At the same time, consider
your reaction time to stock-outs. How fast can you get
production up to complete back orders? You can also assess
if you can take on additional inventory and overstock. Can
your warehouses handle more product than they should?
Look at the actual impact to your expenses and revenues

34. As a general rule, go with an overstock decision when each
unit of a product delivers a higher level profit than the
incremental cost needed to store it longer. You usually
overstock if large volume orders are expected to move it
in the future.
You would go with a stock-out decision when your product is highly
perishable and cost more to store relative to the profit it generates.
When customers don’t have easy alternatives, it pays to be patient
since they won’t really have a choice. But thread lightly, as this will
damage your reputation and some competitor may arrive to fill that
void.
Luckily, there are a few things you can do to properly balance
inventory supply and demand and avoid both things from happening to
your company.

35. Best Practices In Managing Inventory Supply And
Demand
Look at your customers and the market behavior. Monitor
how the market reacts and when is the peak demand.
Research where you’ll most likely plateau to manage what
you have in stock. Proper sales forecasting solves most of
this inventory problem. Create an inventory plan for the
next 2 weeks, per month, per quarter and per year.
Create a response plan if you can’t avoid stock-outs or
overstocks. These decisions should be carefully made in
advance so each member of your team is aware of what to
do next should this problem arises.

36. Tips for managing your inventory
Here you'll find the 10 essential tips to effectively manage your
inventory for increased profitability and cash flow management.
1. Prioritize your inventory (ABC analysis).
Categorizing your inventory into priority groups can help you
understand which items you need to order more of and more
frequently, and which are important to your business but may cost
more and move more slowly. Experts typically suggest segregating
your inventory into A, B and C groups. Items in the A group are
higher-ticket items that you need fewer of. Items in the C category are
lower-cost items that turn over quickly. The B group is what's in
between: items that are moderately priced and move out the door
more slowly than C items but more quickly than A items.

37. ABC Analysis – Prioritize your Inventory

38. This inventory categorization technique splits subjects into three
categories to identify items that have a heavy impact on overall
inventory cost.
Category A serves as your most valuable products that contribute the
most to overall profit.
Category B is the products that fall somewhere in between the most
and least valuable.
Category C is for the small transactions that are vital for overall
profit but don’t matter much individually to the company altogether.

42. 2. Track all product information.
Make sure to keep records of the product information for items in
your inventory. This information should include SKUs, barcode data,
suppliers, countries of origin and lot numbers. You might also
consider tracking the cost of each item over time so you're aware of
factors that may change the cost, like scarcity and seasonality.
3. Audit your inventory.
Some businesses do a comprehensive count once a year. Others do
monthly, weekly or even daily spot checks of their hottest items.
Many do all of the above. Regardless of how often you do it, make it
a point to physically count your inventory regularly to ensure it
matches up with what you think you have.

44. 4. Analyze supplier performance.
An unreliable supplier can cause problems for your inventory. If you
have a supplier that is habitually late with deliveries or frequently
shorts an order, it's time to take action. Discuss the issues with your
supplier and find out what the problem is. Be prepared to switch
partners, or deal with uncertain stock levels and the possibility of
running out of inventory as a result.

46. 5. Practice the 80/20 inventory rule.
As a general rule, 80% of your profits come from 20% of your stock.
Prioritize inventory management of this 20% of items. You should
understand the complete sales lifecycle of these items, including how
many you sell in a week or a month, and closely monitor them. These
are the items that make you the most money; don't fall short in
managing them.
The concept of the 80/20 inventory rule sounds very simple. The rule
states that 80% of generated results come from 20% of investments,
including efforts, customers, etc. So, 20% of inputs are responsible for
80% of outputs.
When you apply this rule to inventory practices, around 80% of its
profits are earned from 20% of its products.

47. So, companies need to understand top-performing and slow-selling
ones and distribute attention and resources accordingly to increase
sales. You can take a step further and identify the products with
higher margins within that 20%. Giving more favor to these highest-
performing products, you can successfully optimize inventory in
quantity and quality.

50. 6. Be consistent in how you receive stock.
It may seem like common sense to make sure incoming inventory is
processed, but do you have a standard process that everyone follows,
or does each employee receiving and processing incoming stock do it
differently? Small discrepancies in how new stock is taken in could
leave you scratching your head at the end of the month or year,
wondering why your numbers don't align with your purchase orders.
Make sure all staff that receives stock does it the same way, and that
all boxes are verified, received and unpacked together, accurately
counted, and checked for accuracy.

51. 7. Track sales.
Again, this seems like a no-brainer, but it goes beyond simply adding
up sales at the end of the day. You should understand, on a daily basis,
what items you sold and how many, and update your inventory totals.
But beyond that, you'll need to analyze this data. Do you know when
certain items sell faster or drop off? Is it seasonal? Is there a specific
day of the week when you sell certain items? Do some items almost
always sell together? Understanding not just your sales totals but the
broader picture of how items sell is important to keeping your
inventory under control.

52. 8. Order restocks yourself.
Some vendors offer to do inventory reorders for you. On the surface,
this seems like a good thing – you save on staff and time by letting
someone else manage the process for at least a few of your items. But
remember that your vendors don't have the same priorities you do.
They are looking to move their items, while you're looking to stock
the items that are most profitable for your business. Take the time to
check inventory and order restocks of all your items yourself.
.

53. 9. Economic Order Quantity.
Economic order quantity, or EOQ, is a formula for the ideal order
quantity a company needs to purchase for its inventory with a set of
variables like total costs of production, demand rate, and other
factors.
The overall goal of EOQ is to minimize related costs. The formula is
used to identify the greatest number of product units to order to
minimize buying. The formula also takes the number of units in the
delivery of and storing of inventory unit costs. This helps free up tied
cash in inventory for most companies.

54. 10. Minimum order quantity.
On the supplier side, minimum order quantity (MOQ) is the smallest
amount of set stock a supplier is willing to sell. If retailers are unable
to purchase the MOQ of a product, the supplier won’t sell it to you.
For example, inventory items that cost more to produce typically have
a smaller MOQ as opposed to cheaper items that are easier and more
cost effective to make.

55. 11. Just-in-time inventory management.
Just-in-time (JIT) inventory management is a technique that arranges
raw material orders from suppliers in direct connection with production
schedules.
JIT is a great way to reduce inventory costs. Companies receive
inventory on an as-needed basis instead of ordering too much and
risking dead stock. Dead stock is inventory that was never sold or used
by customers before being removed from sale status.

57. 12. Safety stock inventory.
Safety stock inventory management is extra inventory being ordered
beyond expected demand. This technique is used to prevent stock-outs
typically caused by incorrect forecasting or unforeseen changes in
customer demand.
13. FIFO and LIFO.
LIFO and FIFO are methods to determine the cost of inventory. FIFO,
or First in, First out, assumes the older inventory is sold first. FIFO is
a great way to keep inventory fresh.
LIFO, or Last-in, First-out, assumes the newer inventory is typically
sold first. LIFO helps prevent inventory from going bad.

58. 14. Reorder point formula.
The reorder point formula is an inventory management technique
that’s based on a business’s own purchase and sales cycles that varies
on a per-product basis. A reorder point is usually higher than a safety
stock number to factor in lead time.
Once the reorder point is hit, the shopkeeper places a new order for the
refilling of items so that he can fulfill his future orders successfully
without any halt.
15. Batch tracking.
Batch tracking is a quality control inventory management technique
wherein users can group and monitor a set of stock with similar traits.
This method helps to track the expiration of inventory or trace defective
items back to their original batch.

59. How to Achieve Inventory Control?
The inventory control can be achieved by:
1) Purchasing items of the right-quantity, at the
right-place and at right-time.
2) Providing a suitable, secure, and sufficient
place for storage.
3) Developing a proper inventory identification
system.
4) Maintaining an up-to-date record keeping.
5) Making proper requisition procedures.