various authors. In accounting it may mean stock of finished goods only.
In a manufacturing concern, it may include raw
materials, work in progress and stores, etc.
In Retail, the amount of stock present in a retail outlet
and ready to be distributed. Inventory Management is a Science primarily about specifying the shape and percentage of stocked goods.
A proper planning of purchasing, storing, and
accounting should form a part of inventory management.
An efficient system of inventory management will
determine:
1)What to purchase 2) How much to purchase
3) From where to purchase.
4)Where to Store.
The purpose of inventory management is to keep the
stock in such a way that neither there is over- stocking nor under- stocking. EOQ is a quantity of inventory which can reasonably be ordered economically at time.
In determining this
point, ordering costs and Carrying Costs are taken into consideration.
Ordering costs are
basically the cost of placing an order. Carrying cost includes costs of storage facilities and loss of value through physical deterioration, cost of obsolescence.
The balancing point is known as Economic Order
Quantity. It means Always Better Control Under this the inventory is classified into 3 categories viz. A B and C. These categories are based upon the inventory value and cost significance .
Items of High value and small in no. are termed as A.
Items of moderate value and moderate in no. are termed as B. Items of small value and large in no. are in category C The cost of each item is multiplied by the no. used in a given period and then these items are tabulated in descending numeric value order. In this, the items are classified on the basis of their criticality to the production process or other services.
In this classification of materials, V stands for Vital
items without which the production process would come to standstill.
E denotes Essential items whose stock out would
adversely affect the efficiency of the production system. Their non availability might cause temporary losses.
The D items are the Desirable items which are
Required but do not immediately cause a loss of production.
The VED analysis is done mainly in respect of spare
parts. It is a philosophy that focuses attention on eliminating waste by purchasing or manufacturing just enough of the right items just in time.
It is a Japanese management philosophy applied in
manufacturing which involves having the right items of the right quality and quantity in the right place and at the right time.
It involves having products arrive as soon as the
customers order them. This ratio is computed by dividing the cost of goods sold by the average inventory.
Stock Turnover Ratio= Cost of goods sold
Average inventory
It is way of measuring how many times a business use
inventory in a given time period.
Business use inventory turnover to assess
competitiveness, project profits , and generally figure out how well they are doing in their industry. Stores and Spares term which commonly covers all kinds of supplies necessary to keep production equipment operating.
The firm should keep each and every component of
stores and spares to a reasonable level.
Stores and Spares inventory turnover:
Annual Consumption of Stores and Spares
Stores and spares inventory Every product at the store has a unique code. This code helps in identification and tracking of the products at the retail store.
The retailer feeds each and every SKU in the master
computer and can easily track the product in the stock just by entering the SKU no. It is a regular analysis of stock versus projected future needs. This can be done through a manual review of stock or by using inventory software.