FACULTY OF BUSINESS ADMINISTRATION

DEPARTMENT OF MARKETING

A PAPER WRITTEN IN PARTIAL FULFILLMENT OF THE COURSE: PURCHASING

AND MATERIAL MANAGEMENT (MKT 333)

TOPIC:
INVENTORY MANAGEMENT

GROUP 10 ASSIGNMENT

BY
LECTURER
DR MRS JANE NWAKAEGO ANENE

DATE
APRIL 10th, 2025
 TABLE OF CONTENTS

Dedication………………………………………………….I

Learning Objectives………………………………………………..II

Introduction to Inventory Management…………………… Enebechi Cynthia Ogochukwu

Types of Inventory Management…………………….……. Ezeora Blessing Chisom

Objectives of Inventory Management…………………...… Ene Fortune Chidinma

Inventory Management Techniques………………….…… Enu Maryrose Nnenna

Inventory Mgt Valuation Methods…………………………. Eze Christiana Chinenyenwa

Challenges in Inventory Management…………………..….. Eze Eberechukwu

Technologies in inventory management………………….… Emmanuel Chinaza Rita

Benefits of good inventory management…………………… Ezeja Chiamaka Emmanuella

How business is know when to restock………….………….. Eze Precious Chidinma

Revision Questions …………………………………………..XIII

References ……………………………………………………XIV

Further Research and Textbooks……………………………………XV

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 GROUP TEN MEMBERS

S/N Names Reg No

1 Enebechi Cynthia Ogochukwu 2022/245963

2 Ezeora Blessing Chisom 2022/246645

3 Ene Fortune Chidinma 2022/249922

4 Enu Maryrose Nnenna 2022/246363

5 Eze Christiana Chinenyenwa 2022/249669

6 Eze Eberechukwu 2022/248277

7 Emmanuel Chinaza Rita 2022/248509

8 Ezeja Chiamaka Emmanuella 2022/246944

9 Eze Precious Chidinma 2022/249458

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 DEDICATION

This paper is dedicated to our lecturer, Dr. Mrs. Jane Nwakaego Anene, for her guidance, and to
our families for their unwavering support.

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 LEARNING OBJECTIVES

By the end of this paper, readers will:

- Understand the definition and importance of inventory management.
- Identify the types of inventory and their uses.
- Learn key inventory control techniques (e.g., JIT, ABC Analysis).
- Compare inventory valuation methods (FIFO, LIFO, WAC).
- Analyze challenges in inventory management and technological solutions.

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 INTRODUCTION

What Is Inventory Management?

Inventory management is the process of ordering, storing, tracking, and controllinggoods from
raw materials to finished products.

The goal : Have the right amount, at the right time, at the lowest cost.

A Quick History

Inventory management isn’t new! Ancient traders and empires tracked goods to survive. But
modern systems took off in the 20th century

- 1913: Henry Ford’s assembly line optimized inventory for mass production.

- 1950s: Toyota pioneered Just-in-Time (JIT) —ordering stock only as needed.

- 1970s-80s : Computers and barcodes (MRP systems) automated tracking.

- Today: AI and real-time analytics make inventory smarter than ever!

IMPORTANCE OF INVENTORY MANAGEMENT

✔ Avoid Stockouts – Don’t lose sales because products are missing.

✔ Cut Waste – No money tied up in excess stock or spoiled goods.

✔ Save Costs – Efficient storage and fewer emergencies.

✔ Boost Customer Satisfaction - Deliver what people want, when they want it.

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 TYPES OF INVENTORY MANAGEMENT
1. Raw Materials:
Definition: The basic, unprocessed ingredients needed to make a product.
Key Point: Without these, production *can’t even start*.
Examples:
- Wood for furniture
- Steel for cars
- Flour for bread
- Cotton for T-shirts

2. Work-in-Progress (WIP)
Definition: Items partly made but not finished yet.
Key Point: Stuck in the “middle” of production.
Examples:
- A half-sewn dress
- A car with no wheels attached
- Unbaked cookie dough

3. Finished Goods
Definition: Products 100% complete and ready to sell.
Key Point: This is what customers actually buy.
Examples:
- Packaged smartphones
- Bottled soda
- A boxed PlayStation 5

4. MRO (Maintenance, Repair, Operations)

Definition: Supplies that keep the business running (but aren’t sold).
Key Point: Neglect these, and machines/offices *break down*.
Examples:
- Machine oil
- Office printer ink
- Cleaning supplies

5. Safety Stock
Definition: Extra inventory kept as a backup for emergencies.
Key Point: Like a “rainy day fund” for inventory.

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Examples:
- Extra umbrellas in a store before monsoon season
- Spare phone batteries in case suppliers are late

6. Transit (Pipeline) Inventory

Definition: Goods currently being shipped from one place to another.
Key Point: “Invisible" inventory until it arrives.
Examples:
- A cargo ship full of sneakers
- Amazon packages on delivery trucks

7. Anticipation Inventory
Definition: Stock piled up for predictable high demand.
Key Point:Prepared for seasons/holidays in advance.
Examples:
- Christmas decorations stocked in October
- Ice cream produced before summer

8. Decoupling Inventory.
Definition: Extra partsstored between production stages.
Key Point: Prevents entire lines from stopping if one stage slows.
Examples:
- Extra car tires at an assembly plant
- Backup phone screens in a factory

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 OBEJECTIVES OF INVENTORY MANAGEMENT

 Ensure Product Availability

Goal:.Avoid stockouts so customers never face Sold Out signs.

Example: A grocery store always keeping bread in stock.

 Minimize Holding Costs

Goal: Reduce unnecessary storage expenses (warehousing, insurance, spoilage).

Example: A fashion store avoiding overstock of seasonal clothes.

 Optimize Order Quantities

Goal: Order the right amount not too much (waste) or too little (shortages).

Example: A restaurant ordering just enough fresh veggies for the week.

 Reduce Stock Obsolescence

Goal: Prevent inventory from expiring or becoming outdated.

Example: A tech store clearing old phone models before new launches.

 Improve Cash Flow

Goal: Free up money trapped in excess stock for other business needs.

Example: A car dealer avoiding over-ordering slow-selling models.

 Enhance Supply Chain Efficiency

Goal: Keep the entire supply chain smooth from suppliers to customers.

Example: A factory keeping raw materials synced with production schedules.

 Maintain Accurate Records

Goal: Track inventory in real-time to avoid errors (theft, misplacement).

Example:A pharmacy using barcodes to track medicine expiry dates.

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  Support Customer Satisfaction
Goal: Deliver products, fast and reliably to keep buyers happy.

Example: Amazon’s fast deliveries boosting loyalty.

INVENTORY MANAGEMENT TECHNIQUES

Businesses use 4 smart techniques to stay efficient:

 Just-in-Time (JIT): Don’t stock it until you need it! (Saves space and cash)
(Bragg, 2021).

 ABC Analysis: Focus on your bestsellers (Group items by value: A = high, C =

low)

 FIFO/LIFO: First-In-First-Out (like milk) or Last-In-First-Out (like bricks)

(Controls costs & taxes) (Zipkin, 2000).

 Automated Tracking: Tech does the hard work (Barcodes, RFID, AI predict
demand)

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 INVENTORY VALUATION METHODS

Inventory valuation is a critical accounting process that determines the cost of goods sold
(COGS) and the value of ending inventory on the balance sheet. Different methods can be used,
each affecting profitability and tax liabilities differently.

The four primary inventory valuation methods are:

1. First-In, First-Out (FIFO)

 Concept: Assumes that the oldest inventory items are sold first.
Effect on Financials:
 In periods of rising prices, COGS is lower (since older, cheaper items are sold first),
leading to higher profits and higher taxes.
 Ending inventory is valued at recent (higher) costs.
 Best for: Businesses with perishable goods or those experiencing inflation.

2. Last-In, First-Out (LIFO)

 Concept: Assumes that the newest inventory items are sold first.
Effect on Financials:
 In inflation, COGS is higher (since newer, expensive items are sold first), reducing
taxable income.
 Ending inventory is valued at older (lower) costs.
 Best for: U.S. companies looking to reduce tax burdens (not allowed under IFRS).

3. Weighted Average Cost (WAC)

 Concept: Calculates an average cost per unit based on total inventory cost divided by
total units.
Effect on Financials:
 Smoothes out price fluctuations, resulting in moderate COGS and inventory values.
 Useful when inventory items are identical and prices fluctuate frequently.
 Best for: Businesses with homogeneous products (e.g., oil, grains).

4. Specific Identification

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  Concept: Tracks the exact cost of each individual item sold (used for unique, high-value
items).
Effect on Financials:
 Matches actual costs with revenues precisely.
 Requires detailed record-keeping.
 Best for: Luxury goods, cars, or custom-made products.
CHALLENGES IN INVENTORY MANAGEMENT

1. Stock outs (Understocking)

 Problem: Running out of stock leads to lost sales, dissatisfied customers, and
damage to brand reputation.
 Causes: Poor demand forecasting, supplier delays, or inadequate reorder
processes.
 Impact: Decreased revenue, rush orders (higher costs), and customer churn.

2. Overstocking (Excess Inventory)

 Problem: Holding too much inventory ties up capital and increases storage costs.
 Causes: Overestimating demand, bulk purchasing discounts, or poor inventory
tracking.
 Impact: Higher holding costs, obsolescence, and cash flow problems.

3. Inaccurate Demand Forecasting

 Problem: Predicting future demand incorrectly leads to imbalances in stock levels.
 Causes: Market fluctuations, seasonality, lack of historical data, or sudden trends.
 Impact: Stock outs or overstocking, affecting profitability.

4. Poor Inventory Tracking & Visibility

 Problem: Manual tracking or outdated systems lead to errors (miscounts,

misplaced items).
 Causes: Lack of automation, reliance on spreadsheets, or disconnected systems.
 Impact: Inefficient replenishment, stock discrepancies, and operational delays.

5. Supplier & Lead Time Variability

 Problem: Unreliable suppliers or delays disrupt inventory flow.

 Causes: Global supply chain issues, logistics delays, or supplier mismanagement.
 Impact: Production halts, stockouts, and emergency purchases at higher costs.

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6. Inventory Shrinkage (Theft, Damage, or Errors)

 Problem: Loss of inventory due to theft, spoilage, or administrative errors.

 Causes: Poor security, mishandling, or lack of audits.
 Impact: Reduced profits and inaccurate financial records.

7. High Holding & Carrying Costs

 Problem: Costs like storage, insurance, and depreciation reduce profitability.

 Causes: Overstocking, slow-moving inventory, or inefficient warehousing.
 Impact:Lower margins and wasted resources.

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 TECHNOLOGIES IN INVENTORY MANAGEMENT

Technology plays a crucial role in modern inventory management by improving accuracy,

efficiency, and cost control. Various tools and systems help businesses track stock levels, predict
demand, and automate processes. Below are key technologies used in inventory management:

1. Inventory Management Software and ERP Systems

These systems centralize inventory data, providing real-time tracking of stock levels, automated
reorder points, and multi-channel synchronization. They also generate reports for better demand
forecasting. Examples include SAP, Oracle NetSuite, and Zoho Inventory. Benefits include
reduced manual errors and improved supply chain coordination.

2. Barcode and QR Code Scanning

Each product is labeled with a unique barcode or QR code, which is scanned to update inventory
records automatically. This method speeds up stock audits and minimizes data entry errors.
Common tools include Zebra scanners and smartphone-based apps.

3. Radio-Frequency Identification (RFID)

RFID uses wireless tags to track inventory without direct scanning. It is useful for bulk tracking
in warehouses and retail. Companies like Walmart and Amazon use RFID to reduce labor costs
and prevent theft.

4. Internet of Things (IoT) and Smart Sensors

IoT devices monitor conditions like temperature and humidity, which is critical for perishable
goods. They also help automate warehouses and predict equipment failures. Examples include
IBM IoT and smart warehouse systems.

5. Artificial Intelligence (AI) and Machine Learning (ML)

AI improves demand forecasting by analyzing historical data and market trends. It can also
automate replenishment and detect fraud. Tools like ClearMetal and ToolsGroup help optimize
inventory levels and pricing.

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 6. Cloud-Based Inventory Management
Cloud platforms allow remote access to inventory data, making it easier to manage multiple
locations. They integrate with eCommerce systems like Shopify and Amazon. Examples include
Cin7 and QuickBooks Commerce.

7. Blockchain Technology
Blockchain provides a secure and transparent record of inventory movements. It is used to verify
product authenticity and track supply chains. IBM Food Trust and VeChain are examples of
blockchain in inventory management.

8. Drones and Autonomous Mobile Robots (AMRs)

Drones scan inventory in large warehouses, while AMRs transport goods autonomously.
Companies like Amazon Robotics use these technologies to speed up operations and reduce labor
costs.

Future trends in inventory management include greater use of AI for autonomous warehouses,
augmented reality for picking and packing, and expanded IoT integration for real-time tracking.

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 BENEFITS OF GOOD INVENTORY MANAGEMENT

Good inventory management provides significant advantages for businesses of all sizes across
various industries. When implemented effectively, it creates operational efficiencies, reduces
costs, and improves customer satisfaction. The key benefits include:

1. Cost Reduction and Improved Cash Flow

Proper inventory management helps minimize unnecessary stock holding, which lowers storage
costs, insurance expenses, and capital tied up in excess inventory. By maintaining optimal stock
levels, businesses can free up working capital for other operational needs or investments.

2. Enhanced Customer Satisfaction

Having the right products available when customers need them leads to higher satisfaction rates.
Good inventory management prevents stockouts that can result in lost sales and frustrated
customers, while also avoiding excessive inventory that might lead to obsolete products.

3. Increased Operational Efficiency

Well-managed inventory systems streamline warehouse operations, making it easier to locate and
retrieve items. This reduces time spent searching for products and improves order fulfillment
speed, leading to more efficient use of labor and resources.

4. Better Demand Forecasting

Accurate inventory tracking provides valuable data that helps predict future demand more
precisely. This enables businesses to make informed purchasing decisions, plan production
schedules effectively, and respond to market changes proactively.

5. Reduced Waste and Obsolescence

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For businesses dealing with perishable goods or time-sensitive products, proper inventory control
minimizes spoilage and obsolescence. First-in-first-out (FIFO) systems ensure older stock gets
used before newer arrivals, reducing waste.

6. Improved Supplier Relationships

With better inventory visibility, businesses can plan orders more effectively, leading to more
consistent ordering patterns and better negotiation power with suppliers. This can result in
improved payment terms, bulk discounts, and more reliable delivery schedules.

7. Accurate Financial Reporting

Proper inventory management provides precise data for accounting purposes, ensuring accurate
valuation of stock on hand. This leads to more reliable financial statements and better decision-
making regarding pricing, profitability, and tax obligations.

8. Competitive Advantage
Businesses with optimized inventory systems can respond more quickly to market demands and
customer needs. This agility provides an edge over competitors who may struggle with stock
imbalances or fulfillment delays.

9. Reduced Shrinkage and Loss

Effective inventory controls including regular audits and tracking systems help identify and
prevent losses from theft, damage, or administrative errors. This protects profit margins and
improves overall inventory accuracy.

10. Scalability for Growth

As businesses expand, good inventory management systems provide the foundation for handling
increased product lines, additional locations, and higher order volumes without proportional
increases in operational complexity.

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 HOW TO KNOW WHEN BUSINESS IS KNOW WHEN TO RESTOCK

How Businesses Know When to Restock

 They Track Stock Levels: They keep an eye on how much inventory is left. When it gets
low (e.g., only 10 items left), they order more.

 They Know Their Reorder Point: This is the minimum quantity before they need to
restock. For example:
- If they sell 50 units a week and it takes 2 weeks to get new stock, they might reorder when
they hit 100 units left.

 They Watch Sales Speed: If a product sells out fast, they restock sooner. If it sells slowly,
they wait longer.

 They Check Lead Time: They know how long suppliers take to deliver. If it takes a
month, they order before they run out.

 They Avoid Stock outs: If customers often ask for items that are sold out, they restock
earlier next time.

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That’s it! No complex terms—just how businesses decide when to order more.

REVISION QUESTIONS

1. What is the goal of inventory management?

2. Give an example of **MRO inventory**.

3. How does **FIFO** differ from **LIFO**?

4. Name one technology used to track inventory.

5. Why is **safety stock** important?

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 REFERENCES

 Axsäter, S. (2015). *Inventory Control(3rd ed.). Springer.

Covers advanced inventory models and optimization techniques.

 Chopra, S., & Meindl, P. (2021). Supply Chain Management: Strategy, Planning, and
Operation (8th ed.). Pearson.
Discusses inventory’s role in supply chains, including JIT and EOQ.

 Ghiani, G., Laporte, G., & Musmanno, R. (2013). Introduction to Logistics Systems
Management (2nd ed.). Wiley.

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 Explains logistics and inventory control with case studies.

 Silver, E. A., Pyke, D. F., & Thomas, D. J. (2017). Inventory and Production
Management in Supply Chains (4th ed.). CRC Press.
Focuses on demand forecasting and inventory valuation methods.

 Waters, D. (2009). Inventory Control and Management (2nd ed.). Wiley.

A practical guide to ABC analysis, safety stock, and reorder points.

FURTHER RESEARCH AND TEXTBOOKS

Inventory Management Explained by David J. Piasecki.

Essentials of Inventory Management by Max Muller.

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