LOGISTICS MANAGEMENT

5. Inventory
Inventory management definition
• As a part of supply chain, inventory
management includes aspects such as
controlling and overseeing purchases — from
suppliers as well as customers — maintaining
the storage of stock, controlling the amount of
product for sale, and order fulfilment.
 Inventory management types
• Raw materials are any items used to manufacture components or
finished products. These can be items produced directly by your business
or purchased from a supplier. For example, a candle-making business
could purchase raw materials such as wax, wicks, and decorative ribbons.
• Works-in-progress inventory refers to unfinished items moving through
production but not yet ready for sale. In the case of a candle-making
business, work-in-progress inventory might be candles that are drying
and unpackaged.
• Finished goods are products that have completed the production
process and are ready to be sold: the candles themselves.
• Maintenance, repair, and operations (MRO) goods are items used to
support and facilitate the production of finished goods. These items are
usually consumed as a result of the production process but aren’t a
direct part of the finished product. For instance, disposable molds used
to manufacture candles would be considered MRO inventory.
 Inventory management terms
• Barcode scanner - Physical devices used to check-in and
check-out stock items at in-house fulfillment centers
and third-party warehouses.
• Bundles - Groups of products that are sold as a single
product: selling a camera, lens, and bag as one SKU.
• Cost of goods sold (COGS) - Direct costs associated with
production along with the costs of storing those goods.
• Deadstock - Items that have never been sold to or used
by a customer (typically because it’s outdated in some
way).
• Decoupling inventory - Also known as safety stock
or decoupling stock; refers to inventory that’s set
aside as a safety net to mitigate the risk of a
complete halt in production if one or more
components are unavailable.
• Economic order quantity (EOQ) - EOQ refers to
how much you should reorder, taking into account
demand and your inventory holding costs.
• Holding costs - Also known as carrying costs; the
costs your business incurs to store and hold stock
in a warehouse until it’s sold to the customer.
• Landed costs - These are the costs of shipping, storing,
import fees, duties, taxes and other expenses associated
with transporting and buying inventory.
• Lead time - The time it takes a supplier to deliver goods
after an order is placed along with the timeframe for a
business’ reordering needs.
• Order fulfilment - The complete lifecycle of an order from
the point of sale to pick-and-pack to shipping to customer
delivery.
• Order management - Backend or “back office”
mechanisms that govern receiving orders, processing
payments, as well as fulfilment, tracking and
communicating with customers.
• Purchase order (PO) - Commercial document (B2B)
between a supplier and a buyer that outlines types,
quantities, and agreed prices for products or
services.
• Pipeline inventory - Any inventory that is in the
“pipeline” of a business’ supply chain — e.g., in
production or shipping — but hasn’t yet reached its
final destination.
• Reorder point - Set inventory quotas that determine
when reordering should occur, taking into account
current and future demand as well as lead time(s).
• Safety stock - Also known as buffer stock; inventory
held in a reserve to guard against shortages.
• Sales order - The transactional document sent
to customers after a purchase is made but
before an order is fulfilled.
• Stock keeping unit (SKU) - Unique tracking
code (alphanumeric) assigned to each of your
products, indicating style, size, color, and
other attributes.
• Third-party logistics (3PL) - Third-party
logistics refers to the use of an external
provider to handle part or all of your
warehousing, fulfillment, shipping, or any
other inventory-related operation.
• Fourth-party logistics (4PL) takes this a step
further by managing resources, technology,
infrastructure, and full-scale supply chain
solutions for businesses.
• Variant - Unique version of a product, such as
a specific color or size
 THE BENEFITS AND IMPORTANCE OF
MANAGING INVENTORY
• The importance of inventory management
cannot be stressed enough for e-Commerce
and online retail brands. Accurate inventory
tracking allows brands to fulfil orders on time
and accurately. And as brands grow out of
small warehouse space and into larger
facilities, so does the need to efficiently
manage inventory.
 The Importance of Managing Inventory:
Benefits of an Effective System
• An effective inventory management system is
the cornerstone of successful e-Commerce
and online retail brands. With a strategic plan
in place that optimizes the process of
overseeing and managing inventory, including
real-time data of inventory conditions and
levels, companies can achieve inventory
management benefits that include:
 1. Accurate Order Fulfillment
• Imagine this scenario: A customer places an order
and an e-Commerce brand receives the order. The
brand sends it to the warehouse only to discover
that the product is out of stock. Or just as bad, the
e-Commerce brand ships the wrong item. This isn’t
an uncommon story if inventory is poorly managed.
Taking the time to develop a more robust plan can
help brands avoid inaccurately filled orders, high
return volumes and a loss of customer base.
2. Better Inventory Planning and Ordering

• It’s difficult to gauge which products are needed if

there isn’t a clear way to tell what products are
already stocked. If online retailers don’t properly
manage the inventory they already have, they can
easily overstock items, and some of these items
might not be strong sellers. Detailed inventory
management mitigates these issues, allowing
warehouse managers to refresh inventory only
when needed. It’s both space and cost-effective.
3. Increased Consumer Satisfaction
• Customers that shop online are eagerly awaiting their
orders, and there’s nothing worse than when their
orders arrive not-as-described, late or damaged.
When that happens, buyers are less likely to purchase
from the brand again. On the other hand, good
inventory management leads to orders being fulfilled
more quickly and shipped out to customers faster.
The enhanced processes can help e-Commerce and
online retail brands build a strong repertoire with
consumers – and keep them coming back for more.
More Advantages of a Good Inventory
Management Strategy

There are so many great advantages that can result

from managing inventory properly. Here are some
additional benefits to keep in mind:
1. Improved Accuracy of Inventory Orders

• Accuracy of product orders, status, and

tracking are critical to good inventory
management. An effective fulfilment partner
will have real-time software and systems in
place to make sure no product is left
untracked throughout the fulfilment process.
 2. Organized Warehouse

• A good inventory management strategy leads

to an organized fulfilment centre. An
organized warehouse results in more efficient
present and future fulfilment plans. This also
includes cost-savings and improved product
fulfilment for businesses utilizing the
warehouse for managing inventory.
 3. Increased Efficiency and Productivity

• With proper inventory management in place,

less time and resources are spent invested in
managing inventory and can be allocated to
other areas. Technology is often used to speed
up tracking and fulfilment operations,
ensuring inventory records are accurate.
 4. Save Time and Money

• Due to improved ordering accuracy, efficiency,

and product flow, good inventory
management results in saved time and money.
 5. Repeat Customers
• Effective inventory management and control
protects from incorrect or damaged goods
being shipped to customers. This helps
improve customer experience, protect from
issues such as refunds, and achieve more
repeat buyers.
 Experienced Inventory Management and
Control System
• It’s beneficial for e-Commerce and online retail brands
to partner with third-party logistics (3PL) providers that
understand the importance of managing inventory.
• An experienced 3PL company has the tools, equipment,
and software necessary to simplify inventory
management and increase warehouse efficiency.
• As a result, your brand receives the benefits of a well-
optimized inventory management and control system.
Don’t Overlook the Importance of Inventory
Management
• Inventory management or control is crucial to a successful
brand and business. Simplify your inventory management
with the help of an experienced fulfilment and logistics
company. An industry leader in strategic e-Commerce
fulfilment and logistics solutions, Dotcom Distribution
improves inventory management processes for a variety of
online retail brands.

• Through a precise combination of innovative technology

and experienced warehouse personnel, we provide robust
inventory management and support that is proven to
increase overall efficiency and customer satisfaction.
 Push Inventory System
• The push inventory system involves creating or ordering inventory
stock based on predictions of customer demand and ordering.
Essentially, it is driven from the manufacturer down where they
‘push’ the product down the supply chain eventually arriving in a
store awaiting customer purchase. Estimation of purchasing trends
to determine supply is imperative for this system and aided by
custom-designed inventory management software however, by its
very nature, there will always be an element of error for this
inventory system.

• There are certain ways to mitigate this error to avoid over- or

under-manufacturing of product, which could result in a decreased
item value and a corresponding loss of income or the inability to
fulfil customer demand, both of which should be avoided.
• With a push inventory system, there is a significant
lack of visibility surrounding necessity of product as
the manufacturers are farthest removed from the
end-user. However, with appropriate inventory
management software and data analytics, it is
possible to form an idea of what demand will be from
season to season.
• The push inventory system is advantageous with
regards to avoiding stock-out situations by usually
ensuring there is sufficient supply to fulfil anticipated
demand. However, should demand decrease
unexpectedly, there is excessive supply remaining
which can incur significant storage costs.
 Pull Inventory System
• The pull inventory system functions from the ‘bottom up’
whereby the end user determines the placement of an
order via the store who then places an order with the
distributor, who then places an order with the
manufacturer, who then places an order with their suppliers
(assuming all parties operated by this method).

• It takes time for these orders to make their way up the

supply chain, which forms the basis for one of the biggest
challenges with a pull inventory system. The longer the time
taken to fulfil the customer demand as the order tracks its
way up the supply chain, the longer the customer must wait,
which can result in decreased customer satisfaction.
• It is possible to mitigate this if the distributor has effective
inventory control and is capable of predicting customer demand
relatively accurately or keeps safety stock of product for
unexpected orders so that supply is maintained consistently.

• Although it is possible to reduce inventory costs by only ordering

and manufacturing on an as-needed basis, there is an associated
increased risk of stock-outs as this supply method is largely
reactive and incapable of fulfilling unprecedented orders on time.
A significant advantage to this inventory system is that all stock
manufactured or ordered is essentially already paid for by the
customer and not only results in less company capital tied up in
stock but also negates the need for large storage facilities, saving
even more capital.
 Why a Warehouse Management System Is
Important
1. Inventory Control and Management
– A Warehouse Management System enhances inventory management
by decreasing inventory levels, improving order fulfillment, and
reducing order cycle time. Designed to control all of your warehouse’s
activities, WMS allows you to track every unit down to the lowest level
of detail for improved order fulfillment and inventory accuracy.

– A Warehouse Management solution makes inventory management a

much faster, easier and efficient task. With information that is
updated in real-time, Warehouse Management Systems provide quick,
accurate feedback so companies can respond faster to the demands of
their customers. Distributors and wholesalers know exactly what is in
the warehouse, where it is located, and when it needs to be
replenished at all times.
2. Customer Service and Tracking
– Your warehouse is an important part of your customers’
buying experience. Making sure products ordered are in
stock and customers get what they purchased is crucial
to providing good customer service. WMS improves
picking accuracy so orders are correct the first time.

– WMS also makes organizing and tracking shipments

easier through automation. Worker assignments,
shipment routes and putaways are all easily managed
and tracked. This warehouse automation, up-to-date
information and real-time tracking all leads to better
accuracy and happier customers.
3. Company Productivity
– Your warehouse plays a key part in ensuring that
your company meets its productivity goals. A
Warehouse Management System adds efficiency,
consistency and quality control to the process by
helping you move goods through your warehouse
at maximum speed, improving every stage of the
fulfillment process. Workers are able to generate
more work in less time because they have exactly
what they need at the right time.
4. Return on Investment
– The right Warehouse Management System can
improve your sales and increase profits not simply
by helping you sell more, but by selling faster and
more accurately to happier customers.
Furthermore, your existing workforce is able to
pick and receive more items in less time, with
fewer errors. This precision reduces customer
inquiries and simplifies customer support.
5. ERP Integration
– A good Warehouse Management System will
integrate with your existing business management
system so you don’t have to replicate systems or
procedures. As your business needs grow, your
WMS solution should evolve to fit your needs.
Warehouse Activities
 ASSIGNMENT
• Find a success story about 3PL.
• Find a success story about 4PL.
You can find the success story by browsing the
internet.