Inventory

Management
MBA 307

Leo Bendibel
 Topic Overview
Define Inventory Management (IM).

Know the Importance and Benefits of Inventory Management.

Identify most used inventory management controls

Identify Inventory Management System

 Inventory Management
"The branch of business management concerned with planning and
controlling inventories. It involves a retailer seeking to acquire and
maintain a proper merchandise assortment while ordering, shipping,
handling, and related costs are kept in check. It also involves systems
and processes that identify inventory requirements, set targets,
provide replenishment techniques, report actual and projected
inventory status, and handle all functions related to the tracking and
management of material. This would include the monitoring of
material moved into and out of stockroom locations and the
reconciling of the inventory balances. It also may include ABC
analysis, lot size determination, lead time administration, order
tracking, and various levels of service, including stockouts."

Association for Supply Chain Management (ASCM)

Inventory Management by John W. toomey

Early practices in the history of inventory management were largely manual and involved hand-tracking
inventory levels.

1900s, when the first mechanical systems were developed

In the 1950s, the advent of computers led to the development of the first electronic inventory management systems

In the 1980s, the development of relational databases led to the development of the first modern system in
the history of inventory management.

In the 1990s, the development of the Internet led to the development of web-based = systems in the recent
history of inventory management.
In the 2000s, the development of cloud computing led to the development of
cloud-based inventory management systems in the history of inventory management.
 What is inventory

There are several types of inventory, each serving a different purpose within the
supply chain:
• Raw Materials:
⚬ Raw materials are the basic components used in the production process.
These items are in their unprocessed form and are used to create
finished goods.
Inventory refers to the collection of goods, raw materials, or finished products • Work-in-Progress (WIP):
that a business holds for various purposes, such as production, sale, or use in its ⚬ Work-in-progress inventory consists of items that are in the process of
operations. Essentially, inventory represents the stock of items that a company being manufactured but are not yet completed. This category includes
has at a specific point in time. partially finished goods.
• Finished Goods:
⚬ Finished goods are the completed products that are ready for sale or
distribution to customers.
 Tracking - First, it is important to track what
items are in stock and how much of each item is
on hand.

The Basics of
Checking: Second, businesses need to keep an eye on the

Inventory amount of inventory with periodic inventory checks and order

new items as needed

Management
Systemization: Finally, it is important to have a system in place
These basic principles help businesses improve their (such as software systems) for receiving and stocking new
inventory management practices and minimize dead items.
stock, lead time, excess inventory, and other supply
chain issues.
 Why is inventory management important?
Inventory management is important because it allows businesses to keep track of what they
have in stock, make sure they are not overstocking or understocking, and order new stock as
needed.
Without good inventory management practices, a business could quickly lose money due to
wasted stock or missed sales opportunities. Additionally, inventory management is important
for businesses because it can help them make sure that they are meeting customer demand.
Without this process, the supply chain may suffer from increased congestion and cost of
goods.
 Benefits of inventory
management
Reduce Costs
Improve Improve Improve
& Increase
Cash Flow Customer Decision-
Profits
Service Making

Increased Adaptability to
Efficiency and Market
Productivity Changes:
 Inventory management Controls?

Inventory management control refers to the strategic processes and systems that businesses
implement to regulate and oversee their inventory effectively. The primary objectives of
inventory management control are to ensure the availability of the right quantity of goods at
the right time, prevent stockouts or overstock situations, and optimize the balance between
holding costs and customer demand.
Demand Forecasting:
•Accurately predicting future demand based on historical data,
market trends, and other relevant factors. This helps in
determining appropriate inventory levels.
•Reorder Point (ROP) and Safety Stock:
Setting a reorder point to trigger the replenishment of inventory
when stock levels reach a specified minimum. Safety stock acts
as a buffer to mitigate the risk of stockouts due to unexpected
fluctuations in demand.
•ABC Analysis:
Classifying inventory items into categories (A, B, C) based on
their importance and value. This allows for prioritized control
efforts, focusing on managing the most critical items more
closely.
•Economic Order Quantity (EOQ):
Calculating the optimal order quantity that minimizes the total
inventory costs, considering both ordering and holding costs.
•Batch and Serial Number Tracking:
Implementing systems to track batches or serial numbers of
products for traceability, especially important in industries with
stringent regulatory requirements.

•Just-In-Time (JIT) Inventory Control:

Adopting a system where inventory is ordered and received just
in time for production or customer orders, minimizing holding
costs and improving efficiency.
•Regular Audits and Cycle Counting:
• Conducting regular physical audits or cycle counts to verify the
accuracy of inventory records and identify discrepancies.
•Supplier Relationship Management:
• Maintaining strong relationships with suppliers to ensure timely
deliveries, negotiate favorable terms, and manage the overall
reliability of the supply chain.
•Technology Integration:
• Utilizing inventory management software and technology,
including barcode scanning, RFID, and automated tracking
systems, to streamline processes, reduce errors, and improve
overall efficiency.
•Continuous Monitoring and Reporting:
• Implementing systems for continuous monitoring of inventory
levels and generating reports that provide insights into inventory
performance, demand patterns, and other key metrics.
•Lead Time Management:
• Managing the time between placing an order and receiving it to
ensure that the inventory is replenished in a timely manner and
aligns with demand.
•Compliance with Industry Standards:
• Ensuring that inventory management practices comply with
industry regulations and standards, particularly in sectors where
adherence to specific guidelines is crucial.
 Inventory Management System

An inventory management system (IMS) is the process of organizing and

tracking inventory management. Some advanced technological tools today
allow automatic processes and streamlining data entry to track products
from supplier to customer.

• Perpetual inventory system

• Periodic inventory system
• Manual inventory system
• Manual inventory system
• Manual inventory system: As the name suggests, manual inventory systems use pen and paper to track sales. This
is typically viable only for small businesses.