Inventory Management

Learning Block 3
Inventory Control
Course Agenda
1. Introduction to Inventory Management
2. Monitoring and Analyzing Inventory
3. Inventory Control
4. Inventory Management and Forecasting
5. Managing Inventory in the Supply Chain
6. Inventory Performance Measurement and Financial Implications
Learning Bock 3
Inventory Control
Learning Block Agenda
Unit 1: the importance of inventory control

Unit 2: Tools and techniques for inventory control

Unit 3: Inventory storage and Deployment

Unit 4: Inventory control systems and methods

Unit 5: Measuring inventory accuracy and record keeping

Description
• Control of inventory: managing the supply, storage, and accessibility
of materials in order to meet a firm’s ongoing needs without carrying
too much inventory.
• The effective control of inventory is a key factor in the success of any
supply chain
• Companies are increasingly aiming to provide improved customer
service levels at reduced costs; accurate inventory records and
effective investments to control inventory
Learning Objectives
 Explain the role and importance of inventory control
 Describe the tools and techniques used for inventory control
 Discuss key concepts of inventory storage and deployment
 Discuss key systems and methods used to control inventory
 Explain methods used to measure inventory accuracy and stock
keeping
 Understand how inventory management works with other functional
groups in a company
Unit 1: The Importance of Inventory Control

Creation of Maintenance of
Inventory the Research
Records Records
• According to the U.S. Small Business Administration, if
inventory control
Counting oris not functioning properly within a
company, the rest of the inventory system and supply
Auditing
chain of effectively.
cannot operate
Inventory
Unit 2: Tools and Techniques for
Inventory Control
The 80/20 Rule
• Managing large numbers of SKUs
(stock keeping units) can be difficult,
as controls, updates, checks, counts,
forecasts, and ordering decisions
have to be executed for each SKU.

• 80% of the value, velocity, or

volume of a group of items will be
accounted for by 20% of the items.
Inventory and Warehouse Management
Systems (WMS)
WMS software packages handle
such tasks as receiving, stocking,
picking, and shipping.

The WMS typically provides

management with the ability to
track inventory, locate product,
measure productivity, and evaluate
other performance elements.
A WMS software system can be
used, at regular intervals, to help
determine which goods are the
most popular.
Barcoding
A barcode is a unique item identifier consisting of
printed vertical bars interspersed with white
space that contains optical characters with
information that can be read by a scanner.

• Barcodes are also coded to be used on shipping containers.

• This barcode is used in most retail situations and is referred to by

different names, including ITF-14, Shipping Container Code (SCC-
14), Master Carton Code, and Universal Product Code (UPC).
Radio Frequency Identification (RFID)
• The most common means for RFID identification is to have a
serial number, which identifies a specific object, on a
microchip attached to a miniature antenna—commonly
called an RFID tag.

• An RFID tag attached to a car during

production can be used to track its
progress through the assembly line.
Unit 3: Inventory Storage and
Deployment
 Inventory Storage and Deployment

Cross-Dock: No Inventory Storage Quick Response (QR): Minimal

Inventory Storage

•This method reduces inventory •QR means that when a customer purchases a
product in a store, the scanned barcode sends an
carrying costs and moves inventory to electronic message throughout the store’s
the POS more rapidly. inventory system.
•Information technology is the key to •SKUs sent to a particular store are loaded on the
store-bound truck at the DC to replace the stock
cross-docking. Information on customers have purchased.
incoming and outgoing goods must be •Historical demand data, which is a record of
accurate and timely so staging previous demand for products purchased over
time, are used to predict possible fluctuations in
operations can be scheduled properly. demand.
 Inventory Storage and Deployment

Traditional Warehousing:
Temporary Inventory
Semi-Permanent
Storage Inventory Storage
•Push inventory management •The primary purpose of semi-
is a strategy that promotes permanent storage, also known as
specialty storage, is the storage of goods
stocking DCs and retail points as either buffer or safety stock. There
in anticipation of future are various conditions that apply to the
demand semi-permanent storage of inventory.
Conditions Leading to Semi-Permanent
Inventory Storage

Seasonal •Stock held in advance of the demand season; industries that

typically require significant seasonal stock include apparel,
demand sporting goods, and specialty holiday

Erratic •Highly specialized items such as

demand medical equipment

Products requiring •Generally consumables, like beef aging in a

refrigerated warehouse or wine and liquor aging
conditioning in barrels
Conditions Leading to Semi-
Permanent Inventory Storage
Speculative or •Products held in anticipation of future price hikes or
shortages, like heating oil stored in anticipation of winter
forward buying demand

Lot quantity/bulk •Product held after it was purchased to take advantage

of lot quantity or bulk discount offered by a supplier
discount
Maintenance •Maintenance spare parts held in the
requirements event of equipment wear or failure
Unit 4: Inventory Control Systems
and Methods
Manual vs. Computerized
• Computer systems dramatically impact all
phases of inventory management and
control and help make activities easier.
• At the core of a manual system is the stock
card, an item record that has a system for
filing and control comprised of index cards,
rotary card files, or hand-operated sorting
systems.
Periodic vs. Perpetual Accounting
Perpetual control
• Also called a continuous system
• Normally accounts for all transactions as
they take place and is capable of providing
on-hand inventory status information at any
time
• Closely associated with computer systems
Periodic control
• Requires someone to physically count what
is on hand when information is needed
• Associated with manual systems
Batch vs Real-Time Processing
• Batch systems: a form of periodic
accounting for inventory and value
—accumulate transactions like sales
and receipts and process them on a
set schedule, normally daily

• Real-time processing incorporates

changes as they occur
Numbering Schemes
How to identify or number SKUs is another key decision in
establishing an inventory system

• Item numbers help companies:

• Search inventories, complete
transactions, fill orders, and filter or
search reports
• Trace defective products for recall
• Item numbers uniquely identify items,
serving as an abbreviated item
description
Inventory and Stock Location
Control
• System-directed put away involves the movement of inventory items
from receiving into their optimal, system-determined storage
locations
• Storage or picking addresses are what warehouses have as a visual
lettering or numbering system in place for identifying stock locations
for products stored in the warehouse
• The row of a rack is typically assigned a letter and/or number (e.g. A1, A2)
• Some warehouses choose to assign a number to the aisle itself or sections of
rack, levels, and individual storage.
Unit 5: Measuring Inventory
Accuracy and Record Keeping
Description
• Inventory accuracy is defined as any storage location that meets the
following criteria:
• It has the correct item number
• It has the correct quantity for that item number
• There are no exceptions
• It is necessary for inventory control purposes to verify the on-hand
counts in inventory records with a physical inspection and count of all
items
 Periodic Physical Inventories
• Carrying out physical inventories of stock over a condensed period of
time is expensive and time consuming

• Technology has made taking physical

inventories and cycle counts easier
• Use of barcode symbols and handheld scanning
terminals increase accuracy and productivity
• Radio and cellular devices facilitate
communication
• Electronic scales weigh small items and can be
programmed to show the number of items in a
batch
Cycle Counting
Cycle counting entails the systematic counting of each item carried in
stock, at least once per year, at a planned interval or frequency

• Often based on an ABC classification

• Used to correct known inventory errors or handle special situations

• Intended to be a system of both controlling and measuring how well

the inventory control process is functioning

• Useful tool to maintain and improve inventory accuracy

Summary
Practice Questions
1. Inventory control is defined as:
a. Managing the supply, storage, and accessibility of materials to meet customer’s
needs
b. Planning the manufacturing operations
c. Choosing a transportation mode
d. Routing material from trucks to the receiving docks
Practice Questions
2. To aid in inventory control, inventory personnel often utilize Pareto’s principle,
which asserts that:
a. When analyzing a large group of items, most of the activity will be
concentrated in a relatively small number of items
b. When analyzing a large group of items, most of the activity will be
concentrated in a relatively large number of items
c. When analyzing a small group of items, most of the activity will be
concentrated in a relatively large number of items
d. When analyzing a small group of items, most of the activity will be
concentrated in a relatively small number of items
Practice Questions
3. Warehouse Management Systems (WMS) are computer systems that utilize
specialized inventory software used to:
a. Design barcodes
b. Create demand plans
c. Perform production planning
d. Track inventory levels, orders, sales, and deliveries

4. Cross-docking is utilized to:

e. Protect stock against uncertainties in demand
f. Sort and ship manufacturing components, customer orders, or other products
as they are received, without ever being stored
g. Respond quickly and efficiently to a marketing promotion
h. Hold stock in response to demand or normal usage
Practice Questions
5. The primary purpose of semi-permanent storage is for the:
a. Storage of buffer or safety stock
b. Increased levels of inventory held throughout a company
c. Receipt and shipment of goods without ever being stored
d. Reduction in the amount of total inventory held

6. Good record keeping is a reflection of the:

e. Manual card procedures
f. Overall inventory system
g. Best location
h. Inventory reduction
Practice Questions
7. Counting the entire inventory at the same time is defined as:
a. Cycle counting
b. Physical inventory
c. Partial stock count
d. One-time stock count

8. Many warehouses use RFID technology and place microchips on products to:
e. Identify the cost of what is in stock
f. Perform stock counts
g. Determine the physical condition of an item
h. Identify and track items in an inventory control system
Practice Questions
9. Cycle counting is defined as which process?
a. Counting the entire inventory at the same time
b. Counting inventory at seasonal intervals
c. Systematic counting of each item carried in stock at least once per year at a planned interval
or frequency
d. Counting inventory when a problem is detected

10. Inventory control systems provide control for SKUs (stock keeping units), which are defined
as:
e. Items that are exactly identical in form, fit, and function
f. Items that are somewhat similar in form, fit, and function
g. Items that are identical in form and fit but not necessarily in function
h. Items that are not identical in form and fit but perform the same function