Inventory

 An idle stock of physical goods that contain economic value, and are held in various
forms by an organization in its custody awaiting packing, processing, transformation, use
or sale in a future point of time.

Inventory Management
 The process of efficiently overseeing the constant flow of units into and out of an existing
inventory.
 Also seeks to control the costs associated with the inventory.

Ways to save money:

 Avoid spoilage
 Avoid dead stock
 Save on storage costs
 Calculating inventory value

Inventory Management Techniques

 Just in Time (JIT)
 Set par levels
 First-in First-out (FIFO)
 Manage relationships
 Contingency planning
 Regular auditing
 physical inventory
 spot checking
 cycle counting
 Prioritize with ABC or ABC analysis
 A Items: High value with low sales frequency
 B Items: Moderate value with moderate sales frequency
 C Items: low value with high sales frequency
 Accurate forecasting
 Forecast period
 Trend I demand
 Base demand
 Consider dropshipping

Inventory Control
 Regulating and maximizing your company’s warehouse inventory.
 Maximize profits with minimum inventory investment.
 Involves warehouse management.

Warehouse Management includes:

 Barcode scanner integration
 Reorder reports and adjustments
 Product details, histories, and locations
 Comprehensive inventory lists and counts
 Variants, composite variants, kitting, and bundling
 Syncing stocks on hand with sales orders and purchase orders
Organizational Control
 It makes a difference to have your stock meticulously organized.

Quality Control
 Another essential part of inventory control. Choose a supplier that has the same quality
standards as you do and get plenty of samples before you develop a long term
relationship.

Formulas

Economic Order Quantity (EOQ)

 Demand – number of units sold over a given time period, usually a year
 Relevant ordering cost – total ordering cost per purchase order
 Relevant carrying cost – assume the item is in stock for the entire time period in question
and decipher the carrying cost per unit

(2 𝑥 𝐷𝑒𝑚𝑎𝑛𝑑) 𝑥 𝑂𝑟𝑑𝑒𝑟 𝐶𝑜𝑠𝑡

𝐸𝑂𝑄 = √
𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 𝑝𝑒𝑟 𝑈𝑛𝑖𝑡

Inventory turnover
𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑
𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑡𝑢𝑟𝑛𝑜𝑣𝑒𝑟 =
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑉𝑎𝑙𝑢𝑒

Safety Stock
𝑆𝑎𝑙𝑒𝑠 𝑣𝑜𝑙𝑢𝑚𝑒 𝑜𝑓 𝑡𝑜𝑝 3 𝑑𝑎𝑦𝑠
𝑆𝑎𝑓𝑒𝑡𝑦 𝑆𝑡𝑜𝑐𝑘 = ( ) − 𝐴𝑣𝑒. 𝐷𝑎𝑖𝑙𝑦 𝑆𝑎𝑙𝑒𝑠 𝑉𝑜𝑙𝑢𝑚𝑒
3

Reorder Point
𝑅𝑒𝑜𝑟𝑑𝑒𝑟 𝑃𝑜𝑖𝑛𝑡 = (𝐿𝑒𝑎𝑑 𝑇𝑖𝑚𝑒 𝑖𝑛 𝐷𝑎𝑦𝑠 𝑥 𝐴𝑣𝑒. 𝐷𝑎𝑖𝑙𝑦 𝑆𝑎𝑙𝑒𝑠 𝑉𝑜𝑙𝑢𝑚𝑒) + 𝑆𝑎𝑓𝑒𝑡𝑦 𝑆𝑡𝑜𝑐𝑘

Backorder Rate

𝑂𝑟𝑑𝑒𝑟𝑠 𝑈𝑛𝑓𝑢𝑙𝑓𝑖𝑙𝑙𝑒𝑑 𝑎𝑡 𝑇𝑖𝑚𝑒 𝑜𝑓 𝑃𝑢𝑟𝑐ℎ𝑎𝑠𝑒

𝐵𝑎𝑐𝑘𝑜𝑟𝑑𝑒𝑟 𝑅𝑎𝑡𝑒 =
𝑇𝑜𝑡𝑎𝑙 𝑂𝑟𝑑𝑒𝑟𝑠

Carrying Cost of Inventory

𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝑉𝑎𝑙𝑢𝑒
𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 = ( ) 𝑥 100
𝑇𝑜𝑡𝑎𝑙 𝐶𝑎𝑟𝑟𝑦𝑖𝑛𝑔 𝐶𝑜𝑠𝑡𝑠

Inventory Management Software

 Effectively does all the heavy lifting for a business when it comes to managing their
inventory.
Features of Good Quality Software
 Receiving orders
 Managing inventory
 Warehouse support
 Shipping integration
 Report key metrics
 Innovation driven

References:
https://www.tradegecko.com/inventory-management/inventory-control
https://www.shopify.com/blog/inventory-management