The answer to the question of "what is inventory management" is: Inventory management is a collection of interdisciplinary processes that include a full circle from supply chain management to demand forecasting, through inventory control and including reverse logistics. Inventory management starts and ends with supply chain management because many of the opportunities to improve efficiencies start with shortening order to receipt time without incurring additional cost.
That said, the other stages of the inventory management cycle are no less important in attaining overall efficiency. Given that inventory in all its forms generally represents one of the top three expense lines for nearly all companies, there is a universal need for applying the right discipline to each step in the process.
While in the perfect world, all inventory is consumed daily, we must operate businesses in a less than perfect environment. The challenge is: how close can you get to perfect before Just In Time inventory management becomes a little too late. Inventory management in its most efficient form incorporates many different technical applications of inventory management models. Such concepts as safety stock, economic ordering quantity, cost of goods, inventory turnovercustomer managed inventory and a vendor managed inventory, whole spectrum of underlying inventory management tools play a critical role in what is inventory management.
Different industries have different needs when asking the question what is inventory management, but many of the concepts are the same. While the key principles of inventory management remain the same across all industries, the areas which require emphasis vary from sector to sector. Learning to apply the right inventory management tools is part of executing the art and science of what is inventory management. Effective inventory management depends on understanding all the details of what is inventory management.
By applying lean practices to all aspects of the inventory management cycle, businesses can reduce investment in standing inventory, plant rental, shipping costs, reverse logistics while maintaining or improving customer service levels and in-stock metrics on critical inventory. This is the result of having what your need, when you need it, where you thought you had it. That is the core standard by which to measure the results of your businesses inventory management program.
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What Is Inventory Management?
What You Need to Know! What Is Inventory Management? Purchase Price Index. Purchasing Savings.Click here for the printer-friendly version. The following article will provide you with some quick purchasing and inventory management tips. To learn more about inventory management, consider the online course "Profitable Inventory Management and Control. A big trend is for organizations to blend their operational functions under the umbrella known as supply chain management.
Often, the first two functions to merge are purchasing and inventory management. So, as a purchasing professional, you must understand inventory management principles to remain valuable. This quantity of inventory is called the safety stock. There is no universally used formula for determining safety stock quantity, but PurchTips Edition 86 suggested a risk averse calculation.
Second, you must know when to reorder materials for inventory.
What is the Difference Between Procurement and Purchasing?
Generally, this point in time is determined when the quantity of materials in stock decreases to a certain level, called the reorder point.
The reorder point is determined by the formula:. Third, you must know how much to order. The equation recognizes the tug of war between acquisition costs and inventory carrying costs: when you order bigger quantities less frequently, your aggregate acquisition costs are low but your inventory costs are high due to higher inventory levels. Conversely, when you order smaller quantities more often, your inventory costs are low but your acquisition costs are higher because you are expending more resources on ordering.
The EOQ is the order quantity that minimizes the sum of these two costs. Fortunately, inventory management systems calculate the EOQ for you. But if you want The online course for strategically managing inventory, check out our Profitable Inventory Management and Control course.
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Copyright This article is the property of Next Level Purchasing and may not be copied or republished in any form without the express written consent of Next Level Purchasing. Click here to request republishing permission.Inventory management is a systematic approach to sourcing, storing, and selling inventory—both raw materials components and finished goods products. In business terms, inventory management means the right stock, at the right levels, in the right place, at the right time, and at the right cost as well as price.
Midas Safety PPT Procurement and Inventory Management
Entrepreneurs, founders, and independent brands now live in a native commerce world where small-to-medium businesses compete against global conglomerates. As a part of your 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 fulfillment.
Small-to-medium businesses SMBs often use Excel, Google Sheets, or other manual tools to keep track of inventory databases and make decisions about ordering.
However, knowing when to reorder, how much to order, where to store stock, and so on can quickly become a complicated process. As a result, many growing businesses graduate to an inventory management app, software, or system with capabilities beyond manual databases and formulas. With these systems, the procedures of inventory management extend beyond basic reordering and stock monitoring to encompass everything from end-to-end production and business management to lead time and demand forecasting to metrics, reports, and even accounting.
Retail is the broadest catch-all term to describe business-to-consumer B2C selling. There are essentially two types of retail separated by how and where a sale takes place. Wholesaleon the other hand, refers to business-to-business B2B selling. Knowing the differences and best practices of retail and wholesale is critical to success. Most businesses maintain stock across multiple channels as well as in multiple locations. The diversity of retail inventory management adds to its complexity and drives home its importance to your brand.
For any goods-based businesses, the value of inventory cannot be overstated, which is why inventory management benefits your operational efficiency and longevity. In a broader context, inventory management also provides insights into your financial standing, customer behaviors and preferences, product and business opportunities, future trends, and more.
Typically, inventory types can be grouped into four categories: 1 raw materials, 2 works-in-process, 3 finished goods, and 4 maintenance, repair, and operations MRO goods. Nonetheless, physical inventory almost always falls into one of the four categories above. Stock keeping units — commonly known as SKUs — are product codes that you and others use to search and identify stock on hand from lists, invoices, or order forms. Stick to an alphanumeric system for your SKUs and avoid accents and symbols that can cause formatting issues in Excel or elsewhere.
However, with a little bit of homework, these formulas can be very useful for keeping stock levels optimized. Your EOQ is the optimum number of products you should purchase to minimize the total cost of ordering or holding stock. Figuring out your EOQ can potentially save you a significant amount of money. Days inventory outstanding DIOalso known as days sales of inventory DSIrefers to the number of days it takes for inventory to turn into sales.
The average inventory days outstanding varies from industry to industry, but generally a lower DIO is preferred. Determining whether your DIO is high or low depends on the average for your industry, your business model, the types of products you sell, etc.
The reorder point formula answers the age-old question: When is the right time to order more stock? You want to have enough safety stock to meet demand, but not so much that increased carrying costs end up straining your finances.Learn more. The document consists of several key logistics-related trends and data analyses that provide the reader with a snapshot of the emerging issues in the discipline and a source for benchmarking supply chain activities of a firm.
One of the primary aspects of the report was the discussion of inventory trends. According to the report, inventories in the retail, wholesale, and manufacturing sectors all rose in Interestingly, retail inventories increased by 8. Likewise, inventory-related costs increased, with inventory carrying costs up by 4 percent.
Perhaps even more interesting was the fact that these inventories were not necessarily moving, as the retailers reported significant overstocks through the latter half of As the CSCMP report highlights, inventory is a fundamental measure of the overall health of supply chain and logistics activities.
Because supply chain management efficiencies and executional excellence have become core strategic goals for most major firms over the last two decades, there has been a surge in C-level executives who focus on inventory-related costs and measures. Inventory reduction initiatives have become commonplace, with many supply chain and logistics professionals indicating that inventory-related efficiencies have become a culture and mindset within their organizations.
With so much emphasis on inventory, we feel it necessary to start this book with the basic fundamentals and foundations of the concept. So, we open with a question What is inventory? Perhaps, at the very least, it could be considered a question with an obvious answer. However, inventory is one of the most interesting, intriguing, and misunderstood business phenomena.
At the root of this misunderstanding are the various perspectives on what inventory represents. Thus, the next sections present the predominant definitional perspectives on inventory.
Thus, Accounting would indicate that inventory is properly accounted for on financial statements by being reported in dollar value terms as a current asset on the balance sheet.
Several years ago, an undergraduate student asked one of the authors an insightful question. Yes, according to GAAP, it is an asset, as it represents potential revenues.
However, the management of inventory renders it an asset that comes with a price tag. Thus, inventory management is why inventory is such an interesting business phenomenon. Various measures of inventory in the supply chain are perhaps the most salient metrics for the efficiency and effectiveness of the supply chain.
One of the primary goals of supply chain management is to ensure that operations within and across firms in a supply chain are efficient. In many cases, the means to ensure efficiencies is in inventory; more specifically, in inventory reductions. Considering this, inventory is often viewed as a liability to efficient supply chain management.
While supply chain managers recognize the necessity of inventory, the unwritten and in many cases, written rule is to keep inventory at a bare minimum. This goal gave rise to many of the popular supply chain management frameworks that are ubiquitous today: just-in-time inventory management; lean inventory; and even collaboration initiatives like collaborative planning, forecasting, and replenishment CPFR.
Overall, these strategic initiatives were all developed with the goal of streamlining inventories across the supply chain and keeping inventory investment as low as possible. The concept of inventory investment is, perhaps, the underlying reason why supply chain managers attempt to keep inventories low.
The cost investment associated with having inventories can be high. These costs are addressed in much more detail later in the book, but suffice it to say, for now, that these costs include the cash outlay required to actually purchase the inventory, the costs of holding the inventories which includes the cost of having invested in inventories instead of something elseand the costs associated with managing the inventory.
In addition, metrics such as return on assets are affected by inventory since inventory is in the asset category on the balance sheet. An interesting shift occurred recently regarding inventory. Though most firms still attempt to keep inventories as low as possible because of the costs associated with holding and managing it, there has been a growing emphasis on the costs of not having or effectively managing inventories.
This has resulted in firms becoming much more favorable to concepts discussed in much more detail later in the book such as safety stock.A Discussion of Inventory in Procurement Management. The things that are purchased in procurement will not always be immediately used or sent to the departments that requested them.
At times, the procurement team will be responsible for monitoring and maintaining the inventory that they procure for the business. The task of inventory management is one of the facets of procurement management that brings the entire process in the supply chain full circle. There's more logistics and work that is required when inventory management is included, but it can afford the procurement team more control over their actions. This article will discuss inventory management and what it can offer to procurement management.
Topics will include how you can build a stable inventory, actions to maintain it, and organizational tactics. Also discussed will be strategies that you can use to improve any of those aspects and truly excel in your management practices. What is Inventory Management? A simple definition of inventory management state that it is a collection of processes and practices that intersect with procurement or supply chain management.
An extended explanation is that it's a means of optimizing the inventory of a business or procurement team to facilitate uninterrupted sales, procurement, production, and service without compromising cost. There are four primary components that are applied to inventory management. The first one is supply chain or procurement management, which is what has been discussed throughout.
The other three include:. Inventory Control-- The bulk of inventory management involves inventory control. It involves all of the coordinating and supervision of the inventory. All of the items in the inventory need to be maintained until it is time for their usage, so it also includes the storage and record keeping of the stock. So if a product requires being kept at a certain temperature in order to maintain its quality, any actions to ensure that that happens would be a part of inventory control in the management process.
It may also include purging old inventory, such as items that are damaged or simply no longer needed. All actions in inventory control, however, need to be accounted for just like the inventory itself. Demand Forecasting-- Demand forecasting basically is estimating the state of the market as it relates to inventory and procurement based on current information.
This is something that procurement teams already use as a resource for negotiating, as supply-and-demand can dictate prices for anything in the economy. A higher demand often means that prices are lower usually and businesses will often wait until that happens before purchasing frequently used items. Inventory management identifies exactly what those items are and the frequency in which they are used--therefore how often supplies need to be replenish. When used correctly, demand forecasting can help prevent such supplies from running out by setting up a purchasing cycle that coincides with those points of high demand.
Reverse Logistics-- The final component is reverse logistics, which is the flow of unwanted goods or surplus items back into the supply chain for reuse elsewhere. You usually can't return parts of an order back to the supplier and most businesses do not have much use for excess inventory, unless it's a regularly used item. Rather than eating the cost of the excess inventory or wasting it, the procurement team can resell it back to other businesses and services that typically have use for reverse logistics inventory.After you enable Flash, refresh this page and the presentation should play.
Get the plugin now. Toggle navigation. Help Preferences Sign up Log in. To view this presentation, you'll need to allow Flash. Click to allow Flash After you enable Flash, refresh this page and the presentation should play. View by Category Toggle navigation. Products Sold on our sister site CrystalGraphics. Title: Inventory Management. Tags: inventory lookup management phone reverse. Latest Highest Rated.
Inventory is the largest factor in manufacturing costs, and efficient IM has the greatest potential for increasing profitability Example For a typical US manufacturer 60 of corporate income goes towards the purchase of materials 3 Key Inventory Terms Costs!
What is the future of IM? D is annual demand Q is order size S is fixed cost per order 13 Deriving the EOQ Using calculus, take the derivative of the total cost function with respect to Q.
How much beer should Moe order and how often? What are his total order costs and inventory holding costs? Effectively, his per-keg annual holding costs increase from 10 to 30 of the purchase cost. How does this change Moes optimal order quantity and timing? How does this change his costs? Daily demand averages phones and has a standard deviation of 50, even on weekend days The lead time from the manufacturer is fixed at 5 days. Every order costs in shipping and overhead fees, whether 1 or phones are ordered What is the economic order quantity?
What is a good way to check to make sure we did the calculations right? Production of the VX-3 laptop case on an injection molding machine is 30 units per hour. They need to make units each day they are open. The VX-3 costs 10 to produce, and annual holding costs are calculated to be 20 of production costs. Changeover costs for the line are What is the optimal lot size?
To complicate matters, demand usually is variable 2 different strategies can be used 1. Q, the Economic Order Quantity 2. Order at a fixed point end of week, beginning of month, every two weeks, when the vendor specifies you can How Much?
Order a variable amount each period- up to a pre-determined level, Q.They are the 4th largest exporter of safety gloves globally with markets in the USA and Europe.
Midas Safety represents a group of factories which are vertically integrated to control our use of natural resources like cotton and natural rubber. In addition to this, it has also achieved a number of awards for its business operations and social responsibility initiatives. This report also reflects the actions that are being taken by the company to maintain these certifications and to find out whether the company is actually meeting up with the requirements of these certifications and awards.
To be one of the leading manufacturers of Work Wear Clothing, renowned for exceeding customer expectations.
This is further divided into; - Imports - Local procurement. Midas Safety follows a Hybrid Model for procurement. All procurement that is done from its principals is Centralized and is conducted by the head office, but all local procurement for example in case of fulfilling shortages is Decentralized and is done locally. Quality is a core value at Midas Safety organization.
This uncompromising principle is owned by everyone in their organization, and forms the foundation of all their work, they are known to their quality of their products.
When it comes to all type of safety they are the one who is leading this market with their quality products. The fast moving items are based on Make to Stock, while the other items are based on a make to order system. In order to forecast the material that would be required, and plan for reordering, Midas Safety uses historical data of the last one year to be effective and efficient in its reordering process and more weightage is provided to the latest data for greater accuracy.
While forecasting for the material using historical data, the data is not filtered for promotional sales as Midas Safety has not had any promotional sales. The sales team provides a forecast for the product as a 6 months rolling forecast.
Hence the reordering of material is based on both, historical data and the forecast provided by sales. The first thing that Midas Safety has to decide is whether to procure items locally or import them. The factors considered to make this decision are:. The suppliers are then contacted via email or phone and a query is forwarded for the item of interest with all specifications and details in other cases, options which the supplier is offering can be requested. The suppliers respond with the complete details of the items they can provide along with the requested prices, lead time, payment terms, quality standards and MOQs.
A comparative analysis is done to short list the suppliers and a request for sample is issued. Once the samples are approved, a supplier is selected on the basis of information it has provided a final meeting is then called to discuss all the factors mentioned and negotiate the best possible terms. For local procurements, Midas does not have an official vendors list but the purchasing is mostly done from vendors which have a good performance history.
Where multiple vendors exist for one product, the decision is based on a comparative summary prepared for a review of the prices and payment terms.
The price negotiation with vendors varies from supplier to supplier and item to item. Repeat orders are not renegotiated unless there is a target price involved or the quantity is significant.
All Purchase orders that are under Rs. Midas encourages and persuades its vendors to acknowledge the delivery of purchase order. Once the goods reach the warehouse, the warehouse in-charge only makes sure that the quantity is as per requirement and the item code and description of the received goods match.