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Inventory Management Essentials

This document discusses tools and techniques for inventory management. It defines inventory control as coordinating supply, storage, distribution, and recording of materials to maintain adequate quantities for customer needs. It then discusses determining stock levels such as maximum, minimum, reorder, and danger levels using formulas. Safety stocks are discussed as extra inventory to mitigate risks from uncertain demand and supply. Finally, it briefly introduces three common ordering systems: fixed order quantity, fixed period order, and single order with scheduled deliveries.

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Afad Khan
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108 views8 pages

Inventory Management Essentials

This document discusses tools and techniques for inventory management. It defines inventory control as coordinating supply, storage, distribution, and recording of materials to maintain adequate quantities for customer needs. It then discusses determining stock levels such as maximum, minimum, reorder, and danger levels using formulas. Safety stocks are discussed as extra inventory to mitigate risks from uncertain demand and supply. Finally, it briefly introduces three common ordering systems: fixed order quantity, fixed period order, and single order with scheduled deliveries.

Uploaded by

Afad Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Tools & Techniques

of Inventory
Management
Inventory Control

According to the ‘Merriam-Webster


dictionary’, inventory control can be defined as the
“coordination and supervision of the supply,
storage, distribution, and recording of materials to
maintain quantities adequate for current customer
needs without excessive supply or loss.”
1. Determination of Stock Levels
To avoid over-stocking and under stocking of materials,
the management has to decide about the Maximum Level,
Minimum Level, Re-Order Level, Danger Level and Average
Level of materials to be kept in the store.
 Minimum Level
This represents the quantity which must be
maintained in hand at all times. It is that level of
inventories of which a fresh order must be placed to
replenish the stock. This level is usually determined
through the following formula,
Minimum Level = Re-ordering level — (Normal
rate of consumption x Normal re-order period)
Re-Ordering Level
When the quantity of materials reaches at a certain figure then
fresh order is sent to get materials again. It is sent before the materials
reach Minimum Stock Level. Formula,
Re-order level =Maximum consumption x Maximum re-
order period

Maximum Level
Maximum level is the level above which stock should never reach.
If the quantity exceeds maximum level limit then it will be overstocking.
Formula,
Maximum Stock level = Reordering level + Reordering
quantity —(Minimum Consumption x Minimum re-ordering
period)
Danger Level
It is the level beyond which materials should not fall in any case. If
it arises then immediate steps should be taken to replenish the stocks
even if more cost is to be incurred. Formula,
Danger Level =Average rate of consumption x Maximum
re-order period for emergency purchases

Average Stock Level


Formula,
Average stock level= Minimum level + 1/2 of Re-ordering
Quantity
2. Determination of Safety Stocks

Safety stock is described as a level of extra


stock that is maintained to mitigate risk of
stockouts due to uncertainties in supply and
demand. This may occur as a result of
fluctuating customer demand, forecast
inaccuracy, etc.
3. Ordering Systems of Inventory

This point indicates when an order


should be placed. The basic objective of
this system is to make available details
about the quantity and value of stock at
all times.
3 prevalent systems of ordering are;

(a)Fixed order quantity system or


Economic Order
Quantity.
(b) Fixed period order system or periodic
re-ordering system.
(c) Single order and scheduled part
delivery system.

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