Inventory
Management
Prepared by:
MARIA CHARESSA V. AJIAS
SILVA MARIE S. BALUD
DIOSEBEL P. OLIS
JEFFREY A. VILLAMOR
INVENTORY MANAGEMENT
Inventory Management refers to the process of ordering, storing,
using, and selling a company’s inventory. This includes the
Introduction management of raw materials, components, and finished products, as
well as warehousing and processing of such items.
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INVENTORY MANAGEMENT
Methods of Inventory
Management JUST-IN-TIME (JIT)
Just in time (JIT) inventory management is a system that
is used to control the flow of inventory to and from a
business where it minimizes losses and increases
efficiency. Just in time is a production system that cuts
inventory costs by producing only the right amount of
inventory needed for the customer’s order. The goal is to
have high production volumes but with minimized
inventory on hand to increase efficiency and eliminate
inventory waste.
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Examples of
Companies practicing
Just-In-Time (JIT)
System
TOYOTA 01 APPLE 02 MCDONALD’S 03
Toyota was the first to implement JIT Tech giant Apple has also leveraged JIT Fast-food chains such as McDonald’s use JIT
effectively in 1970 and is still one of the most principles to make its manufacturing process a inventory to serve their customers on a daily
successful companies practising JIT systems. success. Apple’s approach to JIT is different in basis. These fast food restaurants usually have
Their method, also known as the Toyota that they leverage their suppliers to achieve JIT everything they need on hand but for example,
production strategy, sees that raw materials are goals. don’t start assembling and making their
not brought to the production floor until the hamburgers and sundaes until the order has
order is received from the customer and the With only one central warehouse in the US, been taken
product is ready to be built. During the most of their inventory is at their retail stores.
production process, no parts are included in the Adding further to the JIT mix, Apple began to
next node or station unless they are required to. take advantage of dropshipping. As a result, 04
this reduces shipping costs, wastage, and
storage costs.
INVENTORY MANAGEMENT
Methods of Inventory
Management MATERIALS REQUIREMENT PLANNING (MRP)
Material requirements planning or MRP is a computerized
system that allows manufacturers to plan, manage, and
control their inventories more efficiently. It, thus, helps
them schedule the manufacturing per bills of materials
and deliver the right product at the right time and the best
possible price.
MRP is a tool to deal with these problems. It provides
answers for several questions:
• What items are required?
• How many are required?
• When are they required?
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Example of Materials
Requirement Planning
(MRP) system
CLOTHING STORE 01 02 MRP SOFTWARE SOLUTIONS
Sharon, the proprietor of a clothing store, creates and sells a wide range of clothes. In a
short time, her shop became well-known among the local ladies. However, when she
began accepting online orders, operating the store became more difficult. Despite her best
efforts, she could not deliver the products on time as she struggled to keep track of the
demands. As a result, she produced more similar clothes based on the variety of demand
resulting in excess production and further losses.
Her friend Lisa, who was more into using technology to solve business challenges,
suggested using the material requirements planning system. Sharon did so and prepared a
bill of materials to understand the type, quantity, and delivery time. The computerized
system did all computations and let her know how to maintain the demand and supply
chain. 06
INVENTORY MANAGEMENT
Methods of Inventory
Management ECONOMIC ORDER QUANTITY (EOQ)
Economic order quantity (EOQ) is a term for the ideal
quantity a company should purchase to minimize its
inventory costs, like shortage or carrying costs. The
overall goal of economic order quantity is to decrease
spending; its formula is used to identify the greatest
number of units needed (per order) to reduce buying.
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Economic Order
Quantity (EOQ)
Formula
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EXAMPLE OF BUSINESS ENTITY USING EOQ 01
McDonald’s Corporation also uses the EOQ model in
order to determine the most optimal order quantity and where: –
minimal costs while ordering materials and products or • S: Ordering Cost or Fixed Cost
developing the system of producing the brand’s foods. The • D: Annual Quantity Demanded
transport costs and inventory costs are important to be • H: Holding Cost or Variable Cost
taken into consideration in spite of the industry.
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INVENTORY MANAGEMENT
Methods of Inventory
Management DAY SALES IN INVENTORY (DSI)
Days sales of inventory (DSI) is the average number of
days it takes for a firm to sell off inventory. It is a metric
that analysts use to determine the efficiency of sales.
A high DSI indicates that a firm is not properly managing
its inventory or that it has inventory that is difficult to sell.
A lower DSI indicates that inventory is selling more
quickly, which is usually more profitable than the
alternative.
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DAYS SALES
INVENTORY
(DSI) FORMULA
EXAMPLES OF BUSINESS ENTITIES USING DSI 01
• Supermarket - needs to know how long does
perishable goods remain in the store before they are
sold
• Pharmacy - needs to know how long certain medicines
remain in the shelves before they are sold.
• Other business entities that needs the analysis for the
average amount of time necessary to sell its inventory
since some goods expired after the amount of time.
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INVENTORY MANAGEMENT
THANK
YOU!
