OP12: Inventory Management
Friday, January 19, 2024
INVENTORY MANAGEMENT
The process of recording stock goods and materials, ensuring the records are accurate,
further stock is ordered when necessary, and supervising the cost of items held in
stock.
YouTube Videos:
What is inventory management: the basics of inventory management
[Link]
Amazon Inventory Management
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Why manage inventory?
Ensures that inventory does not run out
Indicates when items need to be re-ordered
Keeps production units supplied
Reduces the possibility of inventory becoming obsolete
Identifies pilferage or spoilage occurs
Maximizes the use of storage space
Releases capital for other uses that may have been tied up in maintaining inventory levels that is
uneconomic
Inventory Recording Methods
Cumulative balance method: as new inventory is taken into the warehouse and
inventory is sold, a cumulative balance is maintained for each inventory item.
A card is used at the front of each bin or warehouse rack where the inventory is
stored.
Stocktaking
Stock checks are needed for all businesses with large amounts of inventory.
Typically, this was done annually (at the end of the fiscal year). Each inventory item is
counted a record is kept of the count. Changes, based on the physical count are then
made to the book/accounting quantity.
What could cause differences in the physical count? Theft, pilferage, errors in
inputting data; errors in the actual count; errors in the sale of items to
customers.
Requisitions: are requests from within an organization for supplies/materials
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OP12: Inventory Management
Friday, January 19, 2024
Purchase Orders: are requests (purchases) from outside an organization (e.g., a
customer) for inventory.
Perpetual Inventory
This system involves continuous checks of inventory, often by a dedicated team of
employees (stock-controllers/stock-takers) who conduct random checks of inventory
at any location.
Stock Valuation
Value of inventory: the unit value/quantity x the unit cost.
NOT the sales price; the unit cost!
AKA: the closing inventory value.
Scenario: If an item is purchased 6 months ago at a cost of $2 and then recently
replaced with a unit cost of $3; which unit cost applies?
Methods of Valuing Stock
FIFO (first in, first out): it is assumed that items received first are sold first.
Therefore, inventory is charged out at the first cost until the total quantity of these
items have been sold.
LIFO (last in, first out): it is assumed that items received last as sold first.
Therefore, the unit cost will be based on the most recent price.
AVCO (average cost of stock) aka Weighted Average: calculated by the number
of units left in inventory multiplied by the average cost of the inventory.
Bar Code/UPC
A pattern of vertical lines in varying thicknesses that
provides OCR for the inventory item.
QR Code
(Short for Quick Response)
Stores information as a series of pixels in a square grid that can be
read in two directions (top to bottom and right to left).
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OP12: Inventory Management
Friday, January 19, 2024
Inventory Management Methods
Stock Review
Stock review involves a regular analysis of stock on hand versus projected future
needs. It primarily uses manual effort, although there can be automated stock review
to define minimum stock levels that then enables regular inventory inspections and
reordering of supplies to meet the minimum levels.
Just-In-Time (JIT)
Just-in-time, or JIT, is an inventory management method in which goods are received
from suppliers only as they are needed. The main objective of this method is to
reduce inventory holding costs and increase inventory turnover.
ABC Analysis
The ABC analysis divides inventory into three categories, with “A” items being the
most important and “C” items being the least important. The ABC analysis can be
used to help make decisions about which inventory items should be given priority in
terms of stock levels and reordering.