Inventory
Systems
Chapter 6
Learning Outcomes
• Identify the different types of inventory systems used in hospitality and
tourism: ABC Analysis, Economic Order Quantity (EOQ), and Just-in-Time
(JIT).
• Analyze the advantages and disadvantages of each system in the context of
hotels, restaurants, and tourism operations.
• Apply basic inventory management concepts through examples and
scenario-based learning.
INTRODUCTION
Inventory in Hospitality & Tourism includes:
• Food and beverage supplies
• Housekeeping supplies (linens, cleaning chemicals, guest amenities)
• Front office materials (stationery, key cards)
• Maintenance tools and spare parts
• Guest consumables (toiletries, minibar items)
Why inventory matters:
• Ensures uninterrupted service
• Controls cost and reduces waste
• Prevents stockouts (shortages)
• Supports smooth operations
• Improves guest satisfaction
• To manage inventory effectively, organizations use systems such as ABC, EOQ, and JIT.
ABC INVENTORY SYSTEM
(Activity-Based Categorization)
• ABC analysis categorizes inventory based on importance, value,
and usage frequency.
• It follows the Pareto Principle (80/20 rule)—20% of items often
account for 80% of total inventory value.
ABC INVENTORY SYSTEM
(Activity-Based Categorization)
Category Description Example in Hospitality
Wine bottles, premium steak
High-value, low-quantity items;
A Items cuts, linens, expensive cleaning
require tight control
chemicals
Standard liquor, regular
B Items Moderate value and quantity
amenities, office supplies
Tissue rolls, sugar packets,
C Items Low-value, high-volume items
stirrers, salt & pepper
ABC INVENTORY SYSTEM
(Activity-Based Categorization)
Advantages of ABC
• Focus on important items → improved control on high-value stock.
• Reduces carrying cost by prioritizing where effort is needed.
• Supports effective purchasing by identifying critical items.
• Helps in budgeting → A items need more accurate forecasts.
Disadvantages of ABC
• Requires regular review because item values change.
• May overlook C items that are essential operationally.
• Time-consuming for large inventories.
• Subjective classification if not using accurate data.
EOQ (ECONOMIC ORDER QUANTITY)
EOQ determines the ideal order quantity that minimizes:
• Ordering Costs (delivery, admin work)
• Holding Costs (storage, spoilage)
EOQ answers:
“How much should we order?”
Example in Hospitality
• A restaurant orders chicken breast weekly. They want:
• Lower storage cost (less freezer use)
• Consistent supply from supplier
EOQ helps determine the optimal weekly order amount to avoid spoilage and shortage.
EOQ (ECONOMIC ORDER QUANTITY)
Advantages of EOQ
• Minimizes inventory cost (ordering + holding).
• Reduces spoilage, especially important for perishable goods.
• Better cash flow management.
• Prevents stockouts because order timing is planned.
Disadvantages of EOQ
• Requires accurate data (demand, cost), which some restaurants lack.
• Not ideal for highly perishable items (fish, fruits).
• Demand may fluctuate, making calculations less reliable.
• Supplier delays can disrupt the model.
JIT (JUST-IN-TIME INVENTORY SYSTEM)
JIT is an inventory system where items are ordered and received only when needed,
reducing the need to store large stocks.
Goal: “Right item, at the right time, in the right quantity.”
Example in Hospitality
• Hotels ordering fresh fruits daily instead of weekly.
• Restaurants receiving seafood deliveries every morning.
• Housekeeping requesting linens from the laundry unit only as rooms are being
cleaned.
JIT (JUST-IN-TIME INVENTORY SYSTEM)
Advantages of JIT
• Very low storage costs and reduced wastage.
• Fresher products, improving customer satisfaction.
• Better quality control due to smaller batches.
• Encourages strong supplier relationships.
Disadvantages of JIT
• Stockout risk if the supplier fails to deliver on time.
• Requires reliable logistics and suppliers.
• No buffer stock, making it risky during peak seasons (Christmas, summer).
• May increase delivery costs due to frequent small orders.
COMPARATIVE SUMMARY OF INVENTORY
SYSTEMS
System Best For Strengths Weaknesses
Monitoring and Focus on important Time-consuming
ABC Analysis
prioritizing inventory items classification
Stable demand items
EOQ Minimizes total cost Requires accurate data
(dry goods, frozen items)
High-turnover, Low waste, fresh
JIT High risk of stockouts
perishable items supplies
APPLICATION IN HOSPITALITY AND
TOURISM
• Hotels • Travel Agencies / Tour
• ABC for linens and amenities Operators
• EOQ for banquet supplies • ABC for marketing materials
• JIT for housekeeping chemicals • EOQ for office supplies
and minibar items • JIT for travel brochures and
• Restaurants updated packages
• ABC for premium ingredients
• EOQ for pantry items
• JIT for fresh produce and
seafood