Inventory Management Techniques | Just in Time | Conventional | ENGINEERING STUDY MATERIALS Inventory management techniques
Inventory management uses several methodologies to keep the right amount of goods on hand to fulfill customer demand and operate profitably. This task is particularly complex when organizations need to deal with thousands of stockkeeping units (SKUs) that can span multiple warehouses. The methodologies include:
Stock review, which is the simplest inventory management methodology and is generally more appealing to smaller businesses. 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 a minimum stock level that then enables regular inventory inspections and reordering of supplies to meet the minimum levels. Stock review can provide a measure of control over the inventory management process, but it can be labor-intensive and prone to errors.
Just-in-time (JIT) methodology, in which products arrive as they are ordered by customers, and which is based on analyzing customer behavior. This approach involves researching buying patterns, seasonal demand and location-based factors that present an accurate picture of what goods are needed at certain times and places. The advantage of JIT is that customer demand can be met without needing to keep quantities of products on hand, but the risks include misreading the market demand or having distribution problems with suppliers, which can lead to out-of-stock issues.
ABC analysis methodology, which classifies inventory into three categories that represent the inventory values and cost significance of the goods. Category A represents high-value and low-quantity goods, category B represents moderate-value and moderate-quantity goods, and category C represents low-value and high-quantity goods. Each category can be managed separately by an inventory management system, and it's important to know which items are the best sellers in order to keep quantities of buffer stock on hand. For example, more expensive category A items may take longer to sell, but they may not need to be kept in large quantities. One of the advantages of ABC analysis is that it provides better control over high-value goods, but a disadvantage is that it can require a considerable amount of resources to continually analyze the inventory levels of all the categories.
Inventory control is the area of inventory management that is concerned with minimizing the total cost of inventory, while maximizing the ability to provide customers with products in a timely manner. In some countries, the two terms are used as synonyms.
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