EULOGIO “AMANG” RODRIGUES INSTITUTE OF SCIENCE AND TECHNOLOGY

COLLEGE OF HOSPITALITY AND TOURISM MANAGEMENT

BS TOURISM MANAGEMENT

BMECOPMN – Operations Management in Tourism and Hospitality Industry

INVENTORY PLANNING AND CONTROL

Submitted by:
KYLA CINCO
ABIGAIL B. GERONIMO
CRISTAN VINCENT GUTIERREZ
CARIZZA BALLON PEDREZA
DESIREE SARCAOGA
NICOLE FAITH SEGURITAN
ARIEZA PAULINE TANAUAN

Group 10

Submitted to:
MS. MORESA JOY V. GREGANA
Instructor

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I. Report Abstract:
Inventory planning is the process of determining the optimal quantity and timing
of inventory for the purpose of aligning it with sales and production capacity.
Demand forecasting is the process of using predictive analysis of historical data
to estimate and predict customers’ future demand for a product or service. Cost
control is the practice of identifying and reducing business expenses to increase
profits, and it starts with the budgeting process. Inventory control or stock control
can be broadly defined as “the activity of checking shops stocks”. It is the
process of ensuring within a business. Inventory management helps companies
identify which and how much to stock order at what time. It tracks inventory from
purchase to sale of goods. Inventory costing is the process of assigning value to
inventory, and thus to the cost of good sold. Though all inventory costing involves
assigning of common methods, include: First-in, First-out (FIFO), Last-in First-out
(LIFO), average cost/ weighted average.

II. Objectives:
• Discuss the importance of controlling and monitoring inventories in order to
realize profits.
• Classify the different types and cost of inventories
• Determine when to replenish, how to compute for par stock

III. Detailed Discussion:

Inventory planning and control

Inventory Planning

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Is an integral part of a company’s supply chain management strategy, alongside

order management, accounting, warehouse operations, and customer
management. It involves forecasting demand and deciding exactly how much
inventory and when to order. When done successfully, this helps companies
meet demand whilst reducing expenditure.

3 Things to establish a reliable inventory planning

• Demand forecast: using historical sales data, KPIs and variables like
seasonality, promotions and market predicts to make data-driven
forecasts.
• Control costs: considering things like choosing the right suppliers,
automating purchase order process, reducing cash tied up in slow-moving
products etc.
• Store efficiently: storing the right number of products in the right place to
optimize your order fulfillment routes if you have multiple inventory
locations.

By keeping the right amount of inventory in the right place at the right time, the
organizations may lower their overall storage costs, improve inventory allocation
methods, and ensure that there is always enough stock to fulfill client demand.

Inventory Control
Also called stock control, is the process of ensuring the right amount of supply is
available in an organization. With the appropriate internal and production
controls, the practice ensures the company can meet customer demand and
delivers financial elasticity. It enables the maximum amount of profit from the
least amount of investment in stock without affecting customer satisfaction. It
also allows companies to assess their current state concerning assets, account
balances and financial reports. Inventory control can help avoid problems, such
as out-of-stock (stock out) events.

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Inventory Control is important in an organization because it determines the

stocks or materials that are currently available. Through inventory control, you
will be able to meet the demands without having to face lack or excess inventory.
It is important that the organization will not overstock or understock because it’s a
waste of products and you will lose the opportunity to satisfy the demand. In
short, you will need inventory control to supervise the stocks of your product so
you won’t lose track of record that will be needed to meet the demand of the
costumer or clients.

The Reach of Inventory Control: Beyond Finished and Raw Goods

Inventory Level, Inventory Turnover Rate and Lead Time

What is Inventory?
An organization’s inventory, which is often described as the step between
manufacturing and order fulfillment, is central to all of its business operations as
it often serves as a primary source of revenue generation. Regardless of the fact
that inventory can be described and classified in numerous ways, it’s ultimately
its management that directly affects an organization’s order fulfillment
capabilities.

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For example, in keeping track of raw materials, safety stock, finished goods or
even packing materials, businesses are collecting crucial data that influences
their future purchasing and fulfillment operations. Understanding purchasing
trends and the rates at which items sell determines how often companies need to
restock inventory and which items are prioritized for re-purchase. Having this
information on hand can improve customer relations, cash flow and profitability
while also decreasing the amount of money lost to wasted inventory, stock outs
and re-stocking delays.

Types of Inventory
• Raw Materials
• Components
• Work in Progress
• Finished Goods
• Maintenance, repair and operation
• Packing and packaging materials
• Safety stock and Anticipation stock
• Decoupling Inventory
• Cycle Inventory
• Service Inventory
• Transit Inventory
• Excess Inventory

Raw Materials- are the materials a company uses to create and finish products.
When the product is completed, the raw materials are typically unrecognizable
from their original form, such as oil used to create shampoo.

Ex. A company that makes T-shirts has components that include fabric, thread,
dyes and print designs.

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Components- are similar to raw materials in that they are the materials a
company uses to create and finish products, except that they remain
recognizable when the product is completed, such as a screw.

Work In Progress (WIP)- WIP inventory refers to items in production and

includes raw materials or components, labor, overhead and even packing
materials.

Ex. A cell phone consists of a case, a printed circuit board, and components. The
process of assembling the pieces at a dedicated workstation is WIP.

Finished Goods- Finished goods are items that are ready to sell.

Ex. A jewelry manufacturer makes charm necklaces. Staff attaches a necklace to

a preprinted card and slips it into cellophane envelopes to create a finished good
ready for sale. The cost of goods sold (COGS) of the finished good includes both
its packaging and the labor exerted to make the item.

Maintenance, Repair and Operations (MRO) Goods- MRO is inventory —

often in the form of supplies — that supports making a product or the
maintenance of a business.

Ex. Maintenance, repair and operating supplies for a condominium community

include copy paper, folders, printer toner, gloves, glass cleaner and brooms for
sweeping up the grounds.

Packing and Packaging Materials- There are three types of packing materials.
• Primary packing protects the product and makes it usable.
• Secondary packing is the packaging of the finished good and can include
labels or SKU information.
• Tertiary packing is bulk packaging for transport.

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Safety Stock and Anticipation Stock- Safety stock is the extra inventory a
company buys and stores to cover unexpected events. Safety stock has carrying
costs, but it supports customer satisfaction. Similarly, anticipation stock
comprises of raw materials or finished items that a business purchases based on
sales and production trends. If a raw material’s price is rising or peak sales time
is approaching, a business may purchase safety stock.

Decoupling Inventory- Decoupling inventory is the term used for extra items or
WIP kept at each production line station to prevent work stoppages. Whereas all
companies may have safety stock, decoupling inventory is useful if parts of the
line work at different speeds and only applies to companies that manufacture
goods.

Cycle Inventory- Companies order cycle inventory in lots to get the right amount
of stock for the lowest storage cost. Learn more about cycle inventory formulas in
the “Essential Guide to Inventory Planning.”

Service Inventory- Service inventory is a management accounting concept that

refers to how much service a business can provide in a given period. A hotel with
10 rooms, for example, has a service inventory of 70 one-night stays in a given
week.

Transit Inventory- Also known as pipeline inventory, transit inventory is stock

that’s moving between the manufacturer, warehouses and distribution centers.
Transit inventory may take weeks to move between facilities.

Theoretical Inventory- Also called book inventory, theoretical inventory is the

least amount of stock a company needs to complete a process without waiting.
Theoretical inventory is used mostly in production and the food industry. It’s
measured using the actual versus theoretical formula.

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Excess Inventory- Also known as obsolete inventory, excess inventory is unsold

or unused goods or raw materials that a company doesn’t expect to use or sell,
but must still pay to store.

Ex. A shampoo company produces 50,000 special shampoo bottles that are
branded for the summer Olympics, but it only sells 45,000 and the Olympics are
over — no one wants to buy them, so they’re forced to discount or discard them.

Categorizing Inventory Costs

Inventory costs fall into 3 main categories:

• Ordering costs (also called Setup costs)
• Carrying costs (also called Holding costs)
• Stock-out costs (also called Shortage costs).

Ordering Costs
The ordering cost (also called setup costs, especially when producers are
concerned), or cost of replenishing inventory, covers the friction created by
orders themselves, that is, the costs incurred every time you place an order.

These costs can be split in two parts:

• The cost of the ordering process itself: it can be considered as a fixed
cost, independent of the number of units ordered. It typically includes fees
for placing the order, and all kinds of clerical costs related to invoice
processing, accounting, or communication. For large businesses,
particularly for retailers, this might mainly boil down to the amortized cost
of the EDI (electronic data interchange) system which allows the ordering

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process costs to be significantly reduced (sometimes by several orders of

magnitude).
• The inbound logistics costs, related to transportation and reception
(unloading and inspecting). Those costs are variable. Then, the supplier’s
shipping cost is dependent on the total volume ordered, thus producing
sometimes strong variations on the cost per unit of order.

Carrying costs
Carrying costs are central for a “static” viewpoint on inventory, that is, when
focusing on the impact of having more or less inventory, independently of the
inventory flow.
• Capital costs (or financing charges)
• Storage space costs
• Inventory services costs
• Inventory risk costs

Capital costs- It is the largest component among the carrying inventory costs. It
includes everything related to the investment, the interests on working capital
and the opportunity cost of the money invested in the inventory (instead of in
treasuries, mutual funds. Determining capital costs can be more or less
complicated depending on the businesses.

Storage space costs- They include the cost of building and facility maintenance
(lighting, air conditioning, heating, etc.), the cost of purchase, depreciation, or the
lease, and the property taxes.

Inventory services costs- They include insurance, IT hardware and applications

(for some businesses, RFID equipment and such), but also physical handling
with the corresponding human resources, management, etc. We can also put in
this category the expenses related to inventory control and cycle counting.

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Finally, although they are kind of a category on their own, taxes can also be
added here.

Inventory risk costs- They cover essentially the risk that the items might fall in
value over the period they are stored. This is especially relevant in the retail
industry and with perishable goods.

Stock out costs- to get a complete vision of the inventory costs, we should also
add the stock out costs (or shortage costs), that is, the costs incurred when stock
outs take place. For retailers, it can include the costs of emergency shipments,
change of suppliers with faster deliveries, substitution to less profitable items,
etc. While this kind of costs can be determined quite precisely, others are not so
easy to pinpoint, such as the cost in terms of customer loss of loyalty or the
general reputation of the company.

Inventory Costing

What is Inventory Costing?

Inventory costing is a part of inventory control technique. Proper inventory control
within a supply chain helps reduce the total inventory costs and assists in
determining how much product a company should carry. All this information helps
companies decide the needed margins to assign to each product or product type.
Inventory costing, also called inventory cost accounting, is when companies
assign costs to products. These costs also include incidental fees such as
storage, administration and market fluctuation.

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Inventory is often one of the largest assets that an operation maintains, the cost
of goods sold is an essential piece of both financial reporting as well as the tax
process.

The method a company uses to determine it cost of inventory (inventory

valuation) directly impacts the financial statements. The three main methods for
inventory costing are First-in, First-Out (FIFO), Last-in, Last-Out (LIFO) and
Average cost.

1. F
i
r
s
t

i
n

First out (FIFO)

An operation following a First-in, First-out inventory. Costing methodology
operates under the assumption that the cost of inventory on-hand at any given
time should represent the cost of the inventory that has been most recently
purchased. This means that when
Inventory is sold, the oldest costs (the cost of goods for the oldest inventory) are
associated to the sale. First-in, First-Out inventory costing is the method most-
attuned to true buying cycles, where the oldest inventory is typically the first
inventory to be sold. This is especially important for goods that expire or become
out of date quickly, such as food, pharmaceuticals, and other perishable goods.

2. Last In First Out (LIFO)

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An operation following a Last-in, First-out inventory. Costing methodology works

in the exact opposite way. From first-in, first-out. With LIFO, when a sale is
made, the most recent inventory costs are associated with that sale. LIFO may
seem like an odd method of inventory. Costing for many operations, since it is
not tied to the typical buying cycle. And, indeed, it is less practical than
FIFO in most cases. But there are certain types of operations and products
where LIFO makes sense: Operations where LIFO actually does mirror the
buying cycle.

3. Average Cost/Weighted Average

An operation using the average cost inventory costing methodology would assign
costs to inventory sold by. Calculating an average of all costs of buying inventory.
Each piece of inventory is then assigned this average cost, instead of costs tied
to the time of purchase or the age of product. By its nature, to be accurate, the
average cost/weighted average for the cost of goods sold must be recalculated
each time product is sold or added to inventory. This is often done automatically
by an operation’s inventory management system.

Determine when to replenish

The inventory replenishment meaning, otherwise known as stock replenishment,
refers to the process of inventory moving from reserve storage to primary
storage, then onto picking locations. It’s important to note that inventory
replenishment is sometimes used to define both ready-to-sell inventory as well as
raw materials received from suppliers. But first, it is critical that you know when to
replenish inventory to prevent a stock out situation from happening.

How to Compute for Par Stock

What is par stock/inventory?
Par inventory is a method of restaurant inventory management.

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What does par level mean?

As restaurant owners, you want everything at your restaurant to be ‘up to par’, it’s
a standard you’ve set whether for food quality or staff performance.

How to calculate the par level?

Here’s the equation:
Normal Inventory Used Per Week + Safety Net for Stock = Par Level

Example:
One of your cores raw materials is burger buns. It is restocked every Monday.
So, your set par level for it will be your weekly usage + the safety net stock in
case of an emergency or special occasions.

Let’s say your weekly usage is of

300 bags of burger buns. And
you want to keep a 10% safety
net. Then your par level will be:
300 + 30 = 330

IV. Conclusion

Inventory management is quite vital, and it is one of the most crucial components of
any organization. The aspect of this part of the business is whether or not you can meet
your customers demands if you aren’t sure if you have all of the materials needed to
complete the final product. Without proper inventory management, they would be

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unable to provide their customers with the ambulances they had requested. And
because this product is the foundation of their entire business, it is important. When
deciding which programs or automated systems to use to assist keep records accurate,
bear in mind that the client isn’t interested with which materials are required to produce
the finished product, but rather that the product performs as promised under the
contract. This is why they must ensure that any processes or systems they implement
will benefit both their needs and the needs of their consumers. Furthermore, policies for
maintaining proper inventory levels must be in place, and they must be changed as the
company expands and the business requires. If the new suggestions are implemented,
they will be well on their way to having a well-established firm.

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V. PPT Slide/Video Report Screenshots

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VI. Reference:

Jenkins, A. (2021). What is Inventory? Types, Example and Analysis

https://www.netsuite.com/portal/resource/articles/inventory-
management/inventory.shtml

Schwarz, L. (2020).The Key to Using Inventory Cost Accounting Methods in Your

Business
https://www.netsuite.com/portal/resource/articles/inventory-management/inventory-cost-
accounting-methods-examples.shtml

Romaine, E. (2018). Everything You Need to Know About Inventory

Chttps://www.conveyco.com/inventory-costing-
methods/#:~:text=Inventory%20costing%20is%20the%20process,Average%20Cost%2
Fweighted%20average

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