Inventory Management: The Nuts and Bolts

How to Control and Reduce Inventory

Return On Investment
Proper control of inventory can beneficially affect sales levels, costs, and
investment which are the three major components for expressing Return on
Investment, commonly referred to as R.O.I.

R.O.I. = Sales - minus - Cost (i.e. Profits)

Investment

It is possible to improve the R.O.I. of most companies in two practical inventory-

related ways:
Profits can be increased through the use of techniques such as:
1. Purchasing in economic lot sizes
2. Careful evaluation of purchase price discounts.
The second approach to R.O.I. improvement is excess inventory.
 This excess can consist of dead or slow-moving items.
 It may reflect an over-supply of some active steady items.
 Occasional insufficiency of other items requiring additional inventory.
 The entire product line may be too long in terms of poor return on
investment on the slower moving items.
 Lead time allowances may not be up to date.

 Company policy may dictate that all stocks must be maintained on a

five month supply basis.

 2005 Velsoft Courseware, Inc

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