Dr Hari Singh Gaur University, Sagar, M.P.

Department of Business Management

Semester 2nd Mid-II Assignment
“Operation Management(BUM-DMS-225)”

Submitted By: Submitted To:

(Group 5) Asst Prof. Dr Babita Yadav
Pranjal Yadav (Y23282026)
Ravi Kumar Mahto (Y23282027)
Ritik Patel (Y23282028)
Sainul Abid (Y23282029)
 2

INVENTORY CONTROL
&
MANAGEMENT SYSTEM
CONTENT 3
Introduction
❑ Definition of Inventory
❑ Definition of Inventory Control
❑ Definition of Management Systems
Types of Cost
Types of Inventory
Techniques of Inventory Control
Models of Inventory Control
Objectives of Inventory Control
Inventory Control System
Types of Inventory Control System
Inventory Management System
Types of Inventory Management System
Inventory Management Software
Difference between Inventory Control and Inventory Management
Benefits of Efficient Inventory Management
Challenges in Inventory Management
Future Trends : Emerging Technologies and Trends in Inventory Management
Case Study : Example of successful Inventory Management Implementation
Conclusion
 4

INVENTORY :
Inventory refers to the stock of raw materials, work-in-
progress, and finished goods that a company holds for
production or sale.
➢ Inventory includes raw materials, work-in-progress, and
finished goods.
➢ It is a critical asset for businesses as it represents potential
revenue generation.
➢ Inventory is classified as a current asset on a company's
balance sheet.
 INVENTORY CONTROL : 5

Inventory control is the practice of managing the levels of stock a business holds to meet customer
demand while minimizing associated costs.

Goal : The primary goal is to strike a
balance between having enough stock
to fulfill customer demand and avoid
stockouts, while also minimizing the
costs associated with holding too
much inventory.
Activities: Inventory control involves various
activities like:
•Tracking inventory levels (stock counts, real-
time data)
•Setting reorder points (when to order more)
•Managing stock placement within
warehouses
•Implementing strategies to minimize
stockouts and overstock
•Optimizing ordering quantities
Benefits: Effective inventory control can lead
to several benefits for a business, including:
•Improved cash flow by reducing unnecessary
inventory holding costs
•Increased sales and customer satisfaction by
ensuring products are available when needed
•Enhanced production efficiency by having
the right materials on hand
•Reduced risk of stockouts and lost sales
 6
TYPES OF INVENTORY CONTROL
COST :
ORDERING COSTS:- 7
• Ordering costs include payroll taxes, benefits and the wages of the procurement
department, labor costs etc. These costs are typically included in an overhead cost
pool and allocated to the number of units produced in each period.
• Transportation costs
• Cost of finding suppliers and expediting orders
• Receiving costs
• Clerical costs of preparing purchase orders
• Cost of electronic data interchange

INVENTORY HOLDING COSTS

This is simply the amount of rent a business pays for the storage area where they hold
the inventory. This can be either the direct rent the company pays for all the
warehouses put together or a percentage of the total rent of the office area utilized for
storing inventory.
•Inventory services costs
•Inventory risk costs
•Opportunity cost - money invested in inventory
•Storage space costs
•Inventory financing costs
 SHORTAGE COSTS
Shortage costs, also known as stock-out costs, occurs when businesses become out of stock for 8
various reasons. Some of the reasons might be as below :
• Emergency shipments cost
• Disrupted production costs
• Customer loyalty and reputation

INVENTORY CARRYING COSTS

• This is the lesser-known aspect of inventory cost. This cost requires a certain amount of calculation to
understand the extent of its impact on your P&L statement. Inventory carrying costs refers to the amount of
interest a business loses out on the unsold stock value lying in the warehouses.

SPOILAGE COSTS
• Perishable inventory stock can rot or spoil if not sold in time, so controlling inventory to prevent
spoilage is essential. Products that expire are a concern for many industries. Industries such as the
food and beverage, pharmaceutical, healthcare and cosmetic industries, are affected by the
expiration and use-by dates of their products.
TYPES OF INVENTORY 9

Raw Materials : which have arrived from suppliers

and are kept until needed for operations.

Work-in-Progress : which are units currently being

worked on.

Finished Goods : which are waiting to be shipped

to customers
 10

TECHNIQUES OF INVENTORY
CONTROL :
ABC Analysis

VED Analysis (Vital, Essential, Desirable)

Just-in-Time (JIT) Inventory

Economic Order Quantity (EOQ)

Safety Stock

Perpetual Inventory System

Minimum Order Quantity (MOQ)

FIFO (First-In, First-Out) & LIFO (Last-In, First-Out):

ABC ANALYSIS 11

ABC analysis is an inventory control technique that categorizes items into three classes
(A, B, and C) based on their importance, usually determined by their consumption
value or turnover rate.
Class A Items: These are the most valuable, representing a small percentage of the total
inventory but a large percentage of the total consumption value. They require tight control
and frequent monitoring.
Class B Items: These items have moderate value and consumption,
needing regular review and standard control measures.
Class C Items: These are the least valuable, making up a large portion of the inventory
but only a small percentage of the consumption value. They require basic control and
occasional reviews.

Benefits:
1. Improved Inventory Management: Ensures critical items are always available, reducing stockouts.
2. Cost Savings: Minimizes holding and excess inventory costs.
3. Better Resource Allocation: Focuses efforts on high-impact items.
4. Enhanced Decision-Making: Provides data-driven insights for inventory policies.

ABC analysis helps businesses prioritize inventory management, focusing resources on the most impactful items to optimize overall
efficiency and cost-effectiveness.
 VED ANALYSIS 12

• VED Analysis is a popular inventory management strategy for small and medium-sized manufacturers
where
some raw materials are vital but not easy to restock quickly. This analysis helps to organize items for a
production schedule.
• According to their criticality, VED (Vital, Essential, and Desirable ) classifies materials into three Vital,
Essential, and Desirable.
• Vital items: Vital items are required to continue the business. Without these items, business becomes a
stand-still. It is suicidal to stock-out vital items. Some items will be crucial in your business, and you cannot
compromise on stocks for them. Always maintain a safe amount of inventory of these.
• Essential items: Essential items are those whose stock-out cost would be very high. These items won’t shut
your shop, but your customers will expect you to have them. After vital items, make sure enough stock of
Essential items.
• Desirable items: These are good to have and may not directly affect your business. But they are adding
more potential & opportunities. Maybe drops some sales due to stock-outs, but it is very nominal and easily
recoverable.

JUST-IN-TIME (JIT)
Just-in-time (JIT) inventory control is a management strategy that aims to improve a business’s return
on investment by reducing in-process inventory and associated carrying costs. The JIT method
involves receiving goods only as they are needed in the production process, which minimizes
inventory levels and reduces waste.
However, just-in-time inventory is no longer as widely used as it once was. This is because just-in-
time inventory requires a high level of coordination between the business and its suppliers. If there is
any disruption in the supply chain, it can lead to stockouts.
 13
ECONOMIC ORDER QUANTITY
Economic order quantity (EOQ) is a formula for ordering an ideal quantity based on
factors such as purchase costs, carrying cost, holding cost, production cost, demands,
and other variables.
The primary objective of EOQ is to minimize related costs. The formula determines the
optimized number of product quantities to minimize the cost of goods sold (COGS).
This helps free up tied cash in inventory for most businesses. This formula is effective
when businesses benefit from rates for bulk purchases, carrying and holding costs are
significant factors, and costs decrease dramatically for large-scale production.

EOQ = √2*(Demand) * (order cost)/ Holding cost

SAFETY STOCK
The minimum safety stock is the inventory level that an organization maintains to avoid
a stock-out situation. It is the level when we place the new order before the existing
inventory is over. For example, if the total inventory in an organization is 18,000 units,
they place a new order when the inventory reaches 15,000 units. Therefore, the 3,000
units of inventory shall form part of the minimum safety stock level.
 14

MINIMUM ORDER QUANTITY

Minimum order quantity (MOQ) sets the minimum number of inventory that must be ordered
from a supplier at one time. MOQs are typically set by the supplier so they can reduce costs
associated with shipping inventory. While beneficial to the supplier, it reduces the ordering
flexibility of sellers and can increase costs if you need to order more than you need.

FIFO & LIFO

Both inventory control techniques organize how inventory items move in and out of the warehouse based on their arrival
date. Priority will depend on the type of products available in the storage facility.
Using the LIFO method, the warehouse puts out the most recent batch of items to the customers first. Doing so prevents
products from going bad when delivered to the market.
But with the FIFO technique, the warehouse prioritizes older stocks for processing and shipping. This way, they can keep
the products fresh when the customer receives them.

PERPETUAL INVENTORY SYSTEM

The Perpetual Inventory System is an inventory management method that continuously updates
inventory records for every purchase and sale. This system provides real-time data on inventory levels,
ensuring that businesses always have accurate and up-to-date information.
The Perpetual Inventory System is ideal for businesses that require precise inventory management and
are capable of investing in the necessary technology and training.
 MODELS OF INVENTORY 15
CONTROL
• Economic Order Quantity (EOQ) Model: EOQ is used to determine the optimal order quantity
that minimizes the total inventory holding costs and ordering costs.

• Production Order Quantity (POQ) Model: POQ model is similar to EOQ but is used in
situations where items are produced rather than purchased. It helps to find the optimal production
quantity that minimized total production and inventory holding costs.

• Just-In-Time (JIT) Model: This model aims to reduce or eliminate inventory by receiving goods
only when they are needed in the production process.

• Production
ABC Analysis: ABC analysis categorizes inventory items based on their value and significance. Economic Order
Order Quantity
It helps in prioritizing inventory management efforts, focusing more attention on high-value Quantity(EOQ)
items while using simpler controls for low-value items. (POQ)

• Periodic Review Model: In this model, inventory levels are reviewed at regular intervals, and the
order quantity is determined based on the stock level at each review. It helps balance the trade-off Models
between ordering costs and carrying costs.

ABC Analysis
Just-In-Time JIT &
Periodic Review
 16

OBJECTIVES OF INVENTORY
CONTROL
1. Optimal inventory level – maintain sufficient stock to meet customer demand without
overstocking or understocking

2. Cost minimization – minimize cost associated with inventory, including holding cost,
ordering cost

3. Customer service – ensure high level of customer satisfaction by fulfilling order promptly
and reliably

4. Forecasting accuracy - improve forecasting accuracy to anticipate demand fluctuation and

adjust inventory level

5. Risk managements – mitigate risk associated with inventory such as obsolescence, theft
,damage and supply chain
 INVENTORY CONTROL 17
SYSTEM
An inventory control system is a process or software solution used by businesses to manage and
track their inventory levels efficiently. Its primary aim is to ensure that a company has the right
amount of stock on hand at the right time to meet customer demand while minimizing costs
associated with overstocking or stockouts.

1. Inventory Tracking: This involves keeping a record of all inventory items, including their
quantities, locations, and movement within the business. Barcode scanning, RFID technology, or
manual entry methods can be used to track items. Re order Point and
2. Reorder Point and Reorder Quantity: The system calculates reorder points (the inventory Inventory Tracking
Re Order Quantity
level at which new stock should be ordered) and reorder quantities (the amount
of stock to be reordered) based on factors like lead time and demand variability.
3. Supplier Management: Inventory control systems often include features for managing Functions of
supplier relationships, such as tracking supplier performance, lead times, and pricing. Inventory
Some systems can automate the ordering process by generating purchase orders when inventory
Control System
levels reach predefined thresholds.
4. Stock Valuation: Businesses need to know the value of their inventory for financial reporting
Supplier
purposes. Inventory control systems can calculate inventory valuation using methods like FIFO Stock Valuation
(First In, First Out) or LIFO (Last In, First Out).
Management
Overall, an effective inventory control system plays a crucial role in optimizing inventory levels,
reducing carrying costs, improving customer satisfaction, and ultimately enhancing the profitability
of a business.
 18

TYPES OF INVENTORY CONTROL SYSTEM

• Inventory Control:Inventory control systems are technology solutions that integrate all aspects of an
organization’s inventory tasks, including shipping, purchasing, receiving, warehouse storage,
turnover, tracking, and reordering.

• The Two Main Types of Inventory Control System:

1. Perpetual Inventory System
2. Periodic Inventory System
• Perpetual Inventory System:Perpetual Inventory Control is a dynamic approach that focuses on
continuously monitoring and recording inventory transactions. This is typically facilitated through
integration with modern technology, such as barcoding and sophisticated software systems, which
allow immediate capture and reflection of all inventory-related activities.

• Perpetual inventory control is particularly beneficial in large, tech-savvy businesses where real-time
information is crucial for optimal performance.
 19
TYPES OF INVENTORY CONTROL SYSTEM

• Perpetual Inventory Control

Perpetual Inventory Control is a dynamic method involving continuous monitoring and recording of inventory transactions. Each time a product is
sold, received, moved, or altered, the inventory record is instantly updated. This system utilizes modern technology, such as barcoding and
sophisticated software, to capture and reflect all inventory-related activities immediately. It is especially beneficial for large, tech-savvy businesses
where real-time information is essential for optimal performance.

• Periodic Inventory System :

Periodic Inventory Control is a traditional method where physical counts of inventory are conducted at regular intervals, such as weekly, monthly, or
annually. This process requires temporarily halting operations to manually count and reconcile stock with recorded figures. The collected data
informs decisions about reordering, excess stock clearance, and identifying shrinkage. This method is suitable for environments where real-time
monitoring isn't essential or where continuous systems are cost-prohibitive, like a small local bookstore conducting regular counts to manage
inventory.
 20
INVENTORY MANAGEMENT SYSTEM
• An inventory management system (or inventory system) is the process by which you track your goods
throughout your entire supply chain, from purchasing to production to end sales.

• Inventory management aims to have the right products in the right place at the right time.
 21

BENEFITS OF INVENTORY MANAGEMENT

SYSTEMS:
• Greater inventory visibility – inventory systems allow you to track all your inventory
movements, so you always know how much stock of each item you have,
where it’s located, and when to reorder.
• Meet customer demand – an accurate system can help you reduce stockouts,
meaning you never miss out on potential sales and are able to provide good customer service.
• Understand your profitability – by recording all your inventory data in a system,
you can break down the costs of producing and selling goods. This is useful for
understanding the total value of your inventory and determining profitability
at the product and business levels.
• Improves workflow efficiency – when you use a system to track and manage inventory,
you don’t have to manually check how much stock is available every time you need to know.
• Essential for accurate financial reporting – accounting for inventory is impossible if you don’t keep
track of your stock and purchases. Inventory management systems provide an effective way of monitoring the true value and profitability of your
business.
 22

THE BASIC STEPS OF INVENTORY

MANAGEMENT INCLUDE:
1. Purchasing inventory: ready-to-sell goods are purchased and delivered to the
warehouse or directly to the point of sale.

2. Storing inventory: inventory is stored until needed. Goods or materials are

transferred across your fulfillment network until ready for shipment.

3. Profiting from inventory: the amount of product for sale is controlled.

Finished goods are pulled to fulfill orders. Products are shipped to customers.
 23
Types of Inventory Management Systems

Manual Periodic Perpetual

Inventory Inventory Inventory
System System System

➢ Manual inventory system: this involves physically counting items and recording them on paper or in a spreadsheet.
Small businesses may use manual systems

➢ Periodic inventory system: periodic inventory systems include manual and periodic counts. Periodic counts record
item details as items move in and out of stock. Barcodes simplify stocktaking. A database contains the records of
stock levels and locations.

➢ Perpetual inventory system: perpetual inventory systems provide real-time stock data, as they rely on active radio
frequency identification (RFID) tags that are always on and sending updates on item movements. Passive RFID tags,
meanwhile, use a scanner to send stock information to the database.
 24
INVENTORY MANAGEMENT
SOFTWARE
An inventory management system (IMS) is software for
tracking inventory, controlling stock levels, handling orders,
sales, returns, reports, and more. It helps automate the
previously manual processes and increases efficiency,
accuracy, and speed of operations.

There are two main types of IMSs:

1. Perpetual system that manages inventory in real-time.
2. Periodic system that conducts occasional counts of stock and provides periodic
updates.
 25

FEATURES DO INVENTORY MANAGEMENT

SOFTWARE TYPICALLY OFFER.

• Stock management: Stock management is a feature that monitors your items’ location and quantity.
• Procurement management : A procurement management feature allows the user to enter a reorder point
for each item. as well as create purchase orders when you’re running low on those products.
• Supplier management: This feature stores your suppliers’ information, including the rates that they
offer.
• Shipment tracking: Shipment tracking is used to check the location of shipments that you have sent to
your customers.
• Inventory reports: This feature gives you detailed reports on your inventory, sales, and operations to
help you make important decisions.
 26

DIFFERENCE BETWEEN INVENTORY CONTROL AND INVENTORY

MANAGEMENT

Inventory
Inventory Control
Management
Focuses on the processes and system used to Encompasses a broader rang of activities and
regulate. strategies related to the planning

Aims to maintain optimal inventory level to meet In this inventory as one of its components but also
customer demand decision making, forecasting, demand planning

In activities such as setting reorder points tracking Considers the entrie lifecycle of maximize the
system value of inventory assets

Primarily concerned with operational efficiency

Addresses both internal and external factors.
and cost control
 27

BENEFITS OF EFFICIENT
INVENTORY MANAGEMENT
• Cost reduction – By optimizing inventory level business can minimize carrying
costs associated with storagE
• Improved cash flow – efficient inventory managements ensure that capital is
not tied up in excess inventory, allowing business to allocate resources
• Enhanced customer service – By maintaining optimal stock level business can
fulfill customer order promptly , reduce stockouts
• Better demand forecasting – effective inventory management involve accurate
demand forecasting
• Reduced lead time –streamlining inventory processes and optimizing supply
chain logistics can lead to shorts lead time, enabling business to respond more
quickly to customer demand and market
 28
CHALLENGES IN INVENTORY MANAGEMENT
1) Optimal Inventory Levels : Determining the right balance of inventory is crucial. Overstocking ties up capital and storage space, while understocking
can lead to stockouts and lost sales.
2) Demand Forecasting: Accurately predicting demand for products is challenging, especially considering seasonality, trends, and external factors that
influence consumer behavior.
3) Inventory Visibility: Maintaining real-time visibility of inventory across multiple locations or within a complex supply chain can be difficult. Lack of
visibility can lead to inefficiencies and errors in order fulfillment
4) Supplier Management : Dependence on external suppliers introduces risks such as late deliveries, quality issues, or unexpected price fluctuations,
which can impact inventory levels and customer satisfaction.
5) Lack of knowledge: the personnel at the receiving and warehousing departments may lack the required expertise and adequate knowledge of
segregating the regular and seasonal goods out of the whole stock
6) Expanding product portfolios: the customers demand and requirements for a wide range of products have tremendously increased the inventory size,
making it difficult to manage
7) Supply chain complexity: the organisation at the times fail to track the stock or goods during the supply chain process, moreover, it is not neccessary
that the business partners also maintain an inventory management system creating hurdles

Optimal Expanding Supply

Demand Inventory Suppliers Lack of
Inventory Product Chain
Forecasting Visibility Management Knowledge
Levels Portfolios complexity
EMERGING TECHNOLOGIES AND TRENDS IN 29
INVENTORY MANAGEMENT :
• 1) Inventory Optimization Software: Advanced software solutions using machine learning and predictive analytics help
optimize inventory levels by analyzing historical data, demand patterns, and supply chain dynamics.
These tools enable more accurate forecasting and
decision-making.

• 2) Real time inventory tracking : Leveraging IoT (Internet of Things) devices such as RFID tags and sensors provides real-time visibility
into inventory movements and locations. This technology enhances accuracy, reduces stockouts, and improves overall supply chain efficiency.

• 3) Demand-Driven Inventory Management : Adopting demand-driven strategies focuses on fulfilling customer demand efficiently.
Techniques like Just-in-Time (JIT) and lean inventory management minimize excess stock while ensuring timely delivery.

• 4) Multi-echelon Inventory Optimization (MEIO) : MEIO strategies optimize inventory levels across multiple tiers of the supply chain,
considering demand variability and lead times at different levels. This approach reduces overall inventory while maintaining service levels.

• 5) Collaborative Inventory Management: Encouraging collaboration between suppliers, distributors, and retailers fosters better inventory
management. Techniques like Vendor-Managed Inventory (VMI) and Collaborative Planning, Forecasting, and Replenishment (CPFR) enable shared
data and decision-making.

• 6) Warehouse Automation: Adopting automation technologies such as robotics, automated picking systems, and autonomous vehicles streamlines
warehouse operations, improves accuracy, and reduces labor costs associated with inventory management
 CASE STUDY : EXAMPLE OF SUCCESSFUL INVENTORY MANAGEMENT 30
IMPLEMENTATION

• Title: Optimizing Inventory Management for XYZ
Corporation
• Introduction:
• XYZ Corporation, a leading consumer electronics retailer,
faced challenges in managing inventory efficiently due to
diverse product range and fluctuating demand.
• Challenges:
Solution:
XYZ implemented a comprehensive inventory management
solution leveraging technology and data analytics.
1. Demand Forecasting: Predictive analytics and historical data enabled
accurate demand forecasts.
2. Inventory Optimization: Automated replenishment algorithms maintained
optimal stock levels, reducing excess inventory.
3. Warehouse Automation: Barcode scanning and RFID systems improved
inventory visibility and accuracy.

• 1. Inaccurate Forecasting: Limited visibility into future Results:

demand caused overstocking or stockouts. 1. Improved Customer Satisfaction: Increased product availability and faster
order fulfillment enhanced customer satisfaction and retention.
• 2. Manual Processes: Outdated methods led to delays in
2. Cost Savings: Optimized inventory levels and warehouse operations led to
order processing and operational inefficiencies.
reduced carrying costs and labor expenses.
• 3. Inefficient Warehousing: Poor inventory visibility in 3. Increased Revenue: Enhanced inventory management captured additional
warehouses resulted in misplaced stock and fulfillment sales opportunities and facilitated new product line introductions.
delays.
Conclusion:
XYZ's data-driven approach transformed its supply chain operations, enhancing efficiency,
cost savings, and customer satisfaction, establishing it as a market leader in consumer
electronics.
 CONCLUSION 31

Efficient Operations: Inventory control systems streamline processes, minimizing errors and boosting efficiency.

Cost Reduction: Optimized stock levels reduce carrying costs and prevent stockouts, resulting in significant savings.

Enhanced Customer Satisfaction: Accurate forecasting and swift order processing enhance product availability and
delivery times, fostering loyalty.

Competitive Advantages: Effective inventory management enables rapid response to market changes and maximizes
sales opportunities, providing a competitive advantage.

Data-Driven Decisions Making: Real-time data analysis guides strategic planning, facilitating informed decision-making.

Scalability: Adaptive inventory systems accommodate growth and changing business needs, ensuring seamless operations.

In conclusion, implementing robust inventory control and management systems is essential for optimizing operations,
reducing costs, and delivering exceptional customer experiences, ultimately driving sustained growth and competitiveness
in today's dynamic business environment
THANK YOU