Principle of Inventory

Management
Principle of Inventory Management
• Demand forecasting,
• Warehouse flow,
• Inventory turns/stock rotation,
• Cycle counting and
• Process auditing.
 Demand Forecasting
Demand forecasting is the art as well as the science of predicting the

likely demand for a product or service in future. This prediction is based

on the past behaviour patterns and the continuing trends in the present.

Hence, it is not simply guessing the future demand but is estimating the

demand scientifically and objectively. Thus, there are various methods of

demand forecasting which we will discuss here.

Demand Forecasting
 Warehouse Flow
Take a Second Look at Your Picking
Methods!
Re-evaluate your picking methods and make sure they are still
appropriate. Consider the following picking options you have to
choose from should you need to switch methods:

Single order

Multi-order

Batch picking

Zone picking

Reorganize Bin Locations

Implement Cycle Counts

 Inventory Turn
Inventory turnover is a measure of the number of
times inventory is sold or used in a time period
such as a year.

Inventory turnover is also known as inventory

turns, merchandise turnover, and stock
turnover.
 Cycle Count
Cycle counting is a popular inventory counting solution that
allows businesses to count a number of items in a number of
areas within the warehouse without having to count the entire
inventory. Cycle counting is a sampling technique where the
count of a certain number of items infers the count for the
whole warehouse.
 Process Auditing
Why do an audit?

What should you audit?

When should you audit?

Who should you audit?

Who should do the audit?

How do you do the audit?

What are the next steps?

 Process Auditing
"Auditor" Responsibilities
By virtue of its name, a process audit is an audit of
a process against agreed on requirements. It involves
verification by evaluation of an operation or method against
predetermined instructions or standards. Interviews
Observation
s
Testing

Planning Fieldwork Findings Report

Arrive
on site
Validation Leave
Feedback site
Action Plans
"Site" Responsibilities 9
 Ordering costs are the expenses incurred to
create and process an order to a supplier.
Examples of ordering costs are: Cost to
prepare a purchase requisition. Cost to
prepare a purchase order

Carrying Cost: This includes warehousing

costs such as rent, utilities and salaries,
financial costs such as opportunity cost,
and inventory costs related to perishability,
shrinkage and insurance.

 Stock-out Costs is the cost associated with the

lost opportunity caused by the exhaustion of
the inventory. The exhaustion of
inventory could be a result of various factors.
The most notable amongst them is defective
shelf replenishment practices. Stockout cost is
the lost income and expense associated with a
shortage of inventory. 
 LEAN MANAGEMENT
Minimizing Waste
Transportation
Inventory
Motion
Waiting
Over-processing
Overproduction
Defects
 LEAN MANAGEMENT
•JUST IN TIME MANAGEMENT
•KAIZEN CONTINOUS IMPROVEMENT
•CELL PRODUCTIONS
Split operations into stages
Each cell (team) takes responsibility
for one stage
Inventory Performance. Inventory Performance is a measure of how effectively and
efficiently inventory is used and replenished. The goal of inventory performance metrics is to
compare actual on-hand dollars versus forecasted cost of goods sold. ... Inventory Turns: The
number of times inventory is replaced in a year.
Reorder Point
To calculate the reorder point for each product, you need to know four terms:
Lead Time: The number of days between a purchase order’s issue date to the product’s arrival at
your warehouse.
Safety Stock: The number of days’ worth of a product you keep on hand to prevent emergency
shortages.
Basic Stock: The number of days’ worth of a product you keep on hand as a part of your daily
operations.
Unit Sales Per Day: The average quantity of a product that you sell on a daily basis.
First, calculate your inventory turnover rate. To do this, divide Costs of Goods
Sold (COGS) by the average cost of your inventory on hand. If you finished
year-end inventory last month, you should have your COGS on hand.
Questions
&
Thanks