retail inventory control
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WHY ARE THE INVENTORY
IMPORTANCE For firm today
a) A customer do not easily forget inventory
shortage and delivered delayb) But tremendous stock are costly
c) Critical to a firms viability
Concern every industry
a) Now days: success story like wal-mart, toyota
Or dell founded are on keeping inventory lean
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INVENTORY MANAGEMENT IN RETAIL
Carry the right inventory Carry the right amount inventory
Manage cash flow Earn profit
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WHY IT IS DIFFICULT
H umongous assortment of goods. Consumer preference in largely whimsical
Difficult to keep and keep track
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MERCHANDISE PLANNING
FUNDAMENTAL Inventory management is based on a four part
equation
Sales + ending inventory beginning inventory= purchase
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THE BASIC
Inventory investment control Inventory replenishment
Sales forecasting Periodic inventory changes Recording inventory
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TWO FUNDAMENTAL INVENTORYDECISION
W hat should be the order quantity (Q) ? W hen should an order be placed, called a
reorder point (ROP )? H ow much s afety s tock (SS) should be
maintained?
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ECONOMIC ORDER QUANTITY (EOQ)
Economic order quantity (EOQ) is that size of theorder which gives maximum economy inpurchasing any material and ultimatelycontributes towards maintaining the materials atthe optimum level and at the minimum cost.
In other words, the economic order quantity
(EOQ) is the amount of inventory to be ordered atone time for purposes of minimizing annualinventory cost.
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EOQ
Deal with the question: W hen should be order be place and how mush
should be order. Basic inventory management W e never order earlier than necessary Each order arrive when we would run out the stock Each order is the same time .
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EOQ WITH QUANTITY DISCOUNTS
The EOQ with quantity discounts model isapplicable where a supplier offers a lowerpurchase cost when an item is ordered in
larger quantities. This model's variable costs are annual
holding, ordering and purchase costs.
For the optimal order quantity, the annualholding and ordering costs are not necessarilyequal.
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ABC INVENTORY CLASSIFICATION ABC classification is a method for determining level of
control and frequency of review of inventory items A Pareto analysis can be done to segment items into
value categories depending on annual dollar volume A Items typically 20% of the items accounting for
80% of the inventory value-use Q system B Items typically an additional 30% of the items
accounting for 15% of the inventory value-use Q or P C Items Typically the remaining 50% of the items
accounting for only 5% of the inventory value-use P
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ABC ANALYSIS
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ABC CLASSIFICATION
Class A 5 15 % of units 70 80 % of value
Class B 30 % of units 15 % of value
Class C 50 60 % of units 5 10 % of value
Copyright 2006 John Wiley& Sons, Inc.
12-14
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ABC ANALYSISEXAMPLE
1010 2020 3030 4040 5050 6060 7070 8080 9090 100100
Percentage of itemsPercentage of items
P e r c e n
t a g e o
f d o l l a r v a
l u e
P e r c e n
t a g e o
f d o l l a r v a
l u e
100100 9090
8080
7070
6060 5050
4040
3030
2020 1010
00
+Class C
Class A
+Class B
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INVENTORY ITEMS LISTED IN
DESCENDING ORDER OF DOLLAR
VOLUME
Monthly Percent of Unit cost Sales Dollar Dollar Percent of
Inventory Item ($) (units) Volume ($) Volume SKUs Class
Computers 3000 50 150,000 74 20 AEntertainment center 2500 30 75,000
Television sets 400 60 24,000Refrigerators 1000 15 15,000 16 30 BMonitors 200 50 10,000
Stereos 150 60 9,000
Cameras 200 40 8,000Software 50 100 5,000 10 50 CComputer disks 5 1000 5,000CDs 20 200 4,000
Totals 305,000 100 100
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