inventory management terms shrink perpetual cost inventory methods pos retail inventory method model...
TRANSCRIPT
Inventory ManagementTerms
Shrink Perpetual Cost inventory Methods POSRetail inventory Method Model InventoryLIFO Book InventoryFIFO PhysicalAveraging Turnover rateObsolescence Costs Safety StockWarehouse Costs COGSGAAP Lead-timeJIT
Why create an inventory? What is the most important reason to create an inventory?
In case of disaster
Shrink is the Enemy
2% for most retailers
(Supermarkets have less than 1%)
Shrinkage costs can be:
Theft, breakage, damage, cashier errors, bookkeeping
errors, or spoilage
Obsolescence Costs
This is the money lost when products are ” falling into disuse or becoming
out of date” while in inventory.
Shrink is an inherently negative number
So if your inventory shrink comes out to be a negative number?
The Retail Inventory Method
was developed by the grocery industry to inflate the value of their inventories, making their businesses look more valuable.
Retail Inventory Method
Not recognized by (GAAP)
GAAP is an acronym for
Generally Accepted Accounting Principles. Cost inventories are the only methods appropriate for GAAP
There are three types of Cost Inventory Methods
LIFO
FIFO
Averaging
Last In First Out, (LIFO)
Not for Perishables
Stock clerks do not rotate products
Savings on inventory taxation
First In First Out (FIFO)
For perishable products
Clerks rotate products
Loss on inventory taxation
Averaging
An inventory for products that pour.
Inventory methods keep track of products at:
the Cost Of Goods Sold (COGS)
Point of Sale Inventory (POS)
Is a computerized system that keeps track of inventories as products are sold. POS inventories are generated from cash register receipts.
Just In Time (JIT) inventories
Take the use of computers one step further. Products are ordered
as they are purchased by customers
Lead-time is the time is takes
after placing an order before receiving the product
Book Inventory is generated fromBook-Keeping. This is
sometimes called the Perpetual
This is generated from the sale of products. (POS) Point Of Sale
Perpetual Inventories
Is the amount of product that you think you have on hand
Physical Inventoryis:
when all the products are counted and valued (Done
periodically)
If you subtract the Book/Perpetual Inventory, what
you think you have, from-
Physical Inventory, what was just counted, you get shrink.
The equation for shrink is:
Book inventory ( -) Physical inventory = shrink
Turnover Rate
How often, on average, is the product inventory is sold?
(By dollar volume)
The determination of a turnover rate can help a retailer decide
how much self space to allocate or even where the product should be placed in the store. Turnover rates are not only determined for individual products, but for categories, departments as well the entire store.
Model Inventory
Is what you think you will need to Warehouse
Model inventories are:
used when you know you need to warehouse some product. An example of this would be stocking up on bathing suits before Summer.
If you run out of the product, due to seasonality, the retailer loses out on sales. Historical data is often used to make this determination.
The costs associated with keeping back stock inventory is know as:
Warehouse costs
Safety Stock
The least amount of inventory “that keeps you from running out of stock” and staying in business.
Safety Stock
Safety Stock is a calculation that factors in lead-time and shelf space of the product. Some products need always be in stock or at least have back-stock to stay in business.