retail inventory control

8/3/2019 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.

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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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