Inventory management techniques

Inventory Management Techniques decreases cost of logistic operation, storage and handling of products or materials. Most common techniques are:

• Just in time - JIT - precise ordering of inventory according to production needs

One of the techniques used in quality management related to production. The main benefit associated with JIT is to reduce the time to completion to a minimum, which brings significant savings associated with the reduction of stocks.

The effectiveness of implementing the JIT method depends on finding a balance between the flexibility of suppliers and the stability of users, with the proper involvement of management, employees and the use of the advantages of teamwork.

• ABC technique (based on Pareto principle)

The ABC method involving the division of stocks into three groups. This division is based on the assumption that there are inventories in the company that quantitatively constitute a large share in total inventories, but small in terms of value. And vice versa: there are also such stocks, the value of which is large and small in quantity. It divides materials (or products manufactured) into important, less important and unimportant.

• FIFO - First-In First-Out - oldest inventory is sold first

The method of the earliest price, is a method of inventory valuation and their use. It involves posting issue data starting from the product that was first received in the warehouse.

• LIFO - Last-In First-Out - newest inventory is sold first (old stock can acumulate)

The method used in inventory management based on the assumption that the materials, goods, finished products that were last delivered to the warehouse are first issued (for production or sale). This is due to the assumption that, according to the assumptions of this method, it is apparent that the materials that are the shortest in the warehouse are to be used first.

• Cross-docking (transport of wares between trailers without magazines)
• Supplier Relationships Management
• Supply Chain Management
• Integrated IT systems: MRP/MRP II/MRP Closed Loop/ERP
• Contingency planning and insurance
• Auditing and continuous improvement according to kaizen
• Forecasting and big data analytics.

Inventory management

The value or quantity of raw materials, components, consumer goods, semi-finished products and finished products that are stored or stored in order to wear in the event of a need to be bruised. Focuses on four key issues:

• how many units should be ordered (or produced) at a given time,
• when to place an order,
• which inventory components require special attention,
• can you protect against the increase in inventory costs .

Basic rules of inventory management

• minimizing expenditures on purchasing, importing and maintaining stocks,
• ensuring continuity of production and rhythmicity of customer service at the lowest inventory costs,
• avoiding the creation of excessive and unnecessary inventory and their optimal management in case of their occurrence,
• counteracting quantitative and qualitative losses as well as normal stock consumption.

Inventory management techniques — recommended articles

Material stream — Logistic process — Distribution logistics subsystem — Coordinative function of logistics — Logistics — Cycle stock — Material flow execution function — Optimization of transport — Just in time manufacturing

References

• Blackstone J. H, James F.(1985), Inventory management techniques, Journal of Small Business Management, Milwaukee, p. 27.
• Ferdinand A. Gul.(2001) Free cash flow, debt-monitoring and managers’ LIFO r FIFO policy choice. Journal of Corporate Finance (2001), pages 475-492.
• John T. M., William J. D, Keeble J. S., Soonhong M., Nancy W. N., Smith C. D., Zach G. Z., (2001). Defining supply chain management. Journal Of Business Logistics, Vol. 22, No. 2, 2001.
• Kannan V. R., Keah C. T.(2005) Just in time, total quality management, and supply chain management: understanding their linkages and impact on business performance. Omega 33 (2005), pages 153-162.
• Michalski G., (2008). Value-Based Inventory Management. Institute of Economic Forecasting, pages 82-90.

Footnotes

Author: Paulina Ściera