Inventory Management Essentials Quiz

Objectives of Inventory Management

• Ensure optimal stock levels to meet customer demand without excess.
• Minimize inventory costs while maximizing inventory turnover.
• Maintain accurate inventory records to support decision-making.
• Enhance operational efficiency by reducing the risk of stockouts and overstocking.
• Facilitate effective forecasting and planning for future inventory needs.

Inventory Costs

• Carrying costs: expenses associated with storing unsold goods, including warehousing, insurance, and storage costs.
• Ordering costs: costs incurred each time a new inventory order is placed, encompassing shipping and handling.
• Stockout costs: potential loss of sales and customer goodwill from inadequate inventory levels.
• Shrinkage costs: losses resulting from theft, damage, or mismanagement of stock.

Perpetual Inventory System

• A method that continuously updates inventory records for purchases and sales in real-time.
• Allows for accurate tracking of inventory levels and valuation at any given moment.
• Provides detailed insights into inventory usage and assists in identifying trends.

Key Method to Improve Inventory Management

• Implementing Just-In-Time (JIT) inventory strategy to reduce holding costs and increase efficiency through timely order fulfillment.

Primary Inventory Costs

• Same costs as previously discussed, including carrying costs, ordering costs, stockout costs, and shrinkage costs, all essential for understanding total inventory management expenses.

Role of Inventory in Supply Chain Management

• Acts as a buffer between supply and demand, ensuring that goods are available for production and sales.
• Supports logistical operations by optimizing product flow and reducing lead times.
• Essential for maintaining customer satisfaction by ensuring timely product availability and delivery.