Inventory Management Notes
Subject Overview
The sixth Operations Management group elective, covering inventory concepts and cost classification, inventory control levels and EOQ models, selective control techniques (ABC, VED, FSN) and accounting methods, and warehouse management with lean and emerging inventory technologies. A 4-credit elective theory paper.
Subject at a glance
4
Units
29
Topics
4
Credits
4
Infographics
Unit-wise Syllabus
4 units — open any unit for detailed topic-wise notes, diagrams and important exam questions
- Concept
- objectives and functions of inventory
- classification (raw materials, WIP, finished goods, MRO spares)
- identification
- codification and specification
- factors affecting inventory
- inventory costs
- lead time and MRP/demand forecasting requirements
Raw materials
Work in progress
Finished goods
MRO spares
Maintenance, repair, operating supplies
Study guide
This unit covers inventory concepts and functions, classification, codification, factors affecting inventory, costs and lead time. Identify the types of inventory in a business you know.
- Order point
- re-order level
- maximum/minimum level
- safety stocks
- deterministic EOQ models under various conditions
- lead time analysis
- probabilistic models — continuous review (Q-System) and periodic review (P-System)
Reorder level
Maximum usage × maximum lead time
Minimum level
Reorder level − (normal usage × normal lead time)
Maximum level
Reorder level + reorder quantity − (minimum usage × minimum lead time)
Safety stock
Z × σ demand during lead time
Study guide
You study order points, re-order level, maximum and minimum levels, safety stock, EOQ models, lead time analysis and probabilistic Q and P systems. Practise EOQ and re-order level problems.
- ABC
- VED and FSN classification
- Pareto analysis
- feedback inventory information systems
- inventory accounting methodologies (FIFO, LIFO, weighted average)
- material issuance procedures
FIFO
Oldest cost first
Lower cost of goods, higher profit
LIFO
Newest cost first (not allowed under Ind AS)
Higher cost of goods, lower profit
Weighted average
Average cost
In between
Study guide
You study ABC, VED and FSN, Pareto analysis, information systems, valuation methods (FIFO, LIFO, weighted average) and issue procedures. Compare valuation methods in rising prices.
- Receiving and stores responsibility and control
- bar coding
- JIT philosophy and Kanban systems
- physical inventory counting
- perpetual inventory systems
- cycle counting
- variance analysis
- ERP/RFID and automated tracking software
Bar coding
Fast, accurate identification
RFID
Contactless tracking
Cycle counting
Count a few items daily
Perpetual inventory
Real-time records
WMS and ERP
Integrated software
Study guide
You study stores control, bar coding, JIT, Kanban, physical counts, perpetual inventory, cycle counting, variance analysis and ERP and RFID. Plan a cycle counting routine.
Why Inventory Management Matters
Inventory ties up cash and affects service levels, so inventory management is a core skill in retail, manufacturing and e-commerce operations.
How to Prepare for Inventory Management
- Practise ABC and EOQ numericals.
- Study the inventory approach of a retailer.
- Learn how warehouses use technology.
Inventory Management: Frequently Asked Questions
What is safety stock?
Safety stock is extra inventory kept to protect against demand or lead time variability and stock-outs.