Managing Inventory

Managing Inventory

Managing Inventory

Managing Inventory involves building and maintaining enough product assortments to meet the customer demand. Investment in Managing Inventory forms a significant part of company assets and affects physical distribution costs in a major way. Very little inventory can create shortages of products or out-of-stock situation. This is detrimental to the company and can lead to brand switching, lower sales, and the most serious consequence of losing customers. When too much inventory of products is carried, particularly of slow moving products, costs and risks of product obsolescence, damage, or pilferage increase. To strike a balance, companies focus on determining when and how much to order. [ Managing Inventory ]
To find out when to order, the marketer must know the order lead time, the usage rate, and the safety stocks required. Order lead-time refers to the average time lapse between placing the order and receiving supplies. The usage rate represents the rate at which the inventory of product gets sold during a specified time period. Buffer stock is the extra inventory that is maintained to guard against out-of-stock situation from increased demand or to cover longer lead-time than expected. The following formula can be used to calculate when to reorder:
Reorder Point = (Order Lead Time × Usage Rate) + Buffer Stock
To illustrate, let us assume that order lead-time is 15 days, usage rate is 2 units per day, and buffer stock is 10 units. The point to place the order is when there are 40 units in stock.
In certain cases, marketers employ a fixed order interval approach and stocks are ordered at predetermined intervals when the rate of usage is fairly constant and cost per unit is small.
To determine how much to order, it’s necessary to examine inventory carrying costs and order processing costs. Considering both sets of costs determines Economic Order Quantity (EOQ), which is the order size that has the lowest total of both inventory carrying and order processing costs. However, the aim of minimizing total inventory costs must be weighed against meeting or exceeding customer service level objectives.
Some organizations use Just-in-Time (JIT) approach in countries where this is possible. This system means that products arrive as and when they are needed for use in the production process or for resale. This allows companies to Managing Inventory very low inventory levels and purchases at that time are also in smaller quantities. JIT system reduces physical distribution costs, especially inventory and handling related costs. [ Managing Inventory ]

Managing Inventory

Handling Materials

Physical handling of products is necessary for efficient warehouse functions, transportation from the point of manufacture to final points of consumption. The nature of product often influences how a product should be moved and stored. For example, perishable goods, liquids, and gasses have unique characteristics that determine their movement and handling.
Techniques and procedures used for material handling can increase warehouse capacity, reduce the number of times a product is handled, improve customer service, and their satisfaction. Various activities such as packaging, loading, movement, labeling systems must be coordinated to reduce costs and increase customer value and satisfaction. The correct internal packaging of materials is important to prevent any damage during handling and transportation. Companies use different methods of loading such as unit loading or containerisation. Unit loading is grouping one or more boxes on a pallet and use forklifts, trucks, or conveyor system. Container helps consolidate many items within the large inside space of one huge box, which is sealed at its originating point and opened after arriving at its destination.


Warehousing is an important physical distribution function and refers to the design and operation of facilities for storing and moving goods. Producers have to make arrangements to store products until they are sold because production and consumption cycles differ. Warehousing functions offer time utility and help companies to adjust for dissimilar production and consumption rates. Of necessity, mass produced products create a much greater stock of products than can be sold on the market immediately and companies store excess stocks till the time, customers are ready to buy. Warehousing is also necessary for seasonal products such as woolens and others.
The warehousing function is not just limited to storing of items. Wagonloads and truckloads of products are received at warehouses where, they are broken down into smaller quantities for customers, or smaller lots received are sometimes consolidated into bulk loads for shipping economically. Some basic physical distribution functions of warehouses are given below:
Receiving goods and assuming responsibility.
Recording quantity of each item and marking with codes, tags, or physical property etc.
Sorting goods to store in an appropriate area.
Dispatching goods for storage.
Holding products in properly protected condition until needed.
Recalling and picking products ordered by customers from storage.
Collecting for a single shipment, checking for completeness or explaining omissions.
Dispatching suitably packaged shipment to the right transport vehicle along with necessary documents.
The choice of warehouses can range between company’s own dedicated warehouses or share space with others in the third party owned warehouses. A company can also decide to have some kind of combination of both. By making the right choices, a company may minimize physical distribution costs. The firm decides the number, location, and which type of warehouse is most suitable.
Company Owned Warehouses: Companies operate these for sorting and shipping its products. These are usually leased or sometimes purchased when a company has justification to have its own warehouse in a geographic market area based on substantial and stable demand to make the long-term commitment to fixed facilities. When products require special handling and storage features and control of warehouse design and operation, a company may have its own warehouse.
Cindy Muroff reported that to reduce inventory costs, companies are striving to move products as quickly and directly as possible from producer to customers.


Companies are concerned with transportation decisions because choices affect product pricing, delivery time, and condition of goods when they arrive at a destination. Transportation is the most expensive of the physical distribution function and offers the time and place utility value to the product. Product availability and on-time deliveries depend on transportation choice and have the direct impact on customer service and ultimately satisfaction.
There are five main transportation modes for moving goods that include railways, roadways, waterways, airways, and pipelines. Each of these offers certain advantages. Some companies prefer to use a combination of these modes, depending on product nature, delivery schedule, and geographic locations.


Railways carry heavy, bulky goods, that need shipping to long distances over land, such as mineral ores, lumber, sand, farm products, heavy and bulky machinery, chemicals, petroleum, and autos etc. Railways are particularly efficient for transporting full wagon loads at lower rates and require less handling.
Trucks are providing a tough competition to railways. Roadways offer most flexible schedules of all major modes of transportation. Trucks can go almost anywhere, including rural market areas where just kuchcha roads are available. To reach Indian rural


Online Professional Certification