INTRODUCTION TO INVENTORY MANAGEMENT BMI – Marketing Mix Distribution (Place)

SUPPLY CHAIN Those activities involved in getting goods from their source to the consumer.

INVENTORY MANAGEMENT Controls the goods within the business. It helps determine what is needed, how much, and when

Factors in Controlling Inventory Avoid Overstock! It is important to keep inventories low for 3 reasons: Over-investment into unneeded inventory ties up money Inventory requires storage space or warehousing. Inventory purchases are often financed, thus causing interest charges.

Factors in Controlling Inventory – cont… Avoid Out-Of-Stocks! Customers may go elsewhere if the goods they want are not available In manufacturing, the entire production line will stop if any one part runs out.

Factors in Controlling Inventory – cont… Avoid Shrinkage! The loss of inventory due to breakage, damage, or theft. Effective inventory management tries to: Prevent it from happening Record it when it does happen through the use of a RECEIVER – an employee who monitors all shipments and files damage claims (Businesses may claim inventory shrinkage as a deduction on their income tax (max. 2% of sales) but must prove this through inventory records)

Factors in Controlling Inventory – cont… Turnover -- the number of times a business sells its inventory in one year. This number is compared to standard turnover rates. High turnover rates improve ROI (return on investment) TURNOVER = Cost of Inventory sold in 12 months Average Inventory Investment for 12 months

Factors in Controlling Inventory – cont… SKU (Stock Keeping Units) – every product is given its own SKU # which is then monitored through computer sales. This helps determine popular products and allows for efficient reordering. While many use the terms “SKU” and “UPC” interchangeably, they are actually very different. First off, an SKU (stock keeping unit) is strictly for internal use. A UPC (universal product code) is affixed to a product wherever it is sold in the retail market place. An SKU is the smallest unit of product or service. Since an SKU is unique to a company, a product would have different SKUs if sold by different companies — but they would have the same UPC. The barcode was first scanned in 1974, on a packet of Juicy Fruit gum.