Inventory Control 1 Copyright 1999 Prentice Hall Publishing Company Managing Inventory

Inventory Control 2 Copyright 1999 Prentice Hall Publishing Company Managing Inventory Involves... l Developing an accurate sales forecast. l Developing a plan to make inventory available when and where customers want it. l Building relationships with quality suppliers. l Setting realistic inventory turnover objectives.

Inventory Control 3 Copyright 1999 Prentice Hall Publishing Company Managing Inventory Involves... l Computing the cost of carrying inventory. l Using the most timely and accurate information system the business can afford to provide everyone with vital inventory information. l Teaching employees how inventory control systems work so they can help manage inventory on a daily basis.

Inventory Control 4 Copyright 1999 Prentice Hall Publishing Company Pareto’s Law l Business owners must recognize the importance of Pareto’s Law (the 80/20 Rule): About 80% of a firm’s sales are generated by about 20% of the items in its inventory. l The goal of inventory control is to focus the majority of the effort on that 20% of the inventory.

Inventory Control 5 Copyright 1999 Prentice Hall Publishing Company Inventory Control Systems l Perpetual inventory systems â Point-pf-sale (POS) systems â Sales ticket method â Sales stub method â Punch card method â Floor sample method Visual inventory systems Visual inventory systems l Partial inventory systems â ABC method â "Just-In-Time" techniques

Inventory Control 6 Copyright 1999 Prentice Hall Publishing Company ABC Method The ABC technique focuses inventory control efforts on the small percentage of items that account for the majority of the firm’s sales. l A items - items accounting for a large dollar usage volume (Approximately the top 15% of items). l B items - items accounting for a moderate dollar usage volume (Approximately the next 35% of items). l C items - items accounting for a low dollar usage volume (Approximately the remaining 50% of items).

Percent of Dollar Usage Percent of Items in Inventory A B C ABC analysis enables business owners to focus their attention on these items. ABC analysis enables business owners to focus their attention on these items. ABC Analysis

Inventory Control 8 Copyright 1999 Prentice Hall Publishing Company ABC Inventory Control The purpose of classifying items (A, B, or C) is to establish the proper degree of control over each item in inventory. l A items - Strict control; Perpetual inventory control systems. l B items - Moderate control; Periodic control systems using EOQ and reorder point analysis. l C items - Minimal control; Simple, inexpensive control systems such as the two-bin or tag systems. Many businesses carry large levels of safety stock of C items where carrying costs are low.

Inventory Control 9 Copyright 1999 Prentice Hall Publishing Company Just-In-Time Techniques l JIT attempts to reduce the investment required in inventory because it drains a company’s cash and hides a multitude of problems managers need to address. l The goal is to achieve a smooth flow of materials and inventory through the business. l Rather than build up costly stockpiles of inventory, JIT seeks to get items where they are needed “just in time.”

Inventory Control 10 Copyright 1999 Prentice Hall Publishing Company Benefits of JIT l Lower investment in inventory. l Reduced inventory carrying and handling costs. l Reduced costs resulting from obsolete inventory. l Smaller investment in inventory storage space. l Reduced manufacturing costs as a result of improved coordination among departments.

Inventory Control 11 Copyright 1999 Prentice Hall Publishing Company JIT II l JIT II techniques focus on creating a closer, more harmonious relationship with a company’s suppliers so that both benefit from increased efficiency. l JIT II is “empowerment of the supplier within the customer’s organization.” --Lance Dixon l In a retail environment, JIT II principles are called Efficient Consumer Response (ECR), which enable retailers to replenish their inventories constantly and on an as-needed basis.

Inventory Control 12 Copyright 1999 Prentice Hall Publishing Company Protecting Inventory from Theft l Businesses lose an estimated $400 billion annually to criminals. l Small businesses are more susceptible t crime than large companies. l Two biggest criminal threats to small businesses are employee theft and shoplifting.

Inventory Control 13 Copyright 1999 Prentice Hall Publishing Company Employee Theft... l The greatest criminal threat to small businesses comes from inside. l 30 percent of all employees are “hard- core pilferers.” l Is more common in small companies, where control and security measures are less stringent. l Is more pervasive than most owners think.

Inventory Control 14 Copyright 1999 Prentice Hall Publishing Company Reasons For Employee Theft l The trusted employee l Disgruntled employees l Organizational atmosphere l Physical breakdowns l Improper cash control

Inventory Control 15 Copyright 1999 Prentice Hall Publishing Company Factors Encouraging Employee Theft l The need or desire to steal. l A rationalization for the act. l The opportunity to steal. l The perception that there is a low probability of being caught.

Inventory Control 16 Copyright 1999 Prentice Hall Publishing Company Preventing Employee Theft l Screen employees carefully. l Create an environment of honesty. l Establish a system of internal controls. â Creating proper checks and balances. â Keep records up-to-date. â Demonstrate zero tolerance for theft.

Inventory Control 17 Copyright 1999 Prentice Hall Publishing Company Shoplifting l The most frequent business crime. l Businesses, especially retailers, lose $17 to $20 billion per year to shoplifters. l Shoplifting losses add approximately 3 percent to the average price tag.

Inventory Control 18 Copyright 1999 Prentice Hall Publishing Company Types of Shoplifters l Juveniles. l Impulse shoplifters. l Alcoholics, vagrants, and drug addicts. l Kleptomaniacs. l Professionals.

Inventory Control 19 Copyright 1999 Prentice Hall Publishing Company Deterring Shoplifters l Resources are best spent on prevention. l Train employees to spot shoplifters. l Create a store layout that discourages shoplifting. l Consider using mechanical devices such as cameras and electronic tags to make shoplifters’ job more difficult.

Inventory Control 20 Copyright 1999 Prentice Hall Publishing Company Apprehending Shoplifters l Catching shoplifters is difficult; about 98 percent of the time, shoplifters are successful. l The chance that a shoplifter will actually go before a judge is just 1 in 100.

Inventory Control 21 Copyright 1999 Prentice Hall Publishing Company Making a Case To make shoplifting charges stick, a business owner must: l See the person take or conceal the merchandise. l Identify the merchandise as belonging to the store. l Testify that it was taken with the intent to steal. l Prove that the merchandise was not paid for.

Inventory Control 22 Copyright 1999 Prentice Hall Publishing Company Preventing Shoplifting l Principle 1: Sharpen the shoplifter's awareness that he is being watched. l Principle 2: Remove opportunity by minimizing the shoplifter's unattended access to merchandise. l Principle 3: If principles 1 and 2 fail, prosecute the shoplifter.