Section 24.2 Inventory Control Marketing Essentials n Chapter 24 Stock Handling and Inventory Control Section 24.2 Inventory Control

Inventory Control SECTION 24.2 The concept of inventory management What You'll Learn The concept of inventory management Different types of inventory systems Unit and dollar control of inventory How to calculate stock turnover The concept of stock management of basic, model stock, and never-out lists The impact of technology on inventory systems

Inventory Control SECTION 24.2 Why It's Important The inventory a business owns represents money tied up in products until the inventory is sold. Since inventory is a large part of the total investment of a business, well-managed and controlled inventories increase the profits of a business.

Inventory Control SECTION 24.2 inventory unit control Key Terms inventory inventory management just-in-time inventory system perpetual inventory system physical inventory system tickler control dollar control unit control stockkeeping unit stock turnover basic stock list model stock list never-out list real-time inventory system

Inventory Control SECTION 24.2 Inventory Management Inventory refers to an amount of goods stored, including raw materials, purchased components, manufactured sub assemblies, works in process, packaging materials, and finished goods. Inventory management is the process of buying and storing products for sale while controlling costs for ordering, shipping, handling, and storage. Slide 1 of 2

Inventory Control SECTION 24.2 Inventory Management A just-in-time inventory system is an arrangement in which suppliers deliver parts and raw materials just before they are needed for production. Plants keep only small stocks on hand to avoid tying up money and inventory space. Slide 2 of 2

Inventory Control SECTION 24.2 Inventory Systems All merchandise bought and sold must be tracked to gain the information needed for effective inventory management. Two methods of tracking inventory are: the perpetual inventory system the physical inventory system

Inventory Control SECTION 24.2 Perpetual Inventory System A perpetual inventory system tracks the number of items in inventory on a constant basis, as sales occur. There are two strategies: Manual Systems Employees gather paper records of sales and enter the information into the inventory system. Computer Based Systems A point-of-sale terminal automatically feeds sales transaction data directly into a computer.

Inventory Control SECTION 24.2 Physical Inventory System Under a physical inventory system, stock is visually inspected or actually counted to determine the quantity on hand. Visual Control Used to monitor physical inventory levels. Stock cards specify the number of each item to be kept on hand. Slide 1 of 2

Inventory Control SECTION 24.2 Physical Inventory System Tickler Control A small portion of the inventory is physically counted each day so that the entire inventory is accounted for on a regular basis. Annual Inventory Count Inventory is physically counted once a year. Most businesses do this. Slide 2 of 2

Inventory Control SECTION 24.2 Using Both Systems Many businesses use both inventory systems. The perpetual system gives an up-to-date inventory record throughout the year. The physical system gives an accurate count that can be compared to the perpetual records to identify errors or problems.

Inventory Control SECTION 24.2 Stock Control Stock control involves monitoring stock levels and investments in stock so that a business is run efficiently. Planning and monitoring stock levels requires the use of several different systems: dollar vs. unit control methods stock turnover calculations three stock lists (model, basic, and never-out)

Inventory Control SECTION 24.2 Dollar vs. Unit Control Dollar control represents the planning and monitoring of the total inventory investment that a business makes. This information helps a business determine its net profit. Unit control refers to the quantities of merchandise that a business handles. This information helps a business make better merchandising decisions. Slide 1 of 2

Inventory Control SECTION 24.2 Dollar vs. Unit Control In a unit control inventory system, each item or group of related items is referred to as a stockkeeping unit (sku). Tracking the skus shows which items (including which sizes and colors) are successful and which are not selling. This system also helps show when a product needs to be ordered. Slide 2 of 2

Inventory Control SECTION 24.2 Stock Turnover Stock turnover is the number of times the average inventory has been sold and replaced in a given period of time. High turnover rates mean higher profit for the business because its money is not tied up in inventory. Slide 1 of 2

Inventory Control SECTION 24.2 Stock Turnover Stock turnover rate is computed as follows: Net sales (in retail dollars) Average inventory on hand (in retail dollars) When only cost information is available, calculate stock turnover this way: Cost of goods sold Average inventory on hand (at cost) Slide 2 of 2

Inventory Control SECTION 24.2 Stock Lists There are three plans used to monitor different kinds of stock. They are: basic stock list—for staple items model stock list—for fashion items never-out list—for very popular items Slide 1 of 4

October Sales November Sales December Sales SECTION 24.2 Inventory Control Basic Stock List October Sales November Sales December Sales Stock Packing Units Min. Stock This Year Last Year This Year Last Year This Year Last Year Description Size Cost Retail Skippy Peanut Butter 1381 32 oz. 24 4 1382 Skippy Peanut Butter 18 oz. 24 8 Skippy Peanut Butter 1383 12 oz. 24 8 Jif Peanut Butter 1384 32 oz. 24 4 Jif Peanut Butter 1385 18 oz. 24 8 Jif Peanut Butter 1386 12 oz. 24 8 Buyers use basic stock lists to plan purchases and keep track of items that should always be in stock. Where on this list is the stockkeeping unit (sku)? If you ran a retail store, what kind of items would be on your basic stock list? Slide 2 of 4

Short-sleeve Oversize SECTION 24.2 Inventory Control Model Stock List PRODUCT CLASS ____________________________________________________ SEASON ____________________________ Misses Sportswear Spring General Styles Specific Styles Price Range Color Total Units Size 6 Size 8 Size 10 Size 12 Size 14 Blouse Sleeveless Tailored $25 White 12 1 3 3 3 2 Black 12 1 3 3 3 2 Blue 12 1 3 3 3 2 Blouse Short-sleeve Oversize $35 Pink 24 2 6 6 5 4 Orange 24 2 6 6 5 4 Buyers use model stock lists for fashion merchandise. How and why does this type of list differ from a basic stock list in form and content? Why would it be more difficult to maintain accurate model stock lists than basic stock lists? Slide 3 of 4

Inventory Control SECTION 24.2 Stock Lists A never-out list is used for best-selling products that make up a large percentage of sales volume. Example: A video rental store will keep a popular movie on the never-out list and keep a large quantity of it in the store. Later, more popular titles will replace it. Slide 4 of 4

Inventory Control SECTION 24.2 The Impact of Technology on Inventory Management Technology is quickly changing the way stock is handled and controlled. In particular, retailers use: UPCs to capture sku-level information at the point of sale. Standard electronic data interchange (EDI) transactions for electronic B2B communication. Standardized shipping container marking (SCM) to quickly identify cases and their contents.

Reviewing Key Terms and Concepts ASSESSMENT 24.2 Reviewing Key Terms and Concepts 1. What is inventory management and why is it important? 2. Explain the concept of just-in-time inventory. 3. Name the two different types of inventory systems used for inventory management. 4. What is the difference between dollar control and unit control as they relate to inventory management? 5. What is stock turnover?

ASSESSMENT Thinking Critically 24.2 Do you think a just-in-time inventory control system could be used in a retail or wholesale operation? Why or why not?

Graphic Organizer 24.2 Inventory Systems Perpetual Inventory System Tracks inventory on a constant basis, giving an up-to-date record throughout the year. Physical Inventory System Stock is visually inspected or counted to determine actual inventory. Business can use both systems, comparing physical records to perpetual records to identify problems. Manual System Computer Based System Visual Control Tickler Control Annual Inventory

Marketing Essentials End of Section 24.2